The American Society of Civil Engineers (ASCE) issued grades for its National Report Card for America’s Infrastructure in 2009. This program graded each of the 50 states and the nation as a whole based on 15 infrastructure categories. The results nationwide weren’t great. Focusing on the southeastern states, of the 15 categories, the top concerns were roads, bridges, wastewater and drinking water.
Each state would need billions of dollars of infrastructure repairs, upgrades and new build projects, often in the drinking or wastewater category alone, found the reports.
The Mississippi chapter published its 2012 grades and gave wastewater a C grade. The report says Mississippi requires “an estimated USD 2.1bn (adjusted for in_ ation) in total funding over the next 20 years in order to provide adequate collection and treatment of the public’s wastewater.” It predicts a USD 600M funding gap for wastewater infrastructure in this 20-year time period.
Municipalities are not able to cover the shortfall. “Low and moderate income population areas cannot provide the total revenue necessary to support modern wastewater treatment and collection systems.”
The state is in a situation where funding doesn’t materialise, economic growth is slow and the tax base is low. And it isn’t alone. The southeastern states rank among the poorest in the country, according to the U.S. Census. In 2011, Mississippi, West Virginia, Arkansas, Kentucky, Alabama, Tennessee and Louisiana had the lowest median household income, in that order.
Even Miami, in the third year of construction on the Miami Access Tunnel (MAT), is still discussing how to pay for the project. In October, the Miami City Commission voted to issue USD 45M in bonds to pay off a two-year bank loan it took out to finance the project. Payment for the loan is due in full in January. Local newspaper the Miami Herald was sure to point out the commission had pondered its repayment for the last two years.
Besides the MAT, several underground projects are in various stages in the southeastern states including the Midtown Tunnel in Virginia and sewer work in South Carolina. But compared to its northern neighbours, the market isn’t nearly as strong for tunnelling. This is not due to a lack of necessity, but one of funding.
Other than tunnelling, there is something the MAT, Midtown tunnel and the East End highway tunnel in Kentucky have in common: Publicprivate partnership (P3). If the southern states with crumbling roads and wastewater systems are to find a way to pay for projects, there could be a growing trend for P3 projects.
“When you have a project, whether it’s public or private, you have to find a way to pay for it,” says Brien Desilets, economist and managing director of Claret Consulting, which specialises on project finance and advises on P3s. “The private sector has financing to offer and private sector financing does offer certain benefits over public financing, and also has disadvantages so it is really a mix and just depends on the needs of the project.”
Tunnels are an easier sell. He points out, with Boston’s Big Dig still fresh in people’s minds, using a P3 to deliver a tunnel project is easier choice compared to other types of infrastructure. It’s easy to see the logic in transferring the risk. “Government officials don’t need detailed, engineered financial models, spitting out the value for money figure for them to make the calculation that ‘hey, this makes sense. These guys are going to take responsibility for building and maintaining this tunnel and we can wash our hands of it.’
“There has only been a handful of major P3 projects in the U.S. in the past few years and two of them are a large percentage of total limited number of P3 projects, the Miami tunnel and Midtown tunnel. That’s a very real construction risk and we’ve seen the manifestation of that construction risk, and nobody wants that on their hands.”
The Midtown Tunnel is being delivered by the Virginia Department of Transportation in conjunction with Elizabeth River Crossings (ERC). The two-lane immersed tube tunnel under the Elizabeth River will connect Portsmouth and Norfolk as part of a larger, USD 2.1bn, program of updates for existing tunnels and infrastructure.
The consortium includes Skanska Infrastructure Development, Macquarie Group, Skanska USA Civil Southeast, Kiewit Construction Company and Weeks Marine.
Virginia passed the Public-Private Transportation Act (PPTA) in 1995, allowing local governments and other political entities to enter into agreements authorising private entities to acquire, construct, improve, maintain and/or operate qualifying transportation facilities.
The state opened its official Office of Transportation Public- Private Partnerships (OTP3) in 2011. The focus of the newly formed OTP3 is to identify, select and prioritise candidate P3 projects across all modes of transportation infrastructure in the State of Virginia.
“While we consider these potential P3 projects, we must be cognisant that there are not sufficient state or federal revenues at the Commonwealth of Virginia’s disposal to construct these projects,” explains the OTP3 in its May presentation of upcoming projects. “There is a misconception that developing a transportation project under the PPTA allows access to a new source of revenue. Strictly speaking it does not.
“However, what the PPTA does do is allow the Commonwealth to make limited state funds go further by bringing private investment into the mix.”
As an example, funding for the Midtown Tunnel comprises approximately USD 308M in state funds, a USD 422M federal loan obtained by the private sector and USD 1.3bn in private equity, debt and user fees.
OTP3 states, attracting private investment will be key to advancing projects, but user fees and tolls are likely to be needed as well. “Several projects will cost in excess of a billion dollars – that’s a price tag that will require state, federal and local funds as well as user fees to make these large new projects possible.”
Desilet says he expects other states to follow Virginia’s pro-P3 lead. Whether the money is available in places like Mississippi, Alabama and West Virginia is still a question to be answered. As he says, “it’s basic physics. You can’t make something out of nothing”
