Give me a lever and a place to stand and I can move the world. Every engineer who has worked on an infrastructure project knows the statement attributed to the Greek mathematician Archimedes.
This principal in math and physics is, however, one that all government policymakers should take to heart as they plan to commit billions of dollars to infrastructure over the next two years, starting this month with the economic stimulus bill. [IMGCAP(1)]
Later this month, federal leaders could start spending up to $700 billion on much-needed U.S. transportation, water and other infrastructure. It is a long-overdue commitment to our economic security that will also put hundreds of Americans to work. If they take those funds and encourage even require in some instances governors and mayors to add private investment to it, they will turn the taxpayers money into more than a trillion dollars of infrastructure investment and put thousands of people to work.
Thats real leverage for the public benefit. The private funding is there. Cash. Not taxpayer debt in the form of bonds in a market so weak that many public officials are either canceling or postponing offering bonds for infrastructure improvements. This is direct private investment that equity funds, pension funds and other institutions are willing to make because they know that partnering with state and local governments to rebuild Americas infrastructure is a good investment. The returns are not as high as some investments, but they are low-risk, steady and predictable enough to enable many of the private funds to finance benefits for their aging baby-boomer membership while investing needed capital in Americas roads, bridges, rail network, airports, water systems, etc.
The figurative place for policymakers to stand with their lever is with the three pieces of major legislation that Congress will take up this year. The first is the economic stimulus bill that the Obama administration and Congressional leaders are promising action on this month. The second is legislation creating a national infrastructure bank, which the new president supports. The third is the transportation reauthorization bill, which sets how much federal gas tax we will pay and how it will be spent. This trio of bills will determine how U.S. infrastructure, particularly our nations transportation system, will be built in the next generation.
Unfortunately, the discussion so far has been neither imaginative nor constructive. Some public officials and other stakeholders see private investment as a threat to traditional infrastructure financing instead of an additional source of funding. Bond lawyers and some in organized labor make bellicose statements about Wall Street profiteers gouging the public and about foreign companies threatening national security. Others see private investment as a threat to increasing a federal gas tax.
Some of the anxiety is justified. Some private companies call their investment models public-private partnerships, but the reality is they are plain old privatizations, where the government essentially cedes authority and ownership to the private sector for a huge upfront payment. Citizens have a right to be concerned about high tolls, high water bills and other user fees. They should know who will set the price after any upfront payment is spent and all that could be left is a hundred years of lease payments.
Surely public officials and the private sector can develop a partnership model that ensures the public gets more and better infrastructure; the government maintains an acceptable degree of public accountability; and the private sector sees a solid return on its investment and the risk that it is taking.
The key to success is combining the best traits of each party and clearly establishing the benefits to consumers and tax payers. That could include shorter leases, shared oversight responsibilities, profit sharing, respecting labor provisions and designing and implementing environmental and congestion management practices. In many instances, the public agency should continue to operate the asset.
Congress can start this process by writing laws that encourage state and local governments to go out and get value for money by seeing whether they can raise private investment as part of their financial model before they come to Washington, D.C., and apply for federal funds. Some projects will attract private investment; some wont. But for those that do, it will mean more money available for both types of projects.
Combining taxpayers money with private investment to get more infrastructure is good stewardship and good mathematics. We may not move the world, but well get the country moving in the right direction.
Robert Dove is a managing director of the infrastructure investment group at the Carlyle Group. John Flaherty, a principal at the Carlyle Group, served as chief of staff for the Department of Transportation under Secretary Norm Mineta.