High Hurdles Remain for U.S. P3s

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DALLAS - Significant political and psychological hurdles must be overcome before public-private partnerships become as common in funding U.S. infrastructure projects as they are in Europe and Asia, according to industry experts at a transportation forum sponsored by Bloomberg Government.

International investors are keen on helping to finance U.S. infrastructure assets but the public and elected officials alike are wary of money from overseas, Christopher Leslie, president of the Australian-based Macquarie Infrastructure Partners Inc., said on a panel.

"There's a certain degree of xenophobia in the United States when it comes to foreign sources of investments in infrastructure," Leslie said. "Transportation infrastructure occupies a special place in peoples' minds, and there's heightened concerns when government officials and voters discuss foreign investments in things like roads and bridges."

The opposition to foreign investments in U.S. infrastructure is hard to understand, he said.

"Frankly, the infrastructure is not going to go anywhere," Leslie said. "I've often heard, 'Well, what if we go to war with Australia?' We're not going to roll up the road and move it to Sydney."

Infrastructure investments from China and other Asian countries face even higher hurdles than do Europeans or Australians, Leslie said.

"There's a greater comfort level with Western investments," he said.

P3s should be more attractive to local and state governments than they currently are because the arrangements combine the discipline of private capital with the low borrowing costs of tax-exempt public financing, Leslie said.

"Public-private partnerships are very efficient infrastructure delivery systems that are popular around the world but are struggling in the U.S.," he said. "In every jurisdiction where P3s have been successful, the political will has been essential."

The Qualified Public Infrastructure Bond proposal in President Obama's fiscal 2016 budget could unleash a flood of P3s, said former Mississippi Gov. Haley Barbour who now heads the lobbying firm BGR Group.

"QPIBs are something that Congress needs to look at," Barbour said. "QPIBs could be the icebreaker that gives states the ability to do their first P3 project and see the advantages."

There would be no volume cap on the new type of private-activity bonds and the interest paid would not be subject to the Alternative Minimum Tax, he said.

"The first step is always the hardest," Barbour said. "QPIBs could loosen up really significant amounts of private dollars for road and port infrastructure."

In an earlier panel discussion, Transportation Secretary Anthony Foxx rejected criticism that the proposed $478 billion Grow America Act was not a serious attempt to deal with the transportation funding problem. The bill would be funded with $240 billion from a one-time, 14% mandatory transition tax on corporate foreign earnings and $238 billion of gasoline tax revenue.

The measure would provide infrastructure funding for six years and at the same time reform the corporate tax code, he said.

"We're in a big ditch and we need a big solution to get out of it," Foxx said. "Any bill that is big enough to meet the challenge will be called unrealistic."

Congress must extend the Highway Trust Fund's solvency with either another short-term patch or a multiyear bill soon after the current fix expires May 31, Foxx said.

"We will have enough money to get through the end of July, but not to the end of fiscal 2015 [on Sept. 30]," he said.

The Congressional Budget Office said in its latest projection that the HTF cannot support any new highway or transit projects in fiscal 2016 from the dedicated gasoline and diesel tax revenues. Congress has transferred more than $63 billion of other revenue into the fund since 2008.

CBO said keeping federal transportation spending in fiscal 2016 at current levels would require a 10 to 15 cent increase in each of the 18.4 cent per gallon federal gasoline tax and the 24.4 cents per gallon diesel fuel, or a transfer of $16 billion to the HTF.

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