Prince George’s County is sprinting toward becoming the first jurisdiction in the country to use a public-private partnership to build and maintain public school buildings. Last year, the Prince George’s County Council unanimously voted to establish a work group to explore such contracts, in which the government borrows money directly from private investors. Now, the county is in the beginning stages of procuring an estimated $350 million to build five to seven new schools this fall.
Who doesn’t want new schools? But there’s a reason the county would be the first in the nation to build schools using what is fast becoming a controversial procurement method — in fact, a number of reasons.
Public-private partnerships are often more expensive and riskier than borrowing money with cheap, tried-and-true municipal bonds. They also tend to keep the community and public employees in the dark, especially before a contract is signed.
Prince George’s residents and school staff deserve to know why the county is planning to sign a pricey contract that will stretch for decades. What risks are involved? How is it better than the alternatives? What strings will be attached?
In 1999, Nova Scotia signed a public-private partnership to build more than two dozen schools. A decade later, the provincial auditor determined the public could have saved $52 million if it had gone the traditional route. The auditor found mismanagement, few checks and balances, and a lack of maintenance. Many workers hired by the private investors had not cleared criminal or child abuse checks as was required. Most fire inspections had not been carried out.
In 2007, Alberta announced 18 new schools would be built using public-private partnerships. Three years later, the province’s auditor general said the government’s claim that borrowing directly from private investors would save $118 million was overstated by some $20 million. That overstatement could continue to grow as the contracts extend into the future.
In 2017, Nova Scotia announced it was buying back 10 schools from private investors because it was cheaper than leasing them.
Similar stories about other types of infrastructure abound worldwide.
Since 1992, the United Kingdom has signed public-private partnerships — for everything from trains to hospitals — yielding infrastructure valued at more than $71 billion. Yet, the British public will end up paying more than five times that amount in the long run. This caused Britain’s Conservative Party to recently abandon signing public-private partnerships altogether.
Chicago inked a hasty public-private partnership to lease its parking meters to private investors, including Morgan Stanley and the Abu Dhabi Investment Authority. It’s been estimated that the investors could make at least $11.6 billion in total over the life of the 75-year deal, 10 times what they paid up front to the city.
An Indiana toll-road project spearheaded by then-Gov. Mike Pence failed in 2017 as the private investors that financed it slid toward bankruptcy. The deal was $137.3 million more expensive than if the state had used traditional public financing.
If those numbers don’t scare you, the risks should. All three major credit ratings agencies consider public-private partnership obligations in their calculation of a county or state’s debt, which ultimately impacts the government’s overall cost of borrowing.
The District recently wised up to this reality. Mayor Muriel E. Bowser (D) established a dedicated office for public-private partnerships back in 2014. Yet, D.C. Chief Financial Officer Jeffrey S. DeWitt subsequently decided that money borrowed through public-private partnerships would be considered debt, which means it counts toward the District’s debt limit. The office has yet to execute a contract.
Public-private partnerships also present additional issues to communities, including a lack of transparency.
When Chicago signed away its parking meters, the city’s council members had only two days to evaluate and dig into the contract’s details. They could not have estimated that parking rates would double within a year to deliver revenue for the private investors.
Prince George’s County hired Jones Lang LaSalle to consult on public-private partnerships. In a now-notorious plan in Tennessee, the company received consulting contracts with the state under the governorship of billionaire Bill Haslam while proposing that the state outsource virtually every job at state-run facilities to itself.
Perhaps Prince George’s County’s experiment will end up being a bargain. Maybe the county will right the ship for public-private partnerships after decades of failure around the globe. But the public deserves to know the stakes of the deal before it signs on the dotted line.