U.S. Infrastructure: we don’t need to find a solution – we need to fund one
Infrastructure projects provide the literal and metaphorical building blocks on which nations are able to construct their economies. Investing in and developing infrastructure helps countries to generate jobs, improve the quality of life for their population and boost economic growth. Yet, the United States has a notable deficiency in much-needed public funding for infrastructure.
“Persistent underinvestment…threatens our national economy. We don’t need to find a solution—we need to fund one,” says Amtrak president and chief executive Joe Boardman.
One potential solution to the funding conundrum may be the use of non-public funds. Accordingly, efforts are being made to attract private sector commitments and public-private partnerships (PPPs or P3s) are becoming popular. At a time when federal funding for infrastructure development is at an almost historic low, PPPs can help state and local governments tackle their funding issues. Thankfully, this process has already begun. In light of budgetary restraints at all levels of US government, steps are being taken to engage with private investors on infrastructure projects, notes Dale Bonner, executive chairman of Plenary Concessions. “Recent trends across the US include a growing demand for infrastructure investment and a lack of public support for taxes or user fees to support it. This has forced all levels of government to look more closely at innovative strategies to leverage private investment in public infrastructure. In the past two years, we’ve seen a large majority of states enable one or more forms of PPP delivery, with public agencies using the PPP model in California, Colorado, Florida, Indiana, Texas, Pennsylvania, and other states. This has resulted in a growth in the number of PPP projects across a wider range of sectors. In 2014, for example, we saw a more diverse pipeline of projects, more awareness and use of availability payment structures, and importantly, more federal leadership across party lines,” he says.
PPPs represent a largely untapped potential source of much-needed capital. The structure has worked well in other jurisdictions, such as the UK and Australia. However, take up in the US has been comparatively slow, although things are now improving. Between 2005 and 2014, 48 PPP infrastructure transactions were announced with an aggregate value of $61bn—40 of which successfully closed. According to a September 2014 report by Moody’s Investors Service, “The United States has the potential to become the largest P3 market in the world, given the sheer size of its infrastructure.” But the future success of PPP deals in the US will be reliant on a number of factors, most notably the next presidential elections, the continuation of federal loans and other forms of financial assistance to PPP transactions, and the availability of other funding sources for PPPs.
Ultimately, there will be no panacea when it comes to infrastructure development in the US. Given the size of the country and the cost of renewing infrastructure networks, simply relying on PPP investment or hoping for increased investment on a local, state and federal level will not yield the necessary results. Instead, efforts should be made to marry different investment streams together.
“PPPs are not a complete ‘solution’ to our infrastructure crisis, but they can create more capacity to get the work completed sooner, bring more private sector investment and innovation, ensure projects are completed on-time and on-budget, and provide long-term value for taxpayers,” says Bonner.