Stormwater P3s & Alternative Delivery Approaches: Myths & Realities

Elephant Illustration

By Yuval Cohen

In Hindu lore, a group of blind artisans are asked to touch an elephant and describe what they experience. Each person touches a different part, one part at a time, then they compare notes. The parable follows that each person describes what has been felt, but is in complete disagreement with, and does not understand, the perspective of the other. And when a sighted person walks by and describes an elephant, the blind denizens realize they are blind.

The parallel drawn here is that public-private partnerships (P3s) or alternative delivery approaches to delivering stormwater infrastructure are almost entirely valued by individual subjective experiences that, while true, may not fully capture the totality of the truth. In assessing these approaches, regulators, elected officials and public agency staff each hold valid perspectives on various aspects of P3s, and each may often be inherently limited by not appreciating other truths or the sum total. Each perspective on P3s may indeed be correct, and P3s most often contain the features (both positive and negative) ascribed to them. But not everybody identifies the elephant.

We now enter a new political era in the United States. The landscape for local/regional stormwater delivery can be characterized by growing mandates requiring significant front ended capital investment, as well as lifecycle renewal, replacement and maintenance of grey (as well as green) infrastructure solutions. There is a plethora of new or expanded watershed management programs and water quality improvement requirements, MS4 permit-driven, TMDL-linked compliance metrics requiring capital expenditures within expected time frames, not only for the initial projects up front, but also covering an expected lifecycle. There are the challenges of ongoing asset maintenance, achieving expected outcomes in the performance of installed infrastructure, optimization, as well as adaptive management of flooding or water retention systems. There is the need for delivering expected outcomes on time, on budget and within acceptable risk.

At the same time, public funding sources are increasingly constrained by inadequate debt capacity or uncertain budgets, with pension obligations costs and unfunded mandates often eating into public agency operating expenditures. Add to this is the desire for sustainable solutions, green infrastructure, resiliency to forces of nature, making more livable communities, and attracting/retaining tax-paying residents.

Viewed against this backdrop, P3s or alternative delivery approaches are often touted as solutions to the funding “gap,” or as a tool to stretch public sector budgets. While it may be true that a P3 can help with budget issues, the real potential value is as a tool to improve the chance of realizing anticipated outcomes. A P3 delivery mechanism is a performance-based, solution approach to procurement. A “next generation” P3 integrates initial planning, design and construction with the life cycle of activities of the asset, post-commissioning, to share the risks of delivery with the private operator.

The true potential value of this integrated delivery approach lies in in its focus on sharing risk, and delivering expected outcomes, with incentives and penalties built into service contracts. Also compelling is the historic low cost of capital inherent in private financing sources, and the new ability to comingle financing mechanisms, such as local, municipal, county or even state debt with other sources.

While the use of the P3 delivery model in the United States has been confined largely to transportation infrastructure, it is now increasingly under consideration for social, or vertical infrastructure such as county or municipal buildings or courthouses, and storm water. Increasingly, community-based (and fee-based) P3s are being considered for stormwater management and to achieve Clean Water Act requirements – an example in Maryland includes stormwater BMPs, economic development and community-specific elements without relying much on special financing from private or capital markets.

There are several challenges holding back wider consideration or usage of the P3 delivery method. There are few standardized models, with each locality needing to engineer a customized solution. There are understandable concerns about levels of complexities, the commitment of private parties to long-term contracts, and how to handle changes in standards or regulations in the service contracts. These concerns can be addressed by the rather extensive record of service contracts in the water treatment sector, whereby private water companies have been delivering water services successfully to millions of residents nationwide. Other concerns involve the lack of a dedicated revenue stream for stormwater management services. By considering what agencies, districts and localities already spend on ongoing asset management costs, those contributions can be viewed as sources of revenue to cover long-term asset management under concession, under which private operators manage the asset and comply with environmental and clean water mandates.

As stewards, we should be thinking of the larger picture and actively evaluating P3s as delivery mechanisms. If we cover our ears even as we see parts or all of the elephant before us, we would miss the fact that the elephant bellows. It is, after all, an impressive mammal.

Yuval Cohen, Ph.D., is an infrastructure economist based in New York and now a management consultant with Jacobs LeighFisher. Cohen has more than 30 years of experience as a project financial and economic advisor in built and natural infrastructure, having worked throughout the Americas, Central Europe, Australia and the Middle East.

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