Narrowing the Infrastructure Gap

Aug 29, 2013

This post is the first in a series on infrastructure investments.

Nearly everyone agrees that fortifying the nation’s deteriorating infrastructure system would put Americans back to work, spur the economy, enhance global competitiveness, reduce congestion, and improve safety. The question is how to pay for it.

Federal funds are essential; however, they are quickly drying up. As of 2015, federal aid for highways and transit will be cut by 83% if new Highway Trust Fund revenues are not identified. If Congress fails to address the revenue problem as part of a multiyear reauthorization of the surface transportation bill, which expires in 2014, infrastructure decision making and revenue raising will be placed squarely in the laps of cities and states.

The Highway Trust Fund isn’t the only infrastructure funding mechanism in trouble. Congress also needs to reauthorize the Water Resources Development Act, which provides resources to the Army Corps of Engineers to improve and replace locks, dams and levees, and dredge key waterways. A sturdy water infrastructure is essential for the movement of agricultural products, energy, and other natural resources and goods.

But in an era of deficits and budget shortfalls, can the public sector continue to front all of the money?

The answer is no. Pay-as-you-go funding from the government is not going to get major projects off the drawing board. That is where public-private partnerships (P3s) come into play. The business community can, and should, bring innovative ideas for designing, constructing, operating, maintaining, and financing infrastructure.

The number of P3s in action in the United States, though, lags far behind that in both the developed and developing world. How do we remedy that?

  • Lead from the top. Governors and mayors—and other elected decision makers—need to embrace P3s as a way of doing business.
  • Develop bankable projects. P3s aren’t free. Revenues from projects must be generated to pay back lenders and investors. Revenue generators include direct user fees (e.g., tolls, ticket revenues), developer impact fees, general tax revenues, and special purpose taxes.
  • Attract private capital. Federal credit programs, such as low-cost lending and private activity bonds, can reduce the total cost of debt and make infrastructure projects appealing to equity investors.
  • Accelerate the process and reduce uncertainty. Speed up federal environmental and permitting processes, ensure that public officials can’t pull the rug out from under a project after a private sector consortium has invested in bidding on a project, and empower public officials to make timely decisions.

Our series continues next week with a look at some some successful P3s. 


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