Love-Hate Relationship with P3

by Tom Yamachika, President, Tax Foundation Hawaii

Our state has a love-hate relationship with public-private partnerships (P3).  P3s are where public (government) interests and funds partner with private companies to cooperate and share risks and benefits.

The most recent and visible example is our iconic Aloha Stadium. 

According to Senate Economic Development, Tourism, and Technology Chair Glenn Wakai, we have already spent over $20 million on consultants and planners over the past two years to conceptualize the project, which uses a P3 to develop the lands adjoining the stadium into a New Aloha Stadium Entertainment District (NASED).  Recently, however, Governor Ige’s office stomped on the brakes, notifying the Department of Accounting and General Services, which had been working on the project, that they couldn’t go forward with their planned request for proposals.  Mike McCartney, director of DBEDT, told the Stadium Authority board that the law authorizing the project funding doesn’t allow using a P3.  Senator Wakai, speaking on Hawaii Public Radio, warned that the project had “been sitting and sitting and sitting on the table for well over a year, and every month that goes by adds $2 million to the cost of construction.”

This turn-around in the middle of the project is unfortunate.  But it is not the only instance of P3s getting sacked.

In 2005, the Hawaii Community Development Authority (HCDA) selected a $650 million proposal from Alexander & Baldwin Inc. to develop 37 acres of state land on the Ewa side of Kewalo Harbor.  A&B’s proposal envisioned condominium towers, restaurants, stores, a hula amphitheater, and a waterfront promenade, among other things.  The 2006 Legislature passed a bill to prohibit residential use in the area, effectively killing the deal.

In 1998, HCDA’s board selected a plan by local Republican businessman D.G. “Andy” Anderson for an entertainment complex involving some of the same land as the 2005 proposal.  That P3 proposal included a Ferris wheel, laser light tower, concert shell, shops, restaurants, and even a miniature golf course.  But in negotiating details with a hostile staff and Democratic Gov. Ben Cayetano, the board lost confidence in the financial projections offered by Anderson and killed the project.  Anderson complained that his plan was solid and was scuttled for political reasons.

Certainly, P3s work sometimes.  We see them in state government on somewhat of a smaller scale.  The food vendors at the sports games that have been played at Aloha Stadium can be thought of as P3.  A private vendor supplies the food at the University of Hawaii.  A private vendor runs Maui Memorial Medical Center, helping to provide needed medical care to the island without the horrific losses that were happening under state government administration.

One thing that our lawmakers should be seriously thinking about is whether and in what instances they are willing to tolerate P3s.  The debate about P3s seems to have many elements that are similar to the debate about privatizing some government services.  Are we willing to let some Joe Schmoe profit from a good or service that government is or was providing?  Are we willing to let those jobs be staffed by folks who are not in our powerful government unions?  Would it be justifiable if Joe can provide the goods or services more efficiently than government can?  Would it be justifiable if Joe can provide those goods or services at lower cost to the taxpayers without an appreciable reduction in quality?  Would it be justifiable if the vendor is as transparent and accountable to the public as the government agency is or was?  If we make the decision that the P3 has merit and is good for our State, what risk is there that in a few years the government leaders will change and put the kibosh on the P3 that had been started?  Is there a way to manage the risk?

Lawmakers?  Candidates?  Where do you stand on this?