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Archive for March, 2015

Taking Care of the “Public” Side in Public / Private Partnerships

Rickey Hayes
Retail Attractions, LLC

Whether you like it or not, putting incentives into economic development deals is something your community is going to have to do. It really does not matter which side of the fence you are on, public / private partnerships are here to stay. In many instances, paying for the costs of public infrastructure are going to require partnering with the private sector, especially when the infrastructure that is involved is essential to a retail deal or other economic development project. Since our work is primarily with cities, let’s take a look at protecting our (the public) interests in the deal.

Foundationally, the deal should create value for the public sector. The idea is that the private sector can create value that the local government cannot create on it’s on. In most cases, it is apparent that a new retail deal, a new hospital, or a project that creates jobs and tax revenue is a good deal for a community. I have witnessed elected officials accuse a developer of simply trying to line his own pockets when the cost of the public infrastructure in a deal made the deal impractical for the developer. I certainly would never counsel a community to enter a deal that was economically unfeasible. But in most cases private sector investment in a local site will result in the creation of tangible value for the city.

The quality of the public assets should be (or create) a tangible value to the private sector. Many times city officials will desire to partner with the development community to bring private dollars to an area of the community that needs revitalization or renewal. In some cases the location of these areas are outside the prime development corridor in a market. In these instances, the public sector should be willing to minimize the private sector risk by providing a win-win partnership consideration.

Most (if not all) public / private partnerships will involve building political consensus. Buy-in is required from senior level administration and elected officials for any public / private partnership. If the local jurisdiction is divided on political or other partisan lines the project’s chance of success is very limited. Without a real, across the board consensus and a real and tangible harmony at the beginning of a public / private partnership a project has a real slim chance of making it to fruition. Dealing with the politics at the beginning of the process, and not at the end, ensures that the government does not waste the private sector’s time or its own.

The legal side of the public / private partnership should be memorialized in reasonable contract terms. The art of negotiating an attractive partnership document requires legal expertise on both sides of the deal. Many times local governmental legal counsel is limited in experience in drafting commercial contracts. Certainly the local (public) interests should be comprehensively protected. And in just as many cases the private sector feels like its needs are being ignored or overlooked in the contract documents. At the very least the public entity needs some time of “claw back” language that protects public money should the private sector fail to perform as promised for one reason or the other. A “win-win” scenario is the target. A partnership is a partnership when both “partners” needs are considered.

We love changing cities for the better. All kinds of communities; small ones and big ones and in-between ones. It takes vision. It certainly takes courage. And it takes un-conventional tactics. And chances are it will require some kind of public / private joint endeavor. Having been involved with helping communities change for nearly 35 years now, in several different capacities, we have discovered some things that definitely work to solidify those partnerships. Maybe more importantly, we have realized some things that certainly won’t work. The synergy created when two parties join forces to generate a project that couldn’t be generated by the individual parties can produce immeasurable positive results in a local setting.

Call us. We can help.

Rickey Hayes is the principal of Retail Attractions, LLC, a firm dedicated to helping cities and developers successfully find and develop retail sites, close deals, transform communities, and improve the quality of life for our client cities.