President Barack Obama is touting his American Recovery and Reinvestment Plan to immediately jumpstart job creation as well as long-term economic growth. In his weekly address on January 24th Obama said the plan will save or create three to four million jobs over the next few years and plans to rebuild the nation’s infrastructure to meet the demands of the 21st century. “That means repairing and modernizing thousands of miles of America’s roadways and providing new mass transit options for millions of Americans,” Obama said. In addition, Obama’s plan includes the securing of 90 major ports and creating a better emergency communications network for local law enforcement and public safety officials as well as expanding broadband access to millions of Americans.
Central to the execution of Obama’s plan are public-private partnerships (P3s) or PPPs. Since his days in the Senate, Obama has voiced support for the establishment of a National Infrastructure Bank - an independent entity of the government tasked with evaluating and financing capacity-building infrastructure projects. The bank would encourage local public agencies to “partner” with private for-profit entities to develop projects worth at least $75 million each. The intent is to leverage the investment through bonds and private sector participation.
Obama’s choice for transportation secretary will also have a significant impact on the future of private sector participation in public projects in the U.S. A Department of Transportation statement on January 23rd, announced that former Illinois Republican Rep. Ray LaHood is now the 16th Secretary of Transportation. Already, LaHood is urging that there be a role for private sector in the rebuilding of the nation’s infrastructure, according to Infrastructure Investor.
The report states he described public-private partnerships and the tolling of new roads and bridges as “outside the box” ideas the U.S. government should consider in reauthorizing an important transport spending bill later this year. Specifically, Infrastructure Investor states that when asked by Minnesota Senator Amy Klabuchar to describe some “out-of-the-box” ideas for thinking about infrastructure financing, Lahood answered: “These public-private partnerships.”
LaHood says the federal government should consider tolling and public-private partnerships as alternative solutions to meet the country’s growing infrastructure spending needs. Infrastructure Investor quotes LaHood as saying, “The tolling of new lanes, tolling of highways is a different way of thinking about it. I think of tolling bridges. If people need a new bridge, we need to think about those kind of opportunities that would help us pay for the kind of infrastructure needs that all of us know are very, very important.”
The transportation bill, which determines how sources of funding for infrastructure, such as the Highway Trust, a government fund for highway construction and maintenance that is primarily funded through taxes on gasoline sales, raise and appropriate money, will be reauthorized this year. According to LaHood, the bill will not provide sufficient funding for the country’s infrastructure needs.
In keeping with this view, a separate report published by Infrastructure Investor quotes David Gribbin, General Counsel for the Federal Department of Transportation, as saying, the nation’s highway transportation funding system has “fundamental flaws”, including the fact that Americans are using less fossil fuels and driving less, which equates to decreasing gas tax revenues for the Highway Transportation Trust Fund.
It’s true. America’s trend of declining driving started its second year with a loss of 12.9 billion vehicle-miles traveled (VMT), or 5.3 percent less, in November 2008 compared to the same month a year earlier, according to the U.S. Federal Highway Administration. It is the largest such decline of any November since monthly data estimates began in 1971.
Gribbin said he hopes that next year’s transportation reauthorization bill will bring forth a national framework for public private partnerships, according to Infrastructure Investor. LaHood also called the Highway Trust fund a “dinosaur” and said finding ways to improve its funding sources would be one of the biggest challenges Congress faced this year. The report quotes LaHood as saying, “If we’re going to think innovatively in the reauthorization, those are some of the ways that we need to think about those things, differently than just the gasoline tax.”
The economic slowdown is just fueling the fire. In fact, Infrastructure Investor quotes Gribbin as saying, “The financial crisis has caused a flight to safety, making infrastructure investment more attractive than it used to be. I think transportation in the current environment has gone from being predictable to being downright sexy.” The report states that currently 23 states have laws that give them tolling authority or enable them to enter into PPP-type arrangements. It adds that Gribbin expects that number to increase including near-term legislative developments which could arise in New Jersey, Pennsylvania, Illinois and Nevada.
Twenty-four toll road projects in the U.S. have involved PPP-type arrangements, out of a total of 235 projects implemented since 1992, reports Infrastructure Investor. PPP approaches are being considered for another 24 toll road projects, according to a study published by the U.S. Federal Highway Administration.
Right now, private funding is being sought in Pennsylvania. A Public-Private Partnership or “P3″ is being requested for three remaining sections of the Mon-Fayette Expressway and Southern Beltway highways near Pittsburgh, according to the Pennsylvania Turnpike Commission. The commission issued a Request for Concepts and Solutions (RFCS) on September 17th, 2008 to identify potential private partners interested in financing, designing, constructing, operating and/or maintaining all or portions of the unfinished segments. The deadline was January 15th, and the Turnpike received three responses.
The PA Turnpike Commission says one submission came from Mon Valley Public Private Partners – a consortium of local Pennsylvania companies including PNC Capital Markets as financial partner and the Walsh Group as a construction partner. A second submission came from Spanish construction company Global Via, which would provide equity investment and construction services for the project, and URS Corporation, which would provide design, technical and construction services. A third submission came from Spain’s ACS Infrastructure and Dragados USA. ACS would provide equity investment and construction services, while Dragados - a construction subsidiary of ACS - would act as the design/build contractor and joint venture leader.
The Federal Highway Administration (FHWA) is also stepping up to assist states in pursuing “innovative state transportation projects.” It recently announced the establishment of the Office of Innovative Program Delivery which will provide states with stronger and more effective federal support, including national leadership and advice, to deliver and assist states in pursuing innovative and non-traditional transportation projects. It aims to work with state departments of transportation to help them explore opportunities with innovative financing and congestion pricing and tap into the $400 billion in private funds available world wide for investment in transportation infrastructure. Existing FHWA activities such as public private partnerships, innovative financing, experimental projects, and tolling authorities will be merged into the new office, which will improve access and communication for the states.
Executive search firm, A.E. Feldman, says that Obama’s administration promises to create huge job opportunities in project and infrastructure finance. The firm says infrastructure finance jobs are likely to open up for candidates with backgrounds in investment banking as well as experience in analyzing and executing structured financings. The most sought after candidates have been those with experience in infrastructure transactions and civic engineering. A.E. Feldman also reports the jobs opening up include CEOs and CFOs with proven records of running infrastructure companies.