Episode 5 - P3s with Mary and Marshall

In episode 5 of "The Connection," Marshall Macomber of Think P3 and Mary Scott Nabers of Strategic Partnerships, Inc. delve into the intricacies of public-private partnerships (P3s). As seasoned professionals in the field, they address the fundamental questions surrounding P3s, such as what they entail and how governments can embark on such ventures. From the importance of having a clear vision to the role of advisors in the process, Marshall and Mary offer invaluable insights for public officials navigating the complexities of P3 projects. Join them as they discuss best practices, common pitfalls to avoid and the resources available to support successful P3 initiatives. Whether you're a city, county, school district or university, this episode provides essential guidance for embarking on successful P3 projects. 

Meet the expert co-hosts:

Marshall Macomber is a visionary executive with a unique blend of business development, political strategy, communications, and public sector experience. He is founder and president of ThinkP3, a DC-based consulting and lobbying firm promoting innovative infrastructure solutions and alternative delivery models such as public-private partnerships (P3s). He played a key role in the 2021 infrastructure bill, initiating a vital USDOT program for state DOTs. Macomber is also a former Chief of Staff to Congressman Mike Rogers and holds an MBA from Georgetown University. A member of George Washington University’s ESG & Infrastructure Steering Group and other boards, he is a frequent speaker, panelist and moderator at industry events.  A driving passion for growing public transit, building walkable and equitable cities, decarbonizing America’s energy grid, and improving railroad infrastructure and operations gets him up in the morning and keeps him up at night.

Mary Scott Nabers is President/CEO of Strategic Partnerships, Inc. (SPI). A recognized expert regarding P3s, she is the author of Collaboration Nation – How Public-Private Ventures Are Revolutionizing the Business of Government & Inside the Infrastructure Revolution – A Roadmap for Rebuilding America. Her articles have been published by media outlets, including Forbes, CNBC, The Hill, & POLITICO.  Mary was the President and General Manager of two media firms. In government, she served as the Commissioner representing Business at the Texas Employment Commission where she was a high-profile, proactive business advocate who founded The Texas Business Council. Then, Commissioner Nabers moved to the Texas Railroad Commission, the state’s regulatory agency for the oil and gas industry, which at the time regulated approximately $65 billion of the state’s economy annually. 

Transcript

Marshall Macomber (00:00) 

Well, welcome back everybody to The Connection. It's a podcast of Government Market News. I'm Marshall Macomber with Think P3 here in Washington, DC. And as always, I'm joined by my colleague and co-host, Mary Scott Nabers with Strategic Partnerships in Austin. Hey, Mary. You know, so much talk these days about public-private partnerships. What are they? How does a city or a county or state go about doing these things? And you know, we all know they're different. You and I have been in this space for a long time. 

Mary Scott Nabers (00:14) 

Hey Marshall. 

Marshall Macomber (00:29) 

It's a different way of doing business. Sometimes it makes people a little uncomfortable and I think one of the things maybe you and I could help talk about here is how to get people ready. What are your thoughts? 

Mary Scott Nabers (00:39) 

Marshall, I think everybody is uncomfortable if they've not done two or three of these. It's a brand-new delivery model for any type of project. And the good news is, if it's a true public-private partnership, and maybe we can call them P3s, then there's funding. And so, a city or a county or a school district or university doesn't have to have the money. 

A private sector partner is going to come in, bring the funding, bring the expertise, take the risk, most of the risk away, and work with a public entity to deliver whatever they need. But we get calls all the time from public officials who say, we need to do this. We need a new courthouse, or we need a new public safety facility, or we need affordable housing. 

How do we do this? So I think it'd be really good, you and I live in this world, let's talk about where do they start? And the first thing they have to have is a vision. 

Marshall Macomber (01:47) 

That's right. That's right. Public private partnerships, a little different. It's not that when a government agency goes out and says they want to build a new school building or courthouse, like you said, they don't have the vision. Of course they have the vision. But when you're going to bring private investors and you're going to bring these global firms in many cases to your particular agency or town or city or whatever it might be, you know, there has to be some work on your side to show where you want to go through this thing.  

And you know, the, typically a P3 is a much longer term contract between that agreement. And that has some important considerations for elected officials because it's going to be a long term relationship. But I think some of the magic in the P3 model is what you can do in partnership with those entities to really build something special, unique sort of outcomes that works for that community over the long term. 

Mary Scott Nabers (02:41) 

And the interesting thing is just not to confuse anyone. The contract is longer term, but the process is always shorter. So if a public official needs something done right away, a P3 is almost always faster. Because you've got the experience, you've got the expertise, you've got people who've done many, many of these. And they are going to guarantee an on-time on-budget project that you will own, that public entity will own it.  

