When he was running for president in 2020, now-Transportation Secretary Pete Buttigieg put forth a $1 trillion transportation infrastructure proposal that had a focus on transit, complete streets, and increased highway safety. And during his successful presidential campaign, President Joe Biden proposed a $2 trillion infrastructure plan that included a Build Back Better program to “create millions of good union jobs rebuilding America’s crumbling infrastructure.”
As the Biden administration starts to push its policy priorities, how to fund these very ambitious transportation programs is the greatest unknown. Another possible political challenge for Biden’s transportation proposal is getting such a measure passed through both a Senate that is divided 50-50, with Vice President Kamala Harris serving as the tiebreaker if necessary, and a House with a Democratic majority that is far narrower than in 2020.
Those hoping for a major infrastructure bill that expands the country’s use of public-private partnerships (P3s) know it will require the next transportation bill to be truly bipartisan in a way that hasn’t been seen in Washington, DC, in quite some time. So it’s good to see that the recently-launched “Build by the Fourth of July” campaign is co-chaired by the U.S. Chamber of Commerce and the Bipartisan Policy Center. The campaign’s 150 members also include the American Association of State Highway and Transportation Officials (AASHTO), North America’s Building Trades Unions, and many other infrastructure-related organizations.
The Senate’s 50-50 split means that even the “reconciliation” procedure that can pass certain measures by a simple majority, exempt from filibusters, could be stopped by the defection of just one senator. Democrats now control what legislation makes its way to the Senate floor and chair all Senate committees, which will consist of an equal number of Democrats and Republicans. That committee makeup will further increase the likelihood that infrastructure bills will have to be bipartisan in order to pass the Senate.
The difficulty of funding a trillion-dollar transportation proposal is what gives public-private partnership (P3) advocates the opening to make our case. Infrastructure advisor Michael Likosky, for example, suggests that Biden favors “leveraging modest amounts of federal money to bring in outside money” from pension funds, infrastructure investment funds, and sovereign wealth funds. And large amounts of private capital can enable infrastructure owners (state and local governments) who already have significant debt loads to undertake large infrastructure projects without adding to their own debt loads.
As I pointed out to a reporter recently, infrastructure investment funds have raised over $600 billion in the last five years, nearly all of it planned for equity investment. If projects are financed with 25 percent equity and 75 percent debt, that $600 billion could finance $2.4 trillion of brownfield refurbishment and greenfield projects. And low-cost debt is already available from the Department of Transportation’s Build America Bureau.
As Martin Klepper points out in a new study for the Mineta Transportation Institute, $100 billion of low-cost Transportation Infrastructure Finance and Innovation Act (TIFIA) and Railroad Rehabilitation and Improvement Financing (RRIF) loan capability exists today (prior to any infrastructure bill) to provide part of the debt for new P3 projects.
One big question is whether the Biden administration is interested in pushing for, or accepting, a large role for private capital as part of a transportation infrastructure bill. Here are three reasons to think so.
First, this approach had strong support in the Obama administration’s Treasury Department, which put forward a proposal to greatly expand the tax-exempt Private Activity Bond program. The new version was called QPIBs—Qualified Public Infrastructure Bonds—and did not have a federal cap on the amount that could be issued.
Second, under then-Chairman Bill Shuster’s leadership, the House Transportation and Infrastructure Committee produced a bipartisan report explaining that P3s could play a larger role in modernizing this country’s transportation infrastructure, especially revenue-producing facilities like highways and bridges, airports, seaports, etc.
Third, an important sector that seeks to invest long-term equity in infrastructure is public pension funds. The retirement security of millions of current and retired public employees is threatened by the severe underfunding of the majority of state and local government employee pension funds. Over the past decade, there has been a growing trend, begun by the California Public Employees’ Retirement System (CalPERS), the largest U.S. public pension fund, to invest in revenue-producing infrastructure. CalPERS currently owns a 10 percent stake in the P3 company that runs the Indiana Toll Road and a 13 percent stake in privatized London Gatwick Airport. Organizations that invest equity in infrastructure on behalf of public pension funds include $21 billion IFM Investors and $3 billion Ullico. Unfortunately, since there are so few U.S. infrastructure P3s to invest in, most U.S. pension fund equity is currently placed with global infrastructure funds and invested overseas, where public-private partnerships are far more plentiful.
If Wall Street speaks out on behalf of more U.S. public-private partnership opportunities and the economic benefits that could be created by them, and if major pension funds like CalPERS join them in making this case, perhaps Democrats in the House and Senate may take their concerns seriously. Why deny America’s public employees a more-secure retirement when their pension funds want to help their retirees by investing equity in Build Back Better?
Of course, it will take open-mindedness on both sides of the aisle to end up with a truly bipartisan bill that includes opening up America to more private investment in crumbling infrastructure. Republicans will have to come to terms with the Davis-Bacon Act (union pay scales, etc.) likely being applied to all such projects. They will also likely have to accept many “green” provisions, such as federal funding for electric vehicle charging stations along the Interstate highways (preferably right alongside). And Democrats will want them to accept an enlarged role for federal transit and Amtrak funding than many Republicans may be comfortable with.
But in exchange for potential compromises, Republicans should insist on liberalizing current federal programs that limit using tolls to finance Interstate highway reconstruction and modernization, and insist on a very large expansion of tax-exempt private activity bonds (PABs), along the lines of the QPIB proposal. Transportation legislation should make it very clear that since the main emphasis is rebuilding and modernizing infrastructure that already exists, financing tools such as TIFIA and PABs must apply to brownfield as well as greenfield projects.
A $1 trillion transportation infrastructure program that is half-funded via private capital public-private partnership projects and the rest funded by some combination of federal user tax increases, new federal borrowing, and state and local matching funds will probably not please fiscal conservatives and Republicans rediscovering concerns about debt and deficits. But pushing to open the door for significantly more private sector investment in infrastructure projects would be far better than increasing the national debt by another trillion dollars after the national debt ballooned by nearly $8 trillion during the four years of the Trump administration.
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