The Hill is carrying an Op Ed column this week that spells out cautions about relying on private investment to rebuild U.S. infrastructure.The writers, Donald Cohen--the executive director of In the Public Interest, a research and policy center on privatization and responsible contracting; and Bishop Dwayne Royster, political director of PICO National Network, a network of faith-based organizations and vice-chair of the Working Families Party National Committee, say that "almost everyone can agree that we need to rebuild and retool the country's aging infrastructure." The question is "how" and the administration's infrastructure agenda likely "isn't the way."The article notes that the current agenda, while light on details, is expected to rely on so-called "public-private partnerships," which use expensive private financing instead of cheap, reliable public financing."By depending on such deals to rebuild America, the agenda poses serious risks to the public and fails to address the real issue causing our roads to crumble and water pipes to age--the long-term shortage of public funding.Advocates of privately financed and operated infrastructure often claim that contracts shift risks from the public to private investors and operators. "But all risks are not created equal," the article said. The potential for cost overruns and delays in new construction is real but is, in fact, where risk can be shifted to construction contractors with proven contracting methods such as design-build. "There are countless instances of governments using these methods and others, including traditional design-bid-build contracts, without relying on expensive private capital. In these deals, "if contractors fail to meet benchmarks, they are on the hook."Private financing also poses the risk of outright failure, The Hill says. Earlier this month, the state of Indiana completed a takeover of the construction of highway I-69 between Bloomington and Martinsville. In 2014, then-Governor Mike Pence had signed a 35-year public-private partnership with a Spanish firm to finance, construct, and maintain the section of road. But the firm, facing bankruptcy, missed deadlines for months, and has left the state with nearly half of the project left to complete and an unfinished highway.Construction risk is one thing, but shifting risk when it comes to revenue shortfalls during the life of an asset is another story altogether, the writers say.In fact, after numerous public-private partnership bankruptcies across the country, investors are now less willing to take on the risk that traffic projections won't pan out. However, more and more public-private partnerships now include annual payment guarantees called "availability payments." This model shifts revenue risk back to the public agency's budget for the life of the infrastructure, allowing investors to collect healthy returns regardless of actual usage.And it's not as though user fee-based public-private partnerships don't come with risks to public themselves. Keeping public goods affordable is more difficult within the confines of a contract where investors seek to maximize revenues. Whether after new construction or a sale or lease of existing infrastructure, skyrocketing fees can punish lower-income residents who must use toll roads or can't afford their water bill.Private investors also sometimes minimize their own revenue risk by negotiating contract clauses that protect their profits at the expense of taxpayers and residents. A long-term contract with a multinational consortium to operate the Capital Beltway's high-occupancy express toll lanes penalizes the state for increased carpooling, even though carpooling helps reach environmental goals.The writers also criticize reliance on private financing since it does not reduce the real challenges faced by governments at the local, state, and federal levels. "Our infrastructure needs aren't growing because of a lack of financing," they argue, and the tax-exempt municipal bond market is healthy and robust. "The problem is a lack of ongoing funding to pay back the debt governments take on to build and operate infrastructure. In fact, the trend towards debt financing has accelerated as federal infrastructure spending has fallen by half over the past 35 years."America's public infrastructure needs true federal investment. Trying to avoid what must be done is the biggest risk of all, the article says.Although, the infrastructure agenda seems to be slipping behind, and the concerns raised by The Hill seem to be gaining notice, the proposed investments in infrastructure are essential to the future competitiveness of U.S. agriculture. Thus, the debate over the design of these projects needs close scrutiny by producers as it evolves, Washington Insider believes.
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