American infrastructure is poised for an unprecedented level of federal investment, as two major infrastructure bills make their way through Congress: the bipartisan Infrastructure Investment and Jobs Act and the forthcoming reconciliation bill. While the IIJA represents a more traditional reauthorization of federal surface transportation programs, the reconciliation process has taken a different tack, which may present an opening for private investors looking to participate in infrastructure projects.
One factor influencing the reconciliation bill’s physical infrastructure programs is the White House’s promise that the bill would not “double dip,” i.e., address programs already negotiated in the IIJA. As a result, congressional drafters were unable to simply add funding to existing transportation programs reauthorized in the IIJA. Instead, they crafted several new programs addressing specific priorities, including connections to affordable housing, emissions reduction, high-speed rail, and rebuilding communities.
The rules of reconciliation itself are another factor at play, particularly the requirement that all legislative provisions be primarily focused on funding, not policy. Thus, the new programs proposed in reconciliation are clear in funding amounts but relatively sparse in other details, providing the outlines of the programs while granting DOT significant authority to flesh out the criteria for evaluation and awards. (This trend toward discretionary programs in surface transportation is also reflected in the IIJA, where $100 billion will be doled out through competitive awards rather than congressionally established formulas.)
BPC has done extensive research into the important role of public-private partnerships and other forms of private investment in infrastructure and strategies for increasing that investment. Viewed through this lens, the shift toward discretionary programs could be a positive step, if certain principles are followed:
Value-for-money (VfM) analysis should be required for major projects. Value-for-money analysis enables transportation agencies to decide what delivery method – conventional or public-private partnership – would deliver the best value for taxpayers. The IIJA would require VfM analysis for projects with a total cost over $750 million that are seeking TIFIA or RRIF loans. DOT should apply the same requirement to any discretionary programs passed as part of reconciliation. And projects of all sizes should use a life-cycle approach to developing project cost estimates, to ensure that the long-term costs of operations and maintenance are considered as well as the upfront costs of construction.
Partnerships with the private sector should be encouraged. DOT should incorporate evaluation criteria into the new grant programs that encourage project sponsors to develop partnerships with the private sector. This approach has precedent in the RAISE grant program (previously known as TIGER and BUILD), for which the most recent notice of funding opportunity included “efforts to collaborate among stakeholders, including with the private sector” as a secondary selection criterion. This criterion will help to ensure that project sponsors are actively engaging with private sector stakeholders to leverage their support.
Project bundling should be explicitly allowed. Project bundling is a process through which multiple smaller projects are grouped together for planning, funding, and delivery. Bundling allows project sponsors to take advantage of economies of scale, streamline approvals, and expedite delivery. Moreover, bundled projects can more easily attract private financing than smaller individual projects. This strategy can be particularly helpful for rural areas.
DOT should assist applicants in pairing these grants with other sources of federal funding and financing. Project sponsors have faced challenges when attempting to pair federal funding and financing from different sources for a single project, such as transit Capital Investment Grants and TIFIA loans, due to different application requirements and timelines for approval. DOT should ensure that application processes for the new discretionary grant programs enable project sponsors to pair these grants with other federal resources in a streamlined fashion. This will avoid unnecessary delays, particularly for larger, more complex projects.
To ensure that these grant programs deliver the intended benefits, Congress also has an important role to play: providing the funding for staff at DOT to administer the programs. One of the biggest barriers to attracting private capital to infrastructure projects is the uncertainty of project schedules stemming from the possibility of permitting and approval delays. The reconciliation bill represents a significant increase in discretionary programs beyond what even the IIJA envisions. DOT will need to develop guidelines and review hundreds of applications for each new program. Once awards are made, staff will need to ensure that permits are issued in a timely manner to keep projects on schedule. The responsibilities themselves are not new for DOT – after all, they have been in the business of grant-making for decades – but the scale of this endeavor sets it apart from the past.
Should these bills pass, they represent a historic infusion of funding into the nation’s infrastructure. Taxpayers will be best served by an approach that welcomes private investment in new transportation projects. Only by bringing the public and private sectors together can we address the urgent infrastructure needs our nation faces.
BPC on Reconciliation
Importantly, BPC has never supported the reconciliation process, regardless of which party is in power. Reconciliation should not be used as a means for policy reform. However, BPC will always share its expertise and promote ideas with a history of bipartisan support. In addition, we expect new spending proposals to be fully paid for.