Obama should embrace public-private partnerships

Last week President Obama called for $50 billion in new infrastructure spending.  Unfortunately, chances are virtually zero that the president will be able to secure funding from a Congress in a state of perpetual disarray. Washington is increasingly viewed as a place where good ideas, including investing in infrastructure, go to die. Our hope is that our federal elected officials will take note of the good work that can occur when local governments partner with the private sector.

The fact is, traditional government-funded, top-down infrastructure projects are a non-starter in this economic environment.  The challenges that big-infrastructure faces are a major reason for the failure of the Obama administration’s ambitious high-speed rail plan.   Governors in Florida, Ohio and Wisconsin refused federal dollars to pay for the initiative, labeling them as government waste.  Five years later, high speed rail in America is still nothing more than a dream.

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It’s clear that massive, top-down projects from Washington are far more difficult to implement in 2013 than they were in the 1950s and 1960s when we built the backbone of the Interstate Highway System.  What’s required is an innovative approach to the investments this country needs to remain competitive, one that harnesses the energy, efficiency and creativity of the private sector towards goals that serve the public good. 

Fortunately, innovation is happening outside the Washington beltway. States, municipalities and port authorities are increasingly partnering with the private sector to move our nation’s infrastructure agenda forward. These Public-Private Partnerships, or P3’s, are not a privatization or sale. Instead, they are 20 to 50-year partnerships where the public sector contributes assets, such as a container terminal or an airport, and the private sector contributes investment capital to upgrade or enhance these assets. In a Public-Private Partnership, everyone benefits, especially taxpayers.

American states and municipalities are ripe with opportunities for Public-Private Partnerships. Ports, airports, high usage roads and bridges, municipal waste collection and sewer and water are all candidates for P3’s.

Examples of successful P3’s already exist.  The Port of Baltimore was not prepared to receive the super-sized container ships expected to begin coming through the newly expanded Panama Canal next year. In a path-breaking agreement, the Maryland Port Administration entered into a 50-year lease with Ports America, a private operator, and it invested millions of dollars to dredge the harbor to make way for the post-PANAMAX vessels.

The result is a win for all parties involved. The state of Maryland achieved its goal of making these necessary improvements without the use of public dollars. The project created 5,700 new jobs, many of which utilize union labor, benefiting the working population of the city and state. And Ports America has a thriving operation that is ready to receive these massive container ships. Baltimore is currently one of only two ports on the entire East Coast that is prepared for the widening.

More recently, the Puerto Rico Ports Authority (PRPA) this year put together a similar P3 at the Luis Muñoz Marin International Airport, raising investment capital to significantly upgrade and modernize the airport as well as to provide the Commonwealth of Puerto Rico with additional capital for projects elsewhere. The P3 helped Puerto Rico meet important fiscal obligations, all without using taxpayer dollars.

An emerging leader in P3’s is the Port Authority of New York and New Jersey (PANYNJ). Governors Chris Christie (R) and Andrew Cuomo (D) may not agree on much, but it appears they vigorously agree on the importance of mobilizing private sector capital to create critically needed infrastructure. PANYNJ recently instituted an innovative financing plan to retrofit the Goethals Bridge, which connects Elizabeth, N.J. to Staten Island. Included in that plan was an infusion of dollars from the private sector.

Baltimore, Puerto Rico and New York-New Jersey all have one thing in common. Their public private partnerships all received strong bipartisan support from governors on both sides of the aisle.  These projects weren’t easy, but each can serve as models for other infrastructure improvements across the country.

There are currently a number of similar P3 opportunities, ranging from several hundred million dollars to several billion per project. Public private partnerships improve our infrastructure, create jobs and enhance our global competitiveness without growing deficits, or placing a burden on taxpayers. They add up to a significant investment in America’s infrastructure and future, with ideas and impetus coming from the public sector and investment dollars coming from the private sector.  It’s time for businesses to work with local governments and authorities to move America forward.

Lee is the founder and managing partner of Highstar Capital, a New York-based private equity firm that owns Ports America and is a 50 percent owner of Aerostar Airport Holdings, which operates LMM Airport in San Juan.  Medcalf is an associate at Highstar Capital.