Might “Asset Recycling” Be Key To Infrastructure Investment?

The Trump administration’s proposed federal budget calls for spending $200 billion over 10 years to “incentivize” infrastructure investment by state and local governments. One key to the strategy is reportedly “asset recycling” — selling or leasing infrastructure assets to the private sector and using the proceeds to pay for upgrades, maintenance, and new infrastructure.

Like the forms of recycling that we are all familiar with, infrastructure recycling is about making something new out of what already exists. In the infrastructure context, the starting point is the hundreds of billions of dollars worth of public investment that has already been made in roads, bridges, airports, utilities, waterways, and other infrastructure assets. Infrastructure recycling uses public-private partnerships (“P3s”) to tap this existing capital investment to fund new priorities.

This process unfolds in three interrelated steps:

1. Public sector infrastructure owners unlock the capital investment that is “trapped” in existing infrastructure assets by selling or leasing them to private investors through P3s. The terms of the concession arrangement typically provide for the long-term maintenance and/or improvement of the asset.

2. The public sector “recycles” the proceeds realized from these P3 transactions to pay for new infrastructure — enabling significant investment in public infrastructure at little additional cost to taxpayers.

3. As assets mature and become good candidates for P3s, the cycle repeats to enable continuous investment and renewal.

As reported in Governing,

Could what worked in Australia — essentially a garage sale of government-owned infrastructure — work in the United States? Maybe, but we’ve got some big challenges. In addition to the reluctance of local officials to give up control of infrastructure, current tax law provides powerful disincentives to the selling or leasing of assets. Assets that are sold or leased must not only repay associated tax-exempt debt, but state and local governments would also have to finance any new debt that is incurred on a more expensive, taxable basis.

Those challenges aren’t insurmountable, as Indiana has shown. In 2006, the state leased the Indiana Toll Road, netting $3.5 billion after repaying $300 million of tax-exempt debt. The state put the proceeds into its infrastructure fund, which has since financed other transportation assets without taking on any additional debt or imposing tax increases.

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