Brookings, KKR seek new path for infra

“The Way Forward: A New Economic Vision for America’s Infrastructure” examines the challenges facing the US and its infrastructure needs and seeks to provide solutions and fresh perspectives on how these challenges are addressed.

The paper, which is a collaborative effort between the Brookings Institution, a Washington-DC based think tank, and private equity firm Kohlberg Kravis Roberts & Co (KKR), was released on Thursday.

Below is an excerpt of a conversation with two of the paper’s four authors: Robert Puentes, senior fellow with the Brookings Institution’s Metropolitan Policy Programme and director of the programme's Metropolitan Infrastructure Initiative; and KKR’s North American head of Infrastructure Raj Agrawal; and Infrastructure Investor.

Q: The paper provides a comprehensive overview of the infrastructure sector – what it means to the economy in terms of job creation and improving competitiveness as well as the problems it faces. How would you summarize some of the key points presented in the paper that perhaps haven’t been presented before?

Puentes: I think the general frame is that while America’s infrastructure crisis is well known – the 63,000 bridges that are structurally deficient, the water main breaks that happen each year, the lack of connection between low-income households and economic opportunity – the way we’ve been thinking about fixing them is wrong.

People believe that the federal government is going to come to the rescue, either in the form of something like a national infrastructure bank or boosting the government’s ability to spend through the implementation of a gasoline tax. What we’re seeing is that the federal government essentially can’t or won’t fix our national infrastructure inthe manner that some are calling on them to do.

All this has important implications on how we think about infrastructure in the future in different sectors – whether it’s transportation, water, energy, and telecommunications – and then how we design, finance, and deliver infrastructure given the changes that are happening now.

What we’re trying to say here is that this isn’t just a blip on the radar and in a couple of years when Washington gets its act back together there will be big investments and we’ll go back to normal. Things have changed fundamentally.

Agrawal: I’d like to add to that. I think that the source of pain today that is commonly talked about is the macroeconomic environment, the desperate need for infrastructure and infrastructure investment and the lack of public financing sources to address that. What we’re trying to do here in the white paper is to shift how we think about this issue.

The source of pain is not an abstract discussion. The fact that there are a number of projects that aren’t getting built today that would have a tremendously positive impact on the economy, on employment, on exports – that’s fact number one.

Fact number two is that there is a tremendous amount of capital in the private sector and an interest to cooperate with the public sector to make those projects happen.

To us the source of pain is that those two aren’t being married together.

Q: According to the paper, the US spends around 2.5 percent of gross domestic product (GDP) on infrastructure, which is lower than the 3.9 percent spent by peer countries such as Canada, Australia, and South Korea? Why?

Puentes: I think part of it is that we have other things we spend money on – there’s a lot spent on defense, a lot of non-discretionary spending – that other countries may or may not have. Countries like China are growing tremendously, they have different motivations, different investment needs.

But looking at some of our peer countries, Canada, in particular – because it’s a federalist republic like this one – Canada has an infrastructure agenda and an economic frame for everything they’re trying to invest in.

They’re not just playing catch-up; they’re not just investing in things when they fall down or building bridges to nowhere and cutting ribbons in front of investors. There is an economic strategy to what they’re trying to achieve and the infrastructure projects have been derivative of that and they have different kinds of partnerships, different kinds of tools set up to get a different range of projects done. I know that’s kind of a mouthful. But the bottom line is that they’re putting infrastructure in the right frame – in service of the national economy and not infrastructure for infrastructure’s sake.

For example, they’re trying to take advantage of trade with other countries on a greater scale, so they have a very clear and a very robust freight agenda that’s very strategic and it has infrastructure projects that are derivative of that.

That is their economic alignment.

Q: But we also hear about infrastructure in relation to the economy, to boosting competitiveness, to creating jobs. Isn’t that message getting across?

Puentes: I think the message has gotten across, but it has to be specific, it can’t just be in the abstract. And the challenge we’ve had on the national level is that we’ve talked about infrastructure in the abstract and it’s resulted in things like the National Infrastructure Bank, which is fine and we definitely think it has a role to play but it’s almost a cartoon-y approach to infrastructure.

You have to get very specific on these sectors. Water projects are delivered and designed differently than transport, differently than energy, and differently than telecommunications. They’re all linked but they’re designed differently and they’re designed to achieve different economic and social ends.

Agrawal: I think it’s what leads us to say ‘let’s move the discussion from a top-down approach to a bottoms up approach’ on infrastructure. Let’s move from a federal government ‘infrastructure is good let’s support it’ approach to a very specific metro leader-oriented: ‘In this city this is what we’re trying to achieve and here are the constraints so we need more investment in ports, we need more investment in freight, we need water to keep up with the citizenry given all the growth we have’ – whatever it is that’s bottoms up.

And then you look to facilitate the solutions that come from a bottoms-up perspective. Those solutions could be relaxing restrictions on passenger facility charges at airports or relaxing restrictions on what Interstates can do with tolls.

So our suggestion would be and the whole theme is let’s go from a top-down to a bottoms-up approach. Let each locality figure out what makes sense that’s pro-growth in that area and then let’s do what we can at a regional, federal, state level to facilitate what makes sense at the metro level.

To access the full report click here.