When you’ve kicked the can on asset maintenance and replacement for many years in order to keep rates low, how do you dig your way out of the hole before the system really starts to implode? (yes, I know — mixed metaphor — but the images just go together so well…)

What you can’t do (as matter of political feasibility, economic efficiency and basic fairness) is just spring higher rates on everybody. But if you do it slowly, won’t that lead into can-kicking temptation all over again — while things get increasingly worse?

I think the answer has to be in a combination of (1) getting the real-world work done as quickly and efficiently as possible, (2) telling people they’ll be eventually paying for it, so get ready, and (3) and enforcing the commitment with the necessity to repay very-slowly (but relentlessly) amortizing debt.

Here’s a short summary of an analysis I did recently on the potential impact of a federal infrastructure loan program on federal revenues due to the displacement of other forms of financing. Very preliminary — more like a “thought experiment with some numbers” at this point — but the results show that the impact might be worth further research if loan programs become (as I think they will) a larger part of the infrastructure solution.

Here’s a ‘cut to the chase’ version of the evolving functional approach to P3s discussed in the previous post.

One of the most important things that the New Alternative Framework clarifies is highlighted in Concept 4: Ownership and equity Alternatives are not really necessary for most basic infrastructure deferred maintenance and delayed investment projects. The focus should be on construction, O&M and debt financing Alternatives.

A project I’m doing for the Water Infrastructure Resiliency and Finance Center (WIRFC) at the US EPA involves developing a learning module for ‘P3s’. Not incredibly exciting in itself, but I’m thinking of it as an opportunity to start demystifying the topic using Value for Funding principles — by definition, an effective learning tool cannot be mysterious.
Here’s where I’ve got to so far:

Half the mystery in P3 land is the lack of clear definitions in the terms used – not the least of which is the (over-exposed) handle ‘P3’ itself.

More fundamentally, all P3 concepts can be unpacked and anchored in some clear function associated with the infrastructure project. The functional parts of an infrastructure project aren’t mysterious, especially to the public sector folks who deal with this stuff all the time. I think there’s four big categories:

1. You have to build it.
2. Then you have to operate and maintain it.
3. Almost all larger projects will need debt financing to spread out the capital cost.
4. And someone has to own it. For public infrastructure, this functional category is rarely considered since the owner is almost always the ‘public sector’. But that changes when a P3 is being considered – and it’s where most of the cognitive dissonance arises.

Each of the four functional categories have a ‘Traditional’ and an ‘Alternative’ approach. The Alternative approaches might be new to the US public sector, but mainly they’re pretty well established in the private sector or elsewhere – so again, no mystery.

Finally, this framework supports a clear and easy way to define the elusive ‘P3’ – regardless of whether a ‘partnership’ is actually involved, a ‘P3’ really mean some combination of two or more Alternative approaches.

All this – and more – summarized in the presentation above.