Use of Private Equity to Fund Infrastructure Projects
Severe shortages in transportation budgets have forced policymakers to consider alternative methods for funding public works. The University of Southern California’s (USC) Keston Institute for Public Finance and Infrastructure Policy has commissioned the report “Protecting the Public Interest: The Role of Long-Term Concession Agreements for Providing Transportation Infrastructure”, to provide policymakers with various strategies for successfully using private equity investments to fund transportation infrastructure projects.
The report discusses potential concerns about Public Private Partnerships (PPPs), and how to address these issues. It also provides examples of previous private investments in public works and the questions raised by politicians and their constituents.
The last part of the report discusses the difference between a traditional public model and a private concession model. The private sector’s interest in the outcome of a project is significantly different when it has equity invested in the public work, as opposed to being a debt service. This gives private organizations the potential to generate revenue in excess of that provided by a bond. Private entities will be heavily criticized for raising tolls to keep a steady income stream, but the capital they provide is not going to come without a cost.
Meanwhile, some believe the private sector is able to complete projects at a lower cost than public agencies, but there are as many arguments in favor of this thesis as there are against it. This research report shows both the advantages and disadvantages of all viable approaches to solving the crisis of paying for the transportation system.
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