Privately Financing the Public Good: Using Public-Private Partnerships to Inject Private Financing into Public Projects in New Jersey

New Jersey has a higher inventory of worthy infrastructure projects than it has money to fund sorely needed improvements. Although New Jersey has the seventh highest revenue of any state, the pressures of being a densely populated commuter state often impose significant liabilities on those revenues such that the State is often faced with having to choose between worthy projects because available financing is limited.

One common sense solution gaining significant traction is the injection of private financing into public projects in order to relieve some of the State’s financing burdens. Often referred to as public-private partnerships or P3s, these agreements trade a limited, future revenue stream over time to a private corporation in exchange for a fiscal commitment allowing a project to put shovels in the ground. These projects can take various forms: construction of state college dormitories in exchange for rents, maintenance of highways in exchange for availability payments, or construction of a bridge in exchange for toll rights, to name a few. The State entity receives an influx of capital to address infrastructure needs and the private entity receives a long term profit from rents, tolls, availability payments, or maintenance agreements.

The elegance of this type of solution is that design, procurement, and initial construction can all overlap because they are being overseen by the bid-winning private entity who is guided by the State’s safety requirements and desired completion date. This dynamic process allows rapid decision-making and innovative solutions to complex problems through the integrated P3 process. And results don’t lie. Projects throughout the United States and Canada have cut project budgets, come in months and even years ahead of schedule, and have created value for the public and private partners.

These types of agreements have been permitted by law in New Jersey since 2009, but were limited to projects on college campuses to build residential housing and infrastructure. A renewal or expansion of the laws permitting P3s could provide significant benefits to New Jersey. The State benefits not only from the value-for-money cost savings, but also from consistent budgeting for maintenance, roadway repair, and equipment because it is all handled by the private entity in exchange for a fee that is contracted for years, perhaps decades, in advance. In addition, the State conserves money that it would otherwise have to budget for these types of projects until such time as the projects hit substantial milestones or are completed. The deployment of more P3s throughout the State could be a win-win for all involved.

Javier D. Diaz is an Associate in the Gibbons Government Affairs Department.
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