Last month Congress once again threw a lifeline to the Highway Trust Fund in the form of another short-term extension. But the reality remains, spending-constrained governments – federal or otherwise – simply can’t afford the essential infrastructure investment our economy needs. Even critically important upgrades to our airports, shipping hubs, and water sanitation systems are beyond their means. There is simply no way to maintain a competitive advantage in terms of infrastructure unless the private sector steps up with additional resources.

China, for example, invests almost four times more in infrastructure as a percentage of its economy than does the U.S. And our domestic infrastructure funding gap – the difference between our nation’s investment needs and governments’ ability to fund construction and repair of critical public assets – is estimated at $200 billion a year, according to Standard & Poor's Ratings Services.


Unlike government, the private sector does have the cash, as well as the investing expertise. It even has the appetite to finance projects and build them today. Yet institutional obstacles and a lack of reliable information on identified projects are keeping the private capital away.

Consider one of the most basic tools to facilitate private infrastructure investment over the last decade: the “P3,” or "public-private partnership.” These partnerships let cash-strapped governments shift some of the costs for constructing and maintaining projects to the private sector. In turn, the private sector benefits from scheduled payments over time from the government and infrastructure users, as well as the multiplier effect from economic development created by the investment.

California has pioneered a number of P3 approaches, as have Texas and Virginia. Recently, the West Coast Infrastructure Exchange was created to help facilitate major projects in three states and British Columbia, Canada by identifying and preparing assets for such partnerships. Can we replicate more of this work and make it more effective?

Surprisingly, a number of states with significant infrastructure problems – including New Jersey, Michigan, and New York – do not allow these public-private infrastructure partnerships. And even in states where participants are encouraged, there's insufficient information about the risks and rewards of projects to entice robust private-sector investment.

Infrastructure projects are often a stable and predictable long-term investment – in other words, they offer just the right mix of risk and reward for cash-flush pension funds, insurers, and others. When you compare infrastructure bonds and loans to corporate bonds, the benefits become clearer. Infrastructure bonds generally have slightly lower default rates, higher rates of recovery after default, and higher yields.

Still, many traditional investors are slow to adopt new products, especially pension funds that have restrictions on investment in new asset classes. The federal Build America Bonds (BABs) program, which issued $180 billion in new debt, heavily infrastructure-related, was designed to appeal to pension funds. However, as the type of bond only existed for 18 months, pension funds were often slow to modify their guidelines and invest.

The private sector can help solve the information gap. One way is by developing a market-oriented assessment system to provide investors with independent, standardized data, reliable benchmarks, and clear information about risks and the pipeline of projects. For a highway project being funded with the help of toll roads, for instance, this platform could include objective forecasts of fee collections.

Such an assessment system might also include evaluations of political risk, environmental considerations, local economic factors, and other risks specific to the financial model being used – all of which would help provide institutional investors with the independent data and confidence necessary to invest. It also might include information on the pipeline of shovel-ready projects. That would not only help make public-works projects more attractive to investors, but could provide the public with the updated infrastructure it deserves.

This type is information is already available to investors for everything from commodities to stocks, so why not provide it for infrastructure projects?
Savvy executives will recognize the investment opportunities.

The private sector can – and must – play an important role in upgrading the nation's infrastructure. We cannot solely rely on government to bear this burden.

But we also can’t do it alone. Working closely with our government partners, we can identify critical regulatory barriers to investment and find pragmatic solutions to overcome them. We can promote the use of more standard and transparent data and allow investors to more carefully assess project risks. In other words, we can develop a blueprint for the evolution of a new asset class that can attract the private capital needed to strengthen and expand our nation’s infrastructure, create new jobs, and encourage economic growth.

Peterson is the chief executive officer of McGraw Hill Financial, Inc. and is chairman of the Bipartisan Policy Center Executive Council on Infrastructure. Grumet is the founder and president of the Bipartisan Policy Center.