Traffic passes over the Chicago Skyway. The Ontario Municipal Employees… (TED S. WARREN/ASSOCIATED…)
When the city of Chesapeake, Va., considered closing a crumbling, 80-year-old bridge over the Elizabeth River in 2008, local officials knew that neither the state nor the federal government would pay for a replacement. Just tearing down the old one would cost millions of dollars. So they sold it.
“We paid them $10,” said Bob Hellman, one of the investors, but “what we gave them wasn’t just $10.”
Hellman’s investors group, American Bridge Partners, agreed to remove the old bridge — and to build a brand-new one, solely with private money. Tolls of about $2 a trip, up from the old 75-cent fee, will pay back the company’s $130 million investment in the new South Norfolk Jordan Bridge, due to open in the spring.
“This is a Christmas gift for the city,” said Chesapeake Mayor Alan Krasnoff.
It’s a gift cities and states are asking for more than ever. The goal is not to raise cash by selling public infrastructure but to tap into the private sector for money to build new bridges, roads or tunnels — possibly faster and cheaper than the government otherwise could.
There are at least 70 privately funded and managed infrastructure projects across the United States in various stages of development, according to a list compiled by the law firm Allen & Overy. These are part of a vast network of roads, bridges and tunnels — to say nothing of the subways, ports, airports and water systems — crying out for attention. Consider this: Over the past 60 years, the United States has built a 46,876-mile federal highway system that is now in dire need of repair. As a result, states have had to pour more of their transportation dollars into fixing aging highways and even in good times have little or nothing left over for new construction.
The Great Recession made that harder. In many cases, financially strapped states and cities have little choice but to turn to the private sector, even if it means giving up revenue and selling off an asset normally seen as belonging to the public.
In Chesapeake, “they were looking at our bridge versus no bridge,” said Hellman, who previously invested in pipelines, coal, landfills and even cemeteries. “That’s ultimately what you’re looking at in many of these circumstances.”
“States are facing a transportation funding crisis,” said Jaime Rall, transportation policy specialist at the National Conference of State Legislatures (NCSL). But she does not pin the blame for the crisis on the recession alone. She also points to the “political reluctance to raise the gas tax,” she said.
The gasoline tax, which feeds into the National Highway Trust Fund for highway projects, has stood at 18.4 cents a gallon since 1993. Adjusted for inflation, it would need to be 29 cents a gallon just to buy what it did then, according to the Bureau of Labor Statistics. But Congress and the White House oppose any increase.
As a result, federal transportation finances are in even worse shape than many states’. The highway trust fund ran out of cash and had to be rescued in 2008, 2009 and 2010 at a total cost to taxpayers of $34.5 billion. It is expected run out of cash again next year.
“There is no public money,” said D.J. Gribbin, a former chief counsel to the Federal Highway Administration who works at Macquarie Capital, a large Australian investment bank.
While public coffers have been running dry, a cottage industry has been built around the concept of investing private money in infrastructure. It has grown exponentially over the past decade thanks largely to the world’s largest pensions, which have come to view infrastructure as a separate investment category, much like a stock or a bond.
Precise estimates are hard to pin down, but in the past five years, the 30 biggest investors in infrastructure have channeled as much as $180 billion into these types of investments, according to Infrastructure Investor magazine. These investors include Macquarie, as well as some of the largest pension plans in Europe, Australia and Canada.
More capital is on the way. There are 100 private funds seeking to raise $95 billion for infrastructure investments globally, according to a tally by San Francisco-based fund adviser Probitas Partners, though not all of them will succeed. Of that, about $11.5 billion would be targeted for the United States, with fund sizes ranging from $100 million to $3 billion.
“In 2003, nobody in the U.S. talked about infrastructure,” said Kelly DePonte, a partner at Probitas. “We really have seen a sea change in interest.”