States Look to P3s to Fund Infrastructure Gap
Facing a recession, New York Governor David A. Paterson’s administration recently announced it would set up a commission to explore ways to privatize public assets, including the lottery system and the Tappan Zee Bridge. The Governor’s office says right now identifying new ways by which the State finances and delivers infrastructure projects is paramount. “Creating this Commission is another important step my Administration is taking to ensure that New York continues to make the crucial long-term investments we need to sustain economic growth and secure a valuable quality of life for our citizens,” said Governor Paterson. “Public-private partnerships are not the only answer, but we need to honestly assess whether they can be part of the solution. I believe the private sector can be a source of innovation, allowing us to increase the value, efficiency and safety of assets like our aging infrastructure system, and I look forward to receiving the Commission’s recommendations.”
Right now, infrastructure assets are luring investors around the world. The WSJ states, “As much as states need money to fix their roads and bridges, Wall Street firms are eager to supply it. With the industry’s core businesses in distress from the credit crisis, so-called infrastructure funds — which have already raised more than $160 billion, according to Morgan Stanley — have emerged as one of the most promising growth areas in years.” Amid the growing trend, executive search firm, A.E. Feldman, says infrastructure finance jobs exist for candidates with backgrounds in investment banking as well as experience in analyzing and executing structured financings. The most sought after candidates are those with experience in infrastructure transactions and civic engineering. Additionally, legal jobs may open up for attorneys with expertise in global project development and complex financial transactions.
NY Examines Privatization
Governor Paterson signed an executive order establishing the New York State Commission on State Asset Maximization to study potential public-private partnerships for the State of New York. According to the Governor’s office, the move is a step towards more efficient leveraging of the State’s physical and human capital resources to better serve its citizens. In a statement, Paterson says, “Public-private partnerships offer an opportunity for the State to more effectively make long-term capital investments, even in periods of economic distress. ”
The eleven-member Commission, chaired by Charlotte Hitchcock, the Governor’s Deputy Secretary for Labor and Financial Regulation, will be required to submit a preliminary report of their recommendations to the Governor and Legislature within 90 days, and a final report will be due within 180 days.
In compiling its final report, the Commission says it will examine the role of public-private partnerships, domestically and internationally, and then consider whether this model can benefit New York State. In exploring the uses of public-private partnerships, the Commission will consider whether any specific New York State assets are suitable candidates for such partnerships. The recommendations will also directly address ways to ensure adequate government oversight, performance standards, protection of public employees and regulation of user fees; use of non-compete clauses; and prevailing wage and labor standards.
“There’s a lot to do to fix New York State’s infrastructure, but there’s not a lot of money to do it with. New York needs to craft new strategies to address our capital needs, and we need to get everyone involved – labor, business, the public sector and the private sector,” said State Comptroller Thomas P. DiNapoli. “Governor Paterson has taken a strong first step toward ensuring New York can rebuild our infrastructure,” DiNapoli adds.
Proponents of P3s
Investment banks have long advocated privatization deals to state governments. Typically, they are structured as long-term leases, like the deal Chicago struck in 2005 to lease a toll road, the Skyway, to a foreign consortium for the next century in exchange for $1.8 billion.
The Midway Investment and Development Corporation (”MIDCo”), comprised of Citi Infrastructure Investors, Vancouver Airport Services (YVRAS) and John Hancock Life Insurance Company just announced that it has won a $2.5 billion, 99-year lease contract to operate and develop the first privatized major airport in the U.S. - Chicago Midway Airport.
These latest developments involving Chicago Midway Airport may serve to jump-start other public-private partnership (P3) projects in waiting, from Florida’s Alligator Alley to the Pennsylvania Turnpike…and most recently to New York’s Tappan Zee Bridge.
New York Transportation Commissioner, Astrid Glynn, announced an ambitious $16 billion plan to replace the 52-year-old, 3-mile long Tappan Zee Bridge which spans the Hudson River between South Nyack and Tarrytown. The first place the Transportation Department plans to look is to the federal government, reports The Journal News. Given the current economic crisis, the hefty price tag of the new bridge and the New York’s overall debt of $52.5 billion (this highest of any state except California), The Journal News quotes Glynn as saying the state must consider privatizing the bridge – “selling all or part of the ownership to a private company, which would use tolls to pay for the bridge construction and presumably make a profit.”
Proponents of P3s say the lease approach could provide financial relief to state governments struggling with foreclosures, ballooning pension obligations and reduced tax bases, according to the WSJ. Since 2005, eight states have enacted legislation enabling officials to sell or lease highway or transit infrastructure, bringing the total to 25 states, according to the U.S. Department of Transportation.
A.E. Feldman: “Our lines of communication are open.”
A.E. Feldman’s Project & Infrastructure Finance and Legal divisions are on top of global trends in infrastructure investment as well as the latest privatization efforts in the U.S. The recruiting firm invites both investors and companies that own or operate infrastructure assets as well as job seekers to contact its President, Mitch Feldman and its highly specialized team of executive recruiters directly to talk about the array of issues they are facing and what solutions are available.
