GAO Reports on Infrastructure Bank, PPP Options

Earlier this summer, the U.S. Government Accountability Office (GAO) issued a report on issues related to establishing a National Infrastructure Bank (NIB) and use of various types of public-private partnerships (PPPs) to contribute to wastewater infrastructure financing. The report was conducted in response to a request for information by Rep. John Mica (R-Fla.), Ranking Republican on the House Committee on Transportation and Infrastructure (T&I Committee).

In response, GAO distributed a questionnaire to 37 stakeholders (including the National Utility Contractors Association (NUCA)) with expertise in wastewater utilities, infrastructure needs and financing, and issued a report in June titled ?Wastewater Infrastructure Financing: Stakeholder Views on a National Infrastructure Bank and Public-Private Partnerships.?

Creation of a National Infrastructure Bank

The GAO report states that while a majority of stakeholder respondents supported the concept of establishing an NIB, perspectives varied in terms of the bank?s mission, administrative structure, financing, project eligibility and prioritization.

The majority of stakeholders supported the establishment of an NIB, and most respondents supported the mission of an NIB to include funding for a variety of infrastructure categories such as water, wastewater, energy and transportation. Some, however, indicated that their positions would depend on the authorizing legislation and if and how the new organization would impact the existing SRF programs. For example, about half of the stakeholders suggested that an NIB should assist the SRF by providing additional SRF capital and helping state programs leverage SRF funding.

The report also addressed the issue of whether a new NIB should be administered through an existing government agency, a new government corporation or ?government-sponsored enterprise? (GSE). GSEs are privately owned, for-profit financial institutions that have been federally chartered for a public purpose, such as facilitating investment to specific economic sectors by providing liquidity to capital markets by issuing stocks and purchasing and holding loans. Although GSEs have advantages, such as not being beholden to the federal budget and appropriations processes, they also come with their own challenges. Take the famous (or notorious) examples of Fannie Mae and Freddy Mac, which lost billions of dollars due to mortgage-related investments that were questionable at best. Although many strong opinions were provided by several stakeholders, GAO indicated that no real consensus could be reached when it came to administering a new NIB.

NIB Financing and Project Eligibility

Most stakeholders believed that the federal government should play some role in financing an NIB, and that user fees, taxes, private investment, public and private bonds, and traditional forms of federal funding should be considered. Support was expressed for an NIB to be authorized to generate its own funding for operating expenses and lending, as well as to identify and utilize a range of multiple funding vehicles. Examples included borrowing directly from the U.S. Treasury Department and/or private investors, issuance of tax-exempt bonds, and fees related to application and technical assistance.

Half of the survey respondents supported the idea that an NIB should fund projects of all sizes, while others believed only large projects should be eligible. For example, certain stakeholder organizations proposed a threshold of $75 million or more, explaining that these large and expensive projects are normally way beyond the capacity of SRF funding.

The vast majority of stakeholders agreed that eligible costs for NIB financing should include capital costs and planning and design expenses, but not for routine operations and maintenance costs, noting that ?capital and planning and design costs should both be eligible because they are closely linked ? planning and design are essential components of carrying out capital projects.?

PPP Opportunities and Challenges

GAO identified and evaluated several privately funded PPPs developed over the past eight years, and reported a number of advantages and challenges with them.

Among the advantages stakeholders reported included: potential for faster or more certain delivery times of new facilities or facility improvements; access to alternative sources of financing; potential for cost and operational efficiencies related to wastewater collection and treatment; greater access to expertise and improved technology (compared to some municipalities); and allowance of local governments to focus on other important but non-infrastructure functions (i.e. ?first responders?).

Challenges reported by study participants included: public and political opposition stemming from a fear that private entities may be less responsive than public entities; private financing can be more expensive than public; programs that combine private financing with public financing can be complex and sometimes difficult to administer; fear of loss of control of municipal operations and/or decision making; local governments? lack of experience with privately financed PPPs; difficulties with contracting with private entities; and conflicts with state and federal laws and regulations.

NUCA Perspective

NUCA was happy to participate in the GAO study, and we were pleased that the majority of respondents agreed with our take on how an NIB should be established, and that more opportunities to partner with private industry should be considered in future water infrastructure strategies. An infrastructure bank should use all viable means of generating revenue, should fund projects to improve all critical infrastructure systems, should make use of all practical funding mechanisms to get projects off the ground, and should dedicate funding primarily toward capital costs.

PPPs are and should be utilized more and more often ? America?s infrastructure needs, as well as its current economic challenges, fully support the concept of a bigger role played by the private sector in financing environmental infrastructure. We will never fully meet our obligation to this critical infrastructure until we accept and embrace any and all funding vehicles.

Eben M. Wyman is Vice President of Government Relations for the National Utility Contractors Association. [EDITOR?S NOTE: This article originally appeared in the September 2010 issue of Utility Contractor, and is being reprinted with permission.]

Leave a Reply

Your email address will not be published. Required fields are marked *