For the first time in 100 years, people are moving back into the city – to downtown urban cores and to urbanizing first ring suburbs and main streets. People are craving community and place. Among other things, these new urban dwellers are seeking amenities that cannot be found in the suburbs and in towns and rural areas. Some people want more access to arts and culture and others are seeking out restaurants and nightlife.
The Millennial generation – a group that has so far eschewed traditional ownership of things like homes and automobiles – is looking for convenience and has been driving the rise of the sharing economy and services from Uber and Lyft to NiceRide, Bird, Lime, and AirBnB. But after decades – nearly a century in some cases – of disinvestment, people returning to our cities have found that our urban public realm is worn and tattered, incomplete, and just plain missing in some cases.
There are many reasons for this disinvestment and indeed, the public realm is in a similar condition as that of the rest of the country’s infrastructure. The New Deal that followed the great depression helped get the country’s economy back on track and put many people to work through a government funded building boom, but many of the projects and facilities that flowed from the New Deal and related post-depression era programs are now old and in poor repair. These include everything from port and transit infrastructure to dams, hydroelectric plants, and public housing. The 1956 Federal-Aid Highway Act (popularly known as the National Interstate and Defense Highways Act) led to the construction of 41,000 miles of interstate freeways over a ten year period at a then-staggering cost of $25B but those roads and bridges are all wearing out and there seems to be little appetite on the part of politicians and taxpayers to commit the funds required to adequately replace or repair them. The mixed results of Urban Renewal – the wholesale clearance and demolition of neighborhoods and their replacement with modernist superblock projects – led the Johnson administration to shift away from funding for these new projects to the Community Development Block Grant (CDBG) program in 1974, which was intended to support the redevelopment of existing urban neighborhoods. By the late 1970s federal funding for urban projects and for cities in general was in full retreat. Finally, with the passage of Prop 13 in California in 1978, that state’s voters stripped their politicians of their ability to raise property taxes as a way to generate revenue for projects. Prop 13 ushered in the era of “no new taxes” (a term popularized by president George H. W. Bush in the late 1980s) that has been running now for over forty years.
The Rise of the “Public-Private Partnership” (PPP or P3)
This sentiment spread rapidly throughout the country and, with the constricting of public funding options, led to the rise of a new project financing model – the “public-private partnership” (“PPP” or “P3”). By the late 1970s and early 1980s, cities had realized they had to go it alone, and so they began funding urban redevelopment projects with a mix of public and private dollars, handing over economic opportunity to private enterprise while retaining some control of the development direction and much of the risk.
From the 1980s down to the present day, the PPP model has led to the development of a broad range of real estate products and public amenities including commercial offices, housing, festival marketplaces, convention centers, stadiums, arenas, ballparks, urban waterfronts, aquariums, and so on. PPP has evolved to keep up with the times and trends in urban redevelopment and in the 21st century this model has been used increasingly for the creation of new outdoor public spaces. Millennium Park in Chicago and the Highline in New York City serve as notable examples but many other large and small new public realm projects throughout the US have been the product of the PPP model. Each PPP case is unique and is a product of its time, site, history, and local political, economic, and social culture and context. All PPP projects, however, have in common a combination of public and private funds, resources, skills, experience, and leadership.
The basic idea of the PPP is to combine the best of what the public and private sectors can each bring to the table to create a project that might not happen if just the government or a private company were to attempt to do it alone. The public and the private sectors have different goals and objectives when they consider entering into a PPP project.
Public Sector Goals
- Attract private investment
- Direct development – geographically, for specific parcels or properties, and in terms of product/project
- Create new jobs – both permanent jobs and temporary construction jobs
- Attract businesses and residents back into the city
- Attract visitors, tourists, sports fans, arts and culture patrons, college students, and convention-goers back into the city
- Increase the city’s tax base
Private Sector Goals
- Enter new but risky and unproven markets that, once proven and mature, may become very lucrative
- Reduce risk by sharing risk the with the public sector/government
- Obtain access to unique public assets and resources such as prime properties, sites, and historic buildings or assets
- Obtain subsidies that reduce the amount of private sector equity, debt, and risk required to implement a project
Risks of the PPP Project method
James McKeller and David L.A. Gordon  studied a number of PPP projects in Canada (more building and real estate development-oriented, but still relevant) and wrote a paper summarizing the risk factors inherent in the government’s sale of a public asset/opportunity to a private entity through a PPP project model. They summarized with lists for two types of
- Risks that are difficult to transfer (from the public partner to the private partner)
- Political Risk of Failure
- Government will always be held responsible for delivering a required service
- Governments cannot transfer environmental risks
- Risks that are transferable (to the private partner)
- Design risk
- Construction risk
- Financial risk
- Market risk
- Operating risk
Unique Challenges of the RFP/Selection process for the PPP process
McKeller and Gordon also considered the unique challenges inherent in the selection process for PPP projects. They list two sets of challenges – marketplace challenges and operational challenges. Marketplace challenges have to do with how a unique PPP project may be hard to position and may not always attract interest. PPP projects are risky and always attract media attention, which may also reduce interest for some potential proposers. Operational challenges have more to do with how the government team sets up and runs the process and the setting of reasonable and achievable timelines and processes that will stand up to scrutiny but not be too onerous for potential proposers. If you make it too hard or too unrealistic no one will propose.
- Challenges in the Marketplace
- Lack of interest
- Lack of predictability
- Operational Challenges
- Selecting the appropriate procurement model
- Making the process shorter and less expensive
- Moderating the level of detail required
- Setting the time horizon
- Reimbursement of costs
- Design detail
- Risk allocation
- Evaluation process
- Value vs. price
Lessons Learned from other cities and projects
Lastly, Gordon and McKeller offer a series of “lessons learned” that potential PPP partners might want to consider. I would argue that every single one of these lessons is 100% relevant to the selection process for a PPP urban public realm project:
- Spend the time to get it right up front
- Select the right business model
- Assemble the right team
- Select the appropriate procurement model
- View the RFQ/RFP as a marketing document
- Be respectful of your future partners
- Have an exit strategy on stand-by
- Finally, strive to maintain exemplary standards of ethical and moral conduct
In summary, although Gordon and McKeller are writing primarily about commercial real estate developers partnering with cities for development projects, many of his lessons are relevant to PPP projects for the urban public realm.
Last but not least, I would argue that every project in the city today – from a new housing project to a road reconstruction to a public realm project – is, in effect, a PPP project. Every project has public and private funds associated with it and every project has public and private stakeholders. There is no clean separation between “public” and “private” in the city and there never has been.
- McKeller, James and David L. A. Gordon, “Discussion Paper on the RFP Process for the Disposition Of Publicly-Owned Real Estate Assets – With Literature Review And Annotated Bibliography,” for the National Executive Forum on Public property, October 25, 2007. ↵