‘Somebody Else’s Money’ in Alexandria

‘Somebody Else’s Money’ in Alexandria

Chamber panel encourages public-private partnerships, particularly for schools.

Public and business leaders lauded the potential for public-private partnerships in Alexandria’s capital portfolio, with public schools being especially likely candidates, at an Oct. 30 panel hosted by the Chamber of Commerce.

In general, “a P3 typically involves a private entity financing, constructing or managing a project in return for a promised stream of payments from the government or users over the projected life of the project.” That’s according to the chamber’s Dave Millard, who moderated the panel, quoting university professors David Weimer and Aidan Vining.

Alexandria needs to employ P3s because, increasingly, localities must “do a lot more with a lot less,” said Millard. “Resources at the national level and the local level are being strained beyond capacity in many circumstances. There are limits to how much [local] taxes can be raised, and additional services that are being asked of our political jurisdictions to provide.”

Alexandria’s public school division “probably has one of the most aspirational requirements for the potential of public-private partnerships,” said panelist Mignon Anthony, the division’s chief operating officer. The reason is that the schools’ half-billion dollar Capital Improvement Program includes major renovations or new construction for several campuses over the next 10 years.

In particular, expanding high school capacity could present P3 opportunities.

“Having a footprint in the schools for private sector partners or for work partners is going to be beneficial for all sectors,” said Anthony. “These kids want to have hands-on opportunities and businesses want to start preparing the students that graduate to enter the workforce in a way that’s different from what we’ve traditionally done before. So one of the elements we’re looking at is how … the business community is partnered with us in space-sharing, as it relates to educating high school graduates.”

“School enrollment runs in cycles. … The private sector I think has an opportunity for the schools to lease for X period of time, and when we get to the downside of the enrollment cycle and the schools need to constrict, then the building can go back to the private sector,” said panelist Mark Jinks, Alexandria’s city manager. “In Great Britain, they have P3s … where the private sector builds a combo office building [and] school. … Every five or seven years, [the schools] can decide how much space they need for the next five or seven years. … The building is designed such that it can be either used as a classroom or can be used as an office — ceiling heights, the electrical loads, the code pieces.”

In its planning, the city asks itself, “How can we get somebody else’s money, other than city money, into a deal?” he said. It’s also important to ask, “Can the private sector bring better expertise [than the government] to the table?”

Jinks offered the Alexandria/Arlington Waste-to-Energy Facility as a case in point.

Initially, that facility was proposed as a government-run operation.

But “what do we know about running a waste energy plant? The more we got into it, the more we realized that was exactly the right question,” he said. Instead, Covanta, a waste recovery company, became a private sector partner.

“We basically got the private sector to design, build, operate, maintain,” said Jinks. “It’s about a $400 million plant, if we had to reproduce that today. So somebody else’s money. Although it’s being paid back by the refuse fees” paid by property owners, as well as excess disposal capacity sold to private sector waste producers.

“If you allocate risks to the party that’s best suited to take that risk, you’re going to get more cost effective pricing,” said panelist Farhad Soltanieh, investment director for Skanska, a development and construction company.

P3s are flexible, not one-size-fits-all.

“There are different shades of gray, different ways to allocate responsibilities, to share the risks and rewards,” said Soltanieh.

More specific to Alexandria, P3s could help maximize vertical density.

Jinks offered The Station at Potomac Yard, multi-family affordable housing built over a fire station, as a case in point.

“In Potomac Yard, a place where we’re just about to start building a Metro station, [that would be] a terrible waste of density to just have a one-story fire station,” he said.

In such joint setups, hotels as the private sector component return the highest net financial benefit to the jurisdiction, followed by commercial office, multi-family housing and single-family housing, said Millard.

P3s aren’t without their challenges.

“Because of [the public sector’s] bureaucracy and … accountability requirements and our compliance requirements, sometimes the private sector is extremely concerned about where it could eat into the commitment that they’re making and the risk that they’re taking. To me, that’s the most difficult thing to get over. The second most difficult thing, I think, is creating the vision for the public to understand.” She suggested that so-called community engagement, part of Alexandria’s public planning processes, doesn’t always generate “as clear an articulation of what it is that’s trying to be accomplished as maybe the public would like.”

Also, because P3s involve multiple partners, “these are very complicated deals [for which] the document transactions are feet thick and take a lot of attention to make it work right,” said Jinks.