Obama’s one-stop-shop

President Obama announced in mid-July a “one-stop shop” at the US Department of Transportation (USDOT) to help state and local governments seeking private loans to underwrite construction projects. By acting on his own, the President hoped to press Congress to take action in boosting the country’s infrastructure sector.

“A one-stop shop or any streamlining which makes it easier to get infrastructure projects developed to the point where they can be financed in the private markets is a good step toward solving the need for increased infrastructure investment. A quick, smooth, and stable process would be very helpful,” says Lisa Ferraro, managing director and portfolio manager, energy and infrastructure, at US financial services firm TIAA-CREF.

The ‘shop’, called “Build America Transportation Investment Center”, will offer hands-on support for states and local governments trying to access DOT programmes and assemble public-private funding packages, as well as offering tools and resources for private sector developers and infrastructure investors, according to the DOT.

It will also provide improved access to DOT credit programmes such as TIFIA, Private Activity Bonds (PABs), and Railroad Rehabilitation and Improvement Financing (RRIF) loans.

Addressing delays

The centre will also offer information to reduce uncertainty and delays and will partner with the DOT Infrastructure Permitting Improvement Center to help local and state governments, project sponsors, and investors ensure that projects are designed and financed in a way that moves them expeditiously through permitting requirements.

Norma Krayem, a principal at law firm Squire Patton Boggs, said Obama’s new federal infrastructure initiative is “a good interim measure… to give comfort to the private sector that there will be additional technical resources offered to the public sector partners to help them better understand what the private sector wants and vice versa.”

In the US there can be gaps in understanding between the public and private sectors regarding the requirements of each when it comes to a particular project.

Memories are still fresh from when the Pennsylvania legislature killed the privatisation of Pennsylvania Turnpike in 2008 as concerns over annual toll increases and hidden costs outweighed the benefits the project was perceived to bring to the state’s transportation revenue. This was seen by some as a classic example of public and private sectors growing apart and eventually jettisoning a major project.

In 2007, Pennsylvania Governor Ed Rendell pushed for the privatisation of the Turnpike as a way to raise money for the state’s transportation budget. A consortium led by Spanish company Abertis Infraestructuras and Citi Infrastructure Investors offered $12.8 billion to lease operation of the turnpike for 75 years.

The future of the deal became uncertain as advocates educated the public and lawmakers about the risks involved. As a result, the legislature, which had the power to approve the proposal, effectively killed it when it allowed a deadline to pass without a vote in September 2008.

“What the President’s announcement really does is to match up better technical assistance to public and private sector partners who want to access DOT credit and finance programmes. The importance of (the announcement) is that they are seeking to better leverage existing federal resources to deal with PPPs (public-private partnerships, P3s),” says Krayem, who formerly served as Deputy Chief of Staff at the US Department of Transportation under Secretary Rodney Slater.

The public sector’s decision-making processes on which projects to execute as a P3 can understandably be complicated by governance issues and the views of taxpayers. For private investors, frustrations arise regarding the time it takes to bring a project to the market, the need for revenue certainty and the large costs of preparing competitive bids, says Ferraro.

“Government organisations need to run a competitive process but it’s very expensive from our point of view,” points out Ferraro.

Institutions have to make large commitments and need to spend a lot of upfront money on due diligence before they know if they will be selected to participate in a financing. Bid costs and the resources needed to process a transaction are barriers that discourage some private investors from embarking on smaller projects, she adds.

The feeling appears to be that the Obama initiative is a welcome contribution to making public/private interaction just a little more optimal.