Proponents of PPPs sometimes present them as a source of "new" money for investment in public infrastructure, yet this is rarely the case. Capital funds can be raised by government borrowing or by private equity investment, but in each case there are costs associated with raising the capital. Public borrowing must be repaid through annual debt service payments, and private equity requires a return on investment in the form of regular profits. Funds to cover the debt service or the return on equity both come from the same source - either the tolls or fees intended to make the projects self-financing or tax subsides for projects relying on availability payments. In this sense, PPPs only substitute one form of capital for another; they do not create any new fee or tax revenue stream with which to finance the projects. Their benefits are not "new" capital; they are the lifecycle cost savings and higher maintenance standards described earlier.
In some national contexts, PPPs have appeal as "new" money because of legal limits imposed on public borrowing. As noted earlier, the European Union has set limits on public debt. Under these conditions, PPPs have raised private money as a source of additional infrastructure investment capital, because they make available funds outside the debt limits. However, the repayment of private capital investments through availability payments comes from the same tax base as would any debt service on public borrowing, so no "new" money is raised in the sense of new revenue streams to support infrastructure investments. Similarly the transfer of a toll or fee backed project from direct public operation to a PPP does not create any new revenue- it only moves the tolls outside the public budget.
It may be argued that PPPs are raising new revenue to the extent that they are associated with new or increased user fees; however, the merit of his argument rests on the assumption that the public sector alone could not raise these fees. This is rarely the case in either legal or economic terms; public officials generally have the authority to raise tolls and demand is typically sufficient to provide increased revenues. The case for PPPs is often more political: they are perceived to make toll increases more politically acceptable by shifting publicly perceived responsibility to a private partner. They also make deferral of the toll increases possible by, in essence, borrowing from the private partner to cover costs until future toll increases become effective.
In the United States, and especially in New York State, the availability to state and local governments of federally tax-exempt revenue bonds has opened opportunities for borrowing against user fees, and the reliance on these revenue bonds further limits the potential for PPPs to raise "new" money. Projects that PPPs could support through user fees are already backed by these revenue bonds or can be backed by such revenue bonds issued by public authorities with the benefits of tax exemptions. A recent Citizens Budget Commission study found that in New York State public authorities had $55.7 billion in debt outstanding for projects backed by user fees or similar revenues and another $68.9 billion in authority debt backed by tax revenues; in comparison, direct state and local general obligation debt was $61.5 billion.71 Thus, in New York the need is not for more legal borrowing capacity; it is for new revenues to support the investments - and PPPs do not yield that.
The one way in which PPPs can create "new" money is not a priority in New York. PPPs can be used to finance projects that are not a part of a government's regular capital plan because they are of low priority and/or because their feasibility as a user fee backed project is risky. In this instance, the government may ask for private sector initiatives to finance such projects, and the money is more clearly "new" in the sense that the government would not have provided it under foreseeable circumstances. The creation of new high-priced and/or high occupancy toll roads to compete with congested public roads is sometimes presented as such opportunities; however, even in such cases, the public partner might be required to provide at least some financing to move the project forward.72
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71 Citizens Budget Commission, New York's Public Authorities: Promoting Accountability and Taming Debt, (September 2006) Table 2, page 6.
72 Ken Orski. "Public-Private Partnerships at the Crossroads: Special Conference Issue." Innovation Newsbriefs. 25 August 2008. Available at http://www.innobriefs.com/.