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June 2012
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EFFICIENT Private partnership bill smart way to fund needs

Among the bills presently trying to make their way through the Kentucky Legislature is one that, while not volatile or sexy enough to gain much note on the evening news, is probably one of the best pieces of legislation in the pipeline.

The bill would authorize public-private partnerships - commonly referred to as P3s - as an alternative way of financing state and local government projects and services. The bill creates a structure under which private firms contract with a government branch or agency to provide a service or build a facility for public use. The private firm assumes the financial risk of building and/or operating the project, often in return for fees generated by the project. The government owns and maintains control of the facility or service by way of its contract, but saves money by not having to finance or, in most cases, pay to operate it.

Perhaps the best feature of the measure as currently proposed is that it allows private firms to submit unsolicited proposals to state agencies and local governments on ways infrastructure or services could be provided privately at a cost savings.

More generally, the bill would create an Office of Public Private Partnerships in the Finance and Administration Cabinet that would be responsible for encouraging competition for ways to privately fund specific government projects and needs.

The bill has been receiving a big push from the Kentucky Chamber of Commerce, which notes in materials it has been circulating that every one of the states bordering Kentucky has already passed P3 legislation. Some have had such laws for decades.

Among notable examples of successful partnerships cited by the Chamber is a wastewater treatment and storm water management project in Indianapolis. The city contracted with a private company in 1994 to handle operation, maintenance and long-term planning of its waste and storm water system. The arrangement saved the city $189 million from 1994 to 2008 while reducing accidents by 85 percent and providing a 100 percent compliance rate for EPA standards on conventional pollutants. Paducah and McCracken County, which are currently dealing with an expensive EPA mandate to separate their storm water and wastewater systems, might want to take a note from that book.

Most of the public-private projects cited in the Chamber's material have to do with water treatment or transportation infrastructure, but within those umbrellas are a wide variety of projects large and small - everything from contracting out sales of advertising at highway rest stops in return for the rest stops being self-financing to construction and operation of short-line rail systems.

The Chamber notes that Kentucky currently is in a difficult financial squeeze. The state and much of the nation remain stuck in a slow growth economy that hinders tax revenue growth and the ability to raise new revenue. Meanwhile growing pension and Medicaid liabilities have caused the share of Kentucky's budget going to education and other important state responsibilities to decline over the past two decades.

The P3 legislation is being suggested as one way to take some financial pressure off of state and local governments by letting the private sector finance and operate some government functions that lend themselves well to that.

As of last week the bill had been posted in the House Revenue and Appropriations committee. It lists top House leaders among its sponsors and has bipartisan co-sponsors including several from our end of the state.

People who have observed the Kentucky Legislature over the years know plenty of snakes have crawled out of the woodpile. But in every session some good bills do come along. We think the P3 proposal is one of them, and we think taxpayers here and across the state would do well to support it.

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