This open letter is written in the spirit that has been nurtured during my 35 years of involvement in the municipal industry. It has been a fun and compelling career with cherished relationships among clients, bankers, lawyers and other valued partners.
It is Infrastructure Week, a largely Washington phenomenon, that aims to focus the public and our political leadership on the woeful condition of U.S. infrastructure, its continued underfunding, and potential solutions to address this essential need.
The municipal market already provides about 75% of the annual new money infrastructure spend. Given the diminished prospect of meaningful federal remedial action, the municipal market needs to further step into the gap if progress is to be achieved.
While additional revenues — meaning higher taxes and fees — are needed, I suggest an alternative imperative as well: do more with existing revenues.
The municipal market correctly trumpets its most valued tool: the legal right to issue tax-exempt debt that enables it to borrow at a cost below that of the U.S. Treasury. It is affirming to our market that the recently passed once-in-a-generation U.S. tax reform legislation has continued its availability.
However, too often in our industry our focus halts there with a little attention paid to the significant cost of the infrastructure itself. The municipal industry must broaden its involvement to include this core factor as a consistent element of its analysis and services.
The low-hanging fruit of advancing more infrastructure with existing revenues is design-build procurement. It creates efficiencies including shortening construction time that is estimated to save 10% to 20% versus traditional design-bid procurement methods.
These projected savings are very much why the City of New York is in a protracted effort to receive State Legislative authority to use this vital tool as scores of other U.S. states and cities already do. Design-build procurement should be a national standard and applied wherever it creates value.
Consistent with this observation, I submit the following proposal: the U.S. Congress should renew advance refunding authority for state and local government but only for those that have design-build procurement authority. This approach uses one money-saving technique — the advance refinancing of municipal debt — to encourage the use of another — more efficient procurement.
Like it or not, it is the kind of win-win solution we should be searching for. And, further, the opportunities for doing more with existing resources goes beyond the arcane details of procurement law.
Another area of significant opportunity is creating a better inventory of what exactly government owns and what is its enterprise value. Federal, state and local government own vast assets. Few track those assets, much less capture their value in their respective balance sheets.
A single example: government tends to own a lot of right-away on which is often built cell phone towers. Management of those cell phone towers is likely not the first priority of government officials or generally within their previous skill-set training.
This asset is a prime candidate for value enhancement by involvement with a private company. It can be used to generate more revenues for the core mission of a governmental entity while relieving busy officials from having to manage something that is not in the top 25 items of their long to-do list.
Some local governments have already successfully pursued this value creation; more should do so.
Large sums of private capital have been assembled in pursuit of public infrastructure and assets in a strong belief that they are under-valued and capable of greater efficiencies. These assets have value — in many cases great value — that the private sector seeks to capture and that the public sector is not yet realizing.
Whether in the hands of public or private management, the considerable collection of government-owned assets is an important part of the solution to improving U.S. infrastructure. Their value should be maximized as appropriate, in part, to offset the inevitable increase in taxes and user fees necessary to bring our infrastructure to a state of good repair and expand where needed.
Municipal professionals should add this dimension to their deep expertise in tax-exempt financing and public sector credits. We are in the early stages of understanding this opportunity. The needs of clients and their public, and the limits of tax and user fee increases requires our attention to this solution.
Your colleague and friend,