Backing the winner

Federal support for P3s in the US is reaching new heights. Dan Colombini reports on the progress being made as the feds seek to enhance the landscape for deals, with a National Infrastructure Bank gaining support

“I look forward to signing this bill right away, so that we can put Americans to work rebuilding our crumbling roads, bridges, and transit systems, reauthorize the Export-Import Bank that helps our companies compete around the world, and give local and state governments and employers the certainty they need to invest and hire for the long-term.”

So said President Barack Obama, just prior to signing into law the $305bn Fixing America’s Surface Transportation Act (FAST) Act at the turn of the year.

The passing of the bill was the first long-term national transportation spending legislation in a decade and followed a series of temporary extensions, which had frustrated the P3 and wider infrastructure markets for years.

Obama’s much anticipated approval of the bill was therefore met with positivity from the market, that had almost begun to despair at Congress’s apparent inability to agree on something that was almost universally acknowledged as a vital issue for the country.

And so, with the decision, there was a sense that the feds had finally turned a corner in their bid to provide a stable backdrop for the sector to flourish. After all, the US only has to look north to Canada to see the progress that can be made with a solid network of support from the highest level of government.

In the US, however, things have been rather different. Over the past few years, as the US P3 market has started to show real growth, the role of the federal government has divided opinion.

On the less positive side, critics traditionally believed that the feds had been too slow on the uptake with their overall support of the model, leading to a lack of certainty for states and regional governments to plan and build anything even resembling a pipeline.

But with the passing of the FAST Act, alongside other recent and key federal initiatives, this line of thought is starting to soften. In fact, there is a growing consensus among the industry that the tools are now in place for the US to really kick on in 2016.

“We are starting to see the fruits of that work now,” says Nossaman attorney at law, Fred Kessler. “There is continuing effort at the Department of Transportation (DOT) to implement a center of excellence that has been called for under the FAST Act. This can then be merged together with the effort that the Federal Highway Administration has already undertaken. I think overall that is a good thing and will help to institutionalize P3s at federal level.”

One key element to this potential growth is the work of the Build America Transportation Investment Center (BATIC), which was announced by Transport Secretary Anthony Foxx prior to the FAST Act in 2015.

This new agency within the DOT was established to assist local transportation agencies in utilizing federal transportation funding and financing programs and to provide support in navigating the variety of programs, policies and procedures at the federal level. 

Inaugurated in 2015, BATIC is headed by Andrew Right, a former Goldman Sachs investment banker and hedge fund founder, providing a vital link to the private sector.

BATIC has also been enhanced through several provisions in the FAST Act. Chiefly, the establishment of the National Surface Transportation and Innovative Finance Bureau within the DOT.

It has been described as a “one stop shop” for local and state governments to navigate federal funding and financing programs, and to administer the application process for credit assistance programs.

It is the latter which could be the most pressing issue for the industry as we reach the halfway point in 2016. Despite the much acknowledged potential on the horizon for the industry, it all remains largely conceptual at this stage. In July, Foxx unveiled the Build America Bureau, which he said would streamline the various funding mechanisms within USDOT under one roof. This may allow the industry to finally utilize the much discussed potential housed within the changes.

The plan is, of course, that improvements to the loan programs Railroad Rehabilitation and Improvement Financing (RRIF), TIFIA and its water equivalent WIFIA will allow for greater flexibility in the creation of rail, transportation and water deals at all levels of government. With a reduction in TIFIA funding housed within FAST and the slow uptake of the WIFIA program since its inception 2014, these changes are hotly anticipated by the industry.

“There has been a lot of discussion over the past six months about how the bureau can be formed and how we can use that and further the efforts of the BATIC,” says one official at the organization.

“Our plan is that we ensure that the program delivered is best for the creation and delivery of projects.  And the idea that the industry will now have everyone sitting under the same roof will clearly have a more efficient approach to these deals.”

Kessler agrees. “It is a long awaited change that there has been a perceived need for,” he says. “It will consolidate and bring more expertise to the credit programs and allow them to operate more quickly and efficiently. No one can be sure that it will definitely do that, but it is certainly part of a much-discussed ongoing process to improve conditions for the industry, so from that point of view it will be a welcome change.”

There is now a widely held belief among the private sector that these changes to the credit program – when they are implemented – will have a substantial impact on the role that the federal government can play in the wider market. This in itself marks significant progress from past governments, where there seemed an active distrust from the feds towards the use of the private sector to fund much-needed infrastructure.

