The size of the current infrastructure investment gap and the speed at which it is widening mean there is both a desire and a need for more public-private partnerships to unlock funding. Investors say that collaboration with local governments and raising public awareness of private investment benefits are crucial.
From roads and airports to energy and water, the US is seeing a rapid deterioration in the condition of its critical infrastructure. Industry estimates suggest there is a $2.6 trillion investment gap to modernise these features before 2030, per the American Society of Civil Engineers.
At the Top1000funds.com Fiduciary Investors Symposium, Janet Cowell, mayor of North Carolina’s capital city Raleigh and former state treasurer, said infrastructure investment is entering a “very fluid and dynamic” era but that it will take some time for some officials to realise private money needs to play a bigger part.
“[When] people realise the money’s not flowing, they’re going to scramble for existing revenues,” she told the symposium at Stanford University.
Raleigh is grappling with an explosion in not only the cost of building materials but also that of land, which went up as much as 70 per cent as the city became an attractive real estate investment destination post-COVID, Cowell said. The city had to abandon certain infrastructure projects as a result.
“For example, we had a State General Assembly member who said, ‘you’re not funding our transportation enough, so I’m going to try to grab your food and beverage money and reallocate that and try to strong-arm the locals’,” she said.
“People are going to find other goofy ways to try and do this [invest in infrastructure], and ultimately they’re going to have to come to more of a public-private [model]. I think we’re going to need some enabling legislation.”
Mikael Limpalaer, head of Americas at AustralianSuper, the A$387 billion ($254 billion) Australian pension fund which has over A$40 billion ($26 billion) in global real assets, said people are “much more amenable” to private or semi-private infrastructure funding when they can see that it is directly linked to the growth of their retirement savings.
There also needs to be more awareness from the public that, in the absence of a large private infrastructure investor, the alternative funding methods could be much less desirable.
“Is it going to be more taxes? More debt for the state or the municipality? That’s a very large part of the educational work local and state politicians need to do with their constituents to make that [public-private] mix work,” he said.
“Then you’ve got the existing, more traditional road networks, airports, water system and energy grids, which are in need of maintenance and upgrade, and particularly in the US, the governance and the ownership structures are not designed or built to accommodate, in most cases, public-private partnerships.
“We’re meeting with lots of governors and municipal authorities that are keen to engage with investors in the space.”
There are around 500 passenger airports in the US and only one is run by a private operator – the Luis Muñoz Marín International Airport in San Juan, Puerto Rico. Andrea Mody, IFM Investors head of North America clients and strategy, said that number is out of pace with other countries.
“In Australia alone, we’ve invested in eight airports. We’ve invested in four airports in Europe. And that is not an asset class that’s even really available,” she said.
Regulatory reasons are a part of that, Mody said.
“When airports were built in America, they were built with public money, and there were federal grants that states and municipalities took out, and some of the requirements for taking those grants were that you could never privatise your airport.”
“The US also has a very well-developed municipal financing market… but obviously states and municipalities are capped at what additional debt they can issue in 2025 and beyond.”
The point with infrastructure investments is not to build cheaply, but build well, Mody said. It’s a delicate balancing act between capital expenditure and affordability for the infrastructure’s end consumers, which Mody said the public sector could control via mechanisms like pricing caps and maintenance standards.
Many critical moments of US growth in its history have been driven by traditional infrastructure – periods like the Gilded Age, where the railroads and energy contributed to economic prosperity, and the establishment of the Interstate Highway System post-World War II.
“We’re thinking a lot about data and digital and AI, and that’s a really important part of our growth trajectory, but the movements of people and stuff are still going to need to be there in a large way if we’re going to continue to grow,” Mody said.
“And it’s going to take a real [public-private] partnership and a different way of thinking about how we did it in the past versus how we’re going to do it in the future.”
