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Taxpayers Win With P3 Legislation

by Pete Sepp / /

The Honorable Mike Kelly
U.S. House of Representatives
1519 Longworth House Office Building
Washington, DC 20515
The Honorable Dean Heller
U.S. Senate
324 Hart Senate Office Building
Washington, DC 20510
 

Dear Congressman Kelly and Senator Heller:

On behalf of National Taxpayers Union’s (NTU’s) members across America, I write in strong support of your legislation, the Public Buildings Renewal Act (H.R. 5361 in the House and S. 3177 in the Senate). This innovative yet practical proposal would harness the expertise of the private sector to address an issue of longstanding concern for taxpayers: ensuring cost-effective construction of schools, hospitals, and other social infrastructure.

Government facilities serve as some of the most visible reminders to citizens of how their tax dollars are spent – and all too often, they are expended under conditions of poor oversight and accountability. The results can be projects that are over budget, behind schedule, or ill-suited to efficient long term asset management practices. Congress is well aware of such boondoggles at the federal level, most recent among them the $1.7 billion VA hospital in Aurora, Colorado. Many more cases can be found at the state and local level. A 2013 McKinsey Global Institute survey of hundreds of infrastructure projects may help to identify several reasons why this phenomenon repeats itself: lack of prioritization and evaluation in selecting projects, failure to take advantage of more efficient construction techniques, and underutilization of existing assets. The authors concluded that the private sector can “engage in a productive dialogue with public-sector stakeholders, and develop business and contracting models that promote … productivity opportunities.”

How can such opportunities be facilitated? One major way is through Public Private Partnerships (PPP), where a single private consortium is made responsible for designing, building, operating, and maintaining a government structure. This arrangement, which is more fully guided by the lifecycle costs of a given project, also has the advantage of transferring the risk of excessive costs or delays from taxpayers to the consortium and its investors. Equally important, it has functioned well in the real world. Seven recent PPP projects, ranging from the Long Beach Courthouse in California to the Goethals Bridge in New York, have realized savings of between 10 and 50 percent versus original cost estimates (amounting to more than $3 billion total). All were completed ahead of time. A 2012 University of Arizona study focusing on North American highway projects determined that PPPs experienced up to 14 times less cost escalation than projects delivered under traditional construction methods. Again, however, regardless of their minuscule size PPP overruns do not translate into losses for governments because the risk is not borne by taxpayers. It is therefore little wonder that the PPP method has global appeal, yielding successes in hundreds of instances.

For the United States to experience more benefits of PPPs, Congress must remove an obstacle: when constructing public buildings (as opposed to roads or water infrastructure), state and local governments must essentially choose between a PPP structure employing taxable financing, or tax-exempt financing without the benefit of a PPP. H.R. 5361 and S. 3177 would address this untenable situation, by adding public buildings to the 15 categories of infrastructure projects under federal law for qualified private activity bond (PAB) financing. Included in this new category would be primary and secondary schools, education-related structures for state colleges and universities, public libraries, courthouses, hospitals, public safety facilities, and office buildings for government employees.

NTU is not alone in its assessment of what is at stake. Robert Poole of the Reason Foundation has noted that private activity bonds “have been critically important in financing large public-private partnership (P3) projects.” In separate analyses spanning more than 15 years, Ronald D. Utt and William G. Reinhardt of the Heritage Foundation called for expansion of private activity bonds to enable more PPPs. Writing specifically about transportation infrastructure – and advocating an increase in PAB financing – Reinhardt wrote that PPPs “provide a new delivery model that governments would be wise to emulate on their own.”

H.R. 5361 and S. 3177 are very carefully drafted to reflect both current needs and the possibility of comprehensive tax reform, so that they will stand the test of time. Furthermore, in recognition of past policy failures that have earned taxpayers’ ire, the bill specifically excludes unwarranted applications such as sports stadiums, retail food outlets, and entertainment facilities. For those lawmakers who are concerned about the revenue score of the legislation, the Joint Committee on Taxation has estimated an effect of $48 million total over ten years. Even this relatively minor impact, already outweighed by the savings of PPPs themselves, would be further mitigated in other ways. When government construction projects grow out of control, the property or other local taxes to help finance them can be a genuine hardship for taxpayers. While Congress does not directly control such levies, H.R. 5361 and S. 3177 could provide a “pressure relief valve” from higher taxes that your constituents urgently need. The political pressure on Congress to provide ill-advised federal taxpayer-backed assistance for school and other local construction could likewise be diminished.

Experts disagree on the true scope of the public infrastructure “backlog,” and officials at all levels should ask hard questions about such assessments. Nonetheless, whatever the estimates may be, it is prudent to approach government construction and renovation projects in a manner that maximizes effective stewardship of tax dollars.

For all the foregoing reasons, NTU urges you to support the Public Buildings Renewal Act in stand-alone or amendment form. Given the legislation’s bipartisan pedigree and strong support among Members on both tax-writing committees, the opportunity to take this step forward need not wait until the next Congress.

Sincerely,
Pete Sepp
President