Developing Effective Community Engagement Programs
Transforming the Way We Think About Workplace Safety
Engineered Timber: The Way of the Future
Rodine Shows What Best Practice Looks Like on Live Sites
Australia’s Biggest Solar Farm Nearly Complete
New Infrastructure is the Big Winner in 2018 Budget
3 Steps to Saving Big on Construction Projects
Ensuring the Safety of Construction Workers on the Road
By Duane Craig
March 27, 2017
There’s much talk about public private partnerships, or P3s, for funding a $1 trillion infrastructure spend. It’s highly unlikely the federal government will foot the bill by itself. States are also increasingly tapping P3s for education, transportation, and civic works.
While P3s could figure prominently in infrastructure construction, they are not a build-all magic bullet, and they require government investment as well. For construction companies, they offer not just the construction profits, but also long term income from operating and maintaining a public development. Increased use of P3s, however, hinges on political, economic, and legal factors.
There are many ways to structure a P3. The most common look something like this:
A public agency sets up a contract with a private entity. The private partner designs, constructs, maintains, and sometimes operates the asset for a set time. The private partner pays for the project and then collects a regular fee from the public partner who always maintains ownership.
Public and private entities enter into a concession contract. The private partner pays for design, construction, maintenance and operational costs, and then collects users fees for a set time.
Historically, the U.S. depended on public private partnerships. P3s were behind the railroads, the turnpikes, and countless smaller civic projects stretching from the 1800s through 1989 when the first modern P3 broke ground––Colorado’s E-470 Highway. The Golden Gate Bridge, built in the 1930s, is a classic example of an early public private partnership, which still exists today as the Golden Gate Bridge and Highway District.
Recent news about P3s shows how the discussions about their use for infrastructure improvements is trending. There are mixed signals, and guarded excitement, but ultimately, they will figure into a very small part of infrastructure plans.
On March 10, the White House reaffirmed its support for using P3s to address infrastructure improvements. The press secretary said the funding parameters would likely wait until Congress dealt with healthcare and tax policies.
Then, on March 16, the White House released a budget plan that takes infrastructure funding away from federal agencies so that it becomes available for the executive branch infrastructure plan. Included in the proposed cuts is the popular TIGER grant program used for all types of transportation projects as well as grants for rural water projects.
The Environmental Protection Agency funds a lot of construction projects, and its budget is proposed for a 31% reduction. The agency historically funds $2 to $3 billion in infrastructure financing every year. The proposed budget also removes money from the Federal Transit Administration grant program, potentially affecting P3s for public transportation projects like those for buses and commuter rail. And, there is a withdrawal of federal money for Department of Transportation funding going to new public transit starts. That could affect over 50 projects in 32 states, according to the American Public Transportation Association. But, Congress will have its say on the budget too.
The chairman of the House Transportation and Infrastructure Committee recently said that while “private investment” will fund the bulk of the $1 trillion in infrastructure improvements, it will require about $137 billion from the federal government to make it work. That money could also come from tax credits, but that still represents federal investment, and at this point there’s no consensus on how to get that money.
One source of private partners for infrastructure projects is the EB-5 Immigrant Investor Program, which historically has broad support in Congress. In December, Congress extended the Regional Center Program portion of EB-5 to April 28. That program is normally renewed for three years at a time, and most observers think Congress will follow through on that before the end of April. This program allows foreigners to earn citizenship by investing in the country. Projects funded through the Regional Centers must benefit rural areas or areas with high unemployment. The EB-5 program is responsible for between $4 and $11 billion invested in the country since its inception in 1993. While its contribution to the country’s infrastructure challenges would be negligible, it offers options for rural areas where typical P3s are challenged.
State governors are concerned about the reality of applying P3s to rural projects. A sentiment echoed by Elaine Chao, secretary of transportation, when addressing the National Governor’s Association. She cited cost, and a lack of consumer acceptance for some types of projects like toll roads. Rural projects often can’t generate the kind of revenues needed to justify the investments by the private entities because they are used by fewer people. And, the Congressional Budget Office says that P3s won’t do anything to help fund road projects because most of those don’t include tolls or other ways for the private entity to collect money from users. There are 33 states, the District of Columbia, and Puerto Rico that currently have legislation allowing P3s.
Another factor influencing the role of P3s in infrastructure include interest rates. Sustained low interest rates inspire investors to be “more prepared to look at structured products to gain enhanced yields,” according to Chris Hogg, managing director of Macquarie Capital. With the Fed’s recent bump in interest rates, and another two expected this year, the attractiveness of P3 investment could diminish.
There are also legal and regulatory cautions about P3s. One form of P3 that uses availability payments to the private partner is under attack because some jurisdictions use it to get around their debt ceilings. That often exacerbates their debt problems.
There is little support from voters for an increase in the federal gasoline tax, so that option as a main driver of transportation funding, is a nonstarter. Most sources agree that P3s will never handle America’s infrastructure needs on their own, but government expenditures are no longer enough on their own either. That’s causing some to say that if modern P3s are ever going to really takeoff in the U.S as they have in other countries, now is the time.
In its 2017 Report Card, the American Society of Civil Engineers estimated the U.S. needed to invest $4.59 trillion in its infrastructure between now and 2027 to slow productivity losses. Each U.S. Household is currently losing $3,400 each year in disposable income to infrastructure deficiencies. Clearly, a trillion dollars spent between now and 2028, will only address a fraction of the problem. And, even if P3s reach the level seen in countries that make strong use of them, they will only fund about 10% of the nation’s infrastructure needs. That still leaves a lot of money to find.
How to Manage Entire Construction Budgets Without the Nightmare.
Those in the construction industry know that projects often encounter obstacles everyday. Sometimes there are ways to sidestep them and other times that is not quite the case. Click through to chec... Read More
Hear Brad Hyatt, Associate Professor at California State University Fresno, discuss what students are learning in school to prepare them for const... Read More
Budget. Schedule. Quality. The trifecta of a project. But balancing that trifecta isn't easy to do. Our webinar, led by construction industry exper... Read More
Tim Kelly, S&P Technical Services Manager, looked at numerous document management systems, including EADOC and "probably 10 other systems." What bo... Read More
Each year the Occupational Safety and Health Administration releases the Top 10 Most Cited Violations of safety and health standards. OSHA 5 top of... Read More
Augmented reality and virtual reality have combined revenue projections of $61 billion by 2021 and are on their way to widespread use. For construc... Read More
May 14, 2018
Digging tunnels is an engineering marvel that has come a long way since tunneling projects required huge teams of workers armed with picks and shov... Read More
April 22, 2018