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Here’s How Private Capital Can Help Fix Rural Infrastructure

By Sarah Kline

Thursday, September 28, 2017

Given that leveraging private capital remains a major focus of the administration’s infrastructure plan, rural communities must be empowered to make greater use of this tool. Following up on our previous work on rural public-private partnerships (P3s), BPC undertook a broad review of rural projects to identify strategies and best practices for putting private capital to work in rural areas. Today we are announcing the results of that review in a new report: Putting Private Capital to Work in Rural Infrastructure.

Rural projects undeniably face certain barriers to attracting private capital. Their smaller size makes it harder to attract private sector interest. Rural officials and staff often lack the resources and expertise to negotiate alternative financing approaches. Moreover, private investors will need to be repaid, and many rural communities lack available funding due to their smaller populations and tax base.

While private capital and P3s will not be the answer in every instance, failure to consider them where they may make sense is equivalent to leaving money on the table.

Nonetheless, some rural communities are already finding creative ways to work with the private sector. In addition to Pennsylvania’s Rapid Bridge Replacement Program, the Kentucky Wired broadband project, and the Holyoke Wastewater Treatment facility in Massachusetts, which we have written about before, BPC’s new report includes additional case studies of rural projects that involve private capital. These include, among others:

  • A wastewater treatment plant in Keystone, SD, which was upgraded and operated as a P3 so that the town could address regulatory compliance issues without burdening itself with overwhelming debt;
  • The final link in Ohio’s portion of the Appalachian Development Highway System, which is being built and operated as a P3 using availability payments from the state rather than driver tolls;
  • New compressed natural gas fueling stations across Pennsylvania that will save rural transit agencies millions of dollars in fuel costs, currently under construction as a bundled P3;
  • A new residence hall for the students of Blinn College in Brenham, TX, currently being built as a P3 paid for with student housing fees;
  • A power plant in upstate New York to convert methane gas from a landfill into electricity, built by a private company that pays the public landfill operator for the methane;
  • A flood control project in North Dakota, a significant portion of which is under construction as a P3.

While these communities have successfully attracted private sector investment, many of their peers have yet to do so. BPC’s new report identifies five strategies to enable more rural communities to use private capital to help address their infrastructure needs.

1. Targeted funding. Continued public funding for rural infrastructure is essential, even with efforts to increase the use of private capital. In addition, federal and state support for pre-development expenses, P3 screening, and life-cycle cost analysis could help rural communities lay the groundwork for private sector investment.

2. Project bundling. Bundling projects into a single procurement can bring the necessary scale to attract private sector interest as well as take advantage of economies of scale to deliver cost savings.

3. Regional coordination. When approached regionally, infrastructure projects may be able to draw upon a larger revenue base, more financing options, and expertise from regional entities. These factors make it more likely that the private sector would be interested in participating in the project.

4. Capacity building. In many communities, a P3 will be a once-in-a-generation undertaking, making programs that provide technical assistance with alternative procurement and financing essential to a successful outcome.

5. Accessible financing. Making federal and state financing programs easier for rural communities to access could help them bring financing to the table, which for some projects could be the difference between attracting private sector interest and not getting done at all.

If Congress and the administration intend for rural communities to participate in efforts to leverage private capital, new federal programs could help. A new Rural Partnerships Office in the White House or a cross-cutting cabinet agency could coordinate technical assistance efforts, encourage state and regional coordination, and provide pre-development funds to help communities develop projects that are appropriate for private investment. The new office could also run a Rural Bundling Pilot Program to help rural areas combine multiple projects into a single procurement in order to increase efficiency, reduce costs, and potentially attract private investment. Finally, each federal infrastructure agency should identify a rural liaison to help rural communities compete for funding or financing.

In this time of fiscal constraint, government at all levels must increase efficiency and be willing to move beyond business as usual when alternative approaches can yield greater value for their constituents. This is as true in rural areas as in urban ones. While private capital and P3s will not be the answer in every instance, failure to consider them where they may make sense is equivalent to leaving money on the table—something no community, urban or rural, can afford to do.

KEYWORDS: EXECUTIVE COUNCIL ON INFRASTRUCTURE, P3S