Quantcast
Infrastructure

Experts Expect P3 Growth in 2013

DEC 28, 2012 4:49pm ET
Print
Email
Reprints
Comment
Twitter
LinkedIn
Facebook
Google+

WASHINGTON — Public-private partnerships could reach new heights of popularity in the coming year thanks to legislative developments and increased understanding of the advantages they can provide, market participants and industry experts predict.

P3s, a long-time funding mechanism overseas but less common in the U.S. until the last decade, are poised to obtain new financing mechanisms under the 113th Congress and are gaining increasing acceptance as a means of paying for roads, bridges, and other revenue-producing public infrastructure.

"There will be opportunities," said D.J. Gribbin, a managing director at infrastructure investment giant Macquarie Group. "There is an opening legislatively."

At the federal level, Congress will have opportunities to enact a national infrastructure bank, a new water infrastructure loan program based on the successful Transportation Infrastructure Finance and Innovation Act, and other possible programs aimed at encouraging private investment in everything from high-speed rail to highways.

Gribbin said the creation of a national infrastructure bank, which Obama and many transportation lobbyists have said they support, remains possible in the coming year despite its failure to gain traction in past years. The success of the TIFIA loan program could serve as a rallying cry for winning more support to the bank, he said.

"TIFIA has been just wildly successful," he said.

An infrastructure bank would theoretically function much the way smaller state banks do now, like TIFIA on a much bigger scale. Obama's past proposals have included a $30 billion bank. The loans such a mechanism could provide could be used to leverage private investment many times over.

"It's an extremely powerful model," Gribbin continued. "It makes all the sense in the world."

Michael Likosky, a senior fellow at New York University's Institute for Public Knowledge, said 2013 will see the government playing "a catalytic role," providing more tools to allow P3 arrangements to happen. He predicted that the bank could be inserted as part of a comprehensive tax reform package in the middle of next year.

Conversely, others have tagged the expansion of TIFIA in the 2012 surface transportation bill as a reason the infrastructure bank might not happen. House Transportation and Infrastructure Committee Chairman John Mica, R-Fla., said earlier this year that he thought an infrastructure bank was too redundant to TIFIA. Janet Kavinoky, executive director of transportation and infrastructure and vice president of Americans for Transportation Mobility at the U.S. Chamber of Commerce, said that attitude could make the bank "a tough go" in 2013. The U.S. Chamber supports creation of the infrastructure bank.

A financing mechanism that experts expect will emerge this coming year is also based on TIFIA, applying the same concept to water infrastructure. The five-year, $250 million Water Infrastructure Finance and Innovation Act pilot program is included in Senate Environment and Public Works Committee Chairman Sen. Barbara Boxer's draft of the Water Resources Development Act of 2012.

A small program next to the nearly $2 billion authorized for TIFIA over the next two years, WIFIA got the consensus nod from observers as a no-brainer to appear this coming year.

"I think it's got the potential for legs," said Richard Norment, Executive Director of the National Council for Public-Private Partnerships. Norment said that while the WIFIA program might not be a top priority next year given the ongoing fiscal crisis confronting lawmakers, it will likely get support.

"I think that will probably happen," Kavinoky said of WIFIA.

Likosky was even more sure of WIFIA's future.

"I think the outlook for these loan programs is very good," he said. "Water, I think we'll definitely see."

The experts expect that most P3 growth will continue to be in the traditional road and bridge sectors, but slow, steady growth throughout the sector will include expansion into different territory.

LOW HANGING FRUIT

"The low-hanging fruit really are toll roads and parking projects," said Cherian George, a managing director at Fitch Ratings.

Gribbin said Washington lawmakers might be especially swayed to see the value of certain revenue-producing highway arrangements now that the Interstate 495 Express Lanes have opened in nearby Northern Virginia. That project, a partnership between the Virginia Department of Transportation and Transurban, has been trumpeted by Virginia Gov. Bob McDonnell as an example of how P3s can be good for the public. Gribbin and other experts said resistance to P3s by those who oppose paying tolls or fear the privatization of roads could begin to be overcome by the stories of successful projects.

"Tolling that relieves congestion will have moved from policy to practice," Gribbin said. "I think there's the potential to have a new group of believers around the concept of managed lanes."

Dusty Holcomb, deputy director at Virginia's Office of Transportation Public Private Partnerships, said a key part of the upcoming year will be continuing to win the public over by launching successful P3s and reaching out to educate citizens about the advantages of leveraging the private sector. Holcomb said he is aware his state is a national leader in the P3 sector and hopes that two of Virginia's major road P3s — the I-495 Express Lanes and the Interstate 95 HOT Lanes — can help inspire more P3 growth.

"If we can make those two projects successful, I think it will spawn other projects like that," he said.

Norment agreed that outreach is important and stressed that governments interested in P3s have to show they are serious about creating an environment friendly to private developers, including strong enabling legislation and political support.

"You have to do more than just hang out a sign that says 'We'll do public-private partnerships,'" he said.

VIABILITY

P3s are often plagued with doubts about the viability of their revenue streams, leading to apprehension from ratings agencies, lawmakers and the public.

The Elizabeth River Crossings, a $2.1 billion P3 in southern Virginia earned BBB-minus ratings on its private activity bonds because of pessimistic revenue stream estimates used by the rating agencies.

House Republicans have questioned whether California's high-speed rail line can attract private partners due to uncertain ridership projections. Despite that, George said there remains considerable private interest in project development.

"The number of projects, from that standpoint, should go up," he said.

The new year could see a big growth in housing, energy, and water P3s as well.

"Where I do think we're going to see more activity is water and wastewater," Norment said.

He added that a variety of interesting P3 arrangements could emerge as the new normal, such as public buildings sharing space with private ones and leveraging revenue streams from rents or parking structures.

Gribbin agreed that P3s will be more widely applied in 2013 where they have been only sparingly applied before. "Look for a broadening of asset classes," he said. "There's potential for university housing." The University of California has already made use of that model, and there is plenty of room for it to spread.

States that have not made much, if any, use of P3s in the past may begin dipping their toes into the water in the coming year, the experts agreed. Norment said he expects developments in Pennsylvania because the state passed a broad P3-enabling law in September, and that he also expects more P3-friendly legislation to emerge in Maryland and New York. Holcomb identified the "big three" P3 states as Virginia, Texas, and Florida, and predicted that sector growth outside those states could be considerable.

The complexity of P3 arrangements means that they will not likely spread very quickly, but all the sector observers agree that steady growth is on tap for 2013.

"I see positive growth in 2013, 2014," Norment said.

Gribbin said there is no "mad dash" to P3s, but that the sector could certainly expect a broad expansion.

"There's definitely a slow, steady growth," he said.

JOIN THE DISCUSSION

SEE MORE IN

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.

markets
markets
markets
markets

Social

facebook
linkedin

A recent phenomenon is the emergence of bonds with shorter call protection as funding alternatives for municipalities. However, the shorter call protection also dampens the potential upside for investors, which in turn reduces the price they are willing to pay.

Upcoming Events

the bond buyer conferences
Already a subscriber? Log in here
Please note you must now log in with your email address and password.