The proposed $600 million new public health lab on the Harriman State Office Campus would be state-of-the-art, built on state land and house as many as 600 public employees.
Yet under an arcane construction arrangement proposed by Gov. Andrew Cuomo that would be the first of its kind for a state agency, the plan would also represent New York’s most aggressive foray into privatizing the construction of a major piece of infrastructure.
The scenario, as described by the Cuomo administration, would empower the state to look to the private sector to design, build, finance, operate and maintain the 650,000-square-foot new home of the Wadsworth Center, which oversees high-level public health research and monitoring for the state.
Despite a push by Cuomo last year, such heavily privatized construction of public facilities is not currently legal for state agencies. His plan for the new lab would carve out an exception for the Harriman project, making it a test case to sell lawmakers on his desire for broader access to public-private partnership construction.
These so-called P3 arrangements are touted by boosters as ways to deliver complex and expensive projects faster and with less risk of delays and cost overruns to their increasingly cash-strapped government sponsors.
But state Comptroller Tom DiNapoli‘s office last year flagged potential pitfalls — including “budget gimmickry” created by offloading the debt incurred to the private sector even as the state is still on the hook for annual management payments to the construction firm.
“Effectively, from the public standpoint, this is a mechanism to get a job built that otherwise might be difficult to make happen,” said Joe Hogan, vice president for building services at theAssociated General Contractors of New York State, a pro-construction advocacy group. “The building, the functions of it, the design of it, the construction all will be turned over to a private entity. There is some value to that certainly, and I think the question will become how well the state does in ensuring that they have a good deal of control over the situation moving forward.”
In an analysis this week, DiNapoli cautioned that such deals require close scrutiny because of their newness in New York, their complexity and because of the risk that taxpayers could get locked into potentially costly long-term pacts based on unrealistic assumptions. DiNapoli also said some key aspects of the Harriman proposal are unclear or appear to limit outside oversight without imposing “any financial limits on the size or scope of the project.”
Cuomo’s office said $600 million is an estimate.
“Public-private partnerships bring both opportunities and risks,” Deputy Comptroller for Policy and Analysis Robert Ward said. “The public, which foots the bill, deserves strong oversight and legal protections to avoid costly mistakes.”
Under Cuomo’s plan, the Health Department with help from the state Dormitory Authoritywould be empowered to select a private consortium to both design and build the lab, which while seemingly a basic concept is actually a departure from the way most public construction happens in New York.
On most projects, a government competitively bids two or more contracts, one for design and another for construction — an arrangement known as design-bid-build that often requires construction firms to work according to plans they did not draft.
So-called design-build construction — only allowed in New York since late 2011 and which the state is now using for the $3.9 billion replacement of the Tappan Zee Bridge — eliminates that two-step process in hopes of reducing delays and costly changes to the project. As the name implies, one consortium both designs and builds the project.
“They do assume more risks,” Richard Thomas, director of state/local legislative affairs for theDesign-Build Institute of America in Washington, D.C., said of the firms who sign on for the projects. “But on the other hand one of the things that design-build gives them is that it puts them in a position that they’re able to control those risks better.”
New York has been slower than other parts of the country to adopt design-build in part because of the wariness of labor unions, Thomas said. Cuomo, however, has attempted to overcome that with promises of project-labor agreements that include wage and other guarantees.
But if approved by the Legislature, Cuomo’s Harriman proposal would take design-build several steps further. The private consortium could also be responsible for raising the money to build the lab as well as operating and maintaining it for years, making back its investment and a profit over the intervening decades through so-called service payments from the state. The project pact could last up to 50 years, though the Cuomo administration says it expects it to be closer to 30 or 35.
While that might sound a lot like a lease agreement, Cuomo’s office is adamant that the state at all times will own both the land and the building. For Albany, which has clamored for decades to see private development on the 330-acre campus, that’s a key point.
The state budget amendment submitted last month that would clear the way for the lab explicitly bars the city from any oversight over the construction and pre-empts any efforts to extract revenue from the lab complex via taxes or any other special assessment.
That the project would be beyond the reach of local officials is not unusual on Albany’s ample state land, which is by law exempt from taxes and local zoning. But the fact that the bill language explicitly asserts this exemption may underscore the novel nature of the public-private deal being contemplated — especially in the context of the city’s growing frustration with its inability to pull revenue from state property to help fund services.
The Cuomo administration readily acknowledges that the exclusion language was included to leave no ambiguity that even though the lab may be privately financed, built and maintained, it would still be a state facility with all the related privileges.
“I think that it is a novel question about where does the private sector end and the public sector begin,” Mayor Kathy Sheehan said. “The challenge for the city of Albany is, No. 1, (that) it is a new facility on property that we were hopeful would be developed in the private sector, that we hoped would be taxable.”
Sheehan said the proposal highlights the necessity of Albany’s quest to get the state to pay it nearly $12 million annually in lieu of lost tax revenue on the Harriman Campus to help close its recurring budget gaps.
For the state lawmakers who will have to sign off on the deal, it may be a matter of weighing the risks versus the rewards.
Steering the project into the realm of private finance would keep otherwise public debt off the state’s books, meaning it won’t count against New York’s borrowing limit, said E.J. McMahon, president of Albany’s fiscally conservative Empire Center for Public Policy.
“Clearly there is a cap space issue with this,” McMahon said, noting Cuomo’s budget projects the state will be within $106 million of its borrowing cap by 2017, two years before the lab opens.
Richard Brodsky, a former longtime assemblyman and now a senior fellow at the left-leaning Demos think tank in New York City, disputed the notion that public-private partnerships actually save money on construction because it’s more expensive for private entities to borrow money and because the agreements also need to build in profit margins.
The benefits, Brodsky said, come in the later years from the private builder/manager’s incentive to build the facility better based on its obligation to operate and maintain it. That puts pressure on the state to negotiate a strong project agreement up front, he said.
“It’s not that it’s a bad thing,” Brodsky said, “but it has to be done with such care because if you make a mistake the taxpayer is left holding the bag for decades.”
© 2014, Albany Times Union