Political momentum appears to be building behind the need to construct and repair critical American infrastructure, including water and wastewater projects, and has renewed interest in using public-private partnerships (PPPs) as a vehicle for building infrastructure on a budget. The American Society of Civil Engineers estimates that more than $1 trillion in new investment will be needed in the next 25 years to maintain current water infrastructure and meet growing demand. Governments are increasingly considering PPPs as a way to fund neglected water infrastructure projects.
The Trump infrastructure plan provides some initial guidance on his administration’s direction.1
What are Public-Private Partnerships?
To take a step back, PPPs are vehicles that provide public agencies with a way to leverage both the expertise and resources of the private sector to provide benefits and services to the general public. Private partners will typically receive a revenue stream from users of the project or the government in exchange for designing, financing and constructing the facility and taking on associated risk. Given the large financings needed for infrastructure projects, private sector involvement can help manage costs by lowering coverage ratios and more efficiently deploying capital and managing costs. In short, the PPP arrangement allows public and private entities to share the risks and rewards of these projects and often saves the public some of the upfront construction costs.
Frequently, PPPs take the form of projects such as tollways, correctional facilities, airports and sports facilities. In the water space, PPPs can be deployed in bulk water supply, wastewater treatment and agricultural irrigation, among others. These models are more frequently employed internationally and are relatively recent arrivals in the US.
Trump Administration Infrastructure Plan Relies on PPPs
Earlier this year, the Trump Administration unveiled its long-awaited Legislative Outline for Rebuilding Infrastructure in America. The $200 billion infrastructure spending plan relies heavily on funding sources outside the federal government and contains economic incentives aimed at generating more than $1 trillion in state, local and private investment.
The Trump infrastructure plan proposes several ideas for spurring investment in water PPPs, which include:
- Making new funding available for privately owned public-purpose wastewater treatment plants from the Clean Water State Revolving Fund, which was traditionally restricted to publicly owned projects.
- Providing new categories of projects, including new hydroelectric generating facilities, that would be eligible for financing with tax-exempt private activity bonds (PABs).
- Removing state volume caps on PABs that have traditionally limited investment in clean water and drinking water projects.
- Modifying the Clean Water Act so that public and private water treatment plants are subject to the same regulatory requirements.
- Authorizing the Army Corps of Engineers to enter into multi-year contracts for periods longer than five years.
- Allowing non-federal entities to provide commercial operation and maintenance activities at hydropower facilities.
- Increasing funding for adequate oversight and administration of Water Infrastructure Finance and Innovation Act programs.
The infrastructure initiative was initially one of the highlights of the Trump campaign platform, but the plan suffered a number of setbacks that have cast doubts on whether it will ever become a reality. In just the last month, House Speaker Paul Ryan tabled the plan’s most viable funding source—a 25 cent federal tax increase on gasoline and diesel—and President Trump’s chief economic adviser and key supporter of the plan, Gary Cohn, announced his resignation from the Trump administration. Critically, the administration’s top infrastructure adviser recently announced he will be seeking new opportunities in the private sector. What this means for sustained and consistent support from the White House remains to be seen.
Massachusetts Considers PPPs for Water Infrastructure
Among state-level efforts to advance PPPs, lawmakers in Massachusetts are currently considering a new bill, introduced last month by Governor Charles Baker, which would open the door for local water PPPs in the state. The legislation specifically targets eligible projects focusing on “public water supply or treatment, storm water treatment and disposal, waste water treatment and disposal, or flood control.” The proposed law would give local redevelopment authorities and towns new options for structuring water infrastructure projects in addition to the traditional design–bid–build project development model. The term of these PPP agreements would be limited to an initial 20-year period with an option to renew for an additional 10 years.