Private-Public Partnerships The Relevance of Budgeting Paul L. Posner George Mason University With...
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Transcript of Private-Public Partnerships The Relevance of Budgeting Paul L. Posner George Mason University With...
Private-Public Partnerships
The Relevance of Budgeting
Paul L. PosnerGeorge Mason UniversityWith Shin Kue Ryu
Introduction
Build on previous OECD study to examine budgetary treatment and issues posed by ppp’s: Interviews with budget officials in
Australia, Chile, France, Hungary, Korea, Portugal, United Kingdom, United States
Background
Worldwide Major PPP Projects Since 1985 (By Region) Europe 205 31% North America 175 27% Asia 137 21% Latin America 126 19% Africa 14 2%
Total Value: $887.4 billion
Background
Background
Delivery/Finance Public Finance Private Finance
Public Delivery Direct Government User Fees
Private Delivery Contract Vouchers PPP’s
Public-Private Roles and Tools
Background
Important features of ppp’s Private financing provided up front for Comprehensive “cradle to old age” –
design, construction, operation and maintenance.
The private sector bears a significant and appropriate portion of the risk.
Competition and metrics essential
Various forms of PPPs across nations Different types of PPPs
(Role played by private sector) Build-own-maintain (BOM) Build-own-operate (BOO) Build-develop-operate (BDO) Design-construct-manage-finance (DCMF) Design-build-operate (DBO) Buy-build-operate (BBO) Lease-own-operate (LOO) Build-operate-transfer (BOT) Build-own-operate-transfer (BOOT) Build-rent-own-transfer (BROT) Build-lease-operate-transfer (BLOT) Build-transfer-operate (BTO)
Impetus for PPPsInfrastructure and Capital Budgeting
Public infrastructure backlog and potential role in economic growth.
Rationale for ppp’s premised on the mixed incentives in budgeting for capital Political credit claiming Spikes in funding and competition with
other mandatory spending items Little incentive to fund maintenance
Capital projects recorded traditionally by government Most nations use cash based unified
budget regimes Full construction costs recognized up
front Comprehensive fiscal policy captured Spikes in funding can discourage
capital projects Some nations use separate capital
budget processes
Capital projects recorded alternatively by government
Accrual based systems: Stretching out budgetary recognition over time. Smoothe funding and overcome
potential spiking problems Full costs of asset not required to be
funded at project inception. Both cash and accrual systems
compensate to mitigate concerns over spiking and up front costs
Increasing the level of public infrastructure
Limited, and political painful, set of options Raise taxes Levy or increase user fees Cut spending elsewhere in the budget Borrowing Reduce or manage demand
PPP’s perceived to offer another way to provide for capital
Budgetary Impacts of PPP’s
Do PPP’s provide improved efficiency despite extra financing costs and transaction costs?
Are PPP’s affordable under intertemporal budget constraints?
The Efficiency Imperative
Efficiency benefits stem from Competition Long term comprehensive contracts Risk sharing Reducing barriers to user charges
Results are early and mixed Some gains in construction phase Potential offsetting losses in operations
phase
Public management problems complicate the efficiency argument
Characteristic problems magnified Goal Conflict Principal agency problems Limited competition Rent seeking
Asymmetrical public sector risks Boundary blurring undermines value
provided by each sector
Fiscal Imperative Fiscal rationale for PPPs
Permit funding of more capital projects Free up near term fiscal space
Potential fiscal impacts Fund higher levels of capital than can be
afforded over long term Encumber future fiscal space in
operating budgets Promote selection of lower value projects
United Kingdom
UK Long Term Payment Projections for PFI Projects
0
1000
2000
3000
4000
5000
6000
7000
8000
1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046
Years
(Milli
ons
of P
ound
s)
Affordability considerations
Long term costs include Mandatory annual payment Capital contributions Revenue losses from foregoing user fees Contingent liabilities such as guarantees
Long term encumbrance of fiscal space can occur even if projects represent value for money Crowding out other priorities Funding for nonentitlement costs will be more
constrained in the future
Budgeting Processes and Practices for PPPs
1. Are PPPs on or off budget? Critical in determining whether projects are
governed by overall budget constraints and guidance
Impact of Eurostat guidance Nations vary significantly
UK experience Concessions
Budgeting Processes and Practices for PPPs
2. How are ppp costs booked in budgets? Most nations do not recognize costs of
ppp’s up frontLess stringent than government capital
Several nations do book ppp costs up front
Indirect subsidies for ppp’s often not budgeted for up front when commitment is made
Budgeting Processes and Practices
3. Do nations impose limits on ppp’s? Some nations have imposed budgetary
limits on annual PPP Korea and Hungary UK overall capital DEL
Most nations include annualized ppp costs in medium term frameworks
Most nations not providing long term budget projections UK data on long term trajectory
Budgeting Processes and Practices
4. Is legislative and public oversight comparable with other spending? In most nations, the annual
appropriations process will not disclose the presence of new PPPs
Several nations do not provide for legislative approval of ppp’s
Public information on contract and private partner difficult to obtain
Budgeting Process and Practices
5. What other practices have nations adopted to provide for ppp reviews?
Robust analytic review processes PPP units Public sector comparator Greater rigor than government capital
Question whether analysis is sufficient without budget controls
Conclusions
Use of private financing and delivery for public services has its well known advantages.
Stronger budgetary processes and controls are necessary to provide greater assurance that PPPs are being funded for the right reasons.
Suggestions for Strengthening Budgetary Controls
Up front funding for ppp’s in competition for limited resources
Full on budget treatment, regardless of accounting
Affordability criteria and limits Up front estimation of guarantees Strengthening long term budget analysis Improved disclosures of long term
obligations
“Public and Private Sectors are Alike in All Unimportant Respects”
Wallace Sayre