And so when we talk about these, there's all kinds of ways you can structure a P3. But it's that question of how do we get started, what's expected of us. So I'll start it off and you can jump in at any time. But first thing you've got to do is figure out exactly what you want. And then think about, okay, is there any kind of a repayment model that you can put together? In other words, is there a revenue stream? Is there maybe you're going to do something that's going to generate revenue, maybe a public performing arts center or something like that. And so that revenue can come back to the public entity and also pay off the debt.  

And the good news is, if you don't know how you're going to pay this back, you can bring some of these experienced people in who can say, well, you've got two or three options here. You know, there's all kinds of options. And the one myth that I would like to dispel is this. A P3 does not have to cost you more. In fact, in many cases, it is to the benefit of taxpayers that you serve. 

Marshall Macomber (04:34) 

Absolutely. You know, I'll jump in on that point right there. One of the big benefits is that you're going to lock in the operations and maintenance of this beautiful new, whatever facility it is over the long term. And you're going to ensure on a performance basis that these people who have competed to get that job are contractually required to maintain and operate it to the standards that you set in advance. I think that's very compelling to taxpayers. 

Mary Scott Nabers (04:42) 

Yes. 

It is. And so here's the first thing that anyone has to understand. If you compare a P3 to a project that's going to have to be maintained and operated for the next 15 or 20 years, there's very little difference in the cost. And yet with the P3, you get the expertise, you get the experience, you get the risk transferred over out of the city or the county.  

So it's real important to understand this delivery, whatever it is, is going to be owned by you. And during the period of repayment, the private sector partner will operate it for you and maintain it. So what happens, that means that they're going to build it with the finest equipment. They're not gonna shortchange you on anything because they'll have to replace it over this 20 year period.  

And most public projects don't factor in the cost of operating it and maintaining it over the next 20 years. And they certainly do not build in the risk. So let me just give you one example and then I'll toss it back to you. But if you're building a road, for instance, and the private sector partner has taken on most of the risk, let's just say you run into one and you have to halt the construction, and you have to go through all kinds of environmental protocol. The cost is going to your partner, your private sector partner, not to you. And that's just one type of risk.  

There's all types of risk. And you can't transfer at all, but you need to figure out, here's what we wanna do, here's the risk we wanna transfer. And then if you don't know how to proceed, you might do something like having an industry sounding is what we normally call them, where you bring in companies that have done this that have an interest in your project, and you say, here's what we want. We would be real interested in your ideas, and you're gonna get all kinds of ideas. 

But there are many ways to scare away anyone from even coming to an industry sounding. Let's talk about some of those. What do these big experienced investors and contractors look for when they're thinking, okay, I'm interested in this project. What are they looking for? 

Marshall Macomber (07:27) 

Yes.  

Well, and it's a great point because you're talking about that at the end of the day, how do you make your city, your county competitive or more competitive against some of your surrounding jurisdictions? It's an important point. I think there are things like transparency. They want to see that you've talked about it, that you've built political support with your council, your local community. You see people are on board. You've posted these things on the website that you're interested in doing. 

But I think here's an underappreciated piece, is that as you're going out to build this project, the particular entity or the mayor, whoever the champion might be, is open to ideas from the private sector. That's where I see it gets its trips up government again and again. This is the way we do it. This is how we want to do it. This is what we want to look like. 

Well, these private sector firms could come in with a solution that could first of all, save an awful lot of money, but then provide a bunch of great benefits or a better building or one that lasts longer, it's cheaper to run, for example, that simply government never could have thought about. So I think that open mind in partnership, right? Haven't you seen that success? That's where that magic happens. But that is a sea change of a mind change almost for any government to try to do that's never done something like this. 

Mary Scott Nabers (08:57) 

Yeah, right. 

And Marshall, just as an example for our listeners, let's just say that a city or a county wants a new courthouse, needs a new courthouse. And so they bring in some industry experts who have done many of those, and they can say to them, we need to figure out some kind of an addition to a revenue repayment model. And that private sector partner may say, you know, 

Who wants to be around a courthouse? Attorneys do, restaurants do. There's all kinds of notaries want to be around. So we could take this property that you've got, we can build a new courthouse, and we can build some revenue producing retail around it. And not only will that repay it, but it will throw some revenue over to a city. 

Right now, we're working on a lot of projects where cities and counties are looking to bring in sports complexes. And they're bringing it in to bring people into the community to generate revenue from the tournaments and everything that can be placed in that sports complex. And many of them are saying, you know, now we need a hotel. We've got so many people coming in. 

Hotels just love to come in and your private sector partner can help you select that hotel partner. And then you're going to get a percentage of all of the revenue from there. There's just so many ways to generate revenue. And a lot of this public funding right now requires cities and counties will give you the money, will give you 80 percent, but we want 20 percent to come from the private sector. Well, there's a reason for that. 

