New York (STONY1) Governor Andrew Cuomo is seeking legislation that would allow private-equity firms to help finance construction of public-works projects, including a new $5.2 billion Tappan Zee Bridge.
The bill would authorize the state to lease bridges, roads and state buildings to help pay for construction, maintenance and operations of infrastructure, said Thomas Madison, executive director of the New York State Thruway Authority. Cuomo doesn’t want to sell state assets, said Karen Rae, deputy secretary of transportation. Carlyle Group LP (CG) and Macquarie Group Ltd. (MQG) are among companies expressing interest in the Tappan Zee.
“We’re still looking for opportunities to leverage private investment” in the Tappan Zee, Rae said in an interview in New York. “The reason we’re moving ahead with public financing is because, number one, we don’t currently have a state law that allows us to do public-private partnerships.”
The state has applied for a $2 billion federal loan and is looking to sell toll-backed bonds to help build a replacement for the Tappan Zee Bridge. The three-mile Hudson River span, which connects Rockland and Westchester counties as part of the Thruway system, carries 138,000 vehicles a day, 40 percent more than planners intended when it opened in 1955.
At least 31 states and Puerto Rico have laws that allow private investment in public projects, said Richard Norment, executive director of the National Council for Public-Private Partnerships, an Arlington, Virginia-based group. In Ohio, Republican Governor John Kasich has proposed leasing or bonding against the Ohio Turnpike as a way to generate money for other highway and bridge projects.
Last year, the state Senate approved a measure that would create a nine-member commission to determine which projects are best suited for private financing. It would then execute and oversee the contracts. The bill, which covered only transportation projects, stalled in the Assembly. Rae said Cuomo is interested in a measure that would include state buildings and possibly parks.
“We’ve had very positive discussions with the governor and his administration over a period of time now, and we’re hopeful that this year’s budget will afford the opportunity to include it,” said Republican Senator Charles Fuschillo, chairman of the Transportation Committee, who sponsored the Senate bill last year.
The Legislature is expected to send a budget to Cuomo, a 54-year-old Democrat, by March 31. The Senate included support for a public-private partnership measure in its budget resolution last week.
As public funding for infrastructure projects has dried up, New York needs to look for other sources, Transportation Commissioner Joan McDonald said in a Senate hearing on Fuschillo’s bill.
Almost 6,200 of New York’s 17,400 bridges, about 35 percent, are rated deficient, meaning that although they’re safe, they need rehabilitation to be fully functional, McDonald said. In his $132.5 billion budget, Cuomo has proposed a $15 billion infrastructure fund that includes state and federal dollars and $3 billion in private investment. The fund would be used to repair 2,000 miles (3,218 kilometers) of roads, 90 municipal water systems and 100 bridges.
“We need the right set of laws to back up the governor’s position,” Robert Dove, a managing director focusing on infrastructure at Washington-based Carlyle, said in a telephone interview. “The Tappan Zee Bridge is a very interesting project because you already have user fees in the form of tolls, so it is less politically risky then if you start to put tolls on a new bridge.”
Enticed by Tolls
Carlyle, the second-largest manager of private equity, has raised $1.2 billion for infrastructure investment, Dove said. About 70 percent of that is invested, and Carlyle is looking to start another fund, he said.
New York is ripe for investment because it already has tolls on bridges and tunnels leading in and out of New York City as well as on more than 500 miles of highway from Buffalo to Manhattan, said D.J. Gribbin, managing director of Macquarie Capital (USA) Inc., who helped advise Puerto Rico on its public- private partnership law. Macquarie Capital is a division of Australia’s biggest investment bank.
“New Yorkers get the fact that, yes, they will pay tolls for improved infrastructure,” Gribbin said in a telephone interview.
That’s not the case in other states, where new toll roads have led to “huge outcry,” Gribbin said. Tolls are a key component to making infrastructure an attractive investment, he said.
“Infrastructure is an asset class that’s incredibly attractive to investors who want long, stable returns,” Gribbin said.
The toll for a standard vehicle on the Tappan Zee is currently $5. Tolls on a new bridge would be similar to those of other Hudson crossings, Madison, the Thruway Authority executive director, said Feb. 23 during press conference in Westchester County near the existing bridge’s base. The toll for the George Washington Bridge, which connects New Jersey to New York City, is $12 without an E-ZPass.
Investment in infrastructure in the U.S. comes with relatively high political risk when compared with other countries such as the U.K., where it’s common, Gribbin said.
‘No Real Logic’
The state could fund projects more cheaply on its own, said Frank Mauro, executive director of the Fiscal Policy Institute, a Latham, New York-based research and education organization backed by organized labor.
“There’s no real logic to public-private partnerships,” Mauro said in a telephone interview. “If there’s a stream of revenue that makes a project desirable to a private investor, then the same stream could be used for public borrowing at tax- exempt rates.”
A transportation bill approved by the U.S. Senate this month includes an amendment meant to discourage states from leasing by excluding privately operated toll roads from the formula that calculates U.S. highway aid. The bill also would boost funding for the Transportation Infrastructure Finance and Innovation Act, the program under which New York applied for the $2 billion loan.
Madison declined to comment on how the amendment would affect plans to bring in private investors, Andy O’Rourke, a Thruway Authority spokesman, said in an e-mail.
Political resistance helped scuttle Macquarie’s plans for financing a new Tappan Zee Bridge about 10 years ago, said Chris Leslie, senior managing director for Macquarie Infrastructure & Real Assets. Macquarie Infrastructure Partners, a fund that falls under Leslie’s purview, has about $5.6 billion, with more than $1.2 billion from construction trade unions, Paula Chirhart, a Macquarie spokeswoman, said by e-mail.
When Macquarie established its infrastructure business in 1999, “the first thing we looked at was the Tappan Zee Bridge,” Leslie said in a telephone interview. Early last decade, Macquarie formed a group, which included the now-defunct Lehman Brothers Holdings Inc., to pursue the idea, he said.
“We still believe it would make a compelling investment case for private investment and we continue to watch the project unfold,” Leslie said.
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