According to the American Society of Civil Engineers (ASCE), America has an infrastructure investment backlog of more than $2 trillion. Nowhere is this more apparent than in the area of transportation. But with federal and state governments running deficits far into the future, and a federal debt approaching $16 trillion, public sector finances are acutely stretched.
The private sector has the experience and capacity to undertake many of these critical projects but is wary to commit on its own for fear of being exposed to risks it will not be able to justify to its shareholders. But were both sides able to collaborate, the public sector could mitigate the risks and the private sector could use its resources to expedite infrastructure investment. Welcome to the potential of public-private partnerships (P3s).
High-Speed Rail and P3s
It is useful to take a look at how public infrastructure has been traditionally financed and look at some recent examples of infrastructure funding, starting with the high-speed rail (HSR) program. HSR got a jump start with $10 billion of stimulus funds from the American Recovery and Reinvestment Act of 2009 (ARRA), but the results have not matched the promise.
Taxpayers were under the mistaken impression that for $10 billion they would get the 200 mph Japanese Shinkansen-like transportation. Instead what emerged were projects like Ohio’s C3 Corridor from Cleveland to Cincinnati with a published timetable that unwisely translated into an average speed of just 39 mph. It was a classic marketing misstep: over-promising and under-delivering.
There have been numerous starts and stops with several governors turning back Federal Railroad Administration (FRA) money for HSR lines. In terms of potential for “true” high-speed rail — top speed of 200+ mph with average speed of 160+ mph, there are only two projects with any significant level of support at this time.
First is California High Speed Rail (CAHSR) which has a business plan, a much higher price tag, and several billion dollars of funding (though the current funding will not achieve true HSR speeds). Second is the Northeast Corridor (NEC). The NEC is making incremental improvements and has the advantage that it is already electrified and has equipment, the Amtrak Acela, capable of running at 165 mph. Both of these projects have one thing in common, a very large price tag, and no long-term commitment for the monies necessary to complete the projects.
This is a perfect lead-in for the two historical approaches to fund public infrastructure: Plan A, the most common avenue, where the public sector bears full responsibility, and Plan B, also known as privatization, where the private sector goes it alone.
Plan A: Government Funding
Plan A is the “Government Provides all the Funding” approach. In recent years, it was anticipated that America would be able to make a significant dent in the infrastructure investment backlog. Taking a close look at ARRA, or the Stimulus Bill as it was often called, one sees that of the $831 billion actually appropriated, less than $50 billion was targeted at transportation infrastructure.
Of that $50 billion, only $10 billion was for rail, primarily higher-speed rail (higher-speed rail (HrSR) average speeds are in the 50- to 60-mph range. Several shorter routes are coming on line with a top speed of up to 110 mph).
Contrast this with the Chinese government which spent in the vicinity of $300 billion on HSR. Estimates for America to get back in the HSR race are in the range of one-half to three-quarters of a trillion dollars for the 11 HSR corridors in the FRA plan. That translates into $25 to $30 billion a year for 20 to 25 years.
Plan A is most commonly promoted by liberals and progressives, as well as many rail advocacy and environmental organizations. But with the financial stress on general revenues in the federal budget, are such outlays feasible? These groups will blame the “other side” and with some justification. But it is not that simple.