In Infrastructure, Creativity Can Go a Long Way

Any new federal infrastructure program should provide states and localities with the flexibility to tap the private-sector innovation and expertise that can produce new revenues, meaningful savings and operational efficiencies.

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Image of a wastewater treatment plant. Indianapolis partnered via a long-term contract with a private partner, resulting in a 40 percent reduction in costs which was capitalized into tens of millions of dollars in infrastructure spending to reduce combined sewer overflows.<br/>
(Shutterstock)
President Biden and Senate Minority Leader Mitch McConnell seem to be getting closer concerning the terms of an infrastructure program, but big questions still remain concerning its size and how to pay for it. Much of the difference can be resolved by granting state and local governments flexibility and providing them with incentives to incorporate private-sector innovation and skills into the infrastructure development process.

We base our recommendations on having configured a billion-dollar infrastructure investment in Indianapolis that involved no new taxes, as well as one of us (Goldsmith) having participated in others as deputy mayor of New York. We’ve also advised dozens of public entities on infrastructure issues over the last 20 years.

Public-private partnerships can play a critical role in bridging the current policy dispute. In order to find common ground, let's start by discarding the concept of selling public assets to the private sector if it’s just to generate upfront cash. Rather, we propose true partnerships that, when well-managed, produce new revenues and meaningful savings — strategies to reduce inefficiently managed operational expenses and convert them into much-needed capital investments. We generally categorize the opportunities as follows:

First, enter into long-term management contracts with guaranteed operational savings and employee protections. After a competitive procurement process involving Indianapolis’ advanced wastewater treatment system, the city partnered via a long-term contract with a leading global provider of utility management services. The results included a 40 percent reduction in costs which was capitalized into tens of millions of dollars in infrastructure spending to reduce combined sewer overflows. The project included comparable wages and benefits for all employees, ongoing union recognition and a guarantee of no layoffs. The city retained ownership of the system and continued to control key policy issues, including rates and ongoing commitments to small, minority and women-owned business.

Second, insource management talent and world-class best practices. In 2013, New York Mayor Michael Bloomberg ran a competitive procurement process where he asked the most experienced companies in the world how the city’s already highly professional environmental department could be even better. The selected winner worked with the city’s labor and management teams to identify improvements based on global best practices. The results included over $100 million per year in operational improvements and identification and recapture of previously lost revenues.

Third, give new life to old assets. Firms that specialize in a specific discipline can bring new ideas, technologies and uses to aging assets. The proposed-but-canceled private management of the St. Louis Lambert International Airport would have increased the number of jobs at the airport and produced over $1 billion in new investment for the city and airport infrastructure. In New York City, public-private collaboration led to a series of creative environmental solutions including rooftop solar on older buildings, new ultraviolet disinfectant procedures for water, upstate hydroelectric generation and more.

Fourth, devolve authority. Government’s traditional infrastructure procurement cycles produce higher costs through delays and misaligned incentives as often one organization designs the project, another builds it and then the government ends up maintaining whatever comes out of the process in the end. Without reducing environmental or other qualitative regulations, devolve regulatory authority. Every mayor knows that building with federal dollars takes longer and costs more due to bureaucratic delays. Creative public-private arrangements can consolidate the design, construction, financial, operating and maintenance functions while incorporating new cost-cutting technologies.

The value of these technologies should not be underestimated. Data platforms, geospatial infrastructure and related analytics tools that take advantage of networks of low-cost sensors will reduce construction costs, enhance sustainability, improve adaptability and increase quality and safety. When he was mayor of South Bend, Ind., for example, Transportation Secretary Pete Buttigieg deployed smart sensors inside the city’s sewer system that turned pipes designed to convey sewage into short-term storage structures to avoid combined sewer overflows. Estimated net savings from that single technology project totaled hundreds of millions of dollars.

A few modest policy additions to the competing federal infrastructure proposals would unlock hundreds of billions of dollars in incremental value — all without increasing the cost to taxpayers. Following Canada’s lead, where a Crown corporation was developed to nurture these types of creative infrastructure projects, avoid mistakes and replicate best practices, U.S. policymakers should consider how best to support local governments where a lack of expertise and upfront funding are often barriers to innovation and cost savings. The federal government should waive any requirement for repaying grants if the proceeds from an asset transaction are reinvested or recycled back into infrastructure.

We have been involved in each of these areas, producing net present-value savings in the billions, in each instance accomplishing these recommendations without negatively impacting public employees or the unions that represent them. Similarly, our experience shows that these quality-improvement processes also support meaningful increases in spending with minority and women-owned businesses.

We need more infrastructure, and creativity can close the gap.



Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
A professor of practice at the Harvard Kennedy School and director of the Innovations in American Government Program. He can be reached at stephen_goldsmith@harvard.edu.
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