SAN FRANCISCO — California's Business, Transportation & Housing Agency is in the early stages of a plan to remake the state's infrastructure investment market, with a clear focus on public-private partnerships.
The push by the agency, which oversees 14 departments and a budget of $20 billion, hinges on a program to educate public employees on infrastructure financing.
"California, because of the size of our economy and infrastructure needs, we think that over time it has the potential to be one of the more dynamic markets for infrastructure investment, probably globally," BTH Secretary Dale Bonner told The Bond Buyer during an interview Tuesday. "I think you will see a new day for infrastructure in California."
The secretary said many people, including those in the municipal bond market, have shown concern about the lack of a steady flow of infrastructure projects in California.
"We just want to make sure everyone understands infrastructure is a long-term game, and in building a program like this, there really are no shortcuts," he said.
Bonner said the agency is working to improve the financing knowledge and the understanding of the potential use of P3s in state agencies that are involved in the planning and delivery of infrastructure.
The new program, termed the "Infrastructure Finance Academy," would educate public employees on the financial implications and the strategies needed to actually finance and build the things they are designing.
The secretary likened it to masters of business administration programs for engineers, with a focus on analysis, financing, asset valuation and risk allocation.
Bonner has been working on developing the program with the U.S. Department of Transportation and has had some discussion with other states with P3 programs including Arizona, Georgia, Florida and Texas.
"Everyone is aware that California is trying to figure out a way to develop a market for investment in public infrastructure," Bonner said. "It is becoming increasingly clear that we need to make sure some of the ideas and analysis and innovation here is originated organically."
Many gaps exist in the many people's understanding of the P3 programs, Bonner said, such as in the "life cycle delivery" of the projects, the beginning to end rather than simply the cost of building. In addition, the program would focus on key financial concepts like net present value, how to do long-term cash flow analysis and using discount rates.
"We are trying to teach these up-and-coming leaders how to bring up ideas from within," Bonner said.
Aside from just education, the program would hopefully also result in savings. The education program could help reduce the costs associated with doing analysis, and transactions on the private and government side and reduce the reliance on outside advisers, he said.
With further education on P3s, BTH is also emphasizing the use of the partnerships in other sectors rather than just transportation, specifically water and public-use facilities.
The focus of the P3 projects is usually infrastructure projects that are around $500 million to $1 billion.
The state's flagship P3 has been the Presidio Parkway Project, which will replace Doyle Drive from San Francisco to the Golden Gate Bridge. According to the financing proposal, it will use $150 million of private-activity bonds to cover part of the estimated $358 million cost. The plan has encountered a legal challenge by a public employees' union.
Bonner said the agency has been in close contact with various players in the private sector that are interested in different ways they can make direct or indirect investments in the state's infrastructure projects, including foreign investors.
"It is no longer either public financing or private financing — in many cases you are seeing a blending or co-investment," Bonner said. "We are seeing structures that are starting to blend multiple sources of capital, and we think that is a good thing."
He said the financing mix has helped bring down the difference between the cost of capital on the private side and the purely government bond finance side.
In terms of how P3s will be received by Governor-elect Jerry Brown's new administration, Bonner said there have been signs that he is interested in different strategies for infrastructure financing.
"The main point is that he has expressed an openness to look at all the strategies that might make sense and we are very encouraged by this," he said.