Infrastructure group urges ‘second stimulus’ for US

As the US unemployment rate hits 9.8%, a group of industry representatives has issued a second report detailing the benefits of job creation through private investment in infrastructure, arguing that it could create 1.5 million jobs over 10 years.

A group of infrastructure investors, advisors and lawyers has renewed its call for the Obama administration to promote private investment in infrastructure, citing the potential to create 1.5 million jobs in the US by combining public and private investment.

Their report, “Benefits of Private Investment in Infrastructure”, was prepared by Washington DC lobby firm Kearsarge Global Advisors on the behalf of Abertis, Citi Infrastructure Investors, Greenhill & Co., Mayer Brown and other private equity firms, investment banks and law firms active in the sector.

An earlier version of the report was issued in January. At that time, the US’ unemployment stood at around 7.6 percent and Congress was busy debating the details of the $787 billion stimulus package President Obama signed into law in February.

With unemployment hitting 9.8 percent last week despite the flow of stimulus funds, these firms argue that infrastructure investment could act as a “second stimulus” for the US economy.

Rob Collins

“According to the US Department of Transportation, every billion dollars invested in a brownfield transaction through private equity and private debt is going to [create] 35,000 new jobs. because the government can accelerate needed infrastructure projects,” said, Rob Collins, the head of Americas infrastructure investment banking at Greenhill in Chicago.

Using these metrics, the report estimates that 1.5 million jobs could be created over the next 10 years. These figures assume that all the private capital available for infrastructure investment globally – about $180 billion – is spent in the US and leveraged 60 percent to a total of $450 billion in spending power.
Collins cited the example of the Indiana Toll Road, a highway that was leased in 2006 by Indiana Governor Mitch Daniels in exchange for nearly $4 billion. That money was plowed into the state’s transportation budget and used to create over 60,000 new Indiana jobs to date.

By Collins’ estimates, states face $350 billion in collective budget deficits through the end of 2011, which makes similar transactions an attractive option given their other choices.

“Governors, mayors and county executives have three choices to balance their budgets:  increase taxes, cut services or monetise non-core assets,” he said.

Collins believes much of the $180 billion available for private infrastructure investment can be deployed in the US if the government takes steps to create a more private-capital-friendly climate for infrastructure investors.

Among such steps, the Kearsarge report recommends that Congress expand the US government’s infrastructure lending programme known as TIFIA (Transportation Infrastructure Finance and Innovation Act) by giving it more funding capacity and increasing the percentage of each project it can fund.

Other recommendations include mandating value for money analysis for large infrastructure projects. A value for money analysis is a side-by-side comparison of public and private financing of a project with the goal of determining which one delivers more benefits to the public through time and cost savings and other metrics.

The report also backs the creation of a national infrastructure bank to lend to infrastructure projects and the creation of a permanent grant programme of up to $5 billion that would fund infrastructure projects on a competitive basis.

The report urges that these and other measures be included in Congress’ next transportation reauthorisation bill.