Why states shouldn't look to the federal government for infrastructure funding

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BEVERLY HILLS, Calif. – Municipal market participants believe the federal government needs to step up when it comes to infrastructure, but they say the states are likely to continue to go it alone.

“We have a Republican president who came out recently with a proposal to hike the gas tax – and it gained no traction on Capitol Hill,” said John Tanyeri, managing director and head of infrastructure/project finance for MetLife. "The idea that Congress would increase gas taxes – when taxpayers finally see their taxes going down through the tax bill – I don't see that happening."

Tanyeri spoke on a panel at the Milken Institute Global conference that suggested private equity could help fund an estimated $5 trillion in infrastructure needed nationally by 2040.

“We just had a big tax bill primarily deficit-financed, and a big budget-busting appropriations bill Congress just passed, so you have to ask yourself, 'Where the money is going to come from?' As a consequence of those two big actions in the president’s first year, there is going to be little to be deployed for infrastructure,” said Mike Sommers, president and chief executive officer for the American Investment Council.

The dysfunction on Capitol Hill should not prevent states and local governments from making needed improvements, particularly when private equity funds have a record amount of money sitting on the sidelines, Sommers said.

Though Tanyeri doesn’t think the federal government will help states any time soon, he said the federal government needs to think about how it can help states outside of the gas tax. Those efforts could mean helping states with less P3 experience to work with public-private partners.

Contributions from the federal government are down and it continues to get worse, said Michigan Gov. Rick Snyder.

“We increased our gas tax and registration fees to the tune of $2 billion – and that will help – but the amount we receive from the federal government is down,” Snyder said. “They haven’t raised the gas tax in 20 years. The federal government needs to step up.”

In polling done in Michigan, Snyder said infrastructure problems are now listed among the top issues among the state’s voters.

Snyder recommended that states and localities that have not done public-private partnerships start small with pilot projects.

The concept tends to be abstract to taxpayers. It’s easier to get buy in from residents for larger projects if they have seen that you can achieve success and have an idea of how it works in the real world, Snyder said.

Changes could also be made in the way that tax-exemption works to encourage private investment, said Susan Gray, head of corporate and infrastructure for S&P Global Ratings.

Tanyeri suggested that if the private partner earns a large profit from the project it should share that with the state.

Structuring deals in that way would mean that fee-based projects like toll roads could help fund projects like courthouses that are not revenue-based, Tanyeri said.

"That is what we have done," Tanyeri said. "We have tried to work with Congress and state leaders to come up with some alignment of interest."

When a state or local government saves $10 million to $20 million because a private entity rather than government is maintaining the road they need to let taxpayers know, Tanyeri said.

There has to be that kind of transparency moving forward to get buy-in from voters for these projects, he said.

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Infrastructure Public-private partnership California Michigan