P3 May Prove Decisive In US State Elections As Cutbacks Get Ugly

By Henry Teitelbaum, Managing Editor, P3Planet.com

The difficult choices facing state governors and legislatures  across the US over how to maintain essential services amid worsening state budget deficits have been set into sharp relief by the July 1 start of the fiscal year.

Every state but one  (Vermont) is required to balance its  budget every year by law, and the strains are being felt across the country, with society’s most vulnerable, as usual, the most affected.

This is because declining stimulus funding from Washington and shortfalls in tax revenue collections due to continued high unemployment and the weak housing market are occurring simultaneously,  leaving governments no choice but to cut public jobs and services, sometimes drastically. The Center on Budget and Policy Priorities, a Washington, D.C. research institution, says 46 out of 50 states face shortfalls for the fiscal year that started July 1, with the bill totaling some $112 billion. Estimates vary somewhat according to which agency you ask, but most agree that the current fiscal year is going to be the worst of the cycle for cutbacks, as all of the easy cuts and accounting tricks have already been largely done.

A browse through local headlines gives you  an idea of how dire the situation has become. New Jersey, my home state, cut $1 billion from education to help close an $11 billion deficit, while Idaho cut aid to low-income elderly people and the disabled. Mississippi cut funds for the only juvenile delinquency training facility in the state, while California, still mired in recession with unemployment at 12.4%, is considering ending welfare for 1.3 million poor families to help close a $19 billion budget gap. Municipal governments there are taking even more drastic action, as shown recently by the city of Maybury, which fired its entire workforce, including the police.

All of this adds up to some very alarming polling figures for anyone unlucky enough to be an incumbent running for re-election in state or local elections this fall. It’s not as if anyone wanting to stay in office didn’t already have an uphill battle ahead of them after a year of  Tea Party anti-tax protests  across the nation. Now incumbents are becoming magnets for voter fury over real cuts in real services. Populist opponents are certain to claim that these cuts were unnecessary and that they could do better – at least until they’re in office and find out for themselves just how empty the coffers are.

What I find interesting about these elections is that incumbent Republicans and Democrats are just about equally vulnerable to the protest vote that we are about to see. There are 14 incumbent gubernatorial races to be contested this November, seven of which are Republican seats, and another 25 state elections for which incumbents are either not eligible to run, or else not seeking re-election, 13 of which are Republican.

With anti-incumbent sentiment running so high, and with so much at stake, it would seem natural for voters to give more than passing consideration to candidates who can demonstrate skill sets that will help them to manage this crisis without shutting everything down.  Of course, anyone running for office will be promising to find ways  to maintain services, create jobs and pave the way for a more productive and prosperous future for their local economy. That’s what politicians do. But most won’t really possess the background experience and the skills to deliver on those promises because few, if any, have ever had to operate within the constraints of the public sector that is so fiscally stressed that reliance on private financing is not so much an option as a requirement for the job.

Which brings me to my point. Public-Private Partnerships, or P3, should be at the forefront of any realistic debate over how state and municipal governments continue to deliver services and fulfill their campaign promises over coming years. P3 is a form of long-term contracting that allows public authorities to substitute private sector investment for increasingly precious public money in projects where its needed most – upfront. The model also creates a transparent and predictable schedule for long-term repayment of the private investment, typically over 20-30 years, that public sector authorities can live with.

Well-structured programs of P3 investments are being used around the world to counter some of the worst effects of recession by maintaining long-term investment spending and creating well-paid private sector jobs. This is being done especially to support investment at times like these, when government priorities have shifted from pump-priming the economy to cutting deficits.

Across the U.S., states have been adopting P3-enabling legislation at an accelerating pace, and states like California, New York, Virginia, Florida, Colorado,  Indiana and Michigan are starting to develop its potential for helping them through the crunch and then beyond. Projects such as the FasTracks municipal rail system in for Denver and the proposed Windsor/Detroit bridge project, both of which are going forward as P3 projects, or Washington State Department of Transportation’s exciting I-5 Alternative Fuels Corridor, which may become one,  are examples of how government can  engage the private sector for investment,  stimulate innovation and boost the economy while developing the transportation infrastructure of the future.

Comprehensive approaches such as the one adopted by Michigan Governor Jennifer Granholm (D), who has established a specialized office for developing expertise in the use of the P3 model in transportation, education, energy, water, corrections, public safety and information technology are clearly pointing the way forward.

But much of the work there builds on the achievements of California Governor Governor Arnold Schwarzenegger (R), who had the courage  to go to British Columbia and adopt the best aspects of Canada’s approach to procurement using the P3 model. At the end of the day, candidates for state or local office need to understand that P3 is not part of some political manifesto of the left or the right. It is simply a tool for advancing public policy objectives that makes use of the full range of resources that are available to the procuring authority.

Neither of these governors is running for re-election this year, but their legacy will be to challenge successive administrations to build on their efforts, whichever party wins.

The ability to call upon P3 for the badly needed infrastructure solutions to  the challenges facing our states and communities, and for political candidates to demonstrate the skills needed to effectively engage the private sector should be at the top of everyone’s agenda for this election.