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Why Washington, D.C. Is Leading the Way on Partnering With the Private Sector

Some counties have joined Washington in building new offices for more localized ... On top of that, the county earns real-estate tax revenue from private developments on the parcel. Details of the operation are subject to change in the future, which ...

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There’s a plan in place in Washington, D.C., to do something similar with the city’s police headquarters—by leaning on the private sectorThe city is looking for a partner to renovate the landmarked 1939 Henry JDaly BuildingThe aim is to find a private consortium to redesign the interior, build out the construction, finance the project, and maintain the building on an ongoing basisD.Cwould pay this entity an “availability” fee—periodic payments on the grounds that the building is available for the city’s use and performing to target specifications. Problems and opportunities alike are driving public–private partnerships at the local levelIn D.C., the police headquarters is one of 12 projects in the pipeline for the city’s Office of Public–Private Partnerships, or OP3Even as President Donald Trump has soured on making public–private partnerships the engine of his as-yet-unreleased infrastructure plan, the city of D.Chas been doubling down on them. “The infrastructure needs here within the District of Columbia are so large, and our ability to have larger capital budgets is so limited, we needed to find a better way to identify and deliver large-scale infrastructure projects for the benefits of the residents,” says OP3 executive director Seth Miller Gabriel. In fact, D.Cwas the first to develop a city-level agency devoted to public–private partnerships (also known as PPPs or P3s)Established in 2015, OP3 now serves as a model for other cities looking to build bridges between public agencies and private investorsWhile public–private partnerships are a mainstay of development in Canada and Europe, the U.Smarket is relatively smallThat market is growing—and as both private companies and public agencies seek out joint ventures to accomplish more and more-varied projects, offices like OP3 are springing up to help inexperienced departments navigate sometimes unknown waters. One of OP3’s first orders of business, according to Miller Gabriel, was explaining to various District agencies what public–private partnerships are in the first placeAnd perhaps more importantly, what they aren’tContrary to popular opinion, public–private partnerships don’t give cities free money for building infrastructureTaxes and fees pay for the work, even for projects financed by private industryAnd entering into a public–private partnership doesn’t mean giving away public assets like roads or schools. “It was a learning curve for everyone,” Miller Gabriel says“It took some education with some agenciesSome agencies, at first, were a little hesitantWe’ve definitely changed that as we’ve had some successes with these projects.” The District is taking up projects that defy the stereotype of P3s as useful only for building mega-infrastructure such as toll roadsFor another OP3 procurement, the city is looking for a partner for a street-light modernization program that involves replacing the city’s 71,000 lights with more efficient LEDs—plus potentially enhancing street lamps with broadband WiFi, information kiosks, data sensors, or something the city hasn't thought of yetInnovation is one of the agency’s mandates: OP3 serves as the city’s chief in-house advisor for any new models for project delivery, whether it’s an OP3 procurement or not.   “P3s are a good option for some projects,” Miller Gabriel says“That was the genesis of why we needed a P3 office, and that’s been our guiding mandate since we started.” D.CMayor Muriel Bowser wrote the legislation authorizing the agency as a Council member in 2014The bill placed OP3 under the umbrella of the City Administrator, giving it a wide lateral view of D.CagenciesThe rationale was that public–private partnerships may enable the District to pursue infrastructure projects that it might not be able to finance otherwise(It’s too soon to tell yet how successful P3s will be in D.C.: Just 2 of the 12 projects in the pipeline have reached the procurement stage.) Because the D.Ceffort was so novel, officials looked far and wide for inspiration when designing the project—to state initiatives in Virginia, Texas, and Arizona, but also parallel efforts in Ontario, Quebec, the United Kingdom, the United Nations, the World Bank, the Asian Development Bank, and well beyond. “I always used to joke that there were at least two points from South African treasury documents for P3s, but at this point I’m not sure I can remember what those two points are,” Miller Gabriel says“Anywhere that I felt had the best practices for what we were trying to do here in the District, we went and shamelessly copied that.” Some counties have joined Washington in building new offices for more localized public-private partnerships. Scott Sizer, who serves as the P3/Joint-Ventures Policy Coordinator for the Office of the County Executive in nearby Fairfax, Virginia, took up his newly created position at the beginning of 2016While budgeting and financing constraints first led Fairfax to public–private partnerships back in the late 1980s, the changing face of the county is what’s driving them today. “We’re pretty much a built-out county,” Sizer says“But what’s really interesting in Fairfax is that we’ve been a suburban county in the ‘80s and ‘90s .  