California Panelists Weigh Value of P3s; Lockyer Touts Master Plan

LOS ANGELES — Public-private partnerships may or may not be the way to finance transportation infrastructure in California, according to the mixed opinions of panelists at a symposium here this week, but it’s pretty clear that the state’s general fund can’t do much more.

With tens of billions of dollars in general obligation debt authorized in recent year, general obligation bond debt service is on a track toward requiring almost 10% of the budget, according to state Treasurer Bill Lockyer, the marquee panelist at the “Dollars and Dirt” infrastructure symposium put on Wednesday afternoon by law firm Goodwin Procter.

“You can feel the political push-back,” Lockyer said.

The state has $58.9 billion in outstanding general fund-backed GO bonds, with more than $54 billion in unused authorizations. What’s more, the recession has shrunk the size of the state general fund.

That doesn’t change California’s massive need for infrastructure, the treasurer said.

“The fundamental problem is we’ve grown so fast and neglected our infrastructure for so long,” he said.

The state needs to put long-term planning and capital budgeting into the budget process, Lockyer said. And he touted a bill he sponsored this year, which was approved by the Legislature and awaits action from Gov. Arnold Schwarzenegger.

Lockyer’s remarks Wednesday foreshadowed his office’s release yesterday of its annual Debt Affordability Report, in which he called for creation of a new “Master Plan” to guide California’s infrastructure finance.

In the report, he also recommended that the multibillion dollar water infrastructure package being negotiated in Sacramento should be funded primarily by user fees that could back revenue bonds, rather than through general obligation bonds.

In Los Angeles, Lockyer touted a bill that would create a new California Transportation Financing Authority to facilitate local projects.

“It takes the debate over whether or not to have a toll road out of the Legislature, which is not a particularly constructive place to have the debate,” the treasurer said.

Lockyer credited Schwarzenegger with spurring the passage of some $43 billion in infrastructure bond authorizations in 2006.

“The governor has provided excellent leadership in trying to accelerate or in some cases initiate these investments,” he said. “But the need is 10 times that.”

Infrastructure has been a major priority for Schwarzenegger since Day 1 in 2003, said Cynthia Bryant, deputy chief of staff in his office.

“He was of a mind to just go for it,” she said. “There’s a real desire from people to have better infrastructure and a willingness to invest in it.”

With the financial turmoil of 2008 beginning to recede, capital markets for infrastructure are opening up again, according to Lawrence Pelosi, director at RBC Capital Markets.

Tens of billions of dollars have flowed into infrastructure investment funds in recent years, and after last year, a lot of the money is still sitting on their balance sheets, he said.

“Most of that should be dry powder,” Pelosi said. “If you’re a public official, those buckets of capital are out there.”

The turmoil of the last year has rearranged the strategies of many infrastructure funds, said Bernard Carroll, managing director at Macquarie Capital (USA) Inc. Macquarie is one of the biggest names in P3 infrastructure.

“Two or three years ago, people were willing to buy off on very aggressive assumptions,” he said, adding that the aggressive stances extended to both traffic predictions and leverage.

“What people are willing to assume the future’s going to be like, that has changed,” he said.

Lockyer said he remains skeptical whether P3s can deliver much more than governments can by building and running things themselves.

The Schwarzenegger administration has strongly advocated P3s, but Lockyer said he does not see the substance.

“I’ve seen an administration where P3s are sort of like a mantra in Arnold-land, and it’s not much more than that in my opinion,” Lockyer said.

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Transportation industry
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