Viewpoint: Beyond the stimulus — funding infrastructure with private investors
As a beneficiary of the American Recovery and Reinvestment Act of 2009, and identified by President Obama for additional investments this year, infrastructure has been in the nation’s spotlight. Yet, to put the stimulus funds in perspective, $100 billion in the current pipeline falls very short of addressing the more than $2 trillion of U.S. infrastructure needs projected through 2015 by the American Society of Civil Engineers’ 2009 Report Card for America’s Infrastructure.
Stimulus money has funded, and will continue to fund, much-needed “shovel-ready” projects, but it is not intended to address the large-scale infrastructure projects desperately needed to secure the nation’s competitiveness in a global market. To fill funding gaps for large projects, some state and local governments are working with the private sector in public-private partnerships (PPPs). The arrangements can take many forms, making PPPs a flexible tool in the infrastructure funding toolbox.
Governments, schools and transit authorities are using PPPs to fund new capacity at a fraction of the total lifecycle costs if it was wholly publicly funded. Los Angeles County Metro; Prescott, Ariz.; Tampa Bay Water Authority and Chicago’s Regional Transportation Authority all have recently begun evaluating PPPs as a means to accelerate projects. The PPP structure allows government agencies to free-up cash for other projects, receive upfront funds or ensure a predictable revenue stream. For example, Virginia’s Department of Transportation (VDOT) is working with a private consortium to build 14 miles of high occupancy toll lanes for the I-495 Beltway. In the deal, VDOT is contributing only $409 million to the almost $2 billion project. If toll revenues exceed expectations, the public will share in the revenues.
PPPs also can be used for non-revenue generating projects, such as highway maintenance, which can help manage escalating costs and free up cash for more urgent projects. Private companies also can be tapped to manage existing public assets.
With more government agencies considering PPPs, states and cities are beginning to set standard processes for PPP project evaluation and selection. Having a process in place to evaluate potential privatization projects based on a consistent set of criteria increases transparency and helps remove significant uncertainties that can bog down projects. The approach also strengthens the probability of a project’s success by recommending only those projects that are suitable for privatization and identifying potential problems early.
For instance, Michigan has set up a centralized PPP unit for all government departments to consider potential infrastructure opportunities with the private sector. It is looking at a wide range of projects, including broadband, educational facilities, renewable energy, data centers, high-speed rail, and road and bridge projects.
Similarly, New York has created a State Asset Maximization (SAM) committee to identify infrastructure projects that might be appropriate for PPPs, and California has established the Public Infrastructure Advisory Commission, which, according to its Web site, was created “to help state and regional transportation agencies develop performance-based partnerships that deliver real value to the public.”
Other states and cities are developing guiding principles for PPPs. The Georgia DOT has developed comprehensive guidelines to drive project selection and delivery for PPPs, and the Arizona DOT is creating a similar approach as it begins to implement its newly legislated PPP authority.
Transparency is key
It also is critical that the public be a part of the discussions about funding large projects with PPPs. Public comment is critical in generating support and in helping protect the public interest by bringing potential issues to light early. In some places, such as Virginia, minimum review periods are required to allow the public ample time to examine proposals and participate in discussions.
Involving the public in the Internet age is less onerous that it once was. Research, proposals, agreements and comments can be shared easily online, allowing the public to make educated decisions independent of news reports and spin, and increasing faith in good government.
An investment that pays dividends
Today’s economic conditions have forced cities and states to reevaluate their priorities. Unlike other areas of the budget, infrastructure investment can pay dividends immediately and for years to come. Large infrastructure projects can boost the economy by creating long-term jobs, attracting and retaining businesses, and improving the overall quality of life for residents.
Fortunately, there are ways to move infrastructure projects forward without exacerbating the current financial burdens of infrastructure users and the community. Exploring ways that allow the public to stretch its dollars, and make investments sooner rather than later, is a fiscally responsible approach.
Richard Lee is partner in charge of U.S. Infrastructure Advisory at KPMG LLP .
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP.