Private investment angling for infrastructure dollars

U.S. infrastructure having earned a C grade from the American Society of Civil Engineers is spurring interest from foreign investors interested in cashing in on user fee-supported assets.

"This report card makes clear that all levels of government must find new ways to deliver greater, sustained infrastructure investment across the United States for decades to come," said Jon Phillips, CEO of the Global Infrastructure Investor Association.

"Taxpayers alone cannot finance the safe, reliable, modern infrastructure that the world's most powerful economy demands. Investment managers and pension funds offer international expertise and billions of dollars to get the job done?well and quickly."

GIIA is based in London and represents over a hundred infrastructure investors from Australia, Canada, England, and Holland.

The comments came in conjunction with the ASCE's report card launch and legislative fly-in this week in Washington, D.C.

Engineers, lawmakers, investors and muni advocates are all grappling with an infrastructure spending gap that the ASCE estimates at $3.7 trillion, a dwindling Highway Trust Fund, and the approaching sunset of Biden-era infrastructure spending,

"We were actually looking at what we take to the Hill moving forward and what reauthorization might look like," said Maria Lehman, past president of ASCE and U.S. infrastructure market leader, GHD.

"Allowing flexibility is really important. BlackRock (BLK) said they have a trillion dollars ready to go right now. That goes a long way towards a $3.7 trillion gap."

Privatizing infrastructure, especially by tapping money from foreign entities, can be politically polarizing. Reducing risk and maintenance costs for the life of the asset is pitched as a plus.

"If all of your infrastructure is owned and operated by the public sector, then all of the liability for its ongoing maintenance and its future resilience also sits with public sector," said Phillips.

"In a world where political priorities change, probably more frequently than we might all desire in infrastructure, given that it's a long-term game, I think that's a kind of an inherent challenge."

As Congress debates repealing the tax-exempt status of municipal bonds, a flood of foreign dollars into taxable bonds could change the game of infrastructure funding.

"The U.S. is under-weight in terms of its use of private finance and private capital to help deliver its infrastructure gap," said Phillips. "My members have energy, transport, and digital investments in each of the fifty states, but there's so much more that could be done."

Proponents of privatization point to some success stories. The Texas Energy fund was formed following the grid failures caused by Winter Storm Uri in 2021 using public dollars to beef up the state's private energy infrastructure with some of the money flowing to new power generation efforts.

The outcome of the tug of war between public and private infrastructure spending may be determined by what happens to the tax exemption that's currently on the chopping block of a Congress searching for pay-fors.

"I think that the public sector needs as many tools as possible," said Tom Kozlik, managing director and head of public policy and municipal strategy for Hilltop Securities.

"The P3s, state or national bond banks, those are all complimentary, but they're not going to be able to replace the efficiency and the effectiveness of the tax-exempt market. Entities need to have more tools in the toolbox, not less."

"P3s have not really worked out in some smaller communities," said Emily Brock, director of the federal liaison center of the Government Finance Officers Association.

"The municipal bond market is accessible by small school districts, rural entities, incredibly remote entities, for a reason. They can provide a filling of that void where there isn't private investment interest."