Public Private Partnerships and the Future of American Infrastructure

Friday, May 20, 2016 10:00 am EDT

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By:

Doug Maher, Chief Risk Officer for Industry and Healthcare Finance, Siemens Financial Services

If you live in urban areas – which, according to the U.S. Census Bureau, over 80% of Americans do – you know the feelings associated with traffic.  Busy roadways and overcrowded public transit lines are just some of the many consequences of the increased need for infrastructure investment in the U.S.  To grow sustainably, cities must continue to make major investments in infrastructure – across healthcare, transportation, utilities, buildings, energy and even within our industrial base.

In 2013, the American Society of Civil Engineers estimated that U.S. infrastructure needs will total $3.6 trillion in investment by 2020. Traditional financing structures – such as public funding – alone are not enough to generate the capital needed to fund such investments.  Access to private capital investment and financing techniques has become a critical component for governments and municipalities. Leveraging public-private partnerships (PPPs) is one way Siemens Financial Services (SFS) and other investors aim to help U.S. cities achieve their infrastructure improvement goals.

Recently, Urban Land Institute and Ernst & Young surveyed 440 top public officials and real estate leaders from around the world for their latest annual report,Infrastructure 2014: Shaping the Competitive City. In the survey, 75% of respondents said that PPPs will play a significant role in funding new infrastructure investments over the next 10 years.  In fact, PPPs were considered the most important funding source for new infrastructure, and Moody’s recently predicted that the U.S. has the potential of becoming the largest market for PPPs in the world. 

PPPs are attractive for infrastructure investment for both public and private institutions. Financiers are able to provide the required capital at a transparent rate of return over a long period of time, but share the project risk with the government by providing a portion of their investment as equity.  Several forms of risk transfer to the private sector, including cost overruns, construction delays, and, in certain cases, usage. However, infrastructure projects are highly complex and require an expert with financial and technical expertise who can help manage risk as a trusted partner. The technical proficiency of the investor helps ensure that projects are completed on time and on budget, and produce the public service outcomes that were envisioned.

SFS invests in infrastructure projects through PPPs, with growing potential in the U.S. At SFS, we seek to support projects where Siemens provides technology solutions to public sector clients and project developers.  By coupling Siemens’ industrial expertise with financial know how, we are able to help cities meet their goals of obtaining intelligent infrastructure solutions and enable a smarter, more sustainable transportation network.

One example of a successful PPP project, which can be replicated using a similar model in the U.S., is the Thameslink rail line in the United Kingdom. Carrying 50 million passengers into London every year, the Thameslink project demonstrates how large-scale infrastructure partnerships can be completed in volatile market environments by combining leading technology with innovative financial solutions.

For many cities, implementing intelligent technology and infrastructure upgrades become a question of affordability.However, the benefits of sharing project risks and the need for private capital to fill funding gaps should continue to drive public interest in PPPs in the U.S. – and help fuel the future of American infrastructure.