Among other policy initiatives, the Trump Administration has advocated for the need to improve the nation’s infrastructure in order to maintain America’s economic competitiveness. In its recently released 2018 proposed budget, the Administration included $200 billion in outlays related to its infrastructure initiatives. The Administration’s budget also focuses on leveraging private sector involvement as part of the overall solution to reform and change how infrastructure projects are regulated, funded, delivered and maintained.
There have been reports that one way that the Administration plans to leverage private sector involvement is through an idea known as “asset recycling.” Asset recycling involves a sale or long-term lease of an infrastructure asset owned by the public sector to the private sector. In exchange, the private sector makes upfront or periodic payments to the public sector which the public sector will use to fund other infrastructure improvements. The infrastructure asset that is sold or leased must generate its own revenue stream, such as an airport, toll road, parking facility or utility.
Australia is cited as the pioneer of asset recycling, with the Australian federal government offering a “bonus” payment to its local governments if the proceeds of the asset recycling are invested in infrastructure. To incentivize private sector involvement and to help bridge the infrastructure funding gap, the Trump Administration may employ a similar model by having a pool of federal funds available to pay bonuses to states and local governments that use proceeds from asset recycling to make other infrastructure improvements. This would be consistent with the Administration’s budget objective of leveraging federal funds so that the end result is at least $1 trillion in total infrastructure spending.
Like many ideas, care must be taken in developing and implementing an asset recycling program for public infrastructure assets. Issues to consider include ensuring that the public’s interest is protected and that adequate input is obtained from all affected stakeholders. However, if the right projects are chosen for the right reasons and circumstances, asset recycling can be an effective tool to address some of our infrastructure needs.