September 2014

President Obama launched a “Build America Investment Initiative” in July that directs federal agencies to encourage broader public and private sector collaboration on infrastructure projects and to expand opportunities for public-private partnerships, or P3s.

The details of the initiative remain to be fully fleshed out. In the near term, the effort will focus on using existing authority to encourage P3s, particularly in the transportation sector. The initiative and the President’s support for P3s should help increase private investment in US infrastructure.

The initiative comes at the same time that a special panel of the House Transportation and Infrastructure Committee is looking into the potential for expanding use of P3s. The panel was created in January this year and held several sessions with industry participants through July. The work of the panel could help Congress figure out how best to encourage P3s as part of the next reauthorization of federal surface transportation programs and in other infrastructure bills. The deadline for reauthorizing federal surface transportation programs was recently extended to May 31, 2015. The task will fall to the new Congress that will be elected in November.

Build America

The part of the President’s new initiative that could provide the most immediate benefit is creation of a new office within the US Department of Transportation called the Build America transportation investment center. The center will open by November 14. The President said it will serve as a “one-stop shop for cities and states seeking to use innovative financing and partnerships with the private sector to support transportation infrastructure.”

The center will play an informational role. It will make federal resources more understandable and promote access to federal credit assistance programs to help finance transportation infrastructure. Among the credit assistance programs in the Department of Transportation toolkit are TIFIA (for the Transportation Infrastructure Finance and Innovation Act), use of tax-exempt private activity bonds and a railroad rehabilitation and improvement financing program called “RRIF.”

The center will also provide technical assistance, particularly for cities and states that are not using P3s yet. It also has a goal of trying to streamline the permitting process for P3 projects.

The US Department of Transportation has already been promoting use of P3s for transportation. For example, the department already set up a project finance center in 2012 to provide technical assistance to state and local governments considering innovative financing tools. The Federal Highway Administration, an office within USDOT, is in the process of developing guidance on best practices for P3s and standard contracting provisions. The Federal Transit Administration, another USDOT office that focuses on public transit, has been directed to do the same thing. Coordinating these and other efforts through the new Build America center should help provide more effective support for P3s.

The new Build America center will provide a sharper focus for federal P3 efforts. There is no additional money under the Obama initiative. However, the fact that the President is talking more about P3s should cause policymakers across the federal government to advocate for broader use of P3s as opportunities arise.

Summit and Working Group

As part of the new initiative, the Treasury Department will host an infrastructure investment summit on September 9, 2014. The summit will highlight opportunities for private investment and increased collaboration between the public and private sectors.

In addition, an inter-agency working group has been set up to focus on P3s with Treasury Secretary Jacob Lew and Transportation Secretary Anthony Foxx as the co-chairs. The group will review ideas to increase private investment in US infrastructure beyond the transportation sector and is expected to make recommendations for how the government can promote broader use of P3s for US infrastructure.

Twelve agencies will participate in the inter-agency working group. This gives an idea of sectors, besides transportation, where the Obama administration sees other potential uses of P3s. The other agencies include the Departments of Defense, Interior, Agriculture, Commerce, Labor, Housing and Urban Development, Energy, Homeland Security and the Environmental Protection Agency.

The group has until November 14 to issue an action plan with a timeline and list of goals.

There are three things, among others, that the group could include on its list of goals.

One goal could be to find new sources of revenue for infrastructure at the federal, state and local levels. The cities and states that thus far have had the most success with P3s and related federal financing programs are the ones that have the means to make availability payments or create some other revenue stream that can be used to pay debt service plus an equity return on infrastructure projects. The working group could recommend that P3 participants be able to earn revenue in other ways. For example, earlier this year, USDOT proposed that Congress provide more flexibility for cities and states to charge tolls on interstate highways. This proposal was included in the draft surface transportation reauthorization bill that the Obama administration sent Congress.

Another goal of the working group could be better coordination of existing federal financing programs across federal agencies. The group could share best practices for program management. The current federal infrastructure financing programs are dispersed across a string of agencies, including USDOT, the Department of Energy and the Environmental Protection Agency. Applicants under these programs could benefit from a more coordinated approach. Sharing of best practices could be particularly useful for the recently-passed “Water Infrastructure Finance and Innovation Act” program, known as “WIFIA.” The WIFIA program, which is based on TIFIA, was established by Congress earlier this year to be implemented by EPA and the US Army Corps of Engineers. Both agencies could probably benefit from the experience that US transportation officials have had with the TIFIA program.

Another goal could be simplifying federal requirements for P3s. Private investors in P3s have to contend with a host of federal requirements for federally-funded infrastructure projects that can differ from agency to agency. These requirements include compliance with the National Environmental Policy Act review process, payment of prevailing federal wages under the Davis-Bacon Act and other statutes and “Buy America” preferences. The working group could put out clearer guidance about these requirements and focus on simplifying the rules so that there is not so much variation in terms.

by Doug Fried, in New York, and Jake Falk, in Washington