Officials: Public-private method may assist government entities

As municipal budgets tighten and Austin continues to see development, partnerships between government and non-public entities may help the city advance its priorities through private projects.

Austin Mayor Lee Leffingwell said "there are great demands on the city's funds," and public-private partnerships could be one way the city could stretch its investment dollars while still supporting community benefits.

Fred Evins, redevelopment project manager and architect for the city of Austin's Economic Development Department, said the main hallmark of a P3 is a shared investment in the project between the public and private entities. That means there is shared profit in the investment as well as shared risk. Some of the more customary projects that use the P3 model include buildings and toll roads, but Evins said the city has used "a form of that tool to move urban redevelopment forward and achieve community objectives." He said the city has seen increased opportunity to work with the private sector to put private development in place that exceeds city requirements. He pointed out several areas throughout Austin where a P3 model was used to spur development, including property downtown on Second Street; the former Mueller Airport, which is now being developed as mixed-use community; and many decommissioned power utility structures such as the Seaholm Power Plant.

"We used [the P3 model] as a tool to redevelop these properties, to kind of leverage our land, to spur and catalyze redevelopment, and to return underutilized property to the tax base," Evins said. "Through the public-privates and our investments, we were able to get our development partners to deliver higher-quality product with more public benefit."

There are some misconceptions about what makes up a P3, Evins said.

"If we give someone a solar rebate, that's not a public-private [partnership], even though that's money going to a private party," Evins said.

P3 benefits

Affordable housing, public art, green space, pedestrian amenities and sustainable developments with increased density and better walkability are all some benefits that can be achieved through a P3. These projects typically meet or exceed city code, Evins said, and the increased density often results in higher property values.

"Through the public-private [method], not only are we helping move these projects forward quicker than we could by ourselves, but we're also bringing more public benefits to the table than the free market would have if we had just cashed out the land," Evins said.

P3 risks

With the shared benefit of these projects also comes shared risk, Evins said, which can often be attributed to underperformance by a partner and market fluctuations outside of anyone's control.

"The biggest risk is that we invest and our partner doesn't perform or underperforms," Evins said.

Roy Waley, vice chairman of the Austin group of the Sierra Club Lone Star Chapter, said he believes the public should get more access to the former power plant in exchange for its investment in the project.

"I think the public is going to come out with the same benefit that they've always had, which is they get to drive by and look at it and go, 'Isn't that a nice building?'" Waley said. "They just are not going to have enough public space there as it was originally intended when they started the conversion."

The strength of the market is also a factor when the city weighs risks of P3 agreements. Evins said it is important that P3 contracts balance the public interest while still being flexible to ensure the private developer remains profitable.

"You enter into these projects with community expectations," Evins said. "You have to write a contract that holds [the developer's] feet to the fire, but you have to write in enough flexibility for the market conditions."

P3 examples

For the Mueller development, Pam Hefner, Mueller project manager with the city's Economic Development Department, said that the P3 model was the tool that allowed the city to move forward with developing the former airport.

"The city was making zero taxes on this, so this was to return it to the tax base," Hefner said. "The difference between what would happen there if we just sold it off and the difference of what we're producing, the value of taxes and the value of the development is so much more than what would naturally be occurring."

The Mueller development is made up of 700 acres and is expected to house about 13,000 people, a total of about 4 million square feet of office and retail space, more than 5,700 homes and 140 acres of park space. One requirement that was stipulated through the P3 agreement is that about 25 percent of the housing at Mueller be affordable, meaning home prices are affordable for people making 80 percent of the Austin area median family income and rental units are affordable for people making 60 percent the Austin area median family income.

"[The community] was asking for a lot of social goals and development in a particular way that had a lot of cost to it," Hefner said. "It was kind of a balancing act. We were able to leverage the land and do some things with the land to help the developer save money so we could get more value."

The Seaholm Power Plant redevelopment includes converting the former power plant into a new 112,000-square-foot developable space along with creating a new condo tower, a parking garage and additional office and retail space. Austin City Council approved an incentive agreement with athenahealth on Jan. 30 to occupy the office space in the new facility. The city investment in the Seaholm development is about $24.5 million, and private investment in the project is more than $100 million so far. The entire project is expected to be complete in 2015.

Travis County officials also considered the option of a P3 when deciding on the best model to build a new courthouse. Belinda Powell, strategic planning manager with the Travis County Planning and Budget Department, said county officials considered several different construction options including the P3 method for the courthouse project.

"There's no one right fit for every project," Powell said. "It's always a case-by-case analysis."

The new courthouse will go on property at Fourth and Guadalupe streets. Powell said the cost of the project is expected to be about $350 per square foot as the county continues the design process.

County officials identified several concerns of the P3 method during project planning, including failing to define the project enough so that the final product is not what was expected, the long-term agreement with a private entity to construct and operate the new facility and a concern that the project was not large enough to garner the interest of the private sector.

In the end, the Travis County Commissioners Court decided to go with a design-build model rather than a P3 because of the price and schedule certainty the design-build method supports.