If there has been one thing to dominate the infrastructure skyline over the past 12 months it has been President Joe Biden’s infrastructure investment package.
Coming in at over $1trn dollars, the package was initially thought by many to be too bold, with warnings that the program would end up going the same way as President Donald Trump’s plans for new infrastructure, which never made it off the drawing board.
Nonetheless, almost exactly a year since Biden won election, the bill was backed by the House of Representatives. Crucially for Biden’s commitment to working across party lines, the bill was passed with bipartisan support in both the Senate and House. In the end, 13 Republicans voted in favor of the bill in the House, adding to the 19 Republicans that had backed the plans in the Senate.
Questions have been asked in some quarters, however, over how effective the new legislation will be in terms of leveraging private capital. There has been some concern that such vast sums of money being produced by the federal government will make it far easier for state and local governments - who will be the ones delivering the projects on the ground - simply to take the cash on offer without considering how to make it go even further.
Meanwhile there was disappointment that the Infrastructure Finance Authority that was included in the original plans in the Senate was removed and never reinserted. Some believe that entity could have acted as a form of infrastructure bank that would have encouraged deployment of capital alongside private investment, crowding in capital from investors. There are also concerns that, without such a body, the federal government will not have the organizational capacity to properly administer the huge amount of money the new bill pledges.
It’s perhaps worth noting that, in the wake of the bill being passed, Morteza Farajian, executive director at Build America Bureau, was quick to welcome the plans while also indicating a determination to put the investment to work quickly. “Our team at the Build America Bureau is ready to roll up sleeves and work closely with our public and private partners to deliver the outcomes intended by this legislation,” he said in a LinkedIn post.
So while the bill may not have brought everything the industry had wanted, there is still plenty in it to convince the market that P3s will have an important role to play.
As the Association for the Improvement of American Infrastructure (AIAI) executive director Lisa Buglione put it responding to the passage of the bill, “The Infrastructure Investment and Jobs Act contains many pro-P3 and alternative procurement provisions which will help project owners take advantage of the P3 model and its many benefits to taxpayers.”
So what are those pro-P3 provisions and what makes the bill so exciting for the P3 investment community?
The biggest area of success in the US P3 market has long been transportation, thanks in no small part to the TIFIA regime. Excitingly for the market, the legislation effectively expands that regime, by increasing the maximum maturity of TIFIA loans to the lower of (a) 75 years, and (b) 75% of the estimated useful life of the relevant asset.
The legislation also defines a P3 transportation project eligible for federal support as one that has a total cost of $100m or more, where the agreement covers the financing, building and maintenance or operation of the scheme.
Furthermore, in a section dedicated to requirements for transportation projects carried out under P3, it is outlined that the public procurer of a project will need to review the compliance of the private partner “not later than three years after the date of opening of the project”.
While this may be considered onerous, such checks on progress should be welcomed by the private sector as part of the process to ensure schemes are delivering on the outcomes against which they were contracted. It also gives the public sector more confidence and statutory backing when looking to ensure the proper checks and balances are in place.
However, the bill does not just speak to P3s in transportation. The law also sets down the requirement for public agencies to conduct value for money analysis on potential P3 projects (regardless of sector), which must include a lifecycle cost and a comparison of the costs of using public versus private financing.
There is a focus on using P3 models to support the development of energy sources and delivery. According to the bill, electric transmission facilities may be delivered under P3 arrangements, with the federal government determining whether such projects can offer value for money and are able to attract finance.
As the Biden administration looks to begin the transition to a lower carbon economy, the legislation states that the relevant Secretary will seek to support the development of clean hydrogen production “in partnership with the private sector”. While this may not immediately imply a move to P3 to develop energy production, the focus on working in partnership suggests that new investment is likely to be through some sort of partnering arrangement with private investors.
In telecoms, there is a requirement to “incentivize private sector investments or partnerships, including by working with mobile and fixed telecommunication service providers”. Several states have already looked to use P3 to get their rural broadband initiatives off the ground, so this could encourage further development in that area.
There is also backing for the development of “community-based public-private partnerships for the financing and construction of stormwater control infrastructure technologies”. With the pioneering Fargo-Moorhead stormwater P3 project having recently reached financial close - and with more schemes in the Army Corps of Engineers’ pipeline - this could become a flourishing area of new investment.
Overall, then, there is plenty to be excited about from a P3 perspective. It may take time for this money to trickle down to the states and local authorities that will direct the projects, but with the right support it could well be used to leverage trillions more dollars from private investors, creating a truly transformative infrastructure picture across the country for decades to come.