By Kate Fox Wood, AEM Director, Infrastructure Policy

Asset RecyclingIt seems like every politician in Washington is eager to pass an infrastructure bill, including President Trump, who’s called for $1 trillion in new investment.

But to hit that topline number, the White House relies in large part on an influx of private investment through so-called public-private partnerships (P3s). The concept isn’t necessarily new; P3s, such as toll road agreements, have been a way for state and local officials to provide the revenue needed to make infrastructure upgrades and cover maintenance costs.

But now, there has been newfound interest this summer in a particular P3 model called asset recycling. The Australian government opened its doors to the practice in 2014 by financially incentivizing state governments to leverage public assets in sale and lease transactions.

In essence, state governments in Australia were incentivized to sell off or lease public infrastructure assets such as ports, wharves, electric grid segments and housing developments. The catch? Any revenue states raised through those transactions had to be reinvested in infrastructure projects.

Proponents of asset recycling now say this model, if initiated at the federal level in the U.S., could also help raise the revenue needed to modernize and repair our infrastructure system. American policymakers have alternated between intrigue and skepticism toward this approach: intrigued by the amount of revenue it could raise, but skeptical because asset recycling has only been attempted in the U.S. on a limited basis with mixed results.

Washington would be wise to keep several things in mind as they consider the asset recycling model:

  • P3 structures are complex, and private financiers are always going to be looking for the best deal possible to return the most money on their investment. We need to make sure there isn’t an expertise gap between state and local entities and their bargaining partners so that P3s don’t turn into bad deals for taxpayers.
  • Australia’s asset recycling program depended upon a widespread coordination effort between federal and state governments. If the U.S. adopted a similar program, it would need a clear set of guidelines and processes to ensure a smooth transition of federally-sponsored incentives to state and local implementation.
  • Policymakers must define qualifying infrastructure, and outline how revenue from sales and leases will be allocated. If a state leases a port, for example, would the revenue just go to funding port infrastructure projects, or could it be diverted to fund a different infrastructure priority? Would assets beyond roads, highways and bridges be available to fund under this model? In amassing this pot of money, policymakers are going to have to develop criteria and balance demands for how to spend it.

Asset recycling is one of many proposals under consideration to pay for the upgrades and maintenance U.S. infrastructure badly needs. AEM recognizes that our country’s infrastructure demands are vast and varied. As AEM’s latest report, The U.S. Infrastructure Advantage, recommends, our approach to assessing funding ideas and proposals must be as well. In the meantime, AEM will continue to advocate for a strong federal government role in funding infrastructure improvements through programs like the Highway Trust Fund, increases in federal and state gas taxes, and P3s agreements that deliver the right balance of returns for taxpayers and consumers.