Growth Recommendations

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Growth Recommendations

In 2008, IEI began its program of work on growth and infrastructure. The program was kicked off in May 2008 at a Leadership Retreat that brought business leaders together from across the state to identify a visionary agenda for addressing our state’s dramatic infrastructure challenges.

Following the Leadership Retreat, IEI held five focus groups to learn about the unique infrastructure challenges facing varied communities statewide and to identify the assets available in each community as it addressed these challenges. At these focus groups, IEI heard that communities struggle with a declining tax base and therefore have insufficient revenues to pay for needed infrastructure projects. Participants also expressed concern over the ability of leadership to effectively address infrastructure challenges in a sustainable way.

Based on this feedback, IEI convened a working group that identified the most critical challenges for North Carolina to address if it is to build and maintain resilient physical infrastructure that is also sustainable. The working group determined several statements of direction that, if pursued, would put the state closer to achieving this goal.

These strategies were discussed in further detail at the 24th Annual Emerging Issues Forum in February 2009. A sold-out crowd of more than 1,100 business,
 government, higher education and nonprofit leaders filled the Raleigh Convention Center to hear speakers from across the state, the country and the world, discuss their views on how to build the good growth state.

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From the Forum emerged a clear call to focus on financing options to pay for the infrastructure our state and its communities will require in the years ahead. In partnership with UNC-TV and PBS’s Blueprint America series, IEI convened two community forums to explore the infrastructure financing options available to local governments. Participants at these forums indicated public-private partnerships (PPPs) were the most important funding mechanism to explore as local governments seek to raise sufficient revenue to build and maintain critical infrastructure.

As a result of this feedback, IEI convened a Business Committee on Infrastructure (BCI) to further explore the use of PPPs in North Carolina. The BCI produced a set of guiding principles geared toward better facilitation of such partnerships. The central recommendation from the committee was that a Legislative Study Commission on PPPs should be established.

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Business Committee Recommendations

The BCI, comprised of a diverse and representative group of private sector stakeholders and supported by their public sector counterparts, respectfully suggests that the Legislative Study Commission on PPPs explicitly consider two primary aspects indispensable to effective implementation of PPPs in North Carolina: 1. Increased authority for state, regional and local government units to engage in PPPs for public capital projects through a sound and predictable regulatory framework and 2. Development of a strategy for outreach and capacity building for potential partners so that they may act as well-informed principals.
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1. A Sound Regulatory Framework

Effective PPP legislation must include explicit consideration of the following public values:

 

Value for Money

Value for money is a function of, among other things, price, quality, and the degree of risk sharing. North Carolina will need a framework for ensuring that desired services are provided at an appropriate cost over the project lifecycle. This will require clearer metrics for determining the social and community value of a project beyond the price considerations of a standard value-for-money analysis.

 

Adequate Revenue

PPPs are not free money; revenues from some source must be available to the public sector in order to pay the private sector for its services and public infrastructure deliverables. This should be clear to all partners and the public. Explicit consideration should be given to the positive and negative effect of a project on the state or local government’s debt capacity and credit rating.

 

Access

North Carolina’s approach to PPPs must take into account the need for open competition. In addition, increased flexibility for the private sector to be able to do its best work can offer beneficial impacts on time savings as well as the potential to expand participation of local, small, women and minority-owned businesses.

 

Transparency

Citizens are entitled to know whether public resources are being properly used and what is being achieved with them. As such, infrastructure planning processes must be developed in a transparent manner and reflect the collective views of a community. Procurement should also allow for public scrutiny.

 

Risk Management and Accountability

Successful PPPs require careful risk allocation and sharing. The enabling environment must allow all parties to negotiate and assume responsibility for the risks they are best prepared to manage. All partners must be accountable for meeting contract provisions and pre-determined performance goals. Having a statutory framework also enhances predictability and reduces transaction costs.

2. Well-informed Partners

Effective PPP legislation can only be successful if the public and private partners are well-informed about the legal authority granted by law as well as in the risks, rewards and trade-offs associated with each individual project. A plan to build human and institutional capacity in partnerings organizations must begin with answering the following key questions:

 

Who must be further educated?

Any public (e.g. county, municipal and other local leaders, state elected and appointed officials and other public staff) or private (e.g. design/construction companies, financial organizations) partners who are responsible for decision-making or have some significant stake in PPPs for public capital projects. It also will be important for the general public to understand that PPPs are not a privatization of infrastructure but, instead, they offer an additional finance and delivery option to local and state government.

 

What should the partners know?

Partners should gain clarity about the types of PPPs and the framework for evaluating their fit and value for particular projects. Any effort to educate partners should include examples of best practices and successful projects as well as consideration of the most important aspects of a sound regulatory framework as mentioned above. In addition, explicit consideration should be given to determining what it means for the public sector for a project to be “on or off the books,” as well as the positive or negative effect that this may have on the state or local government’s debt capacity and credit rating.

 

Who should be responsible?

Credible organizations, such as UNC-Chapel Hill’s School of Government, which are equipped to engage relevant parties in order to provide the information necessary for the implementation of effective PPPs. Private and public sector players who have engaged in PPPs in other states should also be called on to share lessons from those experiences.

 

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