Photo taken from infrastructurereportcard.org
“[We] hope the compromise and common sense displayed by [recent budget agreements between President Obama and Congress] mean Washington can next tackle what’s really needed to assure robust economic growth and full employment—the rebuilding of public infrastructure.
“In its latest report on global competitiveness, the World Economic Forum ranked America’s infrastructure 25th among nations. The country needs to do much better.”
Felix Rohatyn & Rodney Slater “Private Capital for Public Works” Wall Street Journal, February 19, 2014
As the oped by Mr. Rohatyn (former chairman of New York’s Municipal Assistance Corporation and Mr. Slater (formerly U.S. Secretary of Transportation) makes clear, policy debates about infrastructure financing are complex and often wind up generating far more heat than light. (To read the piece, click here – subscription required.)
While the financing debate is often framed as whether “public” vs. “private” financing is preferable, the history of infrastructure financing shows pretty clearly that each has benefits and drawbacks. In football terms, do you want Chip Kelly’s “hurry-up” offense or Bill Belichek’s more deliberate plan? Both are good but both also have flaws.
In my opinion, the private sector almost inevitably has the advantage in terms of short term projects that have tangible, economic outputs. The private sector is far less successful in managing large scale long-term infrastructure projects that have less defined economic returns. A recent example of this type of project is the rebuilding of the hurricane protection system in Greater New Orleans following Hurricane Katrina. The first Panama Canal attempt and the English Chunnel are other illustrations of major infrastructure projects ill suited for private implementation.
The objective of the Obama Administration’s Recovery Act infrastructure investments was to create jobs while providing a sustainable improvement in our infrastructure. President Franklin Roosevelt used the same approach to help pull this Country out of the Great Depression and we’re still benefiting from infrastructure constructed during that period. One major limitation of the Recovery Act, was the need to invest in “shovel ready” projects that were not necessarily the most productive or sustainable.
However for publicly-funded projects, the return on investment is often defined as an increase in the Nation’s Net Benefits over many decades. For example, consider an Interstate highway in Montana. Though it would be essential for public access to our national transportation system, from the private sector’s perspective, this would probably not be seen as a good business arrangement from an ROI perspective – at least without public subsidy guarantees to make it profitable. Otherwise, toll requirements would far outpace what the users could stand.
There’s little doubt that Congress and the Executive branch can improve our nation’s infrastructure management. Private sector-managed infrastructure works well when public officials are assured that a required performance level can be specified and enforced. In those cases, it makes good sense for government to step aside and allow the private sector to innovate. When that happens, competitive juices can be fully engaged.
The long-term solution to our eroding infrastructure is for the public and private sectors to work together, such as through Public Private Partnerships (PPP), to finance critical infrastructure projects. The current Water Resources and Reform Development Bills, passed by both chambers of Congress, contain language to encourage pilot projects utilizing public private partnerships to advance critical water infrastructure projects.
Federal and state officials should encourage passage of WRRDA for 2014 with this language so we can leverage public-private partnerships as a long-term solution to our infrastructure requirements.
Rob Vining Senior Advisor
Rob has spent more than 40 years in federal program and project management and planning in both the public and private sectors , including five years as Chief of the U.S. Army Corps of Engineers Civil Works Programs.