Can Innovation Be a Catalyst for Funding Infrastructure?

Posted by Larry Ehl on Friday, April 26th, 2013

Transportation Issues Daily

Can innovation really be a catalyst for new ways of funding infrastructure needs? Or is it a pipe dream?

Some state and local leaders have been testing the waters to find out. Their transportation, water, and utility networks are deteriorating, and agency leaders can’t afford to wait and see if Congress, their legislature and/or the public will support tax and fee increases. So those leaders are getting creative.

Brookings Institute’s Robert Puentes notes:

“Increasingly, public infrastructure investment occurs through state revolving loan funds and so-called “infrastructure banks.” These institutions fund and finance a broad array of projects, ranging from local road maintenance and highway construction (e.g., Florida’s State Infrastructure Bank) to essential water infrastructure (e.g., New York’s state revolving funds) to energy efficiency (e.g., Connecticut’s green bank.) While they are not for-profit institutions in the traditional banking context, they rely on principal repayments, bonds, interest and fees to, ideally, re-capitalize and replenish the fund as a perpetual source of debt financing. The model has also gained traction at the sub-state level in Chicago and in the District of Columbia.

At the same time, state officials are also working to design innovative governance and institutional tools capable of overcoming the bureaucratic and technical barriers that can slow or even derail projects. These efforts are clearing the way for new infusions of private capital and streamlined project delivery. States like Virginia, Michigan, Colorado, and Georgia have new offices designed to tackle bottlenecks in public/private partnerships, develop innovative project ideas, and protect the public interest.” (“State and Local Leaders Double Down on Infrastructure,” Brookings)

Recently some of those leaders gathered in Washington DC to discuss some of their innovative practices and ideas. The meeting was sponsored by the Brookings Institute’s Metropolitan Policy Program and the Carnegie Endowment for International Peace, as part of Infrastructure Week.

Speakers included:

  • Howard Neukrug, Commissioner of the City of Philadelphia’s Water Department
  • Josh Sawislak, Senior Infrastructure Advisor for the Hurricane Sandy Rebuilding Task Force.
  • Kate Burson, Special Assistant on Energy Efficiency to the Governor of New York
  • Dan Carol, Director of Multi-State Initiatives at the Oregon Governor’s Office

Transportation stakeholders will be most interested in comments by Carol and Burson.

Carol’s job is to help advance regional initiatives on the west coast and nationally, working with other states’ Governors and partners to accelerate job creation and a clean economy, health care transformation, and building and maintaining public infrastructure through innovative partnerships and policies.

Carol understands the value proposition of using regional policy alignments in order to close gaps such as lack of funding, technical assistance to communities, communication and leadership, and what he called a “trust gap”. The West Coast Infrastructure Exchange, a project between California, Oregon Washington, and British Columbia, aims to address these issues by looking at new ways of attracting private sector capitol, expertise from around the region, and changing the traditional infrastructure construction model (design, build, operate, maintain). The bottom line for this project, said Mr. Carol, was that regardless of national and federal efforts, there needs to be a local, State, and Regional network of exchanges where investors can look to as a center of expertise, with information concentrated in one location. We’ll have a more detailed story about the Exchange later.

Burson discussed New York’s infrastructure and energy bank. It was created from an understanding that there was a real need for funding and too many barriers impeding the flow of private capital. These barriers were identified as bank regulations which prevented project lending to take place, the clean energy sector having limited access to markets, and the fact that customers were not used to paying through capital expenses, but rather operating expenses. The goal of this project, she stated, is to get finished through the government that what private sector could not and will not be able to accomplish on its own.

The program began with Neukrug discussing Philadelphia’s challenge in treating storm water. He noted the City’s water infrastructure is old and deteriorating, just like transportation infrastructure, and that replacement and repairs are similarly costly. Nearly 100% of the Water Department’s revenue is rate-based, and it’s difficult to increase rates in this economic climate.

So Philadelphia is encouraging communities and businesses to develop rain gardens and green roofs in order to treat storm water before it hits the sewer system. This saves rate-payers money, and can reduce the impact on the existing infrastructure.

Joe Sawislak spoke about the necessity for planning for the future and building in preparation for the unknown, whether it be man-made or natural disasters which all affect infrastructure. Money should be spent in creating redundancies and synergies. The goal for the future, he stated, is to create systems that anticipate many of these setbacks and can be inter-dependent.

All in all, attendees learned more about examples of how policy innovation potentially can help governments respond to infrastructure needs.

Larry Ehl is the founder and publisher of Transportation Issues Daily. In the public sector, Larry was Federal Relations Manager for Washington State DOT; Chief of Staff to US Senator Slade Gorton; and was twice elected to the Edmonds School Board.

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