Urban Land Institute (ULI), in collaboration with Ernst & Young, released a report on the global infrastructure trends and activities in 2011, and the U.S. infrastructure policies that aim to repair and rebuild the nation’s infrastructure, including roads, transit and ports. Within the theme, “Downscaling Ambitions and Finding Creative Solutions,” the findings of the study overwhelmingly point to a strain on U.S. cities to maintain assets and build infrastructure projects.
“For those who have read our infrastructure reports over recent years, one consistent finding is that the U.S. seriously lags behind the rest of the world in addressing its infrastructure issues,” said Howard Roth, Ernst & Young’s global real estate leader. “The U.S. is facing increasing federal, state and municipal budget deficits, and lack any type of comprehensive national policy or the political will to develop a long-term approach to funding the significant maintenance needs of aging U.S. infrastructure, much less the modernization and greenfield development of critically-needed projects.”
Roth’s recommendation for improving the country’s standing as a global competitor is to refocus priorities by attracting private capital more efficiently, investing strategically in projects with national merit and streamlining the procurement process. “We need to take a page out of the playbooks of several nations around the world highlighted in our report, or we face the risk of serious deterioration of our country’s economic and social well-being.”
However, U.S. trends in building and maintaining infrastructure are not representative of global patterns. China, Brazil and India are ranked as the three top nations investing in infrastructure, according to Malcolm Bairstow, global construction and infrastructure leader at Ernst & Young. The east is eclipsing the west in spending, Bairstow explained in a webinar introducing the study. In fact, as the report claims, Brazil is accelerating infrastructure projects to accommodate a burgeoning economy. Of course, the 2014 World Cup and the 2016 Summer Olympics serve as an impetus to such large investments.
Even without a burgeoning economy, many nations in the developed world are making commitments to improving infrastructure. One of which is the U.K., which has “committed US $326 billion (£200 billion) over the next five years to continue national infrastructure projects focused on rail, energy production, and broadband access,” the report says, “with an emphasis on reducing the nation’s carbon emissions through investments in renewable energy.”
The report further adds that “countries appear to gain an edge when they can execute more forward-looking plans that tie infrastructure needs directly to securing future economic advantages, giving them the ability to direct funding more strategically and efficiently.”
The report explains that some metropolitan areas that have forged plans and collaborated on transit lines and road systems across multiple jurisdictions have done better financially. One approach to overcoming financial obstacles is exploring public-private partnerships, according to Jay Zukerman, U.S. infrastructure leader at Ernst & Young. As the report says, “States with effective procurement programs and policies are beginning to profit from their ability to engage in public/private partnerships (PPPs).” Here, PPPs stand for the loose definition of the private sector’s financial cooperation with public agencies in driving public projects.
Zukerman explains that there are multiple PPPs operating in the U.S. today, which are able to distribute risks and rewards appropriately. Of course, PPP models vary according to the degree of private sector involvement and risk transfer. The amount of risk the private sector acquires increases proportionally to their involvement in the project. Zukerman adds that not all infrastructure projects are conducive to a PPP transaction and PPPs don’t substitute for sound policy.
One example of a newer PPP is Denver’s FasTracks project, a multi-billion dollar comprehensive transit expansion plan to build 122 miles of new commuter rail and light rail and 18 miles of bus rapid transit, and enhance bus services among other transit infrastructure investments. In April 2011, The Regional Transportation District’s Board of Directors decided not to pursue a sales tax increase to complete the FasTracks project. In its place, the project turned to a US $2.4 billion PPP to complete a light rail to the airport.
This has not been an unfamiliar story in today’s economic recession. With jurisdictions earning fewer revenues from income, property and sales tax, local governments are struggling to manage and sustain infrastructure, explained Maureen McAvey, executive vice president at ULI. There has been less federal support and less local revenues due to high unemployment, all while metropolitan areas are experiencing rapid urbanization, she added.
Life-cycle analysis and costing remains a best practice for Zukerman, appropriating responsibilities for the design, construction, operation and maintenance of a project. As for overall infrastructure solutions, Zukerman proposes expanding funding sources and making the PPP process more predictable and reliable. Zukerman also suggests phasing in user fees and creating infrastructure banks to eliminate surprises.
For more information, download the ULI study here.