Former Mass. Gov Weld: Bright Outlook for Private Infrastructure Investment

In The Deal magazine, Former Massachusetts Gov. William Weld weighs in on the outlook for privately-financed infrastructure in the U.S.:

Despite these hurdles, changing attitudes toward private investment may be on the horizon. With a collective state budget deficit of roughly $100 billion, according to a recent report by the National Conference of State Legislatures, and with the administration making stimulus funds available, the states could rethink their concerns over the use of PPPs.

A major criticism leveled at PPPs is that tax-exempt government financing of public sector projects may be less costly than private financing. This, however, has not been consistently the case. Generally, the higher a project’s internal rate of return, the more desirable it is for private investors. Moreover, the use of private capital in appropriate cases can free up a state’s borrowing capacity for uses where private investment is impractical. Another concern is that the PPP structures can increase public sector exposure to project liabilities incurred by private entities that lack sovereign immunity. While this may be valid in some instances, there are other risks that private sector participants can accept and manage more efficiently than a government entity, which on balance benefits taxpayers.

Credit market difficulties should not change this dynamic, particularly when infrastructure investment is seen as a stable, long-term proposition for both public and private investors. For example, the winning bid for Chicago’s Midway Airport, chosen in September as the downturn was well under way, netted $2.5 billion, considerably more than expected.

Heightened interest in infrastructure PPPs from cash-starved state and local governments, the continued appeal to the private sector of stable, long-term infrastructure investments and an anticipated infusion of federal infrastructure funds make it likely that large-scale investment of private capital in public infrastructure projects will proceed apace in 2009, downturn notwithstanding.

Reason’s Privatization Research and Commentary
Reason’s Transportation Research and Commentary