Is Private Funding of Transportation Projects the Way to Get Moving?
Panelists tout benefits of partnerships in which businesses share tolls, user fees or other revenues in exchange for financing
The urgently needed new trans-Hudson rail tunnel between New York and New Jersey is just one of many critical infrastructure projects around the country that have been left in limbo as their proponents compete for scarce local, state and federal government funding.
In the search for alternate sources of money to pay for train tracks, roads, airports, marine ports, and water and sewer systems, some agencies -- especially in Europe and other regions outside the United States -- depend on public-private partnerships, or P3s, in which a company finances, builds or even operates public infrastructure in exchange for a share of tolls, user fees, and other revenues.
The U.S. is far behind in taking advantage of such partnerships, according to speakers at a panel discussion held in New York yesterday by the Bipartisan Policy Center (BPC), a Washington think tank. Complex procurement processes, lengthy environmental reviews, public skepticism toward privatization, political risks, agencies’ lack of authority and experience, and P3s’ relatively high costs are among the factors contributing to their paucity.
Still, the need to pay for thousands of projects makes it imperative to bring more private investors into the field, said Eric Cantor, the former U.S. House Majority Leader and a member of BPC’s executive council on infrastructure. The BPC says its analysis found that only half of the country’s $2 trillion in infrastructure needs are funded.
“We realize and agree upon the magnitude of the challenge. But we've got to do it as a country if we're going to maintain our competitiveness,” said Cantor, who is now vice chairman and managing director of the investment bank Moelis & Company. “The government can't do it alone. The executive council’s mission is to try to create the environment so that we can leverage all the creativity in the private sector as well as the capital so we can tackle this $2 trillion problem.”
The panel participants noted that some local projects do have public-private aspects. Port Authority executive director Patrick Foye pointed to his agency’s $1.5 billion Goethals Bridge replacement, which will be financed, built and maintained by a joint venture called the NYNJ Link Partnership under a 40-year contract. The Port Authority’s planned makeover of LaGuardia Airport will use both government and private funds.
New York City DOT Commissioner Polly Trottenberg said the city’s much-ballyhooed “bikeshare” program is privately funded and operated, though the company has yet to earn a profit.
She also spoke longingly of Pennsylvania’s 25-year bridge replacement and maintenance contract with a private group, which is expected to replaceat about two-thirds of the cost and in a quarter of the time it would have taken otherwise.
“What they did in Pennsylvania sounds dreamy to me,” Trottenberg said. “I do my bridges one at a time, and each of them takes years and years and years. It's not an efficient way to go. It's costing us a fortune and taking forever.”
The panel discussion had been advertised as a discussion of how to match private capital with project such as the Hudson River tunnel and New York’s proposed flood protection system, but the tunnel was only briefly mentioned, and then as a poor candidate for a P3.
In response to a question, Christopher Elmore, a vice president at Goldman Sachs who has worked on P3s in Chicago, Denver, Oakland, New York and other places, noted that all projects must ultimately be paid for by either user fees or taxes, even if a private company manages the job. Coming up with enough revenue to cover mega-projects like Gateway is one issue, he said. Another is that a massive tunneling project comes with significant unknowns.
“How do you get private capital in there? You're going to have to be thoughtful about it,” Elmore said. “Very interestingly, with the super-mega-projects, sometimes the risk is so large, a lot of that still has to be borne by the government. If you're doing a $10 billion tunnel project, that means somewhere between a $5 billion and $15 billion tunnel project. You're just not sure what you're going to find underground.”
“For some of those you can bring private capital in to mitigate some of those risks, but at some level, unfortunately, some of that is going to have to be retained by the government sponsor,” he said.
The existing, 105-year-old rail tunnel used by NJ Transit and Amtrak was damaged by flooding during Hurricane Sandy and will have to be partially closed for repairs sometime in the next 20 years, sharply cutting the number of trains that can go through, Amtrak has said. That would affect hundreds of thousands of daily commuters and potentially harm the economies of both states.
Amtrak has proposed building a new tunnel as part of its proposed, $15 billionThe BPC discussion touched on the political hazards of large government-funded projects, with a mention of the hit the Obama administration took for funding the failed solar panel maker Solyndra, but there was no mention of the scandals the Port Authority has weathered in the last two years. initiative, but funding sources have not been identified.
Those scandals continued to reverberate this week with the resignation of United Airlines’ CEO, following reports that his company allegedly bribed former Port Authority chairman David Samson, aof Gov. Chris Christie. The bi-state agency operates Newark Liberty International Airport, where United is the biggest carrier.
State legislators held a hearing yesterday onaimed at codifying and extending changes the Port Authority has made since the Bridgegate scandal.
Among the other topics discussed at yesterday’s panel discussion were policy changes that the BPC executive council might promote and issues it needs to focus on as it seeks to encourage greater use of P3s to speed up infrastructure upgrades.
Foye repeated complaints he has made in the past about the environmental review process, which he said has taken six years for the Goethals replacement. Such reviews, which are required by the federal National Environmental Policy Act, generate thousands of pages of documentation on “unknowables” like traffic counts at a particular intersection 30 years in the future, he said. The process should greatly sped up and should consider factors like jobs created and the environmental benefits of replacing outdated technology, Foye said.
He said the Port Authority’s project to raise the Bayonne Bridge, for example, will help the environment by allowing new, larger ships, which are more fuel-efficient, to enter the region’s ports.
Cantor said he was well aware of calls for changes to NEPA from his time as a legislator, but said it was a “tough issue” in Congress.
Panelists also called for the creation of model state legislation to create standardized procurement processes allowing P3s and said government agencies did not have enough P3-eligible projects in the pipeline to interest investors and private partners in the area as a distinct asset class.
The BPC executive council on infrastructure is planning more forums around the country in the coming months and will published a final report with its recommendations next year. It was formed earlier this year and is co-chaired by Doug Peterson, CEO of McGraw Hill Financial, and Susan Story, president and CEO of American Water.
In addition to Cantor, members include top executives from FedEx, the auditing firm KPMG, the California State Teachers’ Retirement System, Meridiam, Siebert Brandfort Shank & Co., and Xylem Inc.