Those who follow us on Social Media know we have been staunch advocates for P3s. Firm members have served on many public-private partnership panels. We are persuaded on P3’s as evidence mounts of public-private partnership success.
According to a new report from the Standard & Poor’s (S&P) credit ratings agency, states will have difficulty maintaining high credit ratings if they rely too heavily on issuing tax-exempt bonds to pay for expensive, but badly needed, infrastructure projects. Given that locally owned roads are mostly ineligible for federal funding and the uncertain prospects for receiving long-term federal funding for eligible projects, states should look to alternate financing strategies, such as public-private financing says Standard & Poor’s.
The agency estimated that states would be forced to issue $1.19 trillion in debt though 2020 to cover their share of the $3 trillion in infrastructure investment the American Society of Civil Engineers predicts will be necessary to meet current and future transportation needs, reported the Bond Buyer.
“We anticipate that both, because of what it would do to their direct debt levels and because of the O&M implications of funding the nation’s infrastructure needs with tax-supported debt alone, states will increasingly consider alternative financing strategies. P3s are one such avenue,” the S&P report says.
State and local governments have reduced the issuance of tax-exempt, new-money bonds from an average of $234 billion per year from 1996 through 2010 to an average of $151 billion per year since then. This reflects their recognition that infrastructure projects require outlays, not only for construction, but for decades of operations and maintenance (O&M) as well.
However, tax-exempt debt cannot be used to pay for O&M and federal grant funding only covers the costs of major maintenance projects, an Oct. 27 Infra Insight blog post points out.
The growing popularity of fuel efficient cars and a consistent drop in long-distance road travel are reducing the amount of gas tax revenue states would typically spend on such projects, another S&P report says. The federal government’s refusal since 1993 to raise the gas tax has been widely questioned and many states are reluctant to take this step as well.
Some experts, including Robert Poole of the Reason Foundation, have called instead for the imposition of user taxes as a more reliable means of funding.
Martin J. Milita, Jr. Esq., is senior director at Duane Morris Government Strategies, LLC.
Duane Morris Government Strategies (DMGS) supports the growth of organizations, companies, communities and economies through a suite of government and business consulting services. The firm offers a range of government relations and public affairs services, including lobbying, grant writing; development finance consulting, media relations management, grassroots campaigning and community outreach. Milita works at the firm’s Trenton and Newark New Jersey offices.
Visit his blog at: https://martinmilita1.wordpress.com
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