Public-private partnerships can help stretch infrastructure funds

Rea S. Hederman Jr. Mar 13, 2023

This opinion piece was first published by Crain’s Cleveland Business.

Cleveland needs sound public infrastructure — roads, bridges and transportation vehicles — to move people and products efficiently and effectively. That infrastructure must be implemented and maintained with public tax dollars. And policymakers must spend those tax dollars wisely and give taxpayers the greatest value for their money.

One successful model for improving and maintaining urban infrastructure cost-effectively relies on public-private partnerships (P3s), which give private enterprise a greater role in financing and building roads and other large public projects.

Cleveland has used P3 agreements in its revitalization efforts to build roads, university buildings, new hi-tech infrastructure and the Rock & Roll Hall of Fame. And other communities across Ohio and the country have used P3s to build infrastructure projects. P3s helped build the Portsmouth Bypass in southern Ohio and the Washington, D.C.-area used P3s to construct a toll road connecting the District to the Dulles International Airport in Virginia and add lanes to alleviate traffic congestion on a major artery running through D.C.'s Virginia suburbs.

Cleveland policymakers should continue to learn best P3 practices from around the country and explore ways to make the most out of P3 agreements to build better roads, improve airports and enhance mass transit systems without always sticking taxpayers with the bill.

P3 projects can be made more cost-effective, for example, by waiving the state's so-called "prevailing wage" requirements on public infrastructure projects. The Ohio Department of Commerce sets the prevailing wage by estimating what the wage for a specific type of labor should be in a given area. Unfortunately, that estimate relies heavily on local union contracts and collective bargaining agreements that are themselves artificially inflated.

The government-set wage floor reduces competitive bidding by construction companies because no company may pay its workers less than the prevailing wage. By reducing a key competitive element, mandatory prevailing wage laws artificially raise construction costs on public projects.

Ohio has waived prevailing wage rules before and should do so again. When the state waived the requirement to build public school buildings, for example, the Ohio Legislature Service Commission found that construction costs were 5% to 10% less while delivering the same quality product. Such savings would help pay for more roads to be built or more mass transit lines or better airport terminals — infrastructure Northeast Ohio desperately needs — for the same amount of taxpayer money. Eliminating the prevailing wage on public infrastructure projects would attract more attention and interest from construction companies and financiers, further enhancing the P3 model to generate even better results.

Ohio and its localities just received billions of dollars from the federal government through the American Rescue Plan Act, with Northeast Ohio receiving hundreds of millions, but this federal support will not be repeated in the next several years. With rampant inflation continuing to pressure material and labor prices, states and localities need to find innovative ways to build and maintain infrastructure cost-effectively.

Northeast Ohio should build upon its P3 track-record and capitalize on private investment, enterprise and market competition. Public-private partnerships and Northeast Ohio will be even more successful if Ohio policymakers get the government's thumb off the public project pay scale and waive the state's prevailing wage requirements.

Hederman is vice president of policy at The Buckeye Institute.