The reason is this is the future and the public, especially the federal government understands we can't fund everything that needs to be funded. So we have got to entice some private sector investors and partners. And so it's all good. I mean, it's not anything to run from. 

Marshall Macomber (11:22) 

Now, and you know, the private sector, because they have done this in many ways, and I would say governments are right to be skeptical and you've got to ask hard questions. These people, they've done these types of projects in many places all over the country in various types, but they can structure the particular public-private partnership in a number of ways to kind of get to Mary's point. If you need to produce 20% of the projects via revenue based.  

They can usually find a way to do that and they can help your city look through, for example, its asset inventory list and to see, well, maybe we could do something with this piece of land over here, or maybe we have this particular government function, we could move that over here. I mean, that's the type of openness and interest in doing something different. I think that these private sector partners want to see, right? 

Mary Scott Nabers (12:17) 

And there's all kinds of federal funding for recycling public assets that are non-revenue producing for a city or a county or our school district. And talking about school districts and universities, one of the most interesting things that I'm seeing happen so often now is they are building housing on their own campus for instructors.  

It's a wonderful recruitment because school districts now are starting to do the same thing. They've got to have teachers and the salaries are not high so they build affordable housing nearby that is a public-private partnership and they're going to pay rent and it's revenue producing and it gives them a leg up on recruiting. Many, many cities are doing that same thing bringing community colleges downtown for many of their classes, maybe into a hotel where they generate all kinds of revenue downtown and the tax revenue goes to the city. So this is the upcoming trend. 

Marshall Macomber (13:26) 

Are you seeing Mary, kind of to that point, I think you're getting at project complexity. Increasingly, projects are getting bigger, more complex, they have multiple uses. I think that's different from what government agencies typically do in the past. They build a road, they build a courthouse, a single school at once. There's a great, I'm in DC area, there's a great project here in Prince George's County, Maryland. They're building six schools as a bundle. Think about that, as a bundle. 

And they've shaved seven or eight years off of their procurement cycle and gotten six brand new schools in a quarter of the time, I think. It's an astounding efficiency, but the projects are more complex and they carry with them more risk. And yes, you have to allocate that risk to the party that can best handle. 

Mary Scott Nabers (14:12) 

And in talking about school districts and consolidating things, it's important for a public entity to know that you have to have a certain size of a project if you're going to get the attention of the really experienced contractors to come in and do this. And unfortunately that price is higher than most of the projects that they may want to launch. 

So you you look at consolidating some projects. Let's say that you've got a $30 million project that's probably not high enough to get major, major experienced companies coming in to compete. But if you get it up to 60, 75 million by consolidating projects, and many cities and counties are going together to consolidate. Many school districts are going together to consolidate.  

And a large school system, you know, in any state, has things that need to be done in all of those campuses. And so if you consolidate all of that, you've got a wonderful opportunity to attract an investor to come in and do that.   

Marshall Macomber (15:32) 

Mary, I want to get back to one of your earlier points. Let's talk about where do they start? How do they start? The mayor has these projects, newly elected, or there's a council, they all agree we need a new set of school buildings or we need a new courthouse, we're trying to revitalize our downtown. Where do we start? And what is, if you had a piece of advice, what would you say you should not do when you're starting down this path? 

Mary Scott Nabers (15:58) 

Yeah, yeah, and there's so much to talk about. We could just get lost. And I know we have a short amount of time here, but yes, let's talk about where do you start and what do you do and how do you not make a mistake before you get people in looking at your project? First thing you have to do is have a really clear vision of what you wanna do. And then you've got to have buy-in commitment internally. 

And that is so critically important, it's just unreal. That's where it starts.  

Marshall Macomber (16:29) 

And who's internal? When you say internal, what does that mean? Who do you mean? 

Mary Scott Nabers (16:33) 

That's, well, you're gonna need a, probably a task force. Let's just say it's a city. You're gonna need probably at least eight people in a task force to work through this. And one of those people are two, I always like to say we need two, need to be the political champion, the spokesperson. And I will tell you, it's not always the mayor. If the mayor has an election coming up right away, it's probably not the mayor. 

It needs to be a very knowledgeable person who can communicate with the media, with the community, who can lead community outreach. And you can hire people to come in and help with this, but there needs to be someone who is going to be the point person for answering questions internally, answering questions externally, explaining it to the media.  

And once you get a true vision and you get internal commitment and buy in, then you're ready to go do a community outreach. And we'll talk about that later on in another podcast about how you do that because it's real simple, but it's got to be done right. And then maybe you're ready to start bringing in some industry experts or some advisors and you just want to get experienced ones.  

What you don't want to do though to answer your questions. You don't want to run out there and say we've got a project come in and look at it it's going to be 75 million dollars and so everybody comes in and looks at it and then as a public official you say well we're not ready we're not ready now maybe six more months give us six more months and six more months you're not ready still your public or your private sector partners are gone. 

