Countering attacks on private sector investment in infrastructure projects
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Countering attacks on private sector investment in infrastructure projects

Private infrastructure investment firms have a good track record of funding large projects, guaranteeing long-term maintenance, and pioneering innovation.

Several people recently called to my attention an op-ed in The New York Times headlined, “Why Are We Allowing the Private Sector to Take Over Our Public Works?” The villains of the piece were the several hundred infrastructure investment funds that have grown dramatically over the past decade. These investment funds are a source of equity for both greenfield and brownfield public-private partnerships, and they have become a means by which public pension systems in Europe, Australia, and North America have diversified their investment portfolios, aiming to raise their investment returns to help fund those public pensions.

By coincidence, the op-ed appeared as Reason Foundation’s 2023 annual report on public-private partnership transportation finance was being published. For the public-private partnership (P3) infrastructure community, the Annual Privatization Report: Transportation Finance has lots of good news. The global infrastructure fund industry raised a record $149 billion in 2022. The report also notes that those funds had $802 billion in assets under management by year-end. They also have an estimated $380 billion in “dry powder”—money raised but not yet committed to any infrastructure projects.

For transportation infrastructure, it was also an excellent year. Of the various infrastructure sectors, transportation came in first last year, at $108 billion (of the $150 billion invested), beating environment, power, energy, and renewables. And of the significant greenfield P3 transportation projects reaching financial close in 2022, for once, the United States came in first, thanks to three major projects: John F. Kennedy International Airport’s New Terminal One, JFK Terminal 6, and the refinancing of Maryland’s Purple Line, 16-mile light rail line.

My ongoing table of U.S. greenfield transportation design-build-finance-operate-maintain (DBFOM) public-private partnerships since 1993 shows 21 revenue-risk projects in the U.S., totaling $36 billion and 16 availability-payment P3s totaling $26.6 billion.

The transportation finance report also documents the ongoing success story of Australian and Canadian public pension systems, which have used infrastructure investments to help fully fund their plans thanks to solid returns on investment. By contrast, most U.S. state pension systems have serious shortfalls in assets compared with their long-term liabilities.

None of this seems to be appreciated or understood by Professor Brett Christophers of Uppsala University in Sweden, author of The New York Times op-ed mentioned, which is based on his new book, Our Lives in Their Portfolios: Why Asset Managers Rule the World, an ideological attack on infrastructure investment funds. In his New York Times piece, Christophers laments the turn away from Franklin Delano Roosevelt’s New Deal, which poured huge sums into creating government-run infrastructure, such as the Tennessee Valley Authority and Hoover Dam. Christophers claims that thanks to the New Deal, “public ownership of major infrastructure has been an American mainstay ever since.”

This is incorrect. In fact, the large majority of all U.S. electricity is produced by investor-owned utilities. Likewise, for nearly all U.S. pipelines, a significant fraction of municipal water and wastewater facilities, and all of America’s freight railroads.

Christophers also seems unaware of the hundred-year-old French water industry, the Europe-wide trend of airport privatization, and the investor-owned toll roads of France, Italy, Portugal, and Spain.

The Economist reviewed Christophers’ book, headlining its print version “Pantomime Villains.” The reviewer quotes Christopher’s writing that the claims of infrastructure funds to responsible management of infrastructure are “snake-oil, and their utopia is pure moonshine.” The review adds:

The book’s argument is lively and studded with anecdotes. But it is undone by its flaws and inconsistencies. Investment firms’ increasing fondness for such assets is indeed striking. So far, though, they own a minuscule proportion of them. Professor Christophers estimates that, globally, around $1trn-worth of housing and $3trn-worth of infrastructure are in asset managers’ hands. These numbers sound big. But Savills, an estate agent, reckons that in 2020 the total value of global residential property stood at some $260trn. To talk of an “asset-manager society” is a stretch.

Given the author’s aversion to asset managers owning social infrastructure, his account of the costs of the phenomenon is surprisingly limp. Accusing such investors of “profit-maximising” is a “vanilla critique”, he concedes, as the pursuit of profit is hardly unique to them. But elsewhere in the book, their “relentless” cost-cutting and rent-hiking are key planks of his case. Concessions extracted from governments to “de-risk” investment in needed infrastructure, at huge expense to the taxpayer, are presented as a decisive argument against such private investors. In reality these are examples of poor negotiation by governments, a weakness that can also nobble their use of public money.

Since Christophers’ op-ed and the book make such a poor case, why should the transportation community and policymakers pay attention to them? Exaggerations and half-truths about public-private partnerships featured in the influential New York Times could be seized upon by advocacy groups opposing public-private partnerships to modernize and add highway capacity, airport expansion, and other needed infrastructure projects. Don’t be surprised if Christophers’ claims start appearing in the rhetoric and advocacy of such organizations.

Reason Foundation’s annual report on infrastructure financing is more than a compendium of what is happening. It’s also written as a primer to help legislators and policy analysts become more familiar with long-term P3s and the substantial worldwide role private infrastructure investment funds play in providing equity capital for such projects.

Public-private partnership infrastructure is still a very modest factor in U.S. transportation. It has a good track record of providing significant new investments, guaranteeing long-term maintenance, and pioneering innovations such as variable pricing of express lanes. Infrastructure investment funds and P3 developers have much to be proud of thus far. But the transportation and public-private partnership community must be prepared to answer allegations by critics such as Brett Christophers.  

A version of this commentary first appeared in Public Works Financing.