Pay to Play: America’s Infrastructure Program 2018 and Beyond

Ways to Pay for America’s Infrastructure Needs:  How will we pay for the future infrastructure bill that is heating up on Capitol Hill?  More importantly, bill or no bill, how will we pay for the infrastructure needs of the United States?  In its 2017 Report Card, the American Association of Civil Engineers (ASCE) estimated that the U.S. needed to invest $4.59 trillion in its infrastructure between right now and 2027.  ASCE estimated that Public Private Partnership (P3) programs will only fund 10-15% of America’s infrastructure needs.  This blogger believes that the 10-15% must and will be increased to 40-50% for using P3 delivery methods, otherwise our infrastructure will continue to crumble. 

Currently, the major funding sources on the table are: direct appropriation by the Federal Government; P3 programs; National Infrastructure Bank; Move America Bonds, Tax Credits; Tax Repatriation; Carbon Tax; and Sale of Government Loans.  On a more micro-level, there has been talk of a gas-tax hike, but will that generate enough revenue to fund the ever-growing need to build and replace America’s infrastructure needs.  I dare to say, the gas-tax won’t provide enough fire to fuel this engine. 

So, what is needed?  Alternative financing and creative design/construction delivery models that can meet the demand of our Nation’s ever-growing infrastructure needs.  At Davos 2018, AECOM, a major global infrastructure builder and financier, released a report, “The Future of Infrastructure,” that outlines the issues faced in delivering infrastructure projects and the funding shortages that lead to project failures.  AECOM’s report surveyed more than 500 engineering, construction, and infrastructure financing professionals, and 82% said that “adequate investment in infrastructure projects is crucial to national prosperity.”  This blogger believes that investment in our infrastructure is necessary for national security and to generate first class assets that will enhance our Nation’s value.  Seventy-seven percent of the respondents agreed that use of public-private partnership (P3) would be effective.

Let’s explore some of the most talked about methods for financing the Country’s infrastructure needs.  Raising the federal gas tax, which is at 18.4 cents since 1993 is gaining traction. This certainly could help fund the U.S. Highway Trust Fund and pay for some of our highway/roads/tunnel/bridges.  It certainly won’t be enough, and it won’t fund our other infrastructure needs.  Previously listed above are other major funding sources, including direct funding by the Federal Government. But the most overlooked funding source to-date is private and semi-private investment.  Investment will come from private equity infrastructure funds (e.g. Macquarie Capital USA, Brookfield, Infrared Capital Partners, etc.), public pension funds (see e.g. the largest U.S. public pension fund, California Public Employees’ Retirement System/CalPERS, intending to invest 3% of its assets in infrastructure), large construction/development companies (e.g. AECOM, Bechtel, Walsh, etc.), and concessionaires (VINCI, Integra Capital Partners, etc.). 

Bottom line, the United States needs money to fund its decaying, asset-choking, and revenue-depleting infrastructure.  Private and semi-private funding, along with creative, innovative, and time and money saving project delivery methods are needed.  Federal and state governments must embrace the new norm — risk sharing and revenue sharing.  Federal and state governments must embrace P3 contracting approaches, such as Design-Build-Operate-Maintain (DBOM), Design-Build Finance (DBF), and Design-Build-Finance-Operate-Maintain (DBFOM).  And, when the Federal and state governments are ready, they must be reasonable in their risk shedding desires.  The key terminology should be “equitable risk sharing” both from a liability and financial perspective.