During his campaign for president, Donald Trump promised the country a plan that would infuse $1 trillion into infrastructure spending over 10 years. While President Trump’s promise to roll out his plan during his first 100 days in office may have been a bit ambitious, Hillary Clinton also promoted a $1 trillion infrastructure spending plan.
The reason both candidates agreed on the need for such a large investment in this area is simple--the United States must do something to repair its crumbling public infrastructure assets.
President Trump held a meeting with his infrastructure team last week where he emphasized the importance of directing funding to states with “shovel-ready” projects, those that can be started within 90 days, according to The Wall Street Journal. The newspaper also reported that a White House aide said movement on the new administration's infrastructure plan is not likely to occur until after Congress has completed its work on two other major issues – health care and reforming the federal tax code. The Journal said Trump’s plan “would pressure states to streamline local permitting, favor renovation of existing roads and highways over new construction, and prioritize projects that can quickly begin construction.”
Local officials, who have in the past relied heavily on federal funding – whether it reached them directly or through the state – are now clamoring for funding assistance of some kind. Tight budgets and declines in revenues have caused most government leaders to take a Band-Aid approach to infrastructure needs. What little funding they have has primarily gone to repair the most critical problems and in the least expensive way possible. That only provides a short-term fix and one that ends up being more costly over the long term.
The new administration has not swayed from saying that the infrastructure plan would rely heavily on private-sector capital, and that government entities would be able to access that capital through public-private partnerships (P3s). That’s good news for public officials and taxpayers. P3s are almost always structured so that the private-sector partner bears all or almost all of the financial burden, as well as the risks, on a large public project. The risks go far beyond funding because the public entity is guaranteed a fixed cost, on-time delivery, and maintenance over the life of the contract, which usually spans decades.
On the other hand, there’s been little news about P3s in smaller communities or in rural areas, but that is about to change. As public officials in less populated parts of the country lament that the projects they need to launch are not large enough to capture the attention of investors or experienced contracting partners, some of their counterparts are forging ahead.
Many creative and innovative community leaders have found ways to get around all obstacles. P3s are being launched for all types of projects in smaller communities and taxpayers can benefit as public assets are salvaged and/or improved.
Redevelopment projects are becoming more common in our communities, and most involve a private-sector partner. Smaller communities are revitalizing downtown areas, developing commercial ventures on nonrevenue-producing property, building libraries and parks, and repairing roadways through P3s. Such efforts typically lead to increased property values and increased revenues for the city, and many of the P3 projects involve adding new revenue streams to local government coffers.
One of the issues facing small communities and rural areas in initiating P3s is formulating a revenue model to repay the private investment of capital. Yet another hurdle has been that the projects are not large enough to capture the attention of experienced contracting partners. Community leaders in many regions have solved that problem by consolidating a number of projects and finding ways to incentivize partners, bringing grant funding to the table, and offering attractive benefits such as exclusive development rights.
Other incentives include long-term leasing agreements and revenue-sharing opportunities. One common thread is the use of tax increment financing (TIF), in which future gains in taxes from a redevelopment effort are used to repay bonds that provide a financial incentive to an investor.
In addition to P3s for redevelopment, infrastructure, and amenity projects, there are numerous examples of small-city P3s that address broadband, water and wastewater facility operations, and parking garages. New P3 projects are also emerging in the areas of smart lighting, solar energy, municipal facilities consolidation, and green storm water infrastructure.
In January, the city of Missoula, Montana, worked to finalize a P3 to redevelop a riverfront property. The project will include a conference center, hotel, parking, retail, restaurants, entertainment space, offices, housing, and a public plaza. A large project for a mid-size city. The city is selling the riverfront property to developers and will buy a portion of the conference center and the parking garage once the facilities are built. The total project cost will be approximately $150 million.
Another new P3 is taking place in Salina, Kansas, a city with a population of less than 50,000. The city just approved a $154 million downtown redevelopment project that includes $105 million in private funding, $19.1 million in state-issued STAR bonds, $9.2 million in community improvement district sales tax funds, and $4.9 million in TIF property tax funds. The city will get a downtown hotel, a field house, new streetscapes, theater improvements, a museum, and low-income apartments.
Another P3 in Texarkana, Texas, a city with a population of less than 37,000, will involve a mixed-use historical preservation project. The city will get new residential space as well as commercial space on the first floor of a building that is located on city property. The revenue model includes HUD funds along with federal and state historic credits, an EPA cleanup loan, and some conventional debt.
In June 2016, the city of Burlington, Vermont, launched a P3 for a marina project. The engagement allows the private-sector partner to build a 160-slip facility on public land and then operate the marina for 40 years. The city will receive lease payments for 40 years as well as public amenities. TIF funding will be used to help fund some of the amenities, including a parking lot and a park.
In 2016, the city of Noblesville, Indiana, inked an agreement with an athletic facilities developer to build the Noble Field House at Finch Creek Park. The project includes a $15 million, 130,000-square-foot youth sports facility. Under the P3 agreement, the developer is responsible for all capital construction, operating, and maintenance costs. Incentives to the developer include $300,000 annually in property tax reimbursement for 20 years, $250,000 annually from TIF funding for 20 years, and the sale of 10 acres of land for $500,000.
The American Society of Civil Engineers estimates that an investment of $1.4 trillion by 2025 is needed to address the country’s aging infrastructure funding gap. Most Americans want their public assets protected, so while private capital is abundant, surely it’s time to bring all the parties together at the negotiating table.
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