and in certain portions of the county, we’re converting from more of a suburban model to an urban modelThat puts different constraints and different opportunities on the table for us.” BLVD, a recently completed residential tower, seen behind the office tower at 1900 Reston Metro Plaza in Fairfax County, Virginia(Comstock Partners)Reston Station is an elegant metaphor for Fairfax County’s suburban-to-urban transformationWhen Metro’s new Silver Line came through town (it opened in 2014), the county took responsibility for building a parking garage at the Wiehle–Reston East StationCounty officials identified a surface parking lot used by toll-road commuters to be converted for garage spaceBut they took the opportunity to do much more by building out a transit-oriented, multi-use development with Comstock PartnersInstead of an above-ground garage, the new development serves as a regional bus transit hub (with parking stashed below ground)Comprising six rising residential, office, and hotel towers, Reston Station is an urban oasis built from scratch in the rapidly developing hinterland near Dulles International AirportIt is now luring companies like Fannie Mae to consider relocating to the development. “Through a longer-term vision, instead of just using the parcel on our site to provide the needed parking, we also wanted to use it to help transform that area of Reston to more of a transit-oriented development, and be able to put higher-density office and apartment buildings in close proximity to the Metro,” Sizer says. The deal with Comstock gives Fairfax County $2.9 million a year in lease revenue for the development rightsOn top of that, the county earns real-estate tax revenue from private developments on the parcelDetails of the operation are subject to change in the future, which can be a liability of public–private partnerships—many are subject to renegotiationBut the vision is fixedSizer says that’s key to creating workable P3sThey get sticky, he says, when the public and private sectors do not share the same set of goals for a project. “If the county had done it on our own or in a more traditional fashion, we may have built an above-ground parking garage, like we have at the Herndon StationWhich would have created a barrier  between the development near the Metro and [the Metro station],” Sizer says“Through the PPP, we’re able to provide the public service, the garage that we needed to do, but also create that place and that new value for the county as well.” Public–private partnerships are priceyThat’s the first and last point that D.C.’s OP3 underlines when explaining the process to city agenciesAnother one is that it’s difficult for the public sector to protect itself against market changesCity and county governments have few levers to change interest rates or dictate tax policy, Miller Gabriel says. At the same time, investors who prefer P3s—mostly institutions with long-term obligations, such as pension funds—appreciate the stable return on infrastructure projectsA change in federal tax policy affects all these markets the same, so some investors see them as more inviting than municipal bonds or the stock market. Public–private partnerships are not the solution to every problem(Apparently, Trump has decided they aren’t the fix for any of the nation’s infrastructure needs.) They can be particularly controversial when they involve the private sector in providing core government services,  an issue that has hampered other placesBut at a fundamental level, proponents like Miller Gabriel view a problem like Baltimore’s unheated school buildings as a facilities-management question—one that the city has failed to adequately answer.   “I personally think that a schools P3 could be a great opportunity anywhereIf you lock in that long-term maintenance of the school facility, then the principal and the administrators in the individual school can focus on education, and not so much the building,” Miller Gabriel says“Everything should work in the building.” Funding from Mastercard was provided to support our project "City Capital." About the Author Kriston Capps @kristoncapps Feed Kriston Capps is a staff writer for CityLab covering housing, architecture, and politicsHe previously worked as a senior editor for Architect magazine. 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