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Public Private Partnership, PPPs’ History & an Application to Prison Overcrowding

Updated on September 8, 2016

There is a history of government-business relationships in the United States; however, these relationships have changed as time has moved forward. This association is often regarded as a PPP, or Public Private Partnership. It may surprise individuals to realize that these dealings have existed in the United States since 1792; however, present day concepts have been applied to these interactions.

The first government-business relationship was struck in 1792 for the purpose of building the Philadelphia Lancaster Turnpike (Flentroy-Parker, 2011). By the mid-1800s, over 1,500 contracts had been awarded. If you are asking yourself whether or not there is a need for this type of correlation between the government and private enterprises think about this: Is there funding in the public sector budget to meet the public’s needs? Since the first PPP, the Philadelphia Lancaster Turnpike in 1792, indicators suggest that government alone cannot afford to foot the bill for all public and social infrastructures.

Although the stakeholders involved have different expectations, theoretically PPPs are attractive funding options. For example, a bank will issue bonds to private investors with the intention of making a profit, the government is addressing a societal need that otherwise would not be attend to because of a lack of funding and citizens see improvements in their communities. Moreover, the cost is spread out over a period of years making it affordable. Today, in order to make this work a PFI Model should be used. A PPPs success hinges on proficiency of planning at conception utilizing experts of economics, law, engineering, and public policy. Attention to detail, qualified leadership, political will and oversight must be present. Additionally, contract bidding needs to be scrutinized utilizing the most investigative techniques as possible.

Different Solutions for Prisons

Many states have a problematic growing prison-infrastructure. State prisons are currently around double the recommended capacity and similarly county and municipal jails are facing the same obstacles. According to Sentencing Project Research Advocacy and Reform, prison populations have grown by over 1,222,000 in the last thirty years from around 315,000 to more than 1.5 million at cost of over $51,000 (in millions).

The solution to population growth in state prisons can be managed different ways. If there is available funding in the budget, older facilities in need of repair in order to meet public health and safety standards should be fixed; however, it is probable the resources needed are not in the budget. An alternative option would be to relax criminal punishment, which is undesirable for public safety. These are two reasons why a state with major budgets deficits should consider a PPP to solve problematic growing prison-infrastructure.

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Lease / Purchase PPP

Importantly, when a state begins its search for the proper type of PPP it will find that there are many different types of public and private partnerships. First, there is a PPP called the Lease / Purchase this particular type has been utilized for prisons. Using this type off PPP is advantageous. For instance, in this scenario the private segment puts up the money for the facility and then leases it to the public. In return, the municipal agency makes timely payments to the lease holder or holders. This allows the public an opportunity to build equity in the project as the balance of the loan decreases. Also, when the lease expires the public agency either owns or can purchase the remaining contract. Either the public or private partner can be in charge of the operation of the facility.

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Design-Build-Maintain (DBM) / PPP

Another PPP to consider is a DBM, Design-Build-Maintain. When utilizing this PPP the private partner is responsible for mutually the design and building of a development to the public agency. According to The National Council for Public-Private Partnerships, “A DBM is similar to a DB except the maintenance of the facility for some period of time becomes the responsibility of the private sector partner.” The maintenance risk still belongs to the private partner, but the public owns and operates the asset, in this case the prison.

Turnkey PPP

Likewise, the Turnkey PPP is an alternative that states could explore. This can be financed and owned by either partner. Of course, the risk will lie with the partner that bankrolls the project. This type of relationship can occur with a guarantee or a contract to operate the prison over a long period of time.

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Design-Build-Operate or DBO / PPP

This particular PPP is an awarded contract by bid. The recipient of the contract is then responsible for, “…the design, construction, and operation of a capital improvement” (The National Council for Public-Private Partnerships, 2011). A DBO can go one of two ways. The first is design, build, operate and own; however, the second is design, build, operate and transfer. While this may not be popular in the United States, it is a fairly simple approach to funding public needs. This allows social needs to be fulfilled and investors to finance and profit because those who utilize the project pay a usage fee as long as the project is operational.

Design-Build-Finance-Operate-Maintain or DBFOM / PPP

A PPP that has gained momentum in the United States is the “Design-Build-Finance-Operate-Maintain” or DBFOM. This public and private partnership is arguably convenient because it is the bundle package, which is completely turned over to the private sector. But, with DBFMOs the risk seems a bit higher because the analyst that forecasts the value of the project is basically guessing at the value of money in the future. The Greenville Southern Connector is a good example of how poorly a PPP can turn out if the projecting is way off base.

Are PPPs a good solution for overcrowded prisons?

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Choosing the Lease/Purchase Model: Correctional Facilities

State correctional facility’s overcrowding and unfit health conditions can be addressed utilizing the Lease/Purchase model of a private and public partnership. By using this particular PPP, a current prison can be restored and additional facilities can be financed and built by private investors. Also, with each payment the public makes toward the lease it is building equity. If for some reason the prison is not owned by the public at the end of the lease the state can buy the remainder of the contract from the private investors. The decision for operation of the facility could fall to either a public agency or a private contractor. The Lease/Purchase model has been effective when it comes to realization of a healthy PPP. According to The National Council for Public-Private Partnerships, PPPs are responsible and used for“…building federal office buildings and by a number of states to build prisons and other correctional facilities.”

A detailed financial configuration needs to be calculated. The only way to do this is to hire experts (finance, law, engineering, and public policy). Each expert should submit an exhaustive report, which explores all circumstances. When specialists are consulted each partner has a clear understanding of their responsibilities. It is crucial to have an all-encompassing detailed contract. Furthermore, within the contract there should be stipulations regarding disagreement resolve.

Recidivism versus PPPs

Allowing criminals to go free and enjoy reduced sentences could lead to recidivism, which is a public safety concern. For a state with a budget deficit, a Lease / Purchase private and public partnership seems like the right choice to meet the needs of citizens, criminal and non-criminal.

People should be aware that states such as California have the three strikes’ rule. This law is for criminals who are convicted of three felonies, and it carries a life sentence. This is causing congestion in California prisons. Overcrowded prisons are nothing new; however, there is a way to pay for prisons using investors. These investors take the risk to make the profit. PPPs are an efficient way to finance public projects over long periods of time. It seems likely that reformatories will turn to this type of financing because it is cheaper than the traditional government operated prisons.

References

Gilroy, Kenny, Randazzo & Summers. (2011). Public-Private Partnerships for Corrections in California: Bridging the Gap Between Crisis and Reform

The Sentencing Project. Research Advocacy and Reform.

The National Council for Public-Private Partnerships.


© 2015 Suzanl

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