Public-private partnerships are an excellent way to tackle large-scale problems and development opportunities that otherwise require an insurmountable amount of resources. And they can be an open invitation to financial ruin when they’re not structured correctly. That’s the reminder we got after hearing about the financial fallout of a tri-county…
When the concept was hatched earlier this decade, it was hailed as an ideal setup to take advantage of the ripe market for solar tax credits, called SRECs. That was enough to get the county governments to borrow $88 million for the public installation project, which was going to pay for itself through cheaper electricity to local government.
Anyone who has paid attention to the solar market in the years since 2011 can guess how this ends. The SREC market crashed as supply surpassed demand, which created trouble for many companies in this space and many projects like the tri-county SunGeneral project. The fall of SREC values ruined the prospects for the project — and the developer, which is exploring potential bankruptcy. The consequences for the county governments, which have a lot of money to repay, and the developer are serious.
So much for the magic of public-private partnerships, right?
The conversation we were reminded of, actually, was a measure put forward earlier this month by state Sen. Robert Auth, who is interested in eliminating county governments. We’re interested in that, too. It would prevent counties from making borrowing decisions that they have no right sniffing, given that they lack the mechanisms a state government has to manage budget problems. According to The Star-Ledger, which reported the SunGeneral story last week, Sussex has paid off just a fraction of its share of the money, and the other counties involved are in the same boat, which bears a suspicious resemblance to the Titanic.
Public-private arrangements can be extraordinarily useful, but these toys aren’t for local governments to play with. In the case of this project, we hope that work can get restarted so there can be some movement toward a sunnier resolution here. Going forward, we think deals like this make a lot of sense for a state government that has more revenues at its disposal and is able to spread the damage more easily when something like this goes awry. But given the economic situation New Jersey and its local governments are in, borrowing of any kind ought to be off limits. Let’s hope we can contain the damage from this disaster, and stave off the next one by stopping the borrowing.