Inclusion through infrastructure

Social infrastructure can be a powerful tool for change. Sakshi Sharma explains why P3s can act as a turbo-charger.

Social infrastructure is the basis of a society and by extension that of a country. It supports and uplifts the communities within it and the overall economy. It fosters inclusion at every level of society. Yet it lacks the federal funding subsidies and project procurement support that it deserves, especially in the US.

Traditionally, the social infrastructure sector in the US has not enjoyed the same financing support and resources that surface transportation has. Low interest rate loans under the Transportation Infrastructure Finance and Innovation Act (TIFIA) and tax-exempt financing via Private Activity Bonds (PABs) have realised many transportation P3s over the past decade. Critics have long called for similar support in the social infrastructure sector.

Hopes were raised when a form of this was extended to the water sector under the Water Infrastructure Finance and Innovation Act (WIFIA), but nothing similar is available to social infrastructure projects yet. All of which has led to a relative gap in the use of P3 projects in this space, even though the need is immense.

“The challenges in the US include the slow adoption of the P3 model and the social infrastructure sector requiring subsidies from the government,” says Mac Bell, managing director for Infrastructure Investments at Fengate.

“While countries like Canada have centralized procurement agencies such as Infrastructure Ontario, the US market is more fragmented and procurement authorities are devolved which makes it harder for P3s.”

That said, social infrastructure needs to be pursued at every government level as it promotes inclusion, not just by uplifting the disadvantaged sections of society but also through local and regional contractor participation on infrastructure projects.

Jay Brown, managing director at Alvarez & Marsal, told an Association for the Improvement of American Infrastructure webinar in September that P3s in social infrastructure need to be considered not only because they can offer relatively quick wins in response to the economic downturn, but also because of their ability to tackle social inequities.

With movements such as Black Lives Matter gaining significant traction in recent months, being able to provide investment into ethnically diverse communities will be one way for local and national governments to respond to these challenges.

Bolstering social infra

By February 2019, 38 US states have adopted the P3 model via enabling legislation, which has had a positive impact on the growth of social schemes. Higher education in particular has enjoyed some growth, ranging from student accommodation renewal and rebuild to energy asset privatization for better operations and maintenance.

Ohio State University was the first educational institution to dip its toe in the P3 waters, choosing QIC Global Infrastructure to build and operate for 50 years all of its parking facilities. Not a scheme offering a social revolution, but it did offer a staging post for others. A few years later, the university successfully privatized its energy assets in another first-of-its-kind deal. The project marked the first time a US university completed a lease-based privatization of an on-campus energy asset.

Dartmouth College in New Hampshire embarked on a similar project – named Green Energy P3 – in March 2019 and is currently in the process of seeking a private partner to design, build, finance, operate and maintain new oncampus energy generation systems. Then there’s the University of Iowa, which also launched a market sounding in 2019 to weigh a P3 approach for the upgrade, operation and maintenance of an energy plant within its utility system.

As green technology becomes increasingly important in improving the lives of citizens, these kinds of deals are vital forerunners to improving the wider social environment across the country, as projects move out from universities into the communities around them.

Aside from the university space, public schools P3s might also be gaining momentum. Prince George’s County in Maryland is in the midst of a P3 procurement for its aging and overcrowded public schools, another landmark project for the US social infrastructure P3 market.

The 30-year design, build, finance and maintain project involves six middle schools in the county that are expected to be built within four years under the P3 approach, as opposed to the 12 years it would have taken under the traditional approach, the county has reported. This can provide an example of how social infrastructure may act as a catalyst for social change in the community it serves.

Julie-Anne Mizzi, partner and global head of social care at AMP Capital says that leveraging P3s for social infrastructure is positive because, “one ends up with high-quality build and the quality of maintenance is also built into the contract arrangement.”

“I have a strong belief that the quality of the buildings and facilities that we interact with in our daily lives, such as schools and parks have a big impact on how we feel,” adds Mizzi.

Transit projects that also intersect the social infrastructure sector, like San Francisco’s Portero Yard Modernization P3, are examples of procurements that support community inclusion by bettering everyday infrastructure.

