Tapping private money to build schools is playing with fire
Sometimes being the first to do something isn’t all it’s cracked up to be. Remember Friendster, the original Facebook? It shuttered in 2015 after years of obscurity. Back in 2003, its founders refused $30 million in Google stock, which would be worth a billion dollars today.
Stamford, Conn., is considering becoming the first jurisdiction in the nation to use a public-private partnership to finance the construction of public schools. This is a risky gamble that could end up a costly mistake, and here’s why.
State and local governments in the United States have long experimented with using public-private partnerships — in other words, private financing — to build and maintain infrastructure, such as toll roads and prisons. The results have been mixed, with several high-profile financial blunders putting taxpayers on the hook for decades.
There was Indiana’s Interstate 69, spearheaded by then-Gov. Mike Pence, which failed in 2017 as the private investors that financed it slid toward bankruptcy. Subsequent analysis found it was $137.3 million more expensive than if the state had used traditional public financing.
There was Long Beach, California’s courthouse, which may have been as much as $160 million more expensive because the city used a public-private partnership.
There was Chicago’s hasty decision to lease parking meters to Wall Street investors and the Abu Dhabi Investment Authority, who 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.
The problem often lies in how little information about the proposed contract is released to the public before the ink is dry. Stamford’s residents and public officials need to know exactly what they’re signing up for, especially since many public-private partnerships stretch for decades.
Private equity financing is more expensive than going the traditional route, tax-exempt municipal bonds — and sometimes vastly so. The government must be certain a public-private partnership is worth the added cost of paying investors returns on their investment. The underlying math comparing procurement methods should be part of a robust public discussion CONTINUE READING: Tapping private money to build schools is playing with fire - StamfordAdvocate
