Public-Private Partnerships in California

While positive steps have been taken in recent years, business as usual is not delivering the infrastructure that California needs to support economic and population growth in the decades ahead. In too many cases, public agencies spend millions of dollars studying projects for years or decades, making little progress toward actual delivery, even as delay sends costs through the roof. When projects are built, frequent cost and schedule overruns—typically 10–20%, but at times over 100%—and subsequent failure to maintain assets over time result in higher costs and a lower quality of services for the public. The need to improve on this sub-optimal status quo will become more urgent as climate change places additional strain on existing infrastructure and requires new investments to address rising sea levels and shifting weather patterns.

There is a demonstrated need to fundamentally reform public infrastructure procurement in California and the U.S., accelerate project delivery, and drive more widespread adoption of life-cycle management approaches. Public agencies across the state have begun looking to public-private partnerships (P3s) as a tool that achieves these goals by shifting the risk for delivery and long-term management of infrastructure assets to private partners. The role these partnerships can play in addressing California’s infrastructure needs is the primary focus of this report.

Definitions of P3 vary widely, but most commonly refer to long-term (typically 25+ years) performance-based contracts with public-sector entities in which the private sector takes or shares responsibility and risk for the design-build-finance-operate-maintain (DBFOM) elements of a public infrastructure project. P3s are not appropriate for every project and will not by themselves solve the state’s infrastructure funding challenges, but properly-structured P3s have a demonstrated track record of reducing the risk of cost overruns, accelerating project delivery, and providing contractual guarantees for proper operations and maintenance over the life of a public asset.

Public-private partnerships have played a modest but important and growing role in infrastructure delivery in California to date. California was one of the first states to adopt P3 legislation and has been home to some of the country’s most innovative projects. This report highlights seven of the most high-profile projects in the state over the past five years, primarily in water and social infrastructure. Public agencies in the state can look to these experiences and a substantial body of global literature to understand both the limitations and the substantial potential of P3s to deliver value to the public through improved cost and operational performance.

California is also developing a significant pipeline of P3 projects in the years ahead. This report identifies 23 projects that are in active procurement or in the planning stages across a range of sectors, as well as longer-term, large-scale projects that lend themselves to consideration as P3 procurements.

Despite this growing pipeline and its demonstrated benefits, the use of P3s is much less widespread than it could be. The lessons from the past five years of experience in California and elsewhere suggest the following best practices and innovations.

Policy changes at the state and federal levels can incentivize project delivery and life-cycle asset management. Adopting these changes does not mean that every capital project in the state will be delivered as a P3. Such changes would, however, provide public agencies with additional tools that may allow them to deliver major projects in a manner that is more cost-effective for the public.