Marshall Macomber (18:02) 

And they're going to have to, and these folks are going to have to hire, they're going to have to hire qualified advisors. There's a lot of people out there who have done P3s, legal, financial, and technical, and they've got to hire them to help them structure the documents, to be able to speak transparently and professionally with the public, to build that trust and with these bidders that you want to attract, because these bidders are looking all over for all sorts of projects to work on. 

Mary Scott Nabers (18:28) 

Yeah, and unfortunately, we have helped at no cost, just sat down with so many cities and so many counties and school districts and said, here's what you do. And they love it. And then they don't do it. And then the word gets out, they're going to do it, but they still don't do it. Pretty soon you lose credibility. And it's much, much harder to get private sector partners that you want to come in and work with you. 

So do we have time to talk about just briefly about advisors? When do you need an advisor? You need an advisor as soon as you get the vision in place, the commitment internally in place. That's when you bring an advisor in. An advisor can help you with the community outreach. They can help do your documents. They can help set up the industry sounding that you may want, but they will advise you. And there's three different types of advisors. 

Marshall Macomber (19:29) 

Yes. 

Mary Scott Nabers (19:52) 

There's technical advisors to help you with the procurement and the contracting. There's legal advisors who can also help you with the contracting and there's financial advisors. So normally I say don't bring in all three of them in. You may not need all three of them. You don't need them all at once. Get you a planner to come in and help and then you're going to need a financial advisor probably soon and a legal advisor. If you've never done one, the first time you've got to have advice. 

Marshall Macomber (20:27) 

Let me just play devil's advocate here. I'm a mayor and I've got a great county engineer. I've got the best attorney on staff who's been here for 20 years, who's seen everything around. And I've got a fantastic CFO. Why can't I just use them as my advisors? Why do I have to go external? 

Mary Scott Nabers (20:46) 

Those three people are going to be on this eight person task force. And your CPA or your financial person is going to work with a financial advisor. But if that internal person has never put together a repayment plan like is required, you don't want them testing that out the first time. Let them learn from someone who's done 50 of these. It's the same way with an attorney. 

You have a great attorney internally and you probably have a local law firm helping you. Unfortunately, and I don't want to make law firms mad, but if that law firm has never done a P3, first time out, you want to go get a legal advisor from a firm that has done 20 at least of them. At least 10. You just, you know, it's like you don't want to jump into the deep end or you don't want to jump out of an airplane without somebody there the first time you do it. 

Marshall Macomber (21:41) 

Yeah. I would just say there's so much help available out there as well. Ask for help. Reach out to people you know who have done this before. Call Mary. There is technical assistance from federal agencies. They can help you think through these. Because hiring advisors, they're not free, generally speaking. But there's a lot of help, a lot of help out there to help think about how you leverage. Your existing assets leverage new federal funding that could be coming down the track that's here, that's here right now, and some other private equity that could come and help get this thing going faster.  

And the thing I would emphasize too, and you touched on this Mary, and I know we got to close here soon, is the element of time, time. That consensus, you got to achieve it first, and when you're ready to go, keep at it. Keep at it because that's how you're gonna bring competition to your community and get the best price for this interesting project, but you gotta keep at it. 

Mary Scott Nabers (22:45) 

Absolutely, absolutely. That's probably enough advice for us to give it one time, but we will make some more of these podcasts and we'll talk about best practices and we'll talk about how you select advisors and things like that. But there's all kinds of information out there. So if a company or a county or a city or a school district or a university is ready to talk, there's plenty of us to talk. 

Marshall Macomber (22:51) 

People we want you, we want everybody to succeed. We don't want any project to fail or be delayed or be canceled. We want success, that's in everybody's interest. Well, great conversation here, Mary, as always. We've got lots to talk about in the future, but I think we'll look forward to getting on it then. Go ahead. 

Mary Scott Nabers (23:29) 

Marshall, let me just say one last thing before we close. Marshall and I both belong to an organization that doesn't charge for help. And it's the Association of, no, I'm sorry. It's the, help me here, Marshall. 

Marshall Macomber (23:43) 

Association for the Improvement of American Infrastructure, AIAI, they are the best. They are the best. They'll offer you free advice. They wanna help. 

Mary Scott Nabers (23:44) 

It's AIAI. They are the best. 

And they have a website just for public officials. But you can go to AIAI on the internet and it's all out there. So I would just say if you're just thinking about it, that's where to go. 

Marshall Macomber (24:09) 

No matter the type of project, it could be a road, it could be a public building, a school, water, broadband, you name it. People are out there that want to help, definitely call AIAI. Great conversation today, Mary. So much more to talk about. We'll catch up again next time. All right. Bye.