Looking at private partners for capital fundsBy
The MTA’s $10 billion gap in its current five-year capital plan has been much publicized of late. With only five months and change remaining in 2011, the time for action is dwindling, and Albany is going to have to confront this 800 pound gorilla when the state legislature returns in the fall. With rumors of a renewed effort to initiate a congestion pricing plan and fears of a capital works shutdown that could impact the MTA and construction industry percolate, authority officials are trying to be as flexible as possible while seeking out new ways to fund construction initiatives.
Yesterday, at Crain’s Future of New York City event, MTA CEO and Chairman Jay Walder spoke on a panel about the future of infrastructure investments. While I could not attend the session this year, Crain’s own reporters were on hand to hear the talk. Shane Dixon Kavanaugh has the skinny as various government officials spoke of the need to explore public-private partnerships:
Mr. Walder of the MTA also conceded that private funds may be necessary to help close the yawning budget gap on the authority’s five-year capital plan, which remains unfunded by about $10 billion. “Private capital may play a part [in the plan],” he said.
But Mr. Walder maintained the MTA’s primary focus would be to continue to lower costs through innovation and efficiency measures, which he hopes will increase public support for large infrastructure projects in the future. However, Mr. Walder noted the authority needed more. “By themselves, efficiency and innovation won’t be enough,” he said, after the panel discussion concluded.
Which is where infrastructure funds, like the one Felicity Gates runs, could step in and fill the void. Ms. Gates said the average return on such funds in Europe and Australia, where they are most prevalent, can run as high as 12%. These long-term investments, however, can take up to 20 years to see a return. Historically, U.S. pension funds have not included infrastructure, according to Ms. Gates, because the municipal bond market has made it easy for governments to finance these projects. While that’s beginning to change—Ms. Gates predicted infrastructure investments could eventually equal the level of real estate investment in a pension fund—it will be a slow evolution. “Everyone expects it to happen overnight,” Ms. Gates said. “But it will not.”
By and large, I’m hesitant to embrace these public-private partnerships. Internationally, they haven’t been very successful, and oftentimes, the government granting the partnership in the first place has had to step in to resume control. That is, at least, what happened when London tried to institute a PPP for parts of the Underground. Some in Australia, India and Canada have been successful though.
In New York, if the MTA has to resort to a PPP, we can only speculate at the form, but it would likely involve ceding some amount of fare revenue to the private entity in exchange for money to float bonds for construction. As far as I’ve heard, the MTA cannot issue more bonds without additional financial support. Whether this model would represent a sound investment for a private entity or a safe financial move for the MTA remains to be seen. After construction, too, the MTA’s operating costs will increase as the authority will have to provide additional service to the new stations.
Right now, these are all just ideas, but they’re ideas coming to a head. The MTA needs action on its capital plan, and it needs money. Walder knows that state representatives are listening, and he knows that some legislators won’t be too keen on public-private partnerships. The onus then is on Albany to keep the transit system afloat and expanding to meet demand without sacrificing its autonomy.