In times of great change and economic duress, the United States has invested in its infrastructure. In 2020, while an infrastructure package was considered an option for economic relief for a short while, those deliberations can best be described as: blink and you would have missed it.
For something like a week, infrastructure emerged as a candidate for the next round of help, a prudent and long-term investment that would create jobs immediately. Instead, what happened next during this time of great uncertainty was more of the same: distraction and procrastination.
Senate majority leader Mitch McConnell, the self-proclaimed “Grim Reaper’ of legislation he finds unpalatable, quickly drove the final nail in the coffin. An infrastructure bill is “unrelated” to the pandemic-related economic recovery, he said. Franklin Roosevelt, whose New Deal initiatives helped the US work its way out of the Great Depression, must have rolled over in his grave.
A short time after, and not so far away from Capitol Hill, the US received a real-world example of what more of the same means.
After four years of delays and cost overruns, the construction companies contracted to build the Purple Line light-rail project in Maryland made public their intent to terminate their involvement in developing the $5.6 billion public-private partnership.
What the Purple Line Transit Constructors were looking for was more than $500 million in back pay for costs the consortium had racked up during a legal dispute with environmental activists. The entire project has now been thrown into question, adding to the US’s patchy PPP record
If infrastructure is going to be built in the US anytime soon, it’s going to come from close coordination between private sector entities with management experience and a pool of capital working with willing public-sector partners.
The economic recovery will “either create significantly more opportunities or significantly fewer opportunities,” argued DJ Gribbin, president Trump’s former lead infrastructure advisor, who now runs a consulting firm called Madrus.
If the US wants any sort of chance of achieving “significantly more opportunities,” local governments may finally have to resort to a model that has long been advocated: asset recycling.
“Asset recycling in this context means encouraging privatisation of appropriate infrastructure assets, with the proceeds reinvested in much-needed refurbished or entirely new infrastructure,” wrote Jigar Shah, co-founder of Generate Capital and former SunEdison founder, along with Jay Tannon, a co-managing partner at American Infrastructure Holdings.
“With trillions of dollars in national debt on and off the balance sheet, why don’t we try something new?” the asset managers ask in a guest piece for Infrastructure Investor.
There is one such recent example. In April, New Orleans-based mid-market firm Bernhard Capital announced the acquisition of Ascension Wastewater Treatment, a state-regulated utility serving 20,000 customers in the Baton Rouge area of Louisiana. After years of “back and forth,” Jenkins says the Louisiana Public Service Commission finally agreed to the privatisation that month.
Still, as Karl Kuchel, chief executive of Macquarie Infrastructure Partners, recently told us: “I don’t think the public sector will simply say, ‘OK, we’re automatically going to involve the private sector more.’ I think public entities will still ask: ‘What other options do we have?’”
At risk of sounding like a broken record, action that promotes investing in US infrastructure is clearly not going to happen at the federal level. It will depend on state- and local-level partnerships.
Our best hope is that the necessity of the moment will spur local authorities to adopt a proven framework that can put infrastructure at the heart of the post-pandemic economic recovery.
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