June 5, 2013 -- As Congress and the Obama administration try to address the budget deficit, the need to invest in our basic infrastructure becomes more evident every day.
Many of our roads, bridges, schools, airports and ports are in bad shape and need to be repaired or rebuilt in order to compete in the global economy. The recent bridge failure in Washington State is only the latest in a series of dramatic warning signs. The American Society of Civil Engineers gave a "D" grade to our transit infrastructure and estimates that we must invest $2 trillion over the next five years to bring our infrastructure to an acceptable level. That is $1.4 trillion more than we spent in the last five years.
In spite of these needs, federal, state and local governments will continue to face severe fiscal constraints. The federal deficit this year will total more than $1 trillion. As limited budgets become a fact of life that is here to stay, Congress must scramble to find ways to finance our basic infrastructural needs.
For example, the Transportation Bill expires next year. Instead of increasing our gas tax, Congress ought to look for creative ways to provide the necessary funding to achieve state-of-the-art roads and highways. Given our fiscal realities, it should be clear to the Obama administration, Congress, and state officials that infrastructure projects can no longer be funded by raising taxes or traditional bond offerings. We must tap into available private capital, as other nations regularly do.
Puerto Rico faced this infrastructure crisis during my tenure as governor. The solution we implemented, with considerable success, involved investing in infrastructure by means of public-private partnerships -- "P3" projects.
In a P3 project, the government contracts with a private company to renovate, construct, maintain, and/or manage an infrastructure resource. These partnerships inject private capital into a public project. The project's users normally pay an assessment or toll. Both the public and private parties share the risks and profit, thus providing the necessary public infrastructure without imposing an additional tax on citizens that do not benefit directly from the infrastructure improvement.
In our case, as is the case of many other states and major cities, we needed to upgrade our main airport, schools and expressways. The renovations were long overdue, but the state's public finances precluded full government funding. Thus, we focused on working with the private sector.
The resulting P3 consortia funded the necessary repairs and allowed us to build world-class facilities.
In the case of the expressways, it provided improved roads, lighting and safety, as well as new police vehicles and road assistance. In the case of the airport, it is funding major renovations that were long overdue, as well as expanding service.
In both cases, the partnerships also generated funds that allowed the state to pay down its debt to bondholders.
P3 projects have been regularly used for years in Australia, Canada, the United Kingdom, and the EU. The concept has also gained acceptance in Latin America.
While they do not enjoy as high a profile in the United States, several jurisdictions have undertaken successful P3 endeavors. The remodeled Washington Dulles Airport is a good example. Since 1927, Detroit relied on P3s to build and operate the Ambassador Bridge and the Windsor Tunnel to Canada.
Other P3 projects include the California South Bay Expressway, the Chicago Skyway, the Virginia Pocahontas Parkway, and the Indiana Toll Road.
Not all P3 arrangements work out; success for both sides requires the right structure and checks and balances. To promote P3s, the proper legal framework must be established to reassure private investors of the government's commitment to the project. Our experience taught us that:
Successful P3 projects may include ports, airports, roads, bridges, schools, penitentiaries, and other basic infrastructure facilities.
A dedicated government entity must be created to protect the public interest and monitor progress towards the project's benchmarks. It must also offer the private investor the opportunity to engage with the government at a single point of contact to minimize bureaucratic rigmarole.
The P3 entity must be staffed correctly. Its officials and consultants must have the necessary expertise and entrepreneurial disposition to manage complex investment and infrastructure projects.
Transparency is essential in any P3 project. In Puerto Rico, we published the relevant documents on the Internet throughout each phase of every project.
The entity must be insulated from the vagaries of shifting political winds to remain focused on its objectives. The entity's ability to avoid being swayed by extraneous considerations turns on its officials being confident that they have the support of the elected officials.
Thus, once it approves a P3 project, the legislature must check its own ability to interfere. Private investors often walk away if the legislature can subsequently change the terms unilaterally due to public pressure or political reasons.
For example, in 2008 a consortium abandoned a proposed P3 engagement to manage the Pennsylvania turnpike when the state legislature insisted on imposing conditions that made the enterprise economically untenable.
Lack of interference is not lack of accountability. The legislature can, and indeed must, play a key role in supervising the dedicated P3 agency. To ensure the necessary oversight and protect the public interest, the P3 agency we established in Puerto Rico reports to a five-member board. Three members of the Cabinet serve ex officio, while each legislative chamber nominates a representative from the private sector. This arrangement provides the necessary political oversight, while insulating daily operations from political maneuvering.
We need to apply these lessons nationally, without delay. Congress and the Obama administration must facilitate, or even entice, states and cities to attract private capital to upgrade our infrastructure.
China is set to invest $1 trillion in its infrastructure over the next five years. India is expected to spend a similar amount, doubling its infrastructure investment of the previous five years. What are we waiting for?
It is time for Washington to promote the investment of private capital to promote our security and enjoy world-class infrastructure again. We can wait no more to take a definite step to improve our quality of life and make the nation safer and more competitive.
Luis Fortuño, currently a partner at Steptoe & Johnson LLP in Washington, DC, served as the 10th governor of Puerto Rico from 2009 to 2013.