Minnesota Cities Magazine
More from May-Jun 2017 issue

The Public-Private Partnership Advantage

By Mary Jane Smetanka

When a survey of Andover residents in the early 2000s showed people really wanted a pool, city officials found themselves in a bit of a quandary.

They didn’t know how to operate a pool. And they didn’t Staff members of the City of Andover and YMCA stand in front of the community YMCA.want to operate a pool. So they looked for a private partner who knew how to run aquatic facilities. They found their specialists at the YMCA of Metropolitan Minneapolis.

The public-private partnership that resulted became the Andover YMCA Community Center, which opened in 2005 and has been a smashing success. The city runs a hockey arena and field house in its part of the complex, while the YMCA runs fitness operations in its area, complete with a pool.

The development on city-owned land has been so successful that the partners are thinking about expanding the complex.

“We knew we could run a field house and an ice arena, but we did not have expertise in other areas and that’s where we looked to experts at the Y,” says Jim Dickinson, Andover city administrator. Partnering with the Y helped speed the development, resulting in a community asset that real estate agents say makes the city more attractive to new residents.

The beauty of public-private partnerships
Andover’s combination community center and Y is an example of a “P3,” a public-private partnership. P3s and the role they can play in Minnesota cities will be discussed at the League of Minnesota Cities Annual Conference in June.

About 34 states have laws that allow cities and counties to partner with private entities to design, build, operate, and maintain a facility for public use, says Julie Eddington, public finance department attorney at the law firm of Kennedy & Graven in Minneapolis. Minnesota doesn’t have laws that specifically govern P3s, Eddington says, “so we work around that to find creative ways for cities to partner with private entities to benefit the public.”

Jessica Cook, a financial specialist at Ehlers, a financial advisory company that works with public-sector clients, including Minnesota cities, says, “The private sector can make things happen faster and more cheaply. Perhaps the public entity doesn’t have enough staffing or decision-making resources, and if they can partner with a private firm that has more capacity, they can get a project done quickly.”

But, she says, that has a cost. “People get excited when you bring new resources to the table, but what they forget about is that the private sector won’t get involved unless there is a return on services. There will be a cost to taxpayers. That often gets lost in the conversation.”

How P3s work in Minnesota
In other states, public-private partnerships have been used to build multi-billion dollar projects like toll roads, reservoirs, sewer systems, and bridges. While there have been some giant P3 projects in Minnesota, including the U.S. Bank Stadium for the Vikings and parts of the Mall of America in Bloomington, many of the projects involving Minnesota cities have been recreational facilities, like the one in Andover, or performance con¬tracts with private firms to reduce energy consumption in city buildings.

Public participation in redevelopment or economic development projects, in which tax increment financing and tax abatement are common ways for cities to pay for their part of the partnership, can also be considered P3s.

In Renville and Sibley counties, 10 small cities worked with a cooperative to get high-speed internet. The cooperative designed and built the broadband communications network, and the cities helped pay for it with abatement bonds. The cooperative owns the network and will operate and maintain it. (Read more about this partnership in the September-October 2016 issue of Minnesota Cities magazine at www.lmc.org/rsfiber.)

Minnesota law requires cities to accept the lowest construction bid in most cases, and that puts a limit on P3s, says Don Archibeque, project executive with the design-build firm SEH Inc. Still, he says, Minnesota cities are exploring using P3s to develop projects such as senior living facilities and even water towers.

In the case of a water tower, Archibeque says, a city might not have anyone on staff who knows how to design or maintain the tower. The city could offer land for a site, have the private firm design it and oversee construction, and then lease it back from the private firm.

According to Cook, cities look at P3s for several reasons: to avoid future risk or limit liabilities like unpredictable costs; to get a project done quickly; and to use private-sector experience, expertise, or financing when a city doesn’t have it.

Of course, city officials must be very careful before entering a P3 arrangement, says Dan Greensweig, assistant director of the League of Minnesota Cities Insurance Trust.

“As with any significant infrastructure financing arrangement, it’s important for a city to consult with its city attorney, financial advisor, and bond counsel early on and throughout the process,” Greensweig says. “Their assistance is crucial in negotiating, drafting, and reviewing agreements, and complying with the state and federal laws and procedural requirements that apply to these types of projects.”

Maplewood partnership
Last year, similar to Andover, Maplewood turned to the YMCA as a partner when costs of running and maintaining its community center began escalating. With no downtown, the 1994 community center is the city’s gathering place, and the City Council was determined to keep it open, says DuWayne Konewko, the city’s environmental, economic development and recreation director. The center has a pool, fitness center, gym, banquet room, event space, and other amenities.

Maplewood City Manager Melinda Coleman and Mayor Nora Slawik are very happy with the arrangement they have with the YMCA to manage the city's community center.But with annual operating subsidies ranging from $250,000 to $450,000 and anticipated maintenance costs over the next 15 to 20 years estimated at $15 million, the city wanted a solution that would keep the center open but limit the city’s financial exposure. So Mayor Nora Slawik and City Manager Melinda Coleman worked out an agreement with the YMCA.

The Y began running the facility last November. The Y gets the membership fees and the city no longer contributes to the operational side of the budget, Konewko says. In each of the first two years, the city will kick in $1.5 million for capital improvements, with that amount dropping to $200,000 in the third year.

“In theory, the city could repurpose some of that money and have additional resources to spend on city stuff like park improvements,” he says.

Maplewood residents will get a cheaper resident rate at the Y for three years. So far, things are going well, Konewko says.

“The YMCA shares the same values we have with youth programming and strong families, so there’s synergy there,” he says. “And at the end of the day, this is what the Y does for a living. They can bring expertise, whether in programming or marketing. Their reach is huge, and our community center will remain open as an asset to the community.”

For Andover, the Y partnership sped development of the community center, Dickinson says. The Y’s 30-year lease paid 49 percent of the $18.5 million construction cost. The city’s Economic Development Authority issued bonds for the total cost of the complex. The city leases the facility from the authority and subleases it to the Y. And the city pays the debt.

The YMCA is responsible for renovations on its side of the facility and needs to get permission from the city to make changes. The partners share costs in common areas.

Proceed carefully
Andover’s P3 has worked well for everyone, but Dickinson says cities that are considering such arrangements should move carefully.

“Do what you know,” he says. “Then explore and vet what you don’t know before you go into it. You have to make sure the city is taken care of. Businesses come and go, but the city will be here.” Information about the 2017 Annual Conference

Cook too urges cities to thoroughly investigate possible P3 arrangements. Local governments can borrow money more cheaply than any private firm, so cities need to think carefully about the finances of an agreement.

National meetings for legislators have been held on public-private partnerships as more states and local governmental units want to learn about and explore the issue. Archibeque senses more interest in public-private partnerships in cities he deals with.

“Absolutely there is more interest,” he says. “We also believe the political climate has evolved where political leaders are willing to partner with private companies to use their innovation and creativity on the public side.”

Eddington agrees. “It is complicated,” she says. “But this is the wave of the future nationally. I think Minnesota will follow suit.”

Mary Jane Smetanka is a Minneapolis-based freelance writer.

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