Public/Private Partnerships have really been receiving a lot of attention of late. In every economic development circle and in business circles, the value of the PPP cannot be understated. These partnerships are becoming the standard model for Economic Development organizations, and although there is no standard model, organizations are turning toward a blend of public and private financing for their organizational model on an increasing basis.
When it comes to a specific development deal, public private partnerships are also common. When working in municipal government, we’d often hear the question, “What is the City going to do for us?” This often came as a measure of comparison between competing communities. States often hear it at the state level when states are competing for location of a business within their state lines.
So what is the perfect balance? Should the public sector bear the larger share of the project, or the private sector? Should it be an equal split? Public gap financing exists to fill a gap. That means that the private sector puts together a majority of the deal and looks to the public sector to fill the missing gap with a low interest loan or other measures of investment. Some cities have predetermined limits at which they can participate in deals. They may contribute up to 20% of a deal, or to an extent that allows them to be paid back within five or ten years.
As deals have become increasingly difficult to execute in a tight economy, is the public share becoming larger? Should public entities consider equity positions with an expected share of the profits? Usually the community bears the burden for the loss of a company, or a company’s profits. Shouldn’t they also be structuring deals so they can benefit from the success of the company beyond the property taxes, income taxes and sales tax revenues? Do the incentives which are laid out to attract a company eventually wash with the taxes paid? Is it just one big shell game??
Hmmmmmmm…
