It has become clear that the United States is facing an infrastructure challenge that it cannot meet through federal investment alone. Just walk down the street and you will notice sidewalks cracking, highways crumbling and bridges falling apart, let alone new structures that need to be built to meet the needs of an expanding and increasingly demanding nation. Perhaps Public-Private Partnerships for Infrastructure (PPPs) could be a solution?
According to Kellogg Insight, the problem has become so bad that the American Society of Civil Engineers has given the country a D+, a rating more fitting for third world countries devoid of any health or safety standards. The United States should be on a B rating and would need to double its infrastructure budget to raise standards and fulfill its requirements.
Experts say, this is not just an issue for policymakers or politicians but future business leaders should also be concerned and should consider partnering with the public sector to fund projects.
In a previous article on America’s Infrastructure Problem, Bold Business debated whether an increase in federal spending was needed to improve infrastructure standards across the United States.
It is important to improve the rules, regulations, standards and requirements surrounding the way in which infrastructure investment is made. Policy reform should also become a key component to increasing infrastructure investment.
The big debate is where this investment will come from. Congress has failed to come up with a long-term solution, and funding has been affected by the failure of past projects.
According to Kellogg, given the “fiscal and political restraints on public funding”, ambitious public works projects like the Interstate Highway System are a thing of the past. Experts claim the solution to America’s infrastructure challenges is by encouraging the private sector to have a greater role in infrastructure development.
There has been a trend toward privatizing infrastructure globally and this move has proved successful for other nations. The measure eases the pressure on public funds, drives the economy and improves standards.
There can be many benefits of funding projects through public-private partnerships (PPP). One is that it provides access to large amounts of capital from the onset.
The World Bank states that PPP projects are more often completed on time than projects funded entirely by governments. Public-Private Partnerships for Infrastructure have also been proven to deliver faster construction and are better maintained. If the long-term management of these projects is also pushed through the same partnerships, then the results prove more successful.
However, there are currently mounds of red tape and issues surrounding Public-Private Partnerships for Infrastructure in the United States, more so than in the countries where the model has proved successful.
According to Kellogg Insight, the first constraint is focused around America’s municipal bond market. The fact that the bond scheme is tax exempt and the market is so well developed leaves little incentives for governments to utilize PPPs.
What’s more many state governments do not allow PPPs to operate within their jurisdictions due to conflicts of interests and corruption fears that have plagued offices in the past. PPP models will only work if they are fully transparent which will always be an issue.
There are already a vast number of technologies, innovations and bold ideas floating around the private sector that could make drastic improvements to infrastructure right across the United States. However, federal funding is just not there to facilitate them.
If federal spending isn’t enough, then perhaps public-private partnerships are worth exploring.
It is therefore blindingly obvious that if policymakers want to see an increase in investment, they should push for policy reform to increase spending. The report states that one reform would be to “cut the federal corporate income tax rate, which would increase the returns to a broad range of private infrastructure, and thus spur greater investment”.
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