Faced with vastly aging infrastructure and an economy rattled by the COVID-19 pandemic, the National Governors Association (NGA) held a virtual summit this week to discuss ways to finance the nation’s infrastructure projects.
Much of the focus was on public-private partnerships (P3s) and the possibility of expanding their role in the sector. Governors and private experts discussed how public and private sectors could maximize returns to the public and noted successful P3s in transportation, broadband, energy and more.
“Governors of both parties are calling for large-scale federal investments in our nation’s traditional infrastructure systems, including not only roads, bridges, transit, and aviation systems, but also substantial investment in our energy, water, broadband and cybersecurity infrastructure,” Maryland Gov. Larry Hogan said. “These investments really can bring people back to work and help our long-term recovery.”
Arizona Gov. Doug Ducey led a panel that focused on maximizing returns. He cited examples of successful P3s in his own state, including the largest highway project in Arizona’s history: the South Mountain Freeway project. Completed last year, that project finished three years ahead of schedule and saved $100 million beyond expectations.
P3s have had a similar positive effect in Virginia, aiding projects on I-66, I-95 and I-395, as well as rail projects like the American Legion Bridge over the Potomac. Virginia Gov. Ralph Northam said the state has relied heavily on its relationship with the private sector to move forward. To continue that momentum, he noted that states need to think outside the box, take advantage of federal aid and innovate in transportation investment.
The governors were joined by Lawrence Slade, CEO of the Global Infrastructure Investor Association (GIIA), and Carlos Ugarte, Global Head of Corporate and Business Development for Cintra, one of the world’s largest infrastructure-building companies. Both were adamant that private industry and investment will have a part to play in any future endeavors while acknowledging that the United States has a very different relationship with infrastructure than other nations.
For example, Slade pointed to how few assets GIIA has in the U.S. compared to other regions of the world – of some 1,500 assets worldwide, only 186 operate in the U.S. While he lauded the P3 model under certain circumstances, he also emphasized there are other funding models which might better suit states.
“While there’s a broad consensus around the importance of investment in infrastructure, there’s less alignment about the optimum value between public and private finance,” Slade said.
He argued for leasing public properties to private companies, striking deals that wouldn’t pressure budgets. This, coupled with small changes to tax incentives and innovation, would allow much more to come of infrastructure funding efforts.
Ugarte echoed this, but noted that P3s are largely viewed incorrectly in the United States. “The problem in the U.S. is P3s are seen as a financing tool,” Ugarte said. “They’re missing the big point. The big point is generating value for the asset. Increasing the value for the asset so that will release the taxpayer money for other needs.”
While there are no backdoors to accountability, he noted the form that takes is situation dependent. Some risks are better managed by the government, some by private interests, some shared, in Ugarte’s estimation.
In addition, infrastructure companies should be focused on innovation and working with governors to achieve it. “The most important thing is to let the private sector bring the ideas and let them compete for innovation,” Ugarte said.
“I think P3s will accelerate in the U.S. not because of conviction but because of necessity. Because of that necessity, I think it’s important we mix, and sit, and brainstorm with the private sector to see what we can deliver fast. We need to produce projects to bring people back to work. Solve the congestion problem, but we have another variable now — what projects are fast to do?”
On a second panel Montana Gov. Steve Bullock, Wyoming Gov. Mark Gordon; IFM Investors Executive Director Tom Osborne, and Macquarie Managing Director David Agnew discussed tailoring projects to states’ specific needs.
Bullock noted that sustained investments are needed in infrastructure, coupled with cooperation between the government and private interests. That said, projects like a toll road across I-90 in rural Montana might be significantly less effective than in other, more populous states.
“We have to be thinking beyond the traditional,” Bullock said. “Far too often when we think of public-private partnerships, we just think in terms of roads.”
Gordon underscored that a multi-state approach will be necessary to tackle the issue of infrastructure because the demands of logistics and strained supply lines demand it. He referred to his own state’s struggle last year when decades-old dams burst and drowned around 110,000 acres of farm production. While a temporary fix was managed, he said it pointed out just how vulnerable the nation is – a point COVID-19 has likewise driven home.
Building on the concept of a multi-state approach, Osborne proposed the notion of bundling, where multiple states pool their inventory to attract private sector investment.
Agnew agreed, adding that when governors convene, big things can happen. He just hoped that when they do, private investment would be considered as a tool in their toolbox every time. After all, he claimed, as invested as the private sector is in providing infrastructure, the U.S. has a kind of ceiling attached to those efforts, and the sector has been hindered both by the risks of innovation and a politically difficult process.
Going forward, he recommended three changes: encouraging states to make sure they understand their assets and what those assets might be worth, setting up new procurement structures as a collective of statewide expertise, and always considering P3s for big infrastructure projects.
“The competition that comes from that alone would pay huge benefits,” Agnew said. He added that there are hundreds of billions of dollars in private capital that want to invest in U.S. infrastructure if the right changes are pursued.
Meanwhile, Osborne said leasing public assets would help acquire new revenues and drive economic growth. The best thing states could do in his view would be to back federal legislation that incentivizes the leasing of existing infrastructure assets, so as to open states to invest in other infrastructure.
“It’s a proven method for catalyzing growth,” Osborne said.
For example, he pivoted to the Indiana Toll Road, a 156-mile freeway. Since leasing it to private investors, he estimated, more has been invested into it than at any time since its construction in the 1950s. Those efforts have in turn brought improved safety metrics and user experience, while Indiana gained 10 years of highway investment in return.