Cheap money is nearly impossible for a growing business to pass up.  It’s even more difficult for an elected official to turn down a project with even the smallest chance of creating jobs (and a guarantee to improve voter appeal).  Although many public-private partnerships fulfill this dream “win-win” scenario, poorly managed projects are leaving taxpayers around the country with buyer’s remorse, depleting millions of government dollars in exchange for but a sliver of a community’s promised return on investment. 

In general, I’m a strong advocate for the expansion of the private sector’s role in managing many of the projects that government can’t, and never were intended to.  In a time of tight budgets, it makes sense for local governments to allow private companies to invest, build, and reap some of the rewards of large infrastructure projects such as airports or major toll roads, while providing a community benefit that otherwise would never come to fruition. 

ADVERTISEMENT
Although not without its own controversies, the recent renovation and expansion of Puerto Rico’s largest airport provides an example of how such an agreement can be mutually beneficial to businesses and citizens alike.  Prior to the proposed private investment, the airport was a hot (often noisome), uncomfortable, and outdated structure that provided a poor first impression to visitors.  Without a dollar to spend, the Puerto Rican government successfully put together a private investment group to renovate and maintain an airport that is now on par with others around the country, a necessity for an economy that relies on extra-island investment and tourist dollars.

Sometimes, however, legislators allow loftier goals to override the discipline of a well-founded cost-benefit analysis.  For instance, New York state’s recently enacted “Buffalo Billion” project sought to invest $1 billion dollars into the re-development of dilapidated upstate New York, but has made more than a few investments in unsound schemes.

In an effort to complete a rare win-win-win trifecta, officials proposed a $750 million package to fledgling SolarCity for the development of a solar panel production facility anticipated to benefit the public with jobs, taxes, and other economic returns.  SolarCity gains the obvious potential for big profits and consumers receive an environmentally-friendly energy source.  Yet, just as the ink on the contracts dried and local communities began to celebrate, SolarCity reneged on its initial promises and reduced the number of manufacturing jobs at the new facility by two thirds, while other anticipated economic benefits were diluted.  

The retraction leaves the once hopeful community feeling duped.  Once a manufacturing powerhouse, Buffalo was set to be an example to the rest of the Rust Belt – and the country – of how the sector can be revitalized and economic prosperity returned.  Cities like Baltimore, Detroit, Cleveland, and even many in Puerto Rico are all desperate enough to welcome similar proposals, but taxpayers and their representatives should more closely analyze the real economic benefits of public-private partnerships.  Not all of them end successfully. 

It’s easy for elected leaders to agree to deals that benefit reelection campaigns, but the local economy should be the focus.  If New Yorkers had taken a closer look at this particular deal, for example, they might have noticed what any amateur could predict today.  Investing in a company that has never turned a profit, in an untested industry with a revenue model based upon expiring tax subsidies, and one in which even outside financial analysts and prominent investors now consider an “unsafe investment,” was probably never a good idea.

My intention isn’t to pick on the solar industry, or even SolarCity directly, but to demonstrate that as taxpayers we should be more aware of what our elected and appointed officials are doing with our investments and ensure that they invest our hard-earned taxes with greater care, hopefully in profitable enterprises that don’t just make us feel good, but actually provide an opportunity to better our communities.  With limited resources and future generations on the line, it’s worth revisiting proposals to ensure they are sound.

No public-private partnership is guaranteed to benefit a community in the long run.  Even with the most thorough analyses, it’s impossible to predict the many variables that might cause a project to return less than expected.  But, while it’s easy to let our elected officials handle the country’s business without our input, we have to pay attention to their decisions to ensure that our dollars are more efficiently invested in only those projects that offer the greatest potential for positive returns. 


Vélez-Hagan is an economic policy researcher at the University of Maryland-Baltimore County, founder of the National Puerto Rican Chamber of Commerce, and author of The Common Sense behind Basic Economics (Lexington Books,2015). @JVelezHagan