Economic experts and financial forecasters for years have warned that something must be done to address the nation’s critical infrastructure needs. The American Society of Civil Engineers (ASCE) 2017 Infrastructure Report Card echoed that grim warning again as it assigned an overall grade of D+ to the country’s infrastructure very recently.
The problem is that funding has simply not been available and deferred maintenance, expansion, upgrading and enhancing the country’s public assets have not been addressed in decades. Absent the financial investment necessary to meet growing infrastructure needs, the nation’s roads and bridges, dams, water resources, wastewater facilities and other infrastructure continue to deteriorate. But, now, there are indicators that change is on the horizon.
Available Private Financing
Funding is abundant in the private sector and investors are eager to bring capital, leading edge expertise and new technology to collaborate with public officials on large infrastructure projects. They are interested in all types of projects - highways, bridges, dams, drinking and wastewater treatment plants and energy-related projects. Private sector funders are also interested in construction on university and community college campuses, public transit and broadband initiatives. Most of these projects are otherwise going to be overlooked because of a lack of funding. Revenue that is required for even the most critical infrastructure needs is not available from government.
The nation’s current national infrastructure investment of 2.5 percent of gross domestic product (GDP) should be increased - at least to 3.5 percent - but that has not happened. If that benchmark is not met, the country could face a loss in GDP of almost $4 trillion by 2025.
The Rise of P3s as an Option
This has caused many public sector leaders to turn to public-private partnerships (P3s). As of the first of this year, more than three-dozen states, the District of Columbia and one U.S. territory have enacted legislation allowing some form of public-private partnerships. P3s are not a silver bullet solution for all types of large infrastructure projects, but they are attractive and appropriate for many and their popularity is on the rise.
President Trump and Federal Funding
Since his pre-election campaign days, President Donald Trump has touted a major $1 trillion infrastructure plan for the country that would rely heavily on private-sector involvement. His stated plan was to inject $200 billion in federal funds into the nation’s growing infrastructure needs with tax credit incentives to leverage the final $800 billion in private sector and state and local funding.
It now appears that the president has changed his strategy. In late September, the president said that his intention is to incentivize state and local government leaders to find ways to pick up a significant portion of the cost of their infrastructure projects. A White House official confirmed the change in thinking and also left room for a possible future shift by saying, “We will continue to consider all viable options.”
The administration says it is now contemplating paying for infrastructure needs via direct federal spending through new tax revenue or taking on additional debt.
To say there is surprise about the change of direction would be an understatement. And, it is hard to find any official who believes that state and local officials can come up with billions of dollars to address the country’s crumbling infrastructure needs. It’s possible that there is too little understanding about what the administration is attempting to do, but most outsiders believe that it is impossible to address the country’s needs without private sector investment in some form or fashion.
Recent Trends in P3s
Because of the delays, many states and cities continue to collaborate with private sector investors to get major projects completed. The mayor of Anchorage is so sure of the important role P3s can play in reviving local infrastructure that he recently penned an editorial saying his city “is ready” to begin forging public-private partnerships. The mayor pointed to the more than $400 million in public development projects in the city being created with partnerships and public investments, saying that “developers willing to take risks today will realize rewards tomorrow.”
Other cities and states are also embracing P3s as an alternate source of funding for projects that have languished because of lack of revenue. A construction contract for one of the largest infrastructure projects in the United States is set to be awarded in Virginia in 2019 and a design-build finance-operate-maintain P3 is being discussed. Budgeted at $3.3 billion, the I-64 Hampton Roads Bridge-Tunnel expansion project in southeastern Virginia will mitigate traffic congestion by widening the existing two 2-lane tunnels where traffic often exceeds 100,000 vehicles per day. A major transportation project in Maryland has the potential to become the largest highway P3 in North America. This project would expand the Baltimore-Washington Parkway and Interstates 495 and 279 and the estimated cost is $9 billion.
The Alabama Department of Transportation is expected to issue a request for qualifications this fall and a request for proposals next spring for a new I-10 bridge over the Mobile River in Mobile. Officials are considering a P3 for the estimated $850 million project. Large transportation P3s have become the norm because of funding but also because long-term maintenance is extremely attractive.
State leaders have seen the “handwriting on the wall”…federal funding will not be adequate or readily available to solve their critical infrastructure needs.
The Potential of Tax-Driven Projects
Some states are making significant changes. Oregon passed a $5.3 billion infrastructure bill that will be funded through an increase in the state gas tax, implementation of a sales tax on vehicles and bicycles and creation of a new payroll tax. The California legislature approved a $5-billion-per-year plan to increase the state’s gas and vehicle taxes to pay for major road repairs. And a statewide vote to allow the sale of bonds to finance up to $3 billion in road projects that would be paid off with tax and fee increases was put before voters in West Virginia. However, tax and fee increases are unpopular and many think that the attractiveness of private sector investment will be enhanced when citizens realize that infrastructure funding will either come from private sector investors or from individual citizens and taxpayers.
Speeding up the Process
The president has taken small steps to incentivize private sector investors to engage in major infrastructure projects. In August, he signed an executive order to help speed regulatory processes for large public projects. Major highway projects often require up to 16 approvals by nine different agencies before construction can begin. In the past, the federal government has often delayed critical projects for a decade because of government bureaucracy. There are changes occurring to cut those timelines by more than half.
Other Funding Options
Many funding options are under consideration. The administration has said it could increase funding of the Transportation Infrastructure Finance and Innovation Act (TIFIA) program and the Water Infrastructure Finance and Innovation Act (WIFIA) program. The group studying an infrastructure program has said that increasing TIFIA to $1 billion for 10 years could leverage $140 billion in credit assistance and $424 billion in total investment. Funding the WIFIA program would help leverage investment of private capital in large drinking water and wastewater projects.
A national infrastructure bank has also not been ruled out. Simply put, there have been no final decisions made about how to fund the hundreds of large infrastructure projects that must be addressed soon.
The nation’s roads, airports, power grids and water plants desperately need attention. The longer the wait, the more costly the fix will become. Public-private collaboration, whether it is a public-private partnership or not, will play a pivotal role in restoring the health of the country’s infrastructure.