Fast Facts:

1.  In the wake of the Great Recession, governments around the world are turning to public-private partnerships (PPPs) for their infrastructure needs. The use of PPPs in the United States increased fivefold between 1998-2007 and 2008-10.

2.  PPPs can be an effective vehicle to provide infrastructure. The efficiency gains that can potentially accrue under PPPs are due to bundling. When a single firm has respon-sibility for both project construction and operation and maintenance, it internalizes life-cycle costs and has a greater incentive to adequately maintain infrastructure.

3.  PPPs are not a free lunch and should not be used to address state budget woes. When a state or local government sets up a partnership to build, maintain, and operate a highway in exchange for toll revenue, drivers are still on the hook for tolls, and the government relinquishes future toll revenues.

4.  PPPs financed by user fees should be structured using Present-Value-of-Revenue (PVR) contracts. This reduces risk, and the need for a risk premium, by tying the length of the concession to user demand. A PVR contract would also lower the likelihood of opportunistic renegotiation.

5.  Using more PVR contracts could lead to large reductions in the required return on projects and in the revenue that must be collected from users (by 33 percent in some simulations).

6.  PPPs should be included on governments' balance sheets and treated as public investments. This reduces the temptation to overspend and ensures that partnerships will be chosen for the right reason, that is, when they lead to significant efficiency gains.

7.  In order to minimize conflicts of interest and the potential for corruption, different agencies at the Public Works Authority (PWA) of state and local governments should be responsible for planning and awarding projects and contract enforcement, respectively.