Today, the administration announced a series of new initiatives to promote infrastructure investment, with a focus on enhancing private sector participation. This comes on the heels of a bipartisan report released last September by the U.S. House of Representatives Special Committee on Public Private Partnerships (P3s). The proposals both highlight the constructive role that P3s can play in enhancing our nation’s infrastructure and the various policy changes that government, at all levels, can undertake to unlock the barriers and let private capital fund needed infrastructure improvements. Increasing standardization, reducing transactional and information costs, and creating better financing structures to encourage private capital to invest in American infrastructure all have strong bipartisan support.
Here are a few additional issues raised by the announcement that merit further consideration:
Increased Data Sharing and Standardization. America’s infrastructure is built and operated by thousands of state, local, municipal, special purpose and private entities. While this highly decentralized system has many advantages, it has several disadvantages. One problem is the lack of sharing information regarding what is working and what is not, which results in recreating the wheel and duplicating mistakes. Proposals to increase data sharing include the idea of a standardized data platform that will create “a pre-commercial prototype of an infrastructure information platform as a first step to build market standards such as infrastructure benchmarks, indices and standardized documents.” Another proposal would require state Departments of Transportation to send annual reports on project performance to the U.S. Department of Transportation to then be agglomerated and made public so that we could learn from the experiences of all 50 states.
Reducing Cost through Local Coordination. There is nothing more frustrating than watching a road get repaved by the highway department only to be dug up six month later by the water company for a new pipe. This happens due to a lack of coordination and communication between the myriad of infrastructure providers. Implementing a “dig-once” policy could save taxpayers time and money. Improving coordination can also change the cost curve for projects that previously would be too costly but by hitching a ride on existing planned maintenance can become feasible. For example, laying new broadband cable, particularly in rural areas, as “past ‘dig-once’ projects have shown that the fiber infrastructure adds as little as one percent to the overall roadway construction costs, while connecting new towns and neighborhoods to affordable internet connections.”
Increasing State and Local Authority through Innovative Financing. Public-private-partnerships often rely on federal financing support through Private Activity Bonds (PABS) and the Transportation Infrastructure Financing and Innovation Act (TIFIA). As the House Special Committee concluded: “TIFIA and PABs are often critical elements of P3 project financing. The important role that TIFIA and other federal credit programs play in lowering the cost of capital for infrastructure projects makes these projects more feasible for private sector investment.” The administration announced that it will propose a $4 billion increase in the limitation amount for qualified highway private activity bonds by $4 billion and an elimination of the volume cap requirement for private activity bonds for water infrastructure in its FY ’15 budget. This will give states and local governments more flexibility and authority to encourage financing.
The administration will also seek to allow the America Fast Forward bond program to work with PABs to better integrate financing from multiple sources. Finally, the administration announced a proposal for a new type of municipal bond, the Qualified Public Infrastructure Bond (QPIB), which “will extend the benefits of municipal bonds to public private partnerships, like partnerships that involve long-term leasing and management contracts, lowering the cost of borrowing and attracting new capital.” This proposal seeks to address a key impediment of attracting private capital into infrastructure, the tax advantages inherent in public on municipal debt (muni-debt) as compared to privately issued debt.
Today’s announcement by the administration is the next chapter in an ongoing attempt by policymakers to address America’s infrastructure challenges. Wise investment in infrastructure creates jobs, increases economic productivity and enhances America’s global economic competitiveness. Efforts to work together might get us out of a traffic jam and into the fast lane.
Aaron Klein is director of the Bipartisan Policy Center’s Financial Regulatory Reform Initiative and has worked on infrastructure finance issues at the Treasury Department and United States Senate.