At a time when other countries are pouring trillions of dollars into infrastructure development, infrastructure funding in the U.S. and in the Chicago region has been a daunting challenge. Because of the mismatch between need and resources, 71 drivers cross one of the 481 deficient bridges in the Chicago metropolitan region every second. And every week, we lose enough water in northeastern Illinois to fill 1.3 Willis Towers. The need requires looking to new strategies and financing tools in order to implement crucial public projects that may otherwise fall by the wayside.
The Metropolitan Planning Council held a half-day forum on June 3, 2014, in collaboration with Lazard, to hear global investor perspectives on the opportunities and challenges to investing in Chicagoland’s current and future infrastructure needs. Panelists from both the private and public sector outlined the benefits of public-private partnership (P3) as a tool to help bridge Chicagoland’s current and future infrastructure gap. Mayor Karen Freeman-Wilson of the City of Gary noted the city’s P3 pipeline as a means to deliver projects that improve the city’s overall budgetary health while building key improvements. However, panelists also highlighted a number of obstacles in the P3 market. One crucial challenge is the communication gap between the investor community, the public sector and the general public. The discussions suggest that intermediary structures like the Chicago Infrastructure Trust may serve as one solution.
Infrastructure investment is attractive to many types of investors, ranging from dedicated infrastructure funds to insurance companies. Jonathan Bram, founding partner from Global Infrastructure Partners, described his firm’s interest in energy, airport and port investments due to their expertise in operation management and risk mitigation. Jon Anderson from John Hancock Insurance highlighted the value of real and infrastructure assets as a source of stable returns for investment firms. In the most recent recession, John Hancock’s asset holdings helped the firm weather the crisis. The diversity of P3 projects and the relative stability of infrastructure investments have the ability to draw many types of investors.
Although the U.S. is known for the relatively cheaper tax-exempt market, the cost of debt via a P3 can still be competitive after factoring in delivery costs, risks and life-cycle costs. Citing London’s Gatwick Airport as an example, Global Infrastructure Partners discussed the ability of private managers to reduce project costs over the long run. After investing roughly £1.5 billion pounds into the airport, Global Infrastructure Partners has increased the airport’s efficiency from processing 140 people per hour to 350 people per hour. As a result of the faster airport lines, travelers now spend more money at the airport stores. This is one example of how shifting the controls and risks of operation to the private party may make P3s more financially attractive to both parties.
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