Paying for Infrastructure : Private Matters April 27, 2017 The Economist

Public Private Partnerships (PPP) dominate the options to finance infrastructure, when government funding appears stalled. This article begins by describing a highway project in Indiana funded by IFM, an Australian infrastructure developer. The 250 mile road connects Chicago to Ohio and destinations to the east. Vice President Pence introduced the project when he served as governor of Indiana (p. 67).

Although worldwide, governments spend $2.5trn on infrastructure, McKinsey Global Institute estimates a need for $3.3trn. In addition to falling short on annual spending, governments abandon infrastructure spending during tight fiscal periods (p. 67).

PPPs offer advantages during tight times: "of infrastructure; of fiscal space; of long-lived and safe securities; and of aggregate demand and jobs." Despite these potential benefits, PPPs gets mixed reviews that the article grouped into three categories, "behavoural barriers that turn off consumers; political interests that often turn projects sour; and the difficulty of finding financial and incentive structures that align the interests of all parties." As for behavioural factors, different countries respond differently to different types of projects, Britain accepts privatized water companies but Australians resist. According to the author, the public accepts what they find familiar and politicians follow the whims of the public. Additionally, since major infrastructure projects span multiple years, a change of administration might support or thwart an effort, explaining the political challenges. The last hurtle entails agreeing on funding suitable to all parties. The public needs convincing that PPP fills a gap that public financing does not. The article cites a flawed reason for resorting to PPP. "To follow fiscal rules that cap public borrowing or debt. . . the right way is to allocate risk where it can best be managed. Governments can borrow cheaply, the cost of private capital is higher" (p. 68).
Generating consistent revenue makes for a more successful PPP project, revenue from "fees, road tolls, airports charges or utility bills." (p. 68). The authors concluded by mentioning the many infrastructure projects waiting for funding; what complicates these efforts in the U. S. are the "plethora of regulations in different departments, both federal and local" (p. 68).