A diverse range of experts at SIFMA’s annual meeting today called for a “21st Century approach to infrastructure finance,” noting a looming deficit of trillions of dollars in deferred maintenance and unmet needs among America’s roads, airports, water treatment plants and other public utilities.
The federal government cannot possibly cover these costs, but neither can the traditional model of municipal finance, participants agreed, necessitating a dramatic expansion of the kinds of public-private partnerships that have flourished in other countries such as Canada, Spain and Britain. “It’s going to take a collaboration of individuals from multiple backgrounds, collaborating and thinking outside traditional silos,” said moderator Chris Hamel, who serves as managing director and head of the municipal finance group for RBC Capital Markets.
Exacerbating the problem are a number of factors including: a general propensity among politicians to avoid focusing on infrastructure concerns until a crisis occurs; public antipathy to anything perceived as new taxes. The latter springs in part from a misguided tendency to focus solely on up-front prices rather than the total cost of ownership.
Geoffrey S. Chatas, senior vice president and CFO at the Ohio State University, described additional benefits of the school’s efforts to “get out of businesses we don’t need to be in, like parking management, so we can focus on teaching and curing cancer.” Leasing out the long-term management of their many parking lots, he said, provided an additional $483 million for OSU’s endowment and reduced annual increases in parking fees.
Suzanne Shank, Chairwoman and CEO of Siebert Cisneros Shank & Co., LLC, is also active in the Bipartisan Policy Center, which released a major report, “Bridging the Gap Together: A New Model to Modernize U.S. Infrastructure,” on the future of infrastructure financing. She highlighted several of its key recommendations:
- All infrastructure projects should begin by clearly and publicly stating their value and purpose. “This seems like it should be obvious,” she said, but it is critical to building public consensus and support for the project.
- Infrastructure investments should be evaluated based on lifecycle costs.
- Such evaluations should be more standardized, and better account for risk – including the risk of not making an infrastructure investment. Such risks, she noted, are very real, such as tunnels collapsing and levees failing.
- The public and private entities involved should both share in project risks (as well as benefits), as befits a genuine partnership.
“This is about functioning better as a society,” Shank said. “We have all this great technology but we sit in traffic, we sit on runways… we’re just not making headway and the gap is growing.”
Francis Sacr, Managing Director Infrastructure & Transportation Project Finance at Société Générale, who oversaw financing for the complex $4 billion replacement of a terminal at LaGuardia airport with public and private financing, said that harmonizing different states’ regulations regarding the process would have made the project considerably easier, and thus cut costs.
Other obstacles to greater adoption of public-private partnerships, he and other panelists said, include political uncertainty – one election can sweep away critical support for a given project – as well as convoluted permitting processes and the simple lack of a broad-based critical mass. The latter would ideally take the form of a pipeline of future projects in the United States as in other countries. Panelists described a uniquely American “Groundhog Day” phenomenon, as each new project seems to require starting completely over from scratch.
The underlying problem, Sacr said, is that “infrastructure is a long-term investment and politics is a short term process. But it is essential to build for the future.” He recommended that the next president appoint some sort of “infrastructure champion,” someone that Tyler Duvall, a partner at McKinsey & Company, added should have “accountability for the end-to-end process” in order to help coordinate the disparate efforts of various federal agencies and congressional committees of jurisdiction.
Duvall noted a lack of consensus on priorities not only within government, but in society at large. Often-competing agendas for promoting economic growth and protecting the environment have created “the worst of both worlds,” he said, in which there are “lots of federal questions, but no federal stake in outcomes… the environmental review process takes years because it is designed to create a conversation, not a decision.”
Shank called for a re-evaluation of tax regulations, particularly regarding long-term leases of public assets to encourage private sector investment in them. Noting the dearth of expertise nationwide, she also urged federal policymakers to work to “expand the knowledge base” with an infrastructure modernization fund to help share resources and best practices across municipal governments.
Michael Decker is Managing Director, Municipal Division with the Securities Industry and Financial Markets Association (SIFMA).