The American Society of Civil Engineers’ (ASCE) 2017 report card is out and America’s infrastructure is rapidly declining to the bottom of the class. With the majority of the 16 categories scoring a D grade, the time for action, investment and rebuilding has never been more pressing to ensure America’s continued global competitiveness.
ASCE is currently exploring ways in which it can assist to kick-start rebuilding by looking at alternative means of financing. The Alternative Finance for Waterways Infrastructure Subcommittee, formerly chaired by Dennis Lambert, Chief Market Manager at COWI North America, is exploring ways in which private financing could fill the gap left by insufficient public funding. This would be through public-private-partnerships (P3) or public-public-private-partnerships (P4).
CURRENT FUNDING CRISIS
The current situation of insufficient public funding is having a detrimental effect on major infrastructure upgrade projects across the nation. The inability to raise enough public money often results in smaller maintenance or fix-it projects being undertaken when larger works are needed. Often it would be more economical to undertake larger works but funding is prohibitive. When larger upgrades are unavoidable, projects often face cost overruns and delays due to piecemeal funding. This, again, is not very economical or cost-effective.
The U.S. Army Corps of Engineers (USACE) owns, manages and operates $268B in water and waterway infrastructure assets. They currently have an operation and maintenance backlog of approximately $140B and a $60B backlog for new projects. With a current annual budget of $5B, it would take up to 50 years to bring down these respective backlogs. With this in mind, the USACE has been exploring alternative financing since 2012 and Congress authorized a P3 pilot program under Section 5014 of the Water Resources Reform and Development Act of 2014 to cover many of the business lines USACE manages (i.e., flood protection, coastal harbors and inland navigation).
HOW P3S COULD HELP
P3 projects secure the financial backing required to complete the project prior to starting it, with financing secured by a private partner. In effect, this would break the cycle of funding deficiencies the nation is experiencing.
The private partner in the P3 arrangement receives compensation for their commitment to the project by way of either revenue generated from the capital improvement or indirectly through budget or other payments.
The public benefit from P3 projects by way of access to private financing, accelerated project delivery and better risk mitigation. Ownership of the project also remains with the public. This means the great public works projects of the past will remain in the public domain but will receive the funding they need to continue to be viable. P3 projects often ensure that the life-cycle costs of projects are taken into account, something that has plagued the USACE portfolio for many years. Other benefits include a single point of accountability and often innovation in the construction and operations and maintenance phases of the asset.
It is estimated that U.S. infrastructure needs an injection of $3.6T by 2020 to undertake much needed upgrades. This amount of money is simply not available from the historical sources of public authorities and government.
Unlike Canada and Europe, where P3s have been used for many years to fund new projects or costly repairs or maintenance works, many American states face legislative hurdles at both the federal and state level which currently prohibit them from participating in P3 projects.
ASCE has offered several recommendations to potentially overcome the P3 constraints in relation to waterway infrastructure, such as:
- user-pay P3 for federal projects;
- creating a dedicated P3 pilot revolving fund for water resource projects; and
- enabling budget-based P3 for federal projects, in terms of budget scoring.
ASCE are also tracking several large P3 Demonstration Projects, namely the Illinois Inland Waterway and the Fargo Moorhead Diversion.
ILLINOIS INLAND WATERWAY (IWW)
Constructed in the 1930’s, the eight locks and dams which make up the IWW are experiencing significant deterioration as they continue to operate well past their design life. This is having a detrimental effect on the reliability of the navigation system, which transported approximately 26M tons or $10B in goods in 2014. Currently, there is $600M in deferred and unfunded maintenance needs for the IWW and, naturally, a complete failure or significant breakdown of the IWW would have great financial repercussions.
ASCE is working with partners, stakeholders and decision–makers, to help develop and implement the IWW P3 Demonstration Project. A workshop was held in St. Paul, Minnesota, 20 September 2016. The workshop included many local stakeholders, contractors, engineers, concessionaires and NGOs, representing the Upper Mississippi River and Illinois River systems, to discuss the pros and cons of P3 as a project delivery tool for the IWW.
FARGO MOORHEAD DIVERSION, NORTH DAKOTA
Fargo Moorhead, an area home to 225,000 people with a property value of $14B, has experienced major flooding in 51 of the past 113 years – with flooding every year from 1993 to 2014 (except 2012). The region produces more than 1,000,000 barrels of oil a day, of which roughly half travels through Fargo Moorhead on the Department of Defense’s Strategic Rail Corridor Network.
To combat flooding, a P3 diversion channel project is proposed with a split-delivery model which would greatly accelerate the delivery time for the project. At the St. Paul workshop last September, the Chairman of the Fargo Moorhead Diversion Authority, Darryl Vanyo, along with the Program Manager, Martin Nicholson of CH2M, and Aaron Snyder of the USACE St. Paul District, participated in a panel discussion on the framework of the current P3 tender phase of the Fargo Moorhead Diversion project. They provided insight as to how the structure could support other flood protection projects.
COWI North America has been involved in many P3 projects in recent years in Canada, Europe and South Korea. With trusted expertise, background knowledge and success, COWI North America – and our parent company COWI, headquartered in Denmark with offices around the world – is at the forefront of the P3 design/build process.
Successful projects include:
COWI North America:
- Confederation Bridge, PEI to New Brunswick
- Incheon Bridge, South Korea
- Rion Antiorion Bridge, Greece
- Jemseg and Saint John River Bridges, Fredricton-Moncton Highway, New Brunswick
- Sierra-Yoyo-Desan Road Bridges, British Columbia
- North Arm Bridge, Canada Line Rapid Transit Line, Vancouver, British Columbia
- Golden Ears Bridge, Maple Ridge to Langley, British Columbia
- Ohio River Bridges, East End Bridge, Louisville, Kentucky
- Izmit Bay Suspension Bridge, Turkey
- Great Belt Fixed Link, Denmark
- Oresund Fixed Link, Denmark to Sweden
With a need to re-invest in infrastructure across North America, P3 financing could be the solution to keep America competitive and safe. COWI is here to help.