Why private cash improves public works

President Donald Trump has announced the outlines of an ambitious US$1 trillion (S$1.37 trillion) agenda to rebuild the US' crumbling roads and bridges, outdated water systems and dilapidated public buildings. While the general goal of investing in infrastructure has broad bipartisan support, Mr Trump's call for relying heavily on private financing has come under fierce criticism. As consultants and advocates for such public-private partnerships, we believe those attacks are wrongheaded.

Critics assert that public-private partnerships enrich investors at taxpayers' expense, are more expensive and less accountable, lead to public bailouts and do little to help rural areas. But these claims ignore strong evidence to the contrary in states such as California, Colorado, Florida, New York, North Dakota and Pennsylvania.

The private sector is already involved in building America's infrastructure, just usually with public funds. Mr Trump would allow private investment in those projects for a good reason: private funds increase accountability.

As a partner in a public project, the private sector is on the hook for cost overruns and delays, and may be contractually obligated to pay hefty fines or other penalties when the results are lacklustre.

If a project is behind schedule or over budget, private companies pay a hefty fee and make up the difference, since they financed that project. If a project isn't maintained and operated according to strict standards throughout the contract, the private sector could pay substantial fines. The same is often not true of purely publicly financed projects.

There is a widespread perception that most public-private transportation projects sell off assets or give private companies the authority to collect tolls. But this is not usually the case. Of the 18 public-private transportation projects advanced since 2010, only eight involved transferring toll or revenue risk to the private sector. Most projects involve contracts that pay companies based on performance, not toll collection.

In 2015, an official from the Congressional Budget Office testified that there is "little evidence that public-private partnerships provide additional resources for roads".

We simply can't waste billions of dollars on delays and cost overruns if we are to deliver more than US$4 trillion in much-needed infrastructure repairs and expansion. Business as usual is simply not an option.

But this assertion ignores the ways private financing increases fiscal discipline and accountability by shifting the risk of cost increases, delays and revenue performance from the public onto private investors.

La Guardia Airport, often mocked for its antiquated facilities, is today completely overhauling its central terminal, thanks to a public-private partnership. Almost 80 per cent of the US$8 billion design and construction costs will be paid for by private financing and existing passenger fees. The risk of cost overruns or construction delays is transferred from the port authority to a private consortium.

Project owners of such partnerships estimate that their projects have saved taxpayers on average 25 per cent, including on the construction of the Port Miami Tunnel and the expansion of Denver's mass transit system.

A public-private partnership is on track to deliver the Interstate 4 highway expansion in Florida, with an estimated US$1.4 billion in savings, faster than originally projected.

We believe public-private partnerships can help rural America, and urge sceptics to consider that in Pennsylvania, 558 deficient rural bridges are being replaced at least 10 years early, through a US$1 billion public-private project.

In Merced, California, the University of California is doubling the size of its campus - which serves mostly rural students - with a US$1 billion public-private project. And in Fargo, North Dakota, a public-private partnership is working with the Army Corps on a US$2 billion project to alleviate flooding.

Criticism of such projects has also been directed at a few that have gone bankrupt, as evidence that they hurt taxpayers.

One such project, the South Bay Expressway in San Diego, earned lower-than-projected revenue because of the Great Recession and the Southern California housing market collapse. But no state funds were used for the project, and taxpayers were largely protected in the bankruptcy. The regional authority purchased the rest of the project for significantly less than the private partner's construction cost.

We simply can't waste billions of dollars on delays and cost overruns if we are to deliver more than US$4 trillion in much-needed infrastructure repairs and expansion. Business as usual is simply not an option.

Projects like the Big Dig in Boston, which was an estimated US$12.4 billion over budget, are occurring every day at taxpayers' expense. It costs more to build new transit systems in the United States than in most other developed nations.

Critics of public-private partnerships have one fact right: Private finance can never fully replace the need for federal and state funding. Private investment, however, can help leverage limited but essential public dollars into successful projects that are completed ahead of schedule, at lower cost and with greater accountability.

When Congress begins considering an infrastructure plan, members should seriously explore Mr Trump's idea of using private financing as a catalyst. Private funds are not going to single-handedly solve the US' huge infrastructure needs, but they must be a critical piece of the equation.


•Mary E. Peters, the US secretary of transportation from 2006 to 2009, is the principal in Mary Peters Consulting Group. Samara Barend is a senior vice-president at AECOM, an engineering and construction firm.

A version of this article appeared in the print edition of The Straits Times on July 18, 2017, with the headline 'Why private cash improves public works'. Print Edition | Subscribe