CHICAGO – The toll of Hurricane Sandy on the Eastern Seaboard’s transit, roads, tunnels, and bridges underscores the need to fund both annual maintenance and “generational” infrastructure projects, a top U.S. Department of Transportation official said Friday.
“It’s a great illustration of the challenges we have ahead of us,” Deputy Secretary of Transportation John Porcari said of the size of the nation’s infrastructure demands and need for a crop of funding tools.
During a keynote address at The Bond Buyer’s Transportation/Public Private Partnership conference in Chicago Friday, Porcari outlined the availability of existing funding programs and those expanded in the federal government’s two-year transportation bill approved in July, Moving Ahead for Progress in the 21st Century.
The government believes the loans and credit support under the expanded Transportation Infrastructure Finance and Innovation Act program -- which was raised to $700 million in 2013 from $122 million this year and then $1 billion in 2014 – could leverage $50 billion in projects.
The ability of local and state governments to submit letters of interest anytime should give governments more flexibility, he added.
Porcari also stressed the availability of $34 billion in direct loan and loan guarantee capacity under the Railroad Rehabilitation and Improvement Program. The program aids both commercial and commuter rail improvements and the development of intermodal facilities. The support can fund up to 100% of a railroad project with repayment periods in qualified cases of up to 35 years. Porcari called it the “only program where we have less demand than we have available funding.”
While work behind the scenes has begun on developing a federal highway reauthorization bill, Porcari called squeezing out of Congress the needed annual funds for maintenance-related and shorter life span projects the biggest near-term challenge.
With shrinking funds available especially as the Obama administration eyes support for bigger “game-changing” infrastructure investments, Porcari echoed other speakers throughout the conference on the role of P3s as funding source.
“They are a critical part of where we are headed,” he said. Public support can be built by successfully delivering projects in the works.
The role of P3s going forward – especially with heightened international equity side demand available – dovetailed into many of the conference’s panel discussions.
Chee Mee Hu, a managing director in Moody’s Investors Service’s Project Finance and Infrastructure Group, said even with growing public support for P3s just a few projects close annually, so it remains a supply-side problem.
What has advanced, several speakers stressed is a growing understanding of the various P3 models and a shared language in their description which aids selling the public on their potential benefits.
One model is the creation of infrastructure trust banks on the local, state and national level. Chicago earlier this year established the Chicago Infrastructure Bank to leverage private investment, foundation funds, pension and union investment in a package to support major infrastructure projects.
A West Coast Infrastructure Exchange set up shop recently to advance job creation, clean energy, and infrastructure in multiple regions across several state and even national borders on the West Coast. The organization is awaiting word from its local regional supporters on whether they will provide future funding support for operations, said Dan Carol, tapped by Oregon Gov. John Kitzhaber to serve as co-manager of the exchange on an interim basis. The exchange is currently looking for a co-manager with a job listing on its website at www.westcoastx.org. The organization is being funded this year with a grant for $750,000 from the Rockefeller Foundation.
The group has not yet identified projects but anticipates it could serve as a vehicle to fund large scale projects like bridges and transmission lines with alternative funding support and help bundle similar projects into a pool to generate investor interest.
On the airport front, strong bidding demand for Puerto Rico’s airport privatization, which is on track to close at the end of the year, bodes well for future projects. Aerostar Airport Holdings LLC will make significant investments to improve San Juan’s Luis Munoz Marin International Airport — the Caribbean’s busiest — over a 40-year period in what marks the first major airport privatization under a federal pilot program.
John Schmidt, a partner at Mayer Brown LLP and legal adviser to Puerto Rico on the lease, said the deal transaction has benefitted from strong global demand, solid political and public support, and strong airline support.
“That’s a change” from the past when airlines were skeptical, Schmidt said of his work on the proposed $2.5 billion lease in 2008 of Chicago’s Midway Airport. That deal fell apart in 2009 when the winning bidders could not raise the necessary financing. Airline support is key initial hurdle as a majority must sign off on a proposed lease.
In the Midway case, it took a lengthy period to bring airlines around to understand they would reap the benefits of lower airport fees. Chicago faces an end of the year deadline to decide or it forfeits the hub slot under a federal airport privatization pilot program.