Zurich’s Paul Horgan Says Public-Private Partnerships Could Fund Infrastructure Investments

America’s deteriorating infrastructure is in dire need of repair and upgrades, and there are big stakes at risk for businesses and economic developers.

A recent infrastructure report card, the American Society of Civil Engineers gave the U.S. a “D+” for the condition of its roads, bridges, dams and other areas. The report comes out every four years and has given the country a grade of no higher than a “D+” since 1988. While ports and rails were given higher grades, the ASCE noted some of the country’s biggest failings are in its transit, aviation and roads.

Paul Horgan, head of North America Commercial Insurance at Zurich North America, told Chief Executive there is little doubt that the deplorable state of the country’s infrastructure is costing the economy countless hours of lost productivity and efficiency. “The impact of this is wreaking havoc on many of our nation’s businesses, strangling their ability to thrive. Aging and poorly-maintained infrastructure exposes companies to a number of risks,” Horgan said.

Horgan said one of the biggest issues is that aging infrastructure can lead to supply chain disruption. He said U.S. businesses spend $27 billion in additional freight costs due to poor conditions of roads and other surface infrastructure. Businesses also can incur additional costs for insurance coverage, including property, workers’ compensation and supply chain and business interruption insurance. The ASCE estimates that by 2020, the worsening conditions will cost American businesses $1.1 trillion in lost trade.

Most of the interstate highway system in the United States is more than a half-century old, and the Department of Transportation said it’s in need of $189 billion in repairs and improvements. More than 55,000 bridges in the country are deemed “structurally deficient,” and there are an estimated 1.2 million miles of lead pipes that need replacing.

“The private sector treats the infrastructure as an investment. They bring more discipline to maintainING IT than the public sector, who view it as a cost.”

While he has yet to release any details, President Trump made a pledge during his campaign to invest $1 trillion in the country’s infrastructure. The New York Times reported that Trump will try to use $200 billion in federal spending and attract an additional $800 billion from private investors and local governments.

Horgan supports the idea of establishing a national infrastructure rebuilding program with a combination of direct federal funding and incentives to encourage private investment. He said as federal, state and local government budgets are already stretched, a growing number of entities are turning to public-private partnerships (known as P3s) as an alternative path to fund infrastructure needs. These models allow private investors to fund construction projects and recoup their investments by charging users of the facility once the construction is complete. One such example is Chicago’s sale of the rights to tolls from the Chicago Skyway Bridge. After paying the city $1.5 billion, private sector buyers reconstructed the bridge, entitling them to the stream of tolls to be collected in future years.

“The private sector treats the infrastructure as an investment so they are proactive in maintenance for the life of the project. They bring more discipline to maintain infrastructure than the public sector who view it as a cost,” Horgan said.

Horgan added that incentives for business participation in these partnerships is improvement in the general economy, along with financially safe and reliable returns and the potential for tax advantages. While P3s represent only 2% of total funding, up to 20% of the necessary infrastructure upgrades could be funded through this model. Horgan said such infrastructure investments can be a real “game changer” for the economy and businesses. “We need to make sure the infrastructure we put in place is built to face the challenges of the next century, not the last century,” Horgan said.

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Craig Guillot

Craig Guillot is a business writer based in New Orleans, La. His work has appeared in Wall Street Journal, Entrepreneur, CNNMoney.com and CNBC.com. You can read more about his work at www.craigdguillot.com.