With massive infrastructure demands around the world, and against a reality of constrained public-sector budgets, bold leadership is required to prioritize assertive public policy, harness private capital, and bring innovation to infrastructure funding and project delivery. While many of the following observations and recommendations apply globally, much of the focus in this article pertains to the United States.

FOUR APPROACHES TO BRIDGE THE GAP

The need for substantial investment in infrastructure is well documented. Unfortunately, there are no silver bullet solutions and, given the stakes, inaction is not an option. What is required is a combination of approaches aligned behind a strong vision, transparency, innovation, and a conducive regulatory and permitting environment, as well as willing partners — across borders, governments and industries — that can rise above complicating factors, build trust and generate confidence to proceed forward.

In this spirit, we look at four approaches that, taken together, can help reduce the infrastructure financing and funding gap.

1/ PUBLIC-PRIVATE PARTNERSHIPS

Public-private partnerships (P3s) are an effective way of transferring life-cycle costs of infrastructure from public-sector budgets and creating investable assets for the private sector. We expect that the P3 market — which is quite evolved in the United Kingdom, Australia and Canada — will deepen in the United States as concession terms become standardized and as valuation transparency is enhanced from higher transaction volumes.

2/ A REGIONAL APPROACH TO INFRASTRUCTURE

The U.S. has numerous authorities that operate — and have been responsible for developing — significant portions of the nation’s infrastructure. Their advantages? These bodies take a long-term and expansive view of infrastructure needs.

Governments seeking to advance P3s in a programmatic manner might adopt the successful model of infrastructure offices — such as the U.K.’s Infrastructure and Projects Authority and Canada’s Infrastructure Ontario and Partnerships BC — at a regional level. The role of these centers is, among other things, to spur P3 activity through encouraging enabling legislation, prioritizing projects, and interfacing between procurement agencies and private capital sources.

3/ BETTER MODELS FOR FUNDING OF INFRASTRUCTURE

Whether financed by public or private capital, there is much that can be done to enhance funding models for infrastructure assets.

• GENERATE SUSTAINABLE REVENUES THROUGH FAIR-USAGE CHARGES: Many infrastructure assets, particularly in the transportation and water/waste sectors, are subsidized or free to users. This is not uniformly sustainable and so we recommend a reality where, in the words of the American Society of Civil Engineers (ASCE), users “pay … rates and fees that reflect the true cost of using, maintaining and improving … infrastructure.
• CREATIVELY UTILIZE VALUE-CAPTURE TECHNIQUES: Land and property values increase, sometimes dramatically, when they benefit from adjacent infrastructure. Value capture leverages the increase in real estate valuation to fund infrastructure development.
• ENSURE DEDICATED AND ROBUST STATE AND LOCAL SOURCES OF FUNDING: Stressed state and local budgets inevitably lead to maintenance backlogs. Thus, it is of prime importance that local sources of maintenance funding be developed from tax revenues and safeguarded, protecting them from being diverted to other budgetary needs.
• MODERNIZE THE GAS TAX:The U.S. Highway Trust Fund, which finances most federal government spending for highways and mass transit, is funded primarily from gasoline taxes. Because wear and tear on roads is correlated much more closely to mileage driven than to gasoline usage, the fund could be stabilized using a mileage-based revenue source that accounts for both gasoline-powered and electric vehicles.

4/ ENCOURAGING GREENFIELD DEVELOPMENT

Development of new infrastructure requires substantial capital and entails significant risks. We propose several approaches to address these challenges.

• GOVERNMENT-SUBSIDIZED CONSTRUCTION FINANCING: We believe budgets for U.S. governmental programs that subsidize financing for infrastructure development should be expanded. They are an effective way of providing leverage to federal funds, from private capital and state or local public capital, in the development and maintenance of infrastructure.
• ASSET RECYCLING: An effective way to leverage public capital in a resource-constrained environment is to fund new infrastructure via “asset recycling,” whereby proceeds from the lease of existing assets are redeployed in the development of new infrastructure.
• MITIGATE RISKS FOR PRIVATE INVESTORS: Private capital is generally unwilling to invest in greenfield development because of the difficulties in accurately budgeting development costs and timelines, and forecasting future revenues in the absence of operating history. These risks can be mitigated by inclusion of the right partner in the development and operating consortium.
• REFORMING REGULATORY AND PERMITTING PRACTICES: Predictable regulatory guidelines and efficient permitting processes can be helpful in driving private investment into infrastructure. Policies set by one administration or legislature can fall away with the next, creating uncertainty.

CONCLUSION

As we have argued, there are practical steps that can be taken right now by participants in the infrastructure market, as well as public policy initiatives that we actively support. In future articles, we expect to expand our scope beyond the United States.

For the full article and source material, visit: https://www.archtam.com/infrastructure-funding 

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At ArchTam, we are proud to be a leader in designing and building the 21st-century infrastructure assets on which America’s economy rests and the nation’s prosperity depends.

Our fully integrated team of architects, engineers, designers, planners, scientists and management and construction services professionals are aligned in their passion to provide our clients with innovative solutions to their most complex problems. Our global work can be experienced in every facet of infrastructure, from solar-powered sports stadiums to major greenfield ports, modern rail systems to Olympic venues that can be converted to school buildings.

Witnessing these innovations, I am optimistic about the vital role that new civil infrastructure will play in the U.S. economy. Innovations promise to transform how we travel and transport goods, while saving time and money and reducing our impacts on the natural environment.

Still, optimism must be matched by realism, and the United States faces serious challenges when it comes to the state of our infrastructure. Years of underinvestment and neglect have degraded U.S. infrastructure to a perilous degree. The nation has tumbled far down the global rankings of the quality of a country’s infrastructure, and U.S. public spending in these vital building blocks of our economy amounts to a paltry 2.4 percent of our gross domestic product, or GDP.

In recent months, acknowledgement of the problem has turned to action, with public and political support growing for infrastructure investment. Billions of dollars have been allocated at the state and local level for transportation and other projects. And we hope to learn more soon about the contours of a $1 trillion federal infrastructure investment plan that, while promising, may fall short in meeting an estimated $3.6 trillion spending need in the U.S.

In Back in Business: A Policy Blueprint for Renewing America’s Infrastructure, Business Roundtable provides a guide for policymakers to reverse this dangerous course, boosting public infrastructure resources today and encouraging investments in research and development for the future.

At ArchTam, we are working to identify the most effective responses to even the most daunting infrastructure challenges this country faces. One innovative example: To address motorists’ concerns over electric vehicle range and charging capacities, ArchTam is partnering with the Colorado Department of Transportation on roadways that allow electric vehicles to charge as they drive.

Our sights are set even higher. We engineered and built the first Hyperloop test track, and we are supporting efforts to commercialize this new form of high-speed transport — based on a network of low-pressure tubes and air-cushioned pods — that could someday transport goods and people across vast geographies at unprecedented speeds.

Still, innovation requires investment. As the U.S. rebuilds and expands the foundation of its economy, policymakers must encourage a climate that promotes investment in projects that meet the needs of the public and the demands of the marketplace. When the public and private sectors work together, the United States can unleash the promise of modern technology to build safer, more efficient and more cost-effective infrastructure that better serves the needs of the U.S. economy and the American people.

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