Public-Private Partnerships: The Solution to the Problem with Our Aging Infrastructure?
It is no secret that the most significant budget challenges that the United States faces on both a state and national level revolve around the cost to repair and replace our aging infrastructure. In 2014, the American Society of Civil Engineers (ASCE) graded the overall conditions of the U.S.’s infrastructure as a D plus, and gave a failing grade to a significant percentage of roads and bridges in virtually every state. In my home state of North Carolina, for instance, the ASCE noted that more than 30 percent of the bridges are either structurally deficient or obsolete.
The problem is compounded by the fact that for decades the maintenance and improvement of our nation’s infrastructure has been funded by state and federal gas taxes, the collection of which is falling at a precipitous rate due to the falling gas prices at the pump, a continuing rise in use of public transportation, and the sharp increase in fuel efficient and electric vehicles on the road. For the majority of the past decade, Congress has implemented a series of short-term solutions that served as little more than a band-aid that covered, but did not solve the problem.
In light of the long-term problems that many state and local governments face in the continued funding of infrastructure maintenance and improvements, leaders are increasingly beginning to investigate public-private partnerships as an option to maximize the government’s investment in large infrastructure projects, particularly transportation projects. The U.S. Department of Transportation defines a public-private partnership (P3) as “a contractual agreement formed between a public agency and a private sector entity that allows for greater private sector participation in the delivery and financing of transportation projects.” These agreements allow relatively limited public funds to be supplemented or replaced by an infusion of upfront private equity.
The U.S. has lagged behind our international counterparts in embracing public-private partnerships as a viable method of project delivery. Canada, for example, has a larger private-sector investment in infrastructure than the U.S. despite the fact that its overall infrastructure budget is less than 10 percent of the U.S.’s infrastructure budget. Despite our late arrival to the public-private partnership party, however, the U.S. is currently poised to emerge in the coming years as one of the world’s leading markets for public-private partnerships. At least 33 states currently have legislation authorizing public-private partnerships as a project delivery system, and many of those states currently have one or more public-private partnership projects under construction or consideration. As both states and domestic private-sector firms grow increasingly comfortable with the planning, implementation, and financing of public-private partnerships, it is likely that the percentage of infrastructure projects delivered by this method will continue to grow. If the U.S. achieves the same percentage of private investment in public works as Canada, more than 80 billion additional dollars would be spent on public infrastructure annually, increasing the U.S. annual infrastructure expenditures by 20 percent. That could mean a lot of new work for a lot of construction companies.
As with all opportunities, there are risks hidden in P3 projects, from the investment side, the design-build side, the subcontract side, and the long-term operations and maintenance side. We can assist in evaluating each of these risks, and can assist in drafting legislation if you are in one of the jurisdictions not yet authorizing P3 projects.