May 12-16 is Infrastructure Week across the United States. Discussions among the public, private and political sector will ensue over how to collaborate among sectors that haven’t traditionally worked together; how to innovate in the face of scarce public dollars; and most of all, how to pay for the trillions of dollars of infrastructure upgrades that are needed to maintain this country’s competitive economic edge.
“How to pay for it” is an age-old question. And the good news is that healthy levels of investment may be available to cities that choose to partner with the private sector to leverage private capital.
After United Water’s first SOLUTION partnership in Bayonne, NJ was launched last year, leaders and pundits alike recognized that cities actually can, unlock the value of city assets and access the kind of money that Bayonne did through a public-private partnership. This particular model had never been tried in the U.S. before, although it has been widely used with success across the globe.
In exchange for a 40-year concession with the Bayonne Municipal Utilities Authority, United Water and KKR agreed to pay off $125 million of the utility’s debt, invest nearly $110 million to modernize the system, retrain and bolster the utility’s staff, and eventually save the utility an estimated $35 million over the lifetime of the contract, based on the city’s analysis.
KKR issued a recent report that demystifies the lingering questions on “how” to pay and addresses “who” would be a successful candidate for this option. According to the authors from KKR and the Brookings Institution, there are 5 key criteria for success:
“Strong candidates for successful PPPs also typically need stable policy environments and strong political leadership, clear and defined responsibilities for the partners, data to support financial planning and usage projections, and be large enough in scale to attract private sector interest.” (The Way Forward: A New Economic Vision for America’s Infrastructure.)
Further, the authors reinforced that water projects are a good place to start for leaders who are looking for opportunities to leverage their assets or take a leadership role in investing in their infrastructure.
“In our view, infrastructure projects most ripe for PPPs include those with a clear revenue stream from rate-payers, such as water infrastructure. In these cases, there is ample opportunity for the private sector to increase capital investment, bring in new technologies, and improve services.” (KKR, Brookings Institute)