President Biden unveiled his $2.3 trillion infrastructure proposal on Wednesday, planning to fund it mostly via huge corporate tax increases, with the rest apparently from more federal borrowing. But if the White House and Transportation Secretary Pete Buttigieg truly want a bipartisan bill, they should invite private capital to play a major role in paying for portions of the plan. That would reduce the extent of federal tax increases and borrowing.
Few people understand how much private capital is available and in use across the world to finance infrastructure. Last year alone, infrastructure investment funds raised a near-record $102 billion in equity. Despite the pandemic, they invested $54 billion in projects world-wide last year. Those who invest in these funds are institutional investors, such as insurance companies and public pension funds. They seek to invest equity in long-lived projects that generate revenue and are a good match for their long-term liabilities.
The large majority of this private investment goes to projects outside the U.S. Other countries have privatized airports, seaports and toll roads, so the funds can invest equity in either acquiring or modernizing them. But in this country, those assets are owned by government. The only way funds can invest equity is if the facilities are leased long-term as public-private partnerships. Most current public-private projects are brand-new facilities, like the express toll lanes added to freeways outside Washington and in Dallas. But there are a few examples of public-private partnerships improving existing facilities via long-term leases, including the Indiana Toll Road and the San Juan International Airport.
The administration’s Build Back Better program could encourage state and local governments to modernize aging and outdated highways, bridges and utilities via equity investments from infrastructure investment funds. Take the Interstate Highway System. A 2018 study by the Transportation Research Board found that most of the original pavement is wearing out. Some major bridges and interchanges need replacing, and truck-intensive corridors need more lanes. The estimated cost: $1 trillion over 20 years.
These would be ideal projects for public-pension fund investment. U.S. and Canadian pension funds are already investors in the public-private partnership companies of the Indiana Toll Road, Chicago Skyway and the Virginia express lanes, diversifying their portfolios in hopes of a higher return. Were Congress to permit tolling to finance reconstruction of individual corridors, provided states were willing, pension funds and other equity investors would jump at the chance to finance such megaprojects.
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