We’ve often sung Australia’s praises when it comes to anything infrastructure related, be it in the pages of our magazine or through this column. One of our reporters even expressed this admiration to an Australian fund manager during a recent interview. That conversation centred specifically on the promise the New South Wales government made to its constituents that it would reinvest the A$5.07 billion (€3.5 billion; $4.7 billion) it raised through the 99-year lease sales of Ports Botany and Kembla in new infrastructure. Asked whether something similar could be replicated in the US, the Australians responded with a hearty laugh.
But for John Schmidt, a partner at US law firm Mayer Brown whose practice focuses on public-private partnerships (PPP; P3), this is no laughing matter. To the contrary, Schmidt is quite serious in promoting the idea that recycling assets is a concept that can be put to good use to address the infrastructure deficit in the US.
Given the number of infrastructure assets that still belong to the public sector, Schmidt believes that more than $200 billion could be generated through the privatisation of public assets, an estimate he described as “conservative” in a recent phone interview.
He has even come up with a way to incentivise states to sell assets and recycle the proceeds, not like Australia does through a bonus system (such a plan met with opposition in the Australian Senate as we reported here last week), but by changing the tax law.
“Allowing private developers to have access to tax-exempt debt would be fairly easy to do and it may appeal to both Democrats – who support investment in infrastructure – as well as Republicans, who are opposed to raising taxes,” Schmidt said.
Many industry experts have acknowledged that while the municipal bond market has proven to be a reliable source of capital, it is also one of the reasons P3s have yet to take off in the US, since the public sector can borrow money at a low cost.
But according to Schmidt, an infrastructure asset that serves the public good continues to do so regardless of who owns it.
What’s more, the suggested change in the tax code would not require an overhaul of the tax system, which is highly unlikely to happen this year, considering the partisan politics that prevail in Congress and the upcoming mid-term elections this November.
Another benefit of recycling assets – aside from raising much-needed funds – is that it would help raise public awareness and perhaps whittle away the public’s resistance to privatisation.
As Brett Himbury, chief executive of IFM Investors, the fund manager that led the consortium leasing the Ports of Kembla and Botany, had told Infrastructure Investor in a recent interview, the New South Wales government won the ‘hearts and souls’ of its constituents when it promised to reinvest the proceeds from the ports transactions in new infrastructure.
“So all the community heard was ‘we’re getting a new road’. And guess what? That was a game-changer,” he said.
Anyone familiar with the state of infrastructure in the US knows the country certainly needs to up its game.