President Obama recently announced the latest steps federal agencies are taking to better incorporate private sector capital and expertise in improving the nation’s infrastructure. The announcement comes six months after the President launched the Build America Investment Initiative, calling on federal agencies to find new ways to increase investment in ports, roads, bridges, drinking water, and other projects by facilitating partnerships between federal, state, and local governments and the private sector.
These measures, detailed below, include a new kind of municipal bond that can be used in financing projects through public-private partnerships (P3s), a new arm of the U.S. Environmental Protection Agency (EPA) focused on financing water infrastructure projects, and a March 2015 infrastructure investment summit. They are part of the Build America Investment Initiative’s two-year action plan, so the industry can expect to see more announcements in the coming months.
Public-Private Partnerships
In an effort to “level the playing field” for municipalities seeking P3s, a new kind of municipal bond called a Qualified Public Infrastructure Bond (QPIB) is being introduced. Currently, P3s that combine public ownership with private sector management and operations cannot take advantage of the benefits of municipal bonds. QPIBs will extend the benefits of municipal bonds to certain types of P3s, such as partnerships that involve long-term leasing and management contracts, lowering the cost of borrowing and attracting new capital.
A similar existing program, Private Activity Bonds (PABs), has been used to support financings of more than $10 billion for roads, tunnels, and bridges. QPIBs will expand the scope of PABs to include financing for airports, ports, mass transit, solid waste disposal, sewer, and water, as well as surface transportation projects.
Unlike PABs, the QPIB bond program will have no expiration date and no issuance caps, and interest on these bonds will not be subject to the alternative minimum tax. These modifications are aimed at increasing QPIB’s impact as a permanent lower cost financing tool to increase private participation. QPIBs will not be available for privately owned facilities or privatizations of public facilities.
Investing in Drinking Water and Wastewater Systems through a New Center at EPA
To help address the more than $600 billion in needs for drinking water and wastewater management over the next 20 years, a new Water Finance Center is being created within the EPA. The Center will work with municipal and state governments, utilities, and private sector partners to use federal grants to attract private capital into projects and promote models of public-private collaboration designed to address the needs of municipalities in providing safe water, rebuilding sewer systems, and meeting environmental regulations. It is also intended to stimulate private investment and help attract investment in small, rural communities.
The Rural Opportunity Investment Initiative
The Rural Opportunity Investment Initiative at the U.S. Department of Agriculture will identify opportunities for investment in rural infrastructure projects, take steps to streamline investment, and facilitate rural investment through USDA field staff. It will also focus on opportunities to leverage private sector financing against existing USDA programs and resources to provide funding to rural projects, including water and wastewater systems, energy efficiency improvements, broadband networks, and other rural infrastructure needs.
Highways and Port Projects
The Transportation Investment Center (TIC) at the U.S. Department of Transportation is designed to work with local and state governments to improve project planning and attract private investors. Many major highway and port projects are currently being reviewed and advanced through TIC, and it plans to help facilitate access to hundreds of millions of dollars in credit assistance, expedite project financing and delivery, and release new tools and products that can be used in the marketplace, including supplemental provisions for toll concession model contracts and a new guide on incorporating federal aid funding into P3s.
Investment Summit
The Obama Administration will host a global event with a clear U.S. infrastructure track at the March 2015 SelectUSA Investment Summit. This summit will bring together more than 2,500 international investors and executives and attempt to connect them with business opportunities in the United States.
