Conference Presentation, Panel
Global Models for Financing America's Infrastructure
Milken InstituteDale, Stephen Goldsmith, Sam Barron, William Reed, Sarah Clark, Sean Glodek, Mike, Lawrence Gottlieb
- The U.S. Public-Private Partnership (PPP) market is projected to experience significant expansion over the next two to three years as projects advance from environmental clearance to market entry, evolving from an infancy stage toward a mature, fully functioning ecosystem.
- Institutional capital allocation to infrastructure is currently approximately 1.7% but is intended to rise to 5%, driven by a global need for over $3 trillion to upgrade infrastructure to code and a predicted shift of funds from operating to capital expenditures.
- A backlog of 41 toll road projects is currently under consideration in the U.S., alongside rising capital demands in emerging markets like Russia where costs may be two to three times higher than in developed regions.
- Financing models are expected to diversify as availability payments become standard, hybrid models combining operational excellence with creative financing unlock deals, and potential regulatory changes could allow REITs, MLPs, or tax-exempt foreign pension funds to access significant new capital.
- Legislative progress includes an expanding map of U.S. states with private investment authorization, coalition efforts to create private activity bonds for social infrastructure during tax reform, and anticipated federal creation of financing tools for water, energy, and social infrastructure.
- Global economic shifts in BRICS countries, projected to grow from 60% to 80% of global GDP over the next 15 to 20 years, are predicted to necessitate a fundamental multiplication of infrastructure spending.
- Market sophistication is increasing as U.S. states and cities establish specialized teams to manage PPPs, though U.S. pension funds require time to develop capacity for direct investment compared to international funds.
- Future success may depend on refining refinancing mechanisms, sharing upside contingencies, and potential federal infrastructure banks structured to reward credit behavior, with the U.S. aiming to eventually match Canadian levels of market maturity.
- Risks and challenges include the current need to educate the market, a divergence between greenfield development and revitalization of distressed assets requiring different tools, and political or structural uncertainties regarding the feasibility of a national infrastructure bank.