MuniNet Guide published an interview with me today on my “crystal ball” view of privatization in the wake of the financial crunch. The short story is, I’m bullish. An excerpt:
MuniNet: Does the current fiscal climate encourage or discourage private sector infrastructure financing? Given the recent credit crunch and market downturn, many people would assume that Wall Street banks have left the table. Gilroy: While some skeptics might believe that the turmoil in the financial markets could dampen enthusiasm for public/private partnerships, I’d argue the opposite. There seems to be a general consensus in the financial community that infrastructure public/private partnerships remain an attractive investment in the “flight to quality” that we’re seeing in the markets. The flight to quality refers to capital flowing to solid, safe, and tangible investments. Despite the rise and fall of the economy, people are still going to drive, fly, and consume goods. That means that roads, airports, seaports, and other types of infrastructure will likely remain good long-term investment prospects. In addition, these are brick and mortar assets, a far cry from the credit default swaps, mortgage-backed securities and other types of derivatives that few could really understand. Further, financial firms and public pension funds raised over $150 billion to invest specifically in infrastructure last year, and recent reports have indicated that infrastructure investment funds are trying to raise another $100 billion in 2009. Now it’s reasonable to expect that the private sector may become more selective about project opportunities to pursue and more conservative in their project risk evaluations. But generally speaking, there seems to be at least as much investor interest in infrastructure today as six months ago, if not more so. And it’s not just Wall Street banks. Public pension funds (like CalPERS) and insurance companies are also dedicating billions to invest in infrastructure. Cash-strapped governments will be hard pressed not to consider tapping into those vast pools of equity capital as their revenues dry up. MuniNet: The privatization of public infrastructure – roads, bridges, etc. – has cropped up frequently in recent headlines. In what other sectors are we seeing an increase in public private partnerships? Gilroy: Infrastructure encompasses all elements of a community’s foundation, which includes – but is not limited to – roads, bridges, water, etc. There’s a great deal of experience now in using partnerships to expand and modernize roads and water/wastewater systems, and now we’re starting to see those models extended into airports, seaports, and other types of big ticket assets. The U.S. military is using all sorts of public-private partnerships for non-combat-related purposes; replacing the entire stock of U.S. Army on-base housing – over 70,000 units in total – is just one example. Social infrastructure – educational facilities, parking structures and hospitals, for example – is another area in which we are starting to see increasing interest in privatization. Policymakers in several states are also considering privatization of state-run psychiatric hospitals as a way to improve often appalling conditions and substandard quality of care. Florida has used this approach in recent years to modernize – or even completely replace – four of its psychiatric facilities with tremendous results and quality of care improvements.