Tuesday, January 11, 2011

Comptroller DiNapoli issues report on public-private partnerships: needed are full and fair value, realistic agreements

State Comptroller Thomas DiNapoli has released a new report, Controlling Risk Without Gimmicks: New York’s Infrastructure Crisis and Public-Private Partnerships, an effort to evaluate both the opportunities and risks with turning infrastructure over to partnership with the private sector.

The report notes that the state faces an estimated $250 billion in infrastructure needs over the next 20 years, notably transportation ($175 billion), municipal wastewater ($36 billion) and clean water ($39 billion). (Here's coverage from City Hall News.)

The Atlantic Yards example is not mentioned, but is at least partly on point: the main issue was the marketing of public land without a fair process, and secondary issues involved the packaging and valuation of public infrastructure such as a new railyard and transit entrance.

Essential principles

So DiNapoli's conclusions are worth noting:
There are four essential principles that New York must adopt in order to mitigate the financial risks inherent in public-private partnerships:

Full and Fair Value: Identify and use the best practices for the valuation of public assets to ensure that the public receives the full, fair value for the use of its property.

Reasonable Pricing: Keep private sector profits within reason to ensure that P3 agreements do not burden the public with unwarranted expenses, excessive fees, or high toll increases.

Realistic Agreements: Carefully draft P3 agreements to ensure that they do not include unrealistic expectations or inaccurate financial calculations.

Responsible Budgeting: Avoid budget gimmickry by adopting financing rules that prevent a disproportionate shift of current capital costs onto future taxpayers. This must be based on a comprehensive reform of the State’s debt and capital financing practices.
What about AY?

Given the history of Atlantic Yards, I'd argue that public assets were not fairly valued, nor have costs and benefits been accurately assessed.

Meanwhile, developer Forest City Ratner's efforts to renegotiate the Vanderbilt Yard deal with the MTA suggests that private sector profits--bolstered by a mayor and governor firmly on board with the Atlantic Yards project-- held sway over public value.

Maybe that's why it's been dubbed (by me and Amy Lavine) as a private-public partnership.

On capital planning

In a second report, Planning for the Long Term: Capital Spending Reform in New York State, DiNapoli advises criteria for prioritizing capital needs.

Remember, MTA board member Mitchell Pally said at a September 2005 hearing, “[The rail yard] works fine the way it is. Forest City Ratner money is not being used to substitute for projects the LIRR wants to do... We’re now going to spend money on projects we don’t want to do, never wanted to do and don’t need? It makes no sense.”

The rail yard will be modernized. But it wasn't part of a plan.

DiNapoli's report states:
Enhance agency reporting including establishing criteria for prioritizing existing capital needs. The proposed Capital Asset and Infrastructure Council would coordinate the capital planning activities of all State agencies, working with them to develop capital project monitoring systems, prepare public capital plan documents in a consistent format, and ensure a holistic approach to the State’s Capital Plan.
Each State agency should be required to develop and release a multiyear capital plan that includes an articulation of how its capital assets relate to its overall mission and goals, an inventory of its capital assets (at a minimum, in summary form suitable for public understanding), an assessment of the physical condition of these assets, and an articulation of prioritized major capital needs broken down by existing versus new assets. Agencies should also produce reports illustrating compliance with their capital plans.

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