A provision in the latest deal would require cities and states building transit to commission a study, usually conducted by management consultants, giving private finance ‘a fair shot.’

A provision buried in the new bipartisan infrastructure bill could give private capital a toehold in public transit projects.

According to a summary of the deal, which the Senate voted to start debating on Wednesday, the item requires cities and states that apply for federal credit for large-scale transportation projects to consider private financing. Lawmakers would have to commission a "Value for Money" (VFM) analysis to evaluate whether taxpayers would be better served by using a public-private partnership (P3), in which a private lender commits upfront capital in exchange for the right to pocket, for example, toll road revenue.

"Evaluating the value of the P3 model is an important step that is not always taken," reads the summary on page 55. "A VFM ensures that states and localities are giving the P3 model a fair shot."

The requirement would not extend to public utilities like the water, sewage, and power sectors, though private equity firms have prowled around those projects ahead of anticipated spending. But it would apply to transportation projects over $750 million, potentially opening up highway, airport, and mass transit development, where cash-strapped localities have lately turned to private financing.

It’s unclear how much functional impact this provision will have, said Isaac Boltansky, director of policy research at Compass Point Research and Trading, which serves large institutional investors. But the inclusion of the VFM requirement, as well as a handful of pilot programs to boost P3s, signals that despite losing out on more direct funding for privatization, Republicans are still hoping to make inroads on the financier-friendly infrastructure policy they have long sought.

VALUE FOR MONEY STUDIES weigh whether it’s worth using private capital for public works.

In most cases, an objective analysis would say no, as public tax-exempt financing for infrastructure is typically cheaper.

Privatizing infrastructure to raise capital is often a bad deal, MIT and Harvard economists warned in an Aspen Institute study published earlier this month. That option is "only attractive when the private sector can secure funds on more favorable terms than the public sector. But the U.S. Treasury borrows at a particularly low rate and most state governments also have excellent bond ratings."

Proponents of P3s point to inefficiencies in government, arguing that public projects overrun schedules and private firms operate assets at higher quality while cutting costs. They add that public infrastructure spending is plagued by a "feast and famine" cycle, making money unpredictable and subject to political whims. The private market could offer a steadier drip of funds, they say.

But private ownership does not necessarily translate into higher efficiency. Instead, privatization of municipal assets often leads to soaring costs and poor upkeep, as in Chicago, where mayors Richard M. Daley and Rahm Emanuel flogged off revenue-generating city property to private managers. Moreover, cost savings achieved by the private market are often at odds with other goals, like relying on union labor, or maintaining public control over public assets.

Advocates of publicly owned infrastructure don’t always oppose VFM studies—in fact, they have occasionally used the analyses to resist privatization. Currently, lawmakers in Maryland are pressuring state transportation officials to produce a VFM study explaining why they have chosen private-sector financing to add toll lanes to the Capital Beltway and I-270.

Maryland’s transportation agency and the private firm courting its highway are both conducting VFMs. A similar dispute in Indianapolis, where parties produced dueling reports on the advisability of privatization, led to a win for advocates of public stewardship.

But VFMs are often skewed to favor the private sector.

"It depends who’s paying the consultant," said Aaron Klein, an infrastructure policy expert at the Brookings Institution. Firms looking to enter P3s frequently hire accounting and engineering consultancies like PricewaterhouseCoopers or KPMG to evaluate the merits of a proposal. The VFM requirement could represent a big payday for these consultants, known for steep markups for government work.

California high-speed rail, the poster child for management consultant capture, ran more than $44 billion over budget and a dozen years behind schedule.

"Comprehensive project evaluation is enormously information-intensive and can be gamed," the Aspen Institute study cautions.

One way to select the best bang-for-buck projects would be with a national infrastructure bank, a proposal President Obama’s infrastructure team unsuccessfully championed. That would allow for some national coordination over spending policy. But a $20 billion "infrastructure financing authority" meant to aim federal cash at high-benefit projects was cut from the latest deal, leaving it up to states to conduct cost-benefit analysis. (Some advocates argued that the version of the infrastructure bank on offer, proposed by Democratic Sen. Mark Warner of Virginia, would have itself skewed in favor of P3s.)

Now, management consultants see an opening to insinuate themselves into local governments.  "This is the consultants’ support package," said a former Department of Transportation official with experience in similar transactions, adding that management consulting firms have pushed not only for VFM requirements, like the one in the latest bipartisan deal, but also for special funding set aside for consultants.

HEAVY RELIANCE ON MANAGEMENT consultants helps explain why risk assessments are often dubious and slanted toward private firms, according to a 2015 audit of VFMs in Ontario, Canada, a province that has leaned heavily on public-private agreements.

VFMs make preliminary assumptions about the risk of public and private financing. According to the Ontario study, those assumptions are frequently based on the discretion and personal judgment—not empirical data—of external consultants who simply assume public financing carries higher risks.

The studies often assume that the private sector will bear risks it does not end up bearing, once deals are inked.

For example, the Ontario study found, a VFM study of financing a hospital assumed that the contractor would bear the risk of future design changes. But in the final agreement, the contractor was not made responsible for project design. Instead, the contractor was actually paid $2.3 million after the original hospital design was changed.

The review also found that analysts assumed a higher cost for public procurement, on the biased assumption that public assets would be poorly managed.

So while use of VFMs isn’t inherently bad, critics of privatization say, the language in the infrastructure bill summary is an enticement to management consultants and private capital. The summary pitches VFMs as a solution to "underutilization of the P3 option."

Progressive groups have rallied against privatization in federal spending, and the absence of bigger cash incentives is a win for groups like Food & Water Watch, In the Public Interest, and the Sunrise Movement. What’s left for P3s includes some expansions of tax-free "private activity bonds" for transportation, broadband, and carbon capture projects, and a modest $100 million in "technical assistance grants" to help cities engage in privatization schemes like "asset recycling," which involves selling off old assets to pay for new ones.

While the Senate has voted to open debate on the $550 billion bipartisan bill, the final product could look substantially different. But even without serious privatization incentives in the bill, P3s could still thrive amid a gap between financial resources and infrastructure needs.

Overall spending on physical infrastructure in the bill is low, around $373 billion below President Biden’s initial proposal. Some say the president’s insistence on pay-fors—and subsequent refusal to tax at levels matching spending needs—gives cities and states little choice but to rely on the private sector.

"America’s inability to have the political courage that our parents and grandparents had, to actually pay for the infrastructure we’re using, is deeply disheartening. But being politically upset that the public isn’t willing to fund more infrastructure should not be confused with the necessity of conducting thorough analysis," Klein, the Brookings analyst, told the Prospect.

He pointed out that Biden declined to pursue some major pay-fors, like raising the gas tax.

The decision to strike a bipartisan deal, Klein said, "leaves us more dependent on the private sector to contribute to building public infrastructure. And the private sector is going to want something in return for their contribution."