Representative Shuster, don’t stop there

A draft infrastructure bill recently introduced by the chair of the House Committee on Transportation and Infrastructure does a good job addressing what needs to be fixed and how. But it does not yet establish the framework the public and private sectors need.

Draft legislation that Bill Shuster, chair of the House Committee on Transportation and Infrastructure, published in July for discussion is a good start but does not go far enough in establishing federal guidelines that will keep governments and investors in agreement throughout public-private partnerships.

The bill hasn’t been formally introduced and likely won’t see the light of day until after the November elections, but Shuster, a Pennsylvania Republican, released a version to spur discussion about what’s included and what’s left out.

In short, the bill is trying to solve two problems – a way to pay for the Highway Trust Fund, which is expected to be insolvent by September 2020 – and how to encourage state and local governments to get comfortable with PPPs. In doing so, Shuster’s plan includes measures that swing toward both Democrat and Republican wishes.

Shuster proposes increasing the gasoline and diesel tax by 15 and 20 cents respectively for 10 years to boost income for the Highway Trust Fund, one of the main federal accounts that invest in surface transportation. The federal government last raised the tax 25 years ago, which has been a calling card for Democrats when asked about a solution to pay for infrastructure. Among other things, he also wants to add 10 percent tax increases on electric vehicle batteries and adult bicycle tyres to account for transportation not currently paying into the system.

Next is the juicier part of the bill and the one that appeals to Republicans.

Shuster wants to encourage asset recycling in the US based loosely on what Australia has done. The idea is for Congress to provide $15 billion over five years to pay state and local governments up to 15 percent of the value of an asset leased to the private sector. That government must prove it is using lease proceeds for future infrastructure needs and that it will use the incentive payment for the same thing. No pork barrelling here.

One aide to the House Transportation Committee told Infrastructure Investor the incentive will help “grease the skids a little”, but that’s where it can get slippery.

As of now, the Shuster bill addresses what needs to be fixed and how, but it does not lay out guide rails that will keep PPPs on track after the skids have been greased. Investors and government counterparties need a clear understanding of how they should arrange these contracts. Yes, what makes sense for one part of the country may not for another, but the federal government needs to issue basic rules that say who is responsible for what and set expectations.

In both the public and private sector, inexperience can lead to unintended consequences. Thirty-six states have now approved PPP legislation, the most recent being New Jersey. The governor there signed legislation recently that broadens the assets available for PPPs, from college campuses to transportation and more. After completing several campus PPPs, it’s not far to venture that New Jersey should brush up on the mechanics of a toll road concession before signing a 30-, 40- or 50-year lease.

Private investors also need to bear in mind that entering a PPP makes their business not so private. These are assets the public needs, which means they can’t approach deals with the same killer mindset you would bring to a private-to-private transaction. Let the 10-year anniversary of the Chicago Parking Meters deal stand as a reminder that public-private partnerships – whatever form they take – are only sustainable if interests align.

Shuster’s bill also doesn’t touch on government oversight, all the more necessary in light of Italy’s tragic Morandi Bridge collapse. There need to be clear rules set for which part of government approves PPPs, which part is required to monitor these assets and, if needed, which part has authority to revoke them.

The Shuster draft bill is not bad – the fuel tax does need raising and there are assets better off being sold – but don’t stop there. Dare to write down what the archetypal US PPP should look like.

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