Discussion: (0 comments)
There are no comments available.
View related content: Economics
Editor’s Note: The op-ed below has been updated slightly from its original publication in Politico on April 5. The original version can be seen here.
Every serious study of U.S. infrastructure has reached the same conclusion: More investment is needed – and fast.
But an amendment in the Senate’s version of the highway reauthorization bill, which recently passed, penalizes any state that leases an existing transportation facility. The state would lose part of its federal highway funds. This amendment, proposed by Sen. Jeff Bingaman (D-N.M.), actively discourages infrastructure investment if it comes from a private source. The Senate bill would also eliminate the use of Private Activity Bonds for leases of transportation facilities, which are critical in attracting private investment. Yet America’s dilapidated transportation system desperately needs private investment for renovations and maintenance.
“With the Bingaman amendment, the Senate highway bill is likely to have a chilling effect on future public-private partnerships at a time when U.S. infrastructure needs every dime of investment it can get.” -R. Richard Geddes
The final report of the National Surface Transportation Policy and Revenue Study Commission, on which I served, projects that available government funding for U.S. highways would fail to cover investment needs by $139 billion to $172 billion per year over the next decade. This could mean potentially serious, even fatal, consequences. Consider, the I-35W bridge in Minneapolis collapsed during our deliberations, killing 13 people and injuring 145.
One of America’s last hopes to revitalize its crumbling transportation infrastructure is attracting additional private investment. Leasing existing toll roads, known as brownfield public-private partnerships, is one example of innovative financing of infrastructure projects.
This brings in fresh investment by contractually requiring the private partner – chosen through competitive bidding – to renovate a road, bridge or tunnel, and to maintain and operate it according to clear performance standards. In return, the private partner gets the toll revenues – just as investor-owned electric utilities are compensated by bill payments in return for maintaining and operating the electricity system.
Brownfield leases effectively break the government’s monopoly over toll road operation with competitive private bids. Taxpayers benefit because the costs of the facility’s maintenance and operation are moved off the government’s books. In addition, these leases transfer the risk inherent in infrastructure operation to investors and increase its transparency, instead of placing it on the backs of unsuspecting taxpayers, where it remains opaque.
These leases can create new opportunities for investors. Public and private pension funds in particular are attracted to the stable, long-term income from tolls they receive in return for providing the capital desperately needed to renovate the road, bridge or tunnel. For example, the Dallas Police and Fire Pension System in 2009 acquired a direct 10 percent stake in the $2.7 billion Texas LBJ Freeway. When one considers taxpayers, investors and the motorists who use the renovated facility, brownfield leases are a win-win-win.
Yet the Bingaman amendment stands not only in direct opposition to President Barack Obama’s prodigious initiatives to increase infrastructure investment, it also works against what New York Gov. Andrew Cuomo has planned for his state.
The president has repeatedly called for increased infrastructure investment, and his 2013 budget encourages states to pursue innovative financing and attract more private investment. The Transportation Department’s Office of Innovative Program Delivery has attracted some of the best minds in transportation policy to promote such innovative financing approaches. Meanwhile, British Prime Minister David Cameron just announced a plan to attract global investment to British infrastructure by promoting brownfield leases.
Despite its long history of private investment in railroads, canals, electricity, natural gas, water systems and many other sectors, the United States now lags behind many other countries in private infrastructure investment. After controlling for the relative size of the economies, Canada has seven times more private investment in infrastructure than the United States. Mexico, Latin America and the Caribbean have about 3½ times as much – as does Europe. The hostile environment created by some U.S. politicians is an important deterrent to private investment.
With the Bingaman amendment, the Senate highway bill effectively penalizes states for using innovative infrastructure financing. It is likely to have a chilling effect on future public-private partnerships at a time when U.S. infrastructure needs every dime of investment it can get.
Rick Geddes is a visiting scholar at AEI.
There are no comments available.
1150 17th Street, N.W. Washington, D.C. 20036
© 2014 American Enterprise Institute for Public Policy Research