President Trump’s administration recently released its keenly anticipated infrastructure plan, a 53-page framework document titled “Legislative Outline for Rebuilding Infrastructure in America”, with more details compared to Democrats’ own two-page brief infrastructure manifesto but still lacking the much anticipated actionable details. In its current form, the Trump infrastructure framework commits $200 billion of federal funds to launch at least $1.5 trillion of new infrastructure projects over the course of the next decade. The plan intends to cover the $1.3 trillion shortfall by backing local and state funding and most importantly by attracting private sector investments, ideally through public private partnerships (P3s).

While the previous Obama administration had opposed the private funding of public works, statements from some of its senior officials acknowledged the need to deploy private capital. For example, former Secretary of Treasury Jack Lew stated that while federal spending was indispensable for infrastructure investments, tight budgets demanded creative ways to unlock private money. Similarly, former Transportation Secretary Anthony Foxx recognized that there were trillions of dollars internationally on the sidelines not put to work for public infrastructure investments.

While it will not be hard to find private investors who are eagerly waiting on the sidelines with vast amounts of cash to invest, it will be quite a challenge to attract them by offering creative P3s opportunities which would meet the requirements of federal funding under the Trump framework. Nonetheless, more and more states and local administrations are getting more comfortable with such arrangements as they watch implementation of successful examples while facing limited alternatives to fund increasing infrastructure needs.
One example of such unsurpassed success is the bi-state and bi-partisan accomplishment of Ohio River Bridges project to ease the congestion in the transportation corridor around Louisville, KY metropolitan area, between Clarksville and Jeffersonville counties in Indiana and Jefferson county in Kentucky. The Ohio River crossings in the area, plagued with serious congestion, have been one of the bottlenecks and was designated by the Congress as one of the top 13 infrastructure projects of national importance. After years of arguments, the bi-state Louisville and Southern Indiana Bridges Authority was formed in February 2010 following Kentucky adopting legislation HB3 in 2009 and Indiana’s then governor, Mitch Daniels, signing an executive order. Despite being an independent agency, the 14 members of the agency were political appointees: seven original members were appointed by Mitch Daniels, Republican Governor of Indiana; three members by Democratic Governor of Kentucky, Steve Beshear and four members by Democratic Mayor of Louisville, KY, Jerry Abramson, making the Authority not only bi-state but also bi-partisan.

Even though the original plans submitted to the Federal Highway Administration (FHWA) in 2008 did not include public private partnerships or unpopular tolling, these alternatives were approved later on and were in the mix in 2012, after the establishment of the Authority, where the Ohio River Crossings project was broken into two major parallel simultaneous components.

East End Crossings, with Indiana in charge, was structured as an availability payment Finance-Design-Build and Maintain P3 project. In Indiana, the Indiana Finance Authority issued Milestone and Long-term Private Activity Bonds, among other financing alternatives including TIFIA loans, and collected toll revenue as the entity responsible for making the availability payments on the project, with INDOT covering the revenue shortfalls or collecting the excess revenue over the availability payments.

Downtown Crossings, with Kentucky in charge, was structured as a Public Works Design-Build project. In terms of its financing, Kentucky secured its TIFIA loan of more than $450 million with revenue from tolls for the Downtown Crossing with also first tier revenue GARVEE bonds, first tier project revenue anticipated tolls bonds in the mix.

The delivery of the Ohio River Bridges project has been an unparalleled success story with bi-partisan collaboration not only overcoming many decades of stalemate but also devising creative solutions to tap financial sources. It is noteworthy that both crossings were substantially completed in late 2016 ahead of schedule and well under budget under the watchful eyes of Kentucky’s Democratic Governor Steve Beshar and Republican Governor Matt Bevin, Louisville’s Democratic Mayors Jerry Abramson and Greg Fischer, and Indiana’s Republican Governors Mitch Daniels and Mike Pence. Furthermore, the success of the delivery was recognized by the rating agencies, too. The private activity bonds issued by Indiana Finance Authority were originally assigned low investment grade BBB rating from both Standard and Poor’s and Fitch in March 2013. Since then, the success in the completion of the project has been recognized by these two rating agencies: Fitch first upgraded these bonds to BBB+ in December 2015 and then to A- in February 2017 while S&P recently upgraded them to BBB+ in February 2018.

The success of this project alone in many aspects shows that collaboration between the two sides of the aisle and the will to deliver crucial projects cannot be hampered with lack of funds or any other obstacle. It should be noted that it was then Governor / current Vice President Mike Pence who signed an executive order to name the East End Crossing as the “Lewis and Clark Bridge”. We have people on both sides of the aisle who have great achievements under their belts through their bi-partisan collaboration, financial ingenuity, strong commitment for public service and, equally importantly, who know how to “build bridges”, literally and figuratively.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.

Ozgur Kan

Ozgur Kan

Ozgur B. Kan is a Managing Director and the leader of Credit Analytics Practice in Berkeley Research Group.