But despite this goodwill, there had been some criticism earlier this year from sections of the industry that felt the government had still not done enough to create a solid backdrop for P3s, particularly surrounding the perceived low levels of funding provided in the FAST Act.

After all, to recreate the success seen in Canada, it will require not just legislative changes but also a shift in political will that cannot be brought about through anything other than the creation and completion of successful deals, which need the right support from the top to come to market.

Bank plans

Although far from a new topic of discussion, one provision many in the industry are now calling for to supplement the imminent DOT changes is the creation of a National Infrastructure Bank.

This is something that is also being discussed among the higher echelons of the Canadian federal government, but the US proposals would see an organization created to further supplement the feds’ role in delivering new P3s.

“I think the changes will be expanded upon to eventually include a National Infrastructure Bank,” explains one advisor.

“It is really going to be the main vehicle if we want to scale P3s. A multi-sector national infrastructure bank would offer loan guarantees and other credit enhancements that are supplementary to the existing program. It would allow for a broader and greater national footprint that includes transportation, water, energy and communications.

“This would support projects of national and regional significance and would have the sole purpose to increase P3s further. We could see TIFIA, for example, co-investing alongside the bank, as I see the future of P3s coming through blended finance rather than a single federal or state financing tool.”

And this is also something the DOT could get on board with.  “What we are doing with the bureau creates the ability to transition into new structures if we need to,” says the official. “We now have a lot of wonderful tools and an infrastructure bank could certainly build on that if it becomes an option.”

Naturally there still remains skepticism from some quarters surrounding the issue. After all, the topic has been in the pipeline for decades, with little to no progress. “The idea has been around for years and never got anywhere in Congress,” adds Kessler. “In that respect, it is hard to foresee.”

Either way, federal support for P3s is clearly growing.  Even the traditional sore subject in the market of private financing for the development of a social pipeline is now starting to bear fruit in Congress.

As revealed by P3 Bulletin in June, a new bill vying for private investment to be combined with tax-exempt financing for US social P3s has been introduced in the House of Representatives.

While there remains a long way to go in that fight, it is at least a positive step – which is reflective of a seeming wider sea change in the way the federal government is conducting its P3 business in the aftermath of FAST. In recent months, the federal government has issued two advisory tenders as it continues to back up its proposals with action.

Currently, the DOT is seeking P3 experts for the new National Advisory Committee on Travel and Tourism Infrastructure, which could see a new sector open up to the market.

Furthermore, the US Treasury’s Office of Technical Assistance (OTA) is recruiting infrastructure finance advisors for global assignments to provide technical assistance to emerging markets. Suggesting that the US is keen to become a world leader in this area, they will help governments’ capacity to develop financially sound infrastructure programs, including the use of direct financing and the effective application of the P3 model.

So, there now clearly exists a desire to harness P3s beyond the standard template that delivers highway deals. With projects and new legislation being implemented regularly at state level, the market has long wanted to see action and support from the feds too. Perhaps now, for the first time in its relatively short history, it can say that this is happening. And this is reflected in the federal projects coming to market too.

The US Army Corps of Engineers has recently committed funds to its Fargo-Moorhead Flood Diversion deal and has plans to further utilize the model going forward. The General Services Administration also has projects in the market, which, alongside the legislative changes, represents a growing understanding from the federal agencies that P3 has a vital role to play in the country’s infrastructure financing toolbox.

Obviously, the country is facing major changes in the near future with what is proving to be one of the most bizarre and turbulent presidential election campaigns in the country’s history. With both candidates remaining relatively tight-lipped on their infrastructure plans, it is a tough one to call as to the effect this could have on the industry. After all, the US certainly has sufficient reason to be skeptical given the damage that political change can have on the project landscape. 

At this point, though, the market sees no reason why any of this good work will change come November. “I think that the changes that have been made have been born out of common sense, and I can’t see them changing too much,” the advisor explains.

“Should she win, Clinton will support the full funding of FAST as it is authorized, I would imagine,” adds Kessler. “She also supports P3s, so I don’t see any sign of change. If it is a Trump president, I just don’t know.”

One thing is certain with this election: nothing can be taken for granted. But whatever the result come November, whoever takes office will be overseeing a federal government that is a lot better prepared for infrastructure development than any of their predecessors.