Public-Private Partnerships (p3) and Contracting-for-Service

Public-Private Partnerships (P3) and Contracting-for-Service FAQ

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  1. What is a public-private partnership (P3) and what are the associated benefits and risks for each party?
  2. What is Contracting-for-Service?
  3. Is a P3 permissible where a town and provider agree that the town will build fiber connections between municipal buildings and the provider will subsequently build out to any remaining locations?
  4. Are towns required to solicit requests for proposals from providers to serve or assist with serving unserved or underserved locations?
  5. Does a P3 trigger Internal Revenue Code private activity bond issues? If so, will this affect a CUD or town’s tax-exempt status?
  6. Can a capital lease back a revenue bond?  If so, what is the process and the associated risks? 

PUBLIC-PRIVATE PARTNERSHIPS (P3) AND CONTRACTING-FOR-SERVICE RELATIONSHIPS

 

  1. What is a public-private partnership (P3) and what are the associated benefits and risks for each party?
    • The public entity and the private sector party mutually share risks and rewards related to the project. 
    • The public entity retains some control over the project (for example, right of inspection or audit) and retains ultimate ownership of the project. 
    • Significant capital investment through the issuance of bonds is usually unnecessary. Instead, the private sector party is responsible for financing the project and the public entity pays the private party back over time. 
    • Construction costs are typically determined in advance and fixed.  The private sector party is typically required to pay for any overages.
    • Cost savings can be significant because one party is responsible for all aspects of the project versus contracting with different parties for different components of the project.
    • Financing costs can be high (although public entities can typically obtain financing at lower rates than private parties).
    • A public entity has less operational control.
    • There is a risk of revenue loss when projected demand for a project is outweighed by the actual demand.
       
  2. What is Contracting-for-Service?

    When ownership is retained at the onset by the provider and a town is contracting with a specific provider for that provider to expand their service to serve the town, the relationship is defined as Contracting-for-Service, as opposed to a Public-Private Partnership (P3).

    A town entering a contracting-for-service relationship would not be creating its own network and is therefore not subject to the restrictions in 30 V.S.A. § 3056. Tax revenues, bond proceeds, commercial bank loans, and grants from the national government can be used when a public entity contracts with a private party to construct discrete portions of a project. For instance, funds dedicated to economic development be used to support such an arrangement.   
     

  3. Is a P3 permissible where a town and provider agree that the town will build fiber connections between municipal buildings and the provider will subsequently build out to any remaining locations?

    24 V.S.A. § 1913 allows for towns to spend funds derived from a town taxing authority only for the portion of a project used for its own municipal purposes. 

     

  4. Are towns required to solicit requests for proposals from providers to serve or assist with serving unserved or underserved locations?

    No. However, pursuant to 24 V.S.A. § 1913(f), towns may issue a request for a proposal where the town enters a P3 for the operation and management of a communications plant.
     

  5. Does a P3 trigger Internal Revenue Code private activity bond issues? If so, will this affect a CUD or a town’s tax-exempt status?

    Towns should discuss private activity bond and tax-exempt issues with their legal counsel.
     

  6. Can a capital lease back a revenue bond?  If so, what is the process and what are the associated risks?

    Towns should discuss specific leasing arrangements with their legal counsel.