The following article was co-authored by S&P Global CEO Doug Peterson, and first appeared on www.usnews.com.
With some of his first words as president-elect, President Donald Trump made clear that repairing and modernizing our roads, bridges, airports and water systems will be a priority early in his presidency. "We're going to rebuild our infrastructure, which will become... second to none," he said in November.
This is welcome news for American workers and communities concerned about our health and safety; the cost of goods and services; long-term economic growth and productivity; and our competitiveness internationally.
The need for significant additional investment has been widely reported, with various estimates reaching such astonishing levels as $1.4 trillion by 2025. While increased sustainable sources of funding will be essential, governments are faced with fierce competition for limited resources and simply won't be able to meet their infrastructure needs on their own – nor should they. However, by focusing on the role the private sector can play, the president has also opened the door to a broader discussion of what else might work.
Since the election, much attention has been given to a proposal released by his campaign that would rely on a significant tax credit (82 percent) for private equity investments in infrastructure projects. Unfortunately, this has attracted misplaced skepticism about the capacity of the private sector to support broad-based infrastructure investment.
In fact, public-private partnerships are more attractive for a wider array of projects than is commonly understood; they often allow the public to share risk, capture new sources of revenue and accomplish more projects more quickly – all at a lower cost while advancing needed innovation.
In Pennsylvania, for example, 900 structurally deficient bridges across the state are being replaced and updated for 30 percent less and in three and a half years instead of 15, all while transferring responsibility for cost overruns and 25 years of maintenance to the private sector partner. All with no tolls. This model of bundling smaller, even rural projects, together to achieve dramatic efficiencies has the potential to be replicated beyond just bridges to areas like broadband, water infrastructure, public lighting and roads.
But other types of projects break the mold as well, including the Long Beach Court House, the Detroit Metro Region Freeway Lighting project and the Port Miami Tunnel; all financed in part through private capital and all projected to achieve greater value at a lesser cost than the traditional approach.
Public-private partnerships are being pursued around the world because there is growing recognition of the limits of government resources; of infrastructure's life-cycle costs and thus the benefits of transferring risk; and of the many other benefits the private sector can bring to a project. Trial and error has also brought much more experience and sophistication to ensuring that the public's interest and pocketbook are protected.
Another unfortunate critique is that providing tax incentives to encourage more private investment and reduce the cost of financing for the public sector is simply a boondoggle for Wall Street investors. Whether in the form of tax credits or of traditional tax-exempt municipal debt, tax incentives can have a tremendous impact by reducing the cost of capital investments to the taxpayer and have a long history of supporting infrastructure investment in our country.
Enacting new, and expanding existing, financial tools – tax exempt bonds, tax credits, lending or credit support and the like – should be pursued to encourage and facilitate more successful public-private partnerships. A broad mix of financing options is needed to attract a wide range of investors, including those who can't use tax exemptions or credits, like pension funds.
However, we will need to take some additional proactive steps to ensure even robust tax incentives and other financing tools deliver all the projects the public needs. For instance, only about 33 states have enacted laws authorizing private investment in infrastructure and many of those are rather limited. All 50 states should be encouraged to enact broad legislation authorizing the full range of public-private partnerships for all types of infrastructure.
In addition, federal infrastructure programs should, above a threshold, require that all financing and delivery options be analyzed before a project moves ahead; permitting and regulatory reviews should be further expedited and better coordinated; and state and local officials should be provided help accessing the tools and expertise they need to develop projects that can utilize private investment.
The Bipartisan Policy Center's Executive Council on Infrastructure, on which we both serve, has issued a comprehensive set of recommendations, some of which we have described above, for federal and local action to bring about a new model for U.S. infrastructure. The challenge before our country now is how to find the most efficient and innovative ways to meet our needs. While additional funding is certainly needed, and not every project can make use of private capital, a robust commitment to both is necessary, and the private sector is ready and willing to step up.