Arkansas colleges could start turning to public-private partnerships to help pay the costs of upgrading their utility infrastructures.
Authorized by a 2017 state law, the partnerships have drawn little notice so far, but they could yield a gusher of projects.
State agencies that don’t have money to pay for utility upgrades could implement a public-private partnership program — the partnerships are known as P3s — to allow a private firm to finance, design, build and operate a public asset. The state agency continues to own the asset.
The private company gets the profits from the project, while taxpayers, at least in theory, save money because the private company brings experience and efficiency while covering most of the upfront costs
Fitch Ratings of Chicago said in a July news release that it expects to see more public-private partnerships formed to pay for aging infrastructures at colleges.
“Power, electricity, heating and cooling, and water systems on university campuses require large capital investments to ensure reliable service, meet efficiency standards and achieve green energy goals,” the release said.
It said schools might use the P3s if they don’t have the money because of rising expenses and falling revenue tied to COVID-19.
“A number of universities have entered into utility concessions in the last year, evidencing more interest in PPPs to replace or improve aging infrastructure even before the outbreak of the coronavirus,” Fitch said.
The utility agreements are usually covered by 40- to 50-year agreements to upgrade and manage a campus utility system, Fitch said.
Rob Guthrie, vice president of development at the engineering and contracting firm Bernhard of Metairie, Louisiana, has been working to generate interest by Arkansas universities in the P3 program. “We’ve certainly had some preliminary discussions with several different universities,” he said, though he declined to name them. “We’re in the very beginning preliminary phases of that.”
The Arkansas State University System told Arkansas Business last week that it’s on the lookout for P3 projects that make sense and are efficient for its campuses. But it is “not engaged in any conversations at this time related to aging utility infrastructure,” Jeff Hankins, vice president for strategic communications and economic development, said via email to Arkansas Business.
The University of Central Arkansas also said it is not considering any P3s at this time.
Guthrie said the benefits to a college would be receiving upfront money for a project while upgrading its infrastructure and improving the energy efficiency of the campus.
In addition, he said, the school could see a tax advantage in connection with the deal.
But Fitch said that “at a time when the coronavirus has caused significant uncertainty for the higher education sector, universities may be reticent to enter into long-term contracts.”
Ohio State Partnership
Guthrie said that Ohio State was among the first schools to use a P3 for utilities. In 2017, Ohio State transferred the operation of utilities to a private firm for 50 years. The $1.2 billion transaction included more than $1 billion in upfront payments and a $150 million commitment to support academics.
The school partnered with Engie North America and Axium Infrastructure for work on the energy sustainability goals for Ohio State’s 485-building campus in Columbus.
Guthrie said the school benefited by receiving about $1 billion upfront and then placed the money in an endowment, “which generates a return that exceeds the interest rate on the transaction itself. … The university can then use [the investment income] to fund critical initiatives into the future.”