A new approach to finance roadwork

Kenneth Adams is chief executive of the Business Council of New York State, a private advocacy group. Frank M. Rapoport is co-founder of the Continued Progress For America Foundation, a nonprofit providing education to government officials about alternative financing methods. He is also a partner in the national law firm of McKenna Long & Aldridge LLP.

Imagine a bridge getting replaced and taxpayers paying nothing until it's operating - and then paying only a fraction of its life-cycle costs. That's the way much of the world - including Canada, Mexico and Europe - build their infrastructure, and it has finally come to America.

The model is known as a public-private partnership. Infrastructure is built by private companies willing to risk their own money in return for the right to earn user fees.

Such partnerships are already under way in Florida, Texas, California and a host of other states, all with upfront money provided by contractors and their financial backers, which often include union pension funds.

Using a public-private partnership has many advantages over traditional methods. There's no litigation over deficient government design documents or complaining about delays by government inspectors in approving work and related progress payments. The contractor doesn't get paid until it has completed the project. And, since the contractor is often on the hook for 40 to 60 years of operation and maintenance, it has a powerful incentive to build a superior structure designed to last.

Given New York's fiscal crisis, public-private partnerships may well be the only way to fund critical infrastructure projects. Using this model, the cash returns to the contractor, and its financial partners can be pretty stable and rewarding over the life of a project. Indeed, Canadian union pension funds investing in public-private projects are seeing percentage returns in the midteens.

Also, most of organized labor likes this model, as it means jobs, jobs and more jobs.

A well-respected financial report by Sphere, a Washington-based public relations firm, has coordinated the data from all the pension funds and private equity available for these deals. Called the Benefits of Private Investment in Infrastructure, the study estimates there's between $180 billion and $250 billion of private equity and pension fund money to leverage public-private partnership opportunities. Putting this money to work in New York would help rebuild the state's crumbling infrastructure. And the need is serious: In his recent testimony before the State Assembly, then-acting Department of Transportation commissioner Stanley Gee said "a significant number" of the state's 17,400 bridges are nearing the end of their useful life.

Twenty-eight states have legislation authorizing these partnerships for roads, bridges and other public projects. New York should adopt the best features of these laws. New York's legislation should include safeguards to protect against corruption and assure that taxpayers and users get a fair deal. And potential partnerships should be identified and carefully vetted by a permanent state advisory board.

The New York Commission on State Asset Maximization (SAM) recommended that New York consider this financing mechanism for the construction or rehabilitation of roads and bridges, and that a SAM Board be set up to oversee the process. Projects identified by the commission included the Robert Moses Causeway Bridge, New York City's Kosciuszko Bridge and Buffalo's Harbor Bridge. The Tappan Zee Bridge was also identified, but concerns were raised that because it is such a large project - priced at $16 billion - it might not be the best starting point for partnership financing in the state.

Regardless of which project goes first, it's time for New York to support this model of financing and construction for our state's infrastructure projects. We need many new roads and bridges across our state, we need the new jobs and, given New York's fiscal crisis and the weak economy, we need the new investment such partnerships will bring.