The project, a request for qualification for which was issued by San Francisco this year, is to replace the existing San Francisco Municipal Transportation Agency’s (SFMTA) trolley bus Portero Yard with modern and efficient battery-electric bus maintenance and storage facility jointly developed with a residential project.

Bell says: “These projects not only bolster social infrastructure but also call for inclusion as they provide opportunities for minority business enterprises and disadvantaged business enterprises.”

Dino Barajas, partner and co-chair, US Projects and Infrastructure at DLA Piper argues that using the private sector is vital to improving social infrastructure.

Moreover, Barajas says that leveraging private sector funding and expertise results in more projects being built simultaneously and leads to faster economic development for diverse communities, especially in cases where infrastructure has degenerated.

He says: “Leveraging private sector expertise allows the government to do more for their communities across the spectrum, instead of just developing projects that are being brought forward by their most vocal community members for the most vocal projects.”

Pandemic infrastructure

The ongoing global Covid-19 pandemic has underlined the need for good social infrastructure. People may not be going to bars and restaurants as much, but high quality housing, good internet connectivity and excellent health facilities have come to the fore as people spend more time working from home and hospitals have been inundated with patients.

“The Covid pandemic displayed how many assets had to rally around government initiatives during the disease spread and beyond,” says Mizzi.

She points to the Perth Stadium in Australia as a prime example. Created through a P3 and designed as a 60,000-seat sporting and entertainment arena, it was repurposed to serve as police headquarters for Covid-19 management earlier this year. AMP Capital was responsible for the stadium’s parking and telecom infrastructure requirements during that time.

It is anticipated that, post-Covid, a lot of state and municipal governments will have to turn to P3 projects, given the strain that government budgets have had to bear in addition to the reduced tax-base for future years. Public funding for infrastructure projects is expected to suffer for some time to come.

P3 advantage 

Notably, there is some evidence that the P3 model can be a benefit to a local community, compared to a traditionally procured asset.

In April 2020, Infrastructure Partnerships Australia published a report entitled Social Infrastructure PPPs. Among its findings, it said: “A clear and overwhelming preference (95%) was found among service providers for working within a P3 facility over that of the traditional government owned and operated facility. Some respondents also indicated that experience in the P3 model was a significant career advantage,” the report adds.

Mizzi says that in AMP’s experience there are a lot of examples in Australia where a P3 school it manages is sitting alongside one that was procured and is maintained by the public sector. “P3 school principals have informed us of rising property prices in the areas surrounding these schools. Also, our schools have become oversubscribed, while neighbouring ones are underutilized.”

She points out that government-led maintenance is often relegated to the bottom tier and since this is run out of annual government budgets, funds are often scarce. “At some of our schools we have KPIs that monitor the colour of the grass for instance, we would engage turf experts from cricket fields to advise us on the upkeep of the ovals. We have to meet the KPIs as we have to adhere to incredibly high hand-back provisions. We cannot run them to failure.”

As social inclusion and improving the lives of all citizens rises up the agenda of many governments, using social infrastructure to meet these goals is attractive to governments. Rather than simply asking the private sector to build a new piece of social infrastructure, tying a private partner in to a series of targets based around improving the wider social impacts of the asset is increasingly attractive to the public sector.

The Darwin Convention Centre, also in Australia, is a case in point, promoting inclusion amongst minority groups through an active program for employing people from the Aboriginal community.

Mizzi explains: “The Aborginals have a rite of passage ritual called a walkabout where they are required to be away in the wilderness for three months or so. Even then the convention center has a provision to employ them back.”

Inclusion is challenging without well supported grassroot social infrastructure. Many parts of the world require attractive financing tools for the social infrastructure sector as well as more opportunities for inclusion.

Now more than ever, focus will need to be laid on education, healthcare, digital and transit infrastructure. Governments need to acknowledge that some risk transfer is definitely required to attract the private sector towards infrastructure projects, as ultimately good infrastructure boosts inclusion and benefits local community.