For state and local governments, the pandemic has brought financial gloom: tax collection has fallen, public health spending has risen and their infrastructure is growing. Hopes for quick relief from Congress were dashed at the end of last year, when the Senate refused to agree to the Chamber of Deputies’ plan to strengthen the state treasury.
All this is an opportunity for developers and real estate investors.
Fiscal challenges could spur new ways for the private sector to work with state and local governments, said Gabriel Silverstein, CEO of SVN Angelic, an investment and advisory firm in Austin, Texas.
“We are in one of those times when necessity is real,” said Mr Silverstein, who worked on a public-private partnership known as the P3s. He predicted that “some interesting and creative things could happen in the PPP area.”
Partnerships rely on developers and investors to face financial risk in advance, often delaying payments from governments until revenue begins to accrue or until certain construction benchmarks are reached.
“It can be an incredible use of private markets for the further development, planning and smart growth that cities and municipalities need but are not capable of on their own,” said Lauren Jezienicki, founder and CEO of One Circle Company, a residential real estate agency. who worked on the partnership when she was senior vice president of Bozzuto, a real estate developer.
Partnerships have been used, sometimes with mixed results, for projects in parts of Asia, Australia, Britain, Canada and other parts of Europe. However, state and local governments in the United States have accepted them more slowly. As their fiscal woes worsen, some government officials look at them more closely as a tool to kick-start their economies.
Newly elected President Joseph R. Biden Jr. has proposed a $ 1.9 trillion rescue package combat the economic downturn, including $ 350 billion to help states and municipalities bridge budget shortcomings. It is not yet clear whether Congress will agree.
However, the data suggests that local governments will need all the help they can get. It is estimated by the National League of Cities almost 90 percent of cities will be less able to meet their needs in fiscal year 2021 than in fiscal year 2020. Fiscal year 2021 of many state and local governments began in July 2020. The American Society of Civil Engineers estimated that the United States you have to spend $ 4.59 trillion by 2025, repair or rebuild roads, bridges, dams, airports, schools and other infrastructure – and that was before the pandemic.
“We are seeing this historic decline in revenue that public agencies have to deal with, which is definitely leading to the delay, suspension and cancellation of many projects, yet the need for infrastructure investment is more urgent than ever,” said David J. Odeh, structural engineer and director. Odeh Engineers in Rhode Island.
Local governments have recently expressed new interest in public-private partnerships for projects such as school construction, said Darin Early, executive director of public-private partnerships at Gilbane Development Company.
“Most of the talks took place around K-12,” said Mr. Early, who leads a group of companies working on a public-private project for six high schools in Prince George’s Md.
Partnerships have mixed results. The Indiana toll road wrecked after a private tenant declared in 2014 bankruptcy. AND widely criticized agreement in Chicago, the privatization of parking meters has been of great benefit to investors, but is seen as a bust for the city. In Maryland, the tram line is behind and the state he recently agreed to pay $ 250 million settle a lawsuit with a private alliance building a system due to delays and cost overruns.
However, they could be one way to bring back the main streets and revitalize the centers, experts say.
The early partnership in Quincy, Massachusetts, which revitalized the city center, stopped a few years ago, but city officials have since worked with several private developers to boost commercial and retail development and build new housing. The agreement to rebuild Quincy T and accelerate housing, office and retail development includes the city of Quincy, the Massachusetts Bay Transportation Authority, Atlantic Development and Bozzuto. Another project with the same partners is under construction around North Quincy T.
Who’s contributing to the discussion is Chris P., Head of Quincy Mayor Thomas P. Koch, said.
The question of whether public-private partnerships are the right choice for public administration and local government is an open question. Their big points of sale are usually that the private developer pays for improvements and construction in advance, often manages the entire project and promises to complete it faster than if the government had handled the project itself. But because interest rates are low and are likely to remain so for some time, state and local governments could also release bonds to raise money for infrastructure projects.
Bonds may offer an alternative source of funding, but private sector firms offer “expertise in mixed-use projects, our tolerance of development risk, and our access to capital,” said Mike Henehan, president of Bozzuto Development.
Despite early problems, Quincy is reluctant to take advantage of the partnership, Walker said.
“There is no direct risk to the city,” he said. “We don’t pay them until the tax revenue comes.”
Another benefit: Partnerships can deliver results quickly and professionally to deliver long-term public money savings, said Sean Brooks, director of real estate development and real estate for Bay Area Rapid Transit.
“One of the biggest things for us is financing affordable housing,” he said. “We have to shake the trees and use all the funds to finance affordable housing.”
BART used the agreement to attract development around its stations by offering density bonuses and forcing developers to include some affordable housing, he said.
But private investors need to do more than just look at these deals as a chance to make money quickly, said Stephen K. Benjamin, mayor of Colombia, SC
“Not only does this require municipal and local officials to have an open mind, but it will really require institutional investors to rethink the way they bring these ideas,” he said. “This is a solution to community problems as opposed to:” We see this collective financial opportunity. “”
Even before the pandemic, the public school system in Prince George’s District in Md. He was considering partnerships, and a $ 1.24 billion deal was expected to be completed this month to build six high schools.
For years, the Washington suburbs have lagged behind their wealthier neighbors in school performance and in gaining businesses and jobs and expanding their tax base. The public school system is facing age stress and many of its more than 200 buildings have not been renovated for several years. By looking for external investors, regional officials say they are getting a good deal.
“This plan is one of the smartest we can do with the resources we have,” said Angela Alsobrooks, executive director of the county. When a private developer returns buildings to the school system in 30 years, regional officials say they will be in better shape than if the school system maintained them.
Some elected officials remain skeptical. The Prince George’s County project faced repression from a handful of county and school board members.
And in Stamford State last year, officials rejected a public-private proposal to rebuild and rebuild schools that were found to have mold and other problems. Some officials feared that the costs would eventually be higher than expected, leaving the city on the hook in the future.
In the long run, these partnerships are not worth the risk, said Kevin DeGood, director of infrastructure policy at the Center for American Progress, a think tank in Washington. For example, the need to increase the energy efficiency of public buildings could arise until the duration of contract P3, which requires renegotiation. “It can be incredibly expensive,” he said, adding that cost overruns are often a matter of contention for the duration of the contract.
“States are facing huge fiscal deficits,” he said. “P3 doesn’t change that.”