Citigroup sees clear opportunities in infrastructure. In a recent report, Citigroup states, “The secular drivers for increased developed world infrastructure spending are clearly in place.” Citigroup also notes there is increased political focus on infrastructure spending as a way to jumpstart the economy, to improve U.S. competitiveness and to reduce reliance on foreign energy sources. In keeping with that view, American Council of Engineering Companies (ACEC) President and CEO, David A. Raymond says infrastructure investment of up to $140 billion should be included in any Congressional economic stimulus legislation. According to the ACEC, the $140 billion figure reflects both the true infrastructure deficit and a realistic figure of what is required to spur the economy.
Infrastructure spending is a major component of President-elect Barack Obama’s economic recovery plan, which he says will create as many as two million new jobs rebuilding and repairing the nation’s bridges and tunnels. Obama also supports the creation of a National Infrastructure Bank, which would be an independent organization that would decide what projects to pursue, and fund it with as much as $60 billion of federal money over 10 years.
Executive search firm, A.E. Feldman, contends that Obama’s administration promises to create huge job opportunities in project and infrastructure finance. Already, the firm reports that 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 are opening up for attorneys with expertise in global project development and complex financial transactions.
Infrastructure Investment to Spur Job Creation
In a statement ACEC President and CEO, David Raymond states, “An infrastructure-based economic stimulus package would spur immediate job creation and economic growth. At the same time, it would help create the critical infrastructure base needed for America to compete in the 21st century–an added benefit that an exclusively tax-based stimulus program can’t offer.” Raymond also notes the impact of infrastructure investment would be immediate, as state departments of transportation have $18 billion in approved projects that could be contracted within 30-90 days. Transit agencies have an additional $3 billion in projects and public water utilities and sewer authorities have identified $16 billion in ready-to-go drinking water and wastewater projects.
According to the ACEC, research shows that each dollar invested in infrastructure generates $1.80 of GDP in the near term. Moreover, each $1 billion in infrastructure spending supports more than 34,000 jobs.
PPPs to Bridge Infrastructure Funding Gaps
In a recent report, Citigroup contends the economic growth of the past three decades has put strains on infrastructure, which will require additional investment to maintain and support future economic growth. The report goes on to argue there is increased momentum for privatization and user-pays schemes supported by tolling to deal with a widening funding gap.
For example, the U.S. Department of Transportation (DOT) reports the highway account within the trust fund is expected to experience a $3.2 billion shortfall in 2009. The American Society of Civil Engineers (ASCE) also says drinking water faces an annual shortfall of at least $11 billion to replace aging facilities that are near the end of their useful life and to comply with existing and future federal water regulations. Data from the Federal Highway Administration (FHWA) estimates that it would cost $140 billion to immediately repair all of the deficient bridges in the U.S. , reports Citigroup. The U.S. DOT has also estimated that if spending remains at its current level, there will still be a $34 billion backlog of necessary bridge investment in 20 years.
Debates over how to cover shortfalls in state tax revenues for use in maintaining the country’s highways, interstates and bridges have turned to the privatization of these assets through public to private transactions as an alternative to raising taxes and fees, says Citigroup. According to the report, privatizations, or public-private partnerships, have garnered support at both the federal and state levels in the last few years. In fact, the U.S. DOT states that a total of 23 states and 1 territory (Puerto Rico) have already passed legislation allowing government officials to sell or lease roads, highways, bridges, and airports.
Excessive wasteful spending further strengthens the argument for privatization, says Citigroup. The report states, “With a focus on profitability, a private company would seek to eliminate as many unnecessary costs as possible.” The research adds that several major investment banks, corporate JVs and private equity funds, both domestic and international, have shown an interest in investing in infrastructure assets.
Investors See Opportunity in Infrastructure
Citigroup, itself, launched an infrastructure investment group, Citi Infrastructure Investors (CII), back in May 2007. The bank says CII seeks to capitalize on the growing need for infrastructure funding around the world and increased private sector involvement in infrastructure-related investments. CII will pursue investment opportunities within infrastructure sectors such as transport, utilities, energy and social infrastructure. Back in May 2008, CII, Abertis Infraestructuras & Criteria CaixaCorp announced they were named the preferred bidder on the pending Pennsylvania Turnpike 75-Year Lease. That same month, the Vancouver Airport Authority announced it entered into a partnership with CII to jointly pursue the sourcing, funding and maximization of potential airport opportunities through YVR Airport Services Ltd. (YVRAS).
Recent headlines also point to the push for privatization. The Midway Investment and Development Corporation (”MIDCo”), comprised of Citi Infrastructure Investors, Vancouver Airport Services (YVRAS) and John Hancock Life Insurance Company recently announced that it 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.
Facing a recession, New York Governor David A. Paterson’s administration also 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.
Moreover, Citigroup reports the Florida DOT has plans to explore the monetization of “Alligator Alley.” The report adds that Governor Charlie Crist is reportedly interested in pursuing the monetization of two additional highways in FL, the Beachline Expressway and Sunshine Skyway Bridge in Tampa Bay.
Are you working in Project & Infrastructure Finance? If you want to grow your career or your company’s bottom line, contact A.E. Feldman’s President, Mitch Feldman, now. Find out more about infrastructure jobs and public private partnerships today!