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 The airport's leaky ceilings, threadbare atmosphere and meager food
and public transit options put it at or near the top of lists of the
worst airports in the United States.
But with constraints on its resources and no appetite for further
debt, the agency decided to tap private investors and developers to
rebuild the 50-year-old central terminal for $3.6 billion, instead
of using traditional public finance methods.
It's not alone. Short on funding but big on need, U.S. states and
cities are increasingly turning to such deals, known as
public-private partnerships, or P3s, hoping to leverage assets that
can bring a quick infusion of private dollars to rebuild crumbling
infrastructure.
The last 12 to 15 months have seen more deals and more opportunities
to invest in the sector, said Jim Barry, head of BlackRock's
infrastructure investment group. U.S. insurance companies and public
pensions are all eager to invest.
"After let's call it a decade of promise, I think we are actually
beginning to see that movement," he said. "Over the next five years,
you could have a lot of deal flow."
The pacts have been common for decades in the U.K., Australia and
Canada but have been slow to catch on in the United States. Now,
analysts say, a shift is under way.
The 2007-2009 recession was a motivating force. States and cities
had no choice but to reduce spending on maintenance and
construction, and the federal economic stimulus program enacted in
President Barack Obama's first term offered only a temporary boost.
At the same time, the other main source of transportation funding — grants from the federal government — also dwindled.
The federal highway trust fund, which uses gas taxes to pay for
highways and mass transit projects, is nearly broke.
Now, there are more projects in development and more investor
interest than ever in the U.S. P3 market, analysts say. Public
agencies are also looking more closely at the pacts because they're
able to add less debt to their books while shifting construction
risk to the private sector.
"You're actually seeing ... a real pipeline of projects" building up
since 2012 and continuing through at least this year and possibly
next, said John Medina, a global project analyst at Moody's
Investors Service.
The projects include everything from a light rail system in suburban
Washington, D.C., to the replacement of hundreds of bridges in
Pennsylvania.
In the past, the United States has had an average of one or two
public-private partnership deals valued at more than $500 million in
the works annually, according to Bank of America Merrill Lynch's
municipal banking group. This year, the bank said, there are 8 to 10
such projects.
Thirty-three states allow varying levels of public-private
partnerships for transportation projects, according to the National
Conference of State Legislatures, up from 23 in 2006. Kentucky
lawmakers passed such legislation in late March, but the governor
vetoed it on Friday.
Investors clearly have an appetite for infrastructure. Unlisted
infrastructure funds raised $17.1 billion of capital for projects in
North America — targeting private and P3 infrastructure projects in
the United States — in the last quarter of 2013, according to Preqin,
which provides data on alternative assets. That's the highest
quarterly total on record, Preqin's data showed.
The needs are huge. The nation should spend $3.6 trillion on
infrastructure by 2020 to recover from decades of neglect, the
American Society of Civil Engineers said last year.
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Wall Street and public officials have also expanded their definition
of what a public-private partnership is — and thus expanded the
number of deals that some people consider P3s — no longer applying
it only to big, new transportation infrastructure. Student housing,
courthouses, jails, parking garages and community centers are all
trying out versions of such pacts.
DALEY'S DEBACLE
A previous generation of U.S. public deals with the private sector
was plagued with glitches, in some cases short-changing taxpayers.
The case of Chicago's 36,000 parking meters stands out, not as a
perfect comparison to the current generation of deals but as the
most-often-told cautionary tale.
Facing a budget crisis in late 2008, then-Mayor Richard M. Daley
leased the city's meters for 75 years to a private company for about
$1.2 billion.
Parking rates and citizen complaints soared. Months later the city's
inspector general found that the city undersold the lease by,
conservatively, about $1 billion.
"Chicago is the worst-case scenario, and every mayor in the country
knows about it," said Donald Cohen, executive director of the
nonprofit In the Public Interest, which focuses on privatization and
contract. "The city got hosed."
Kent Rowey — an attorney at Allen & Overy in New York who
represented Chicago Parking Meters LLC, majority-owned by Morgan
Stanley Infrastructure Partners, in its acquisition of the Chicago
concession — defended the deal, saying it was "actually a very good
deal for the city of Chicago." Service delivery, billing,
collections and facilities have "improved drastically," he said.
Although public officials have become more savvy about
public-private pacts, the deals are still "incredibly challenging"
and controversial, said Toby Rittner, president of the Council of
Development Finance Agencies. "It has to be done with a significant
amount of due diligence."
Private operators have also been on the losing end. American Roads,
which owns and operates toll roads in the U.S. and Canada, filed for
bankruptcy in July 2013, in part because traffic volumes fell during
the recession despite projections in 2006 that they would rise.
"Who can project 75 years of anything? It is not possible, not by
anybody," said Cohen. "We're not against <the deals>. It's a
question of how you do them."
Still, interest is growing as more projects close successfully,
experts said.
In November, for example, New York and New Jersey's Port Authority
closed on a $1.5 billion deal to replace the 85-year-old Goethals
Bridge, which links Staten Island to New Jersey.
The deal was financed with about $460 million of tax-exempt
municipal bonds, issued by a New Jersey public authority on behalf
of the developer, which is responsible for repaying investors. The
project also got a nearly $480 million federal loan and about $100
million of equity contributions from the developer.
"That's the one that got a lot of people over the hump of being
nervous about it," said the CDFA's Rittner.
(Editing by Dan Burns and Douglas Royalty)
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