Governor Schwarzenegger recently announced a plan to promote public-private partnerships in order to meet California’s long-term infrastructure needs. (See Los Angeles Times article.) Public-private partnerships are contractual agreements which are formed between public agencies and one or more private companies whereby the private company finances, builds and manages public facilities for a specified period of time.

Public facilities which could benefit from such public-private partnerships include schools, roads, ports, treatment plants and hospitals. Under the terms of the agreement, the private company either rents the newly constructed facility back to the government or collects fees from users of the facility in order to recoup its costs. Ultimately, ownership and operation of the facility could revert to the public agency after the term of the agreement expires.

Currently, state law authorizes public-private partnerships in only limited ways. (See the Infrastructure Financing Act.) However, part of Schwarzenegger’s proposal includes seeking additional legislative approval for such agreements.  Allowing California to enter into such agreements will benefit the state because, according to Schwarzenegger, “state agencies estimate that California needs $500 billion in infrastructure over the next 20 years. We will need that infrastructure delivered, operated and maintained on-time, on-budget and at the lowest risk and cost to taxpayers.”

While the plan appears to have gained support from the federal government, state critics argue that public-private partnerships could ultimately cost the public more money due to lack of government oversight. Schwarzenegger’s proposal, however, would include the creation of a state agency staffed by finance experts to negotiate public-private agreements so as to protect the taxpayers’ interests by providing sufficient government oversight and holding private companies accountable.  

The public-private partnership model is just in its infancy in California, but is currently utilized effectively in Canada, Europe and Australia. This proposal could be a promising development given the magnitude of California’s infrastructure needs. Look for more details about Schwarzenegger’s proposal in the State of the State Address in January.