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In a recent essay titled, “What Trump Finally Got Right About Infrastructure,” Columbia professor Joel Moser performs a great service by underscoring the important distinction between the funding of infrastructure and its financing. Before financing can be secured from any source, adequate project funding — whether from broad-based taxes or some type of user fee such as tolls — must certainly be in place.
The essay runs off the rails, however, by declaring that private investment in infrastructure in fact “works quite well,” but then urging the United States to stick with the “old-fashioned way” and resist innovative infrastructure delivery. This is because “it makes little sense to take on the entire government civil works and financial establishment” because public officials would have to learn new delivery techniques and “government is slow to change.”
Although workable for decades, that old-fashioned approach in the US ultimately created an array of problems. Poor project selection is now legendary, as the “bridge to nowhere” and the 6,371 earmarks in the 2005 SAFETEA-LU highway reauthorization bill attest. The system is plagued by time and cost overruns. The traditionally-procured Boston Big Dig, for example, was expected to cost $2.8 billion but ultimately ran some $14.6 billion, was almost ten years late, and was plagued by leaks and design flaws.
Perhaps most important, the old-fashioned approach has created strong incentives to build new, shiny infrastructure but little incentive to maintain it, and it shows. In its 2017 infrastructure report card, the American Society of Civil Engineers assigned US infrastructure overall a grade of D+, due largely to poor maintenance of key facilities.
New, globally pervasive approaches to infrastructure delivery would help the US address those problems. The main such approach is the public-private partnership, or PPP. PPP typically refers to the bundling of tasks required to deliver a big infrastructure project, such as its design, construction, operation, maintenance and financing, in various combinations via a contract between the public-sector sponsor of the project and a private partner. The PPP contract also transfers many of the enormous risks associated with delivering any major project from taxpayers onto private investors, who are often in a better position to control and manage those risks.
In a PPP contract, the private partner usually assumes the risk of time and cost overruns, creating strong incentives to deliver projects on-time and on-budget. Moreover, a PPP with a maintenance provision ensures that the infrastructure will be properly maintained over its entire life cycle by including clear, enforceable penalties for deferring maintenance.
Professor Moser refers to PPP use as “outliers,” although by our count there have been 307 PPP projects completed in the US across various sectors — including water, transportation, energy, and health care — since 2012, for a total project value exceeding $12.5 billion. Yet the United States still remains decades behind other developed countries in this innovative delivery approach. Canada, for example, has long been a noted world leader in PPP use.
Moreover, PPPs are no longer only for large, complex infrastructure projects. The Rapid Bridge Replacement Project, for example, wrapped the renovation of 558 aging, relatively small bridges throughout Pennsylvania into one contract and bid them out as a large PPP that attracted global interest.
The crux of Professor Moser’s argument seems to be that, because government is so resistant to change, and because the market for tax-exempt municipal bonds is so great, the US must tolerate substandard infrastructure for the foreseeable future. This is a false choice. Outside the United States, PPPs are now the standard method of delivering and maintaining infrastructure, with a proven record of success. A major educational effort for public officials in the use of alternative delivery methods is called for, not a resignation to third-world infrastructure.
R. Richard Geddes is a visiting scholar at the American Enterprise Institute. He is also a professor of policy analysis and management and the Director of the Cornell Program in Infrastructure Policy at Cornell University.
Outside the United States, PPPs are now the standard method of delivering and maintaining infrastructure, with a proven record of success. A major educational effort for public officials in the use of alternative delivery methods is called for, not a resignation to third-world infrastructure.
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