Sunday, June 23, 2024

Public-private partnerships can revitalize US infrastructure

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America’s infrastructure, once the envy of the world, has entered a state of significant disrepair. The American Society of Civil Engineers’ last report card — which analyzed the nation’s rail networks, bridges, roads, wastewater, aviation and more — delivered a disheartening grade of “D+,” overall just a few short years ago.

The World Economic Forum’s 2021 Global Competitiveness Report supported this decline, marking the U.S.’s fall from fifth place in 2002 to 13th in infrastructure quality. The results signaled an urgent need for comprehensive action to reverse the downward spiral and rebuild America’s infrastructure backbone.

In response, the Biden Administration has prioritized infrastructure revitalization as a critical agenda item, aiming to “Build Back Better.” This goal has received bipartisan support, recognizing that improving aging highways, bridges, tunnels and other infrastructure is not just a necessity but a national imperative.

However, despite touting historic infrastructure progress during the administration’s May 2024 Infrastructure Week, the sheer scale of the challenge surpasses the capacity of federal efforts alone. As an example, during Infrastructure Week, the Biden team celebrated the launch of more than 9,400 bridge repair projects. However, in 2023, the U.S. recorded 42,000 bridges in poor condition.

Traditional government funding mechanisms and processes are simply proving inadequate in meeting the overwhelming need, which brings us to the potential of Public-Private Partnerships (PPPs).

PPPs are a collaborative model where the public sector joins forces with private industry to execute and manage infrastructure projects. Essentially, PPPs harness the strengths of both the public sector’s ability to regulate and protect public interests and the private sector’s efficiency, innovation and capital.

In a PPP, a collaboration is formed between the government and a private firm to deliver a public service or project. Typically, the private partner undertakes the tasks of designing, building, funding and occasionally managing the project, playing a central role in its realization and maintenance. This model allows for the sharing of risks and rewards, aiming to deliver public infrastructure more efficiently and cost-effectively than traditional government procurement methods.

Over the years, there have been multiple successful PPP infrastructure initiatives. One noteworthy project is the Port of Miami Tunnel in Florida. The project benefited all parties, alleviating downtown congestion by nearly 80% while providing a stable revenue stream derived from state and federal funding sources for the project’s financiers, Meridiam and Bouygues Travaux Publics. The project serves as a model for how PPPs can be structured to achieve public objectives without imposing direct costs on users, such as tolls.

Another example is the Denver Eagle P3 Project, one of the largest multimodal transit PPPs in the United States. It encompasses two commuter rail lines in Denver, Colorado, including the line connecting downtown Denver to Denver International Airport. This PPP arrangement allowed for the leveraging of private investment for the design, construction, financing, operation and maintenance of the rail lines, showcasing how public transportation projects can benefit from private sector efficiency and innovation while serving the public interest.

Despite these successes, the challenges posed by today’s economic environment — particularly the volatility and high interest rates that characterize the current financial landscape — cannot be overlooked. These conditions introduce significant hurdles in executing PPPs. High interest rates elevate the cost of borrowing, which is critical for funding the substantial upfront investment typically required for infrastructure projects.

This increase in financing costs can make PPPs less financially viable for private investors who rely on predictable returns over the project’s lifespan. Additionally, economic volatility can lead to uncertain future demand for infrastructure services, complicating revenue forecasts and risk assessments.

However it’s crucial not to outright dismiss PPPs due to short-term concerns. Despite the complexities and increased costs of financing, PPPs hold substantial value for their potential to deliver long-term benefits. These partnerships harness the innovation, efficiency and resources of the private sector while serving the public interest, offering a sustainable path to develop and maintain essential infrastructure. By adopting flexible, innovative approaches and leveraging strategic government support, stakeholders can mitigate current economic challenges.

As the U.S. stands at this critical juncture, one path forward should be revisited: harnessing the combined strengths of government investment, oversight and accountability with private sector expertise in design, execution and financing. By embracing them, America can repair its aging infrastructure while also laying the foundation for a more resilient future.

Scott Cannon, CEO of BigRentz, an equipment rental company based in California.

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