Arkansas is less than a year away from tapping a rich new source of economic development, public-private partnerships that will build and operate public assets like college dormitories or parking decks.
Authorized by a 2017 state law, the partnerships have drawn little notice so far, but they could yield a gusher of projects, according to legal experts and state development officials.
Public-private partnerships “will increase development and investment in the state,” said Larry Watkins, an adjunct professor, who teaches construction law at the University of Arkansas at Little Rock’s Bowen School of Law.
He said that state agencies that don’t have money to pay for projects could do so under the public-private partnerships program, known as P3s, which allow for a private firm to finance, design, build and operate a public asset. The state agency will continue to own the asset.
The private company gets the profits from the project, while taxpayers, at least in theory, will save money because the private company brings experience and efficiency while covering most of the upfront costs.
“If you expand the access to other financing sources, then more projects can be executed,” said Watkins, who also is an attorney at the Mitchell Williams law firm in Little Rock and a board member of the Associated General Contractors of Arkansas.
“There’s no doubt that we need more projects.”
The Arkansas Economic Development Commission hired the consulting firm KPMG in February to develop rules for the P3s, said Amy Fecher, secretary of the state’s Department of Transformation & Shared Services, which is now overseeing the P3 program. (The Transformation & Efficiencies Act moved the P3 program from ADEC to the Division of Building Authority within the Department of Transformation & Shared Services.)
KPMG is gathering information and working on the P3 rules, Fecher said in an email response to questions from Arkansas Business.
Once completed, the rules then will have to go through a 30-day public comment period, followed by a legislative review process.
“We anticipate being ready for projects in early to mid-year of 2020,” Fecher wrote.
The delay in creating the regulations didn’t surprise Lisa Washington, the executive director of Design-Build Institute of America based in Washington.
P3s “are pretty complex arrangements that one just can’t jump into without a more detailed understanding,” she said. “So I can certainly understand why it’s taken some time for [Arkansas] to get started with one.”
Arkansas’ P3 legislation, which is more than 20 pages, includes numerous checks and balances that require reviews by lawyers and accountants.
Forty states now have legislation allowing some form of P3 authority, Washington said.
“We do have a huge infrastructure challenge in our nation and Washington really hasn’t done anything to address that challenge,” she said. “Our aging infrastructure needs to be corrected.”
But Watkins said P3s aren’t a “silver bullet for solving our infrastructure problems, but it’s definitely a source of fixing part of the problem.”
In the meantime, Watkins and others will continue to spread the word about P3s. Watkins has spent the last two years educating the public about them.
He said there’s also a lot of misconception with P3s, including people thinking that it is “some kind of private takeover of public assets, and it’s just not true.”
Former State Rep. Warwick Sabin, D-Little Rock, tried unsuccessfully to pass bills allowing state agencies to use P3s in Arkansas in 2013 and 2015. His legislation passed in 2017, but applies only to state agency procurements and exempts the Arkansas Department of Transportation. The bill left out of P3s for county and city projects.
“The reason I brought the bill up in the first place, back in 2013, was that obviously we have more infrastructure needs in Arkansas than the public sector can afford,” Sabin told Arkansas Business in 2017.
“It’s not just highways. It’s all kinds of infrastructure at the municipal and the state level, whether you’re talking about water systems and sewer systems or college campus and school buildings,” Sabin added. “We have a lot of needs, and we would never be able to afford to cover them all through government funding.”
ARDOT has its own authority to do P3 projects, and municipalities could do their own P3s under a municipal water statute and, if structured as a P3, the energy savings performance contract statute, Watkins said. (For more information about the energy savings statute, see Arkansas Cities, Counties Get Their Day in the Sun.)
State Sen. Mathew Pitsch, R-Fort Smith, told Arkansas Business last week that he thinks transportation projects will be amended to be in the P3 legislation.
“P3s can be various different things,” he said. “When most people think of P3s, they’re thinking of toll roads, but it can do a private-public partnership with building a port, building an airport, building railroad interchanges.”
The P3 statute is “very broad in what it allows,” said Will Gruber, vice president of government relations & strategic partnerships at the global public affairs firm inVeritas of Little Rock.
“There have been a lot of road projects around the country and around the world,” said Gruber, who has followed the P3 legislation in Arkansas.
He said in Maryland, a county courthouse construction project was done using a P3.
Not for All Projects
Not all the projects will work for a P3, however. The public asset being built with a P3 has to have a revenue stream, said Jerry Holder, director of transportation at Garver of North Little Rock, the engineering, architectural, planning, and environmental services firm. He also was a speaker in a Design-Build Institute of America webinar last year called making the most of P3s in Arkansas.
Holder said if a project doesn’t generate a rate of return of more than 10% “then it’s not worth the risk.”
Holder also said some P3 projects have ended in bankruptcy. SH 130 Concession Co. built a toll road in Austin, Texas, in the late 2000s. But the number of cars the company projected didn’t materialize, resulting in it filing for Chapter 11 bankruptcy reorganization in 2016. SH 130 Concession listed $1.2 billion in assets and $1.6 billion in debts.
Still, Watkins, the attorney, said in the two years he’s been talking about P3s, there has been a lot of interest from both the state agencies and contractors, developers and investors in doing a P3 in Arkansas.
“Once we have this program up and rolling, … I believe you’ll see some P3 projects take off,” he said.