The recent trends in public-private partnership (P3) activity in the United States have been unsettling, with a noticeable decline in such partnerships last year. Despite this setback, the longtime trajectory of a growing number of P3s remains intact, indicating a promising future with a robust project pipeline and infrastructure funds seeking investment opportunities.
The southeastern region of the U.S. has emerged as a frontrunner in the realm of P3s, with several high-value projects in the works in states like Georgia, Louisiana, and Tennessee. Notably, availability-payment P3s have maintained their popularity over revenue-risk deals in this space. Moreover, it is interesting to note that public pension funds have shown a keen interest in investing in infrastructure, although many have had to expand their search beyond U.S. borders to find suitable assets for investment.
While the overall sentiment seems positive, there are significant challenges that hinder the growth of P3s in the U.S. Political opposition and the availability of low-cost financing through tax-exempt municipal bonds have impeded the country’s progress in infrastructure privatization efforts. As a result, the U.S. lags behind other nations in infrastructure P3s, reflecting a missed opportunity for economic development.
Despite the overarching challenges, certain states like Louisiana, Georgia, and Tennessee have taken proactive measures to leverage tolls for managing congestion and supplementing gas tax revenues. For example, Tennessee’s Transportation Modernization Act aims to introduce “choice lanes” as a new revenue generation strategy, highlighting the willingness to explore innovative solutions for transportation funding. Similarly, Georgia’s approval of toll lane additions on major highways demonstrates a commitment to expanding transportation infrastructure through P3 projects.
The investment landscape for infrastructure funds has shown fluctuations, with a significant drop in funding last year. However, the total raised by the top 100 funds over the past five years surpassed $1 trillion for the first time, reflecting a sustained interest in infrastructure investments. Despite the challenges, transportation projects continue to dominate the P3 investment portfolio, indicating a consistent focus on improving transportation infrastructure across the globe.
Public pension systems in the U.S. have also shown a growing interest in infrastructure investing, primarily through infrastructure funds rather than direct asset investments. Notable pension funds like the California Public Employee Retirement System have made substantial contributions to infrastructure projects, signaling a shift towards diversifying investment portfolios for long-term financial stability. By following the example set by countries like Canada, U.S. legislators can potentially enhance the financial viability of pension systems through strategic infrastructure investments.
While the current state of U.S. public-private partnerships faces several challenges, there are encouraging signs of progress and opportunities for growth in the infrastructure sector. By addressing political obstacles, fostering innovative financing models, and leveraging public and private sector collaborations, the U.S. can harness the full potential of P3s to drive economic development and improve infrastructure nationwide.