BPC launches Infrastructure Council

What began as the vision of McGraw Hill financial president Doug Peterson became reality last week when the Bipartisan Policy Center (BPC) officially launched its Executive Council on Infrastructure on Thursday morning.

The purpose of the council, Peterson said during an exclusive interview with sister publication Infrastructure Investor following the launch, is to evaluate the challenges and opportunities for private sector investment in infrastructure in the US. The group plans to release a white paper in one year's time detailing its findings, with work streams to be managed by BPC project director Nikki Rudnick.

In his introduction of the council, BPC founding president Jason Grumet joked that he had one anxiety about the discussion at hand.

“When people like us are passionate about infrastructure we tend to depress the heck out of one another. When we get together we are about metrics of dread,” he said. 

“We sit here and tell you that there is a $2 trillion gap that must be filled in the next five years; we're investing 50 percent less as a percent of GPD than we were 50 years ago; we're being outspent by China by a ratio of four to one; there are 60,000 structurally-deficient bridges; and, of course, we all carry as a badge of pride the 'D plus' awarded to our country by the American Society of Civil Engineers.”

Colorado Senator Mark Bennet, who Grumet referred to as “the James Brown of the Senate”, said at the launch that among the many things that “disappoint” him about Washington D.C. at present, the most fundamental was “[legislators'] failure to invest in infrastructure, especially at the interest rates that we've had over the last six years in this country.”

Bennet's appearance was a foreshadowing of things to come at the council, which in the very near future will be launching a policy panel populated by Capitol Hill politicians as well as former mayors and governors from around the country, according to a source close to the group. The person added that the presence of these representatives would increase the likelihood that guidance developed by the council would find support from diverse local constituencies that often stand in the way of smooth and timely approvals.

Following Bennet's remarks, Peterson asked him to share his feelings on the dynamic scoring of benefits of infrastructure that go beyond the project itself. Patrick Decker, president and chief executive of Xylem and a member of the council, said he hoped legislators would be able to help them identify ways to get people thinking about more than just transportation when discussing infrastructure.

In response to Peterson's query, Bennet cautioned, “I'm worried that in Washington we will do it in ways that are completely tortured and divorced from reality”. 

Suzanne Shank, president and chief executive of Siebert Brandford Shank, said she believed one of the enduring barriers to US-based infrastructure investment was “complacency”. 

She touted the efficiency of the municipal bond market, and said that while there had been some successful PPPs across the country, inequitable risk assignments had also led to some failures.

“Risk is shifted either totally on the government or totally on the private investor. If there was a way to share the risk everyone would be moving in the same direction,” she said. 

Jack Ehnes, chief executive of CalSTRS, a pension fund that supplies retirement accounts for California's 880,000 teachers to the tune of $12 million annually, joined the council to give voice to the needs of institutional investors, who are chomping at the bit to meet their infrastructure investment allocation targets.  

“We're a 102-year-old pension system and we're going to be here in perpetuity. Our time horizon on investing and our time horizon on liabilities is decades and decades,” he said. “Unlike a lot of other investors in the market, we really define that long-term, patient capital perspective.”

For a glimpse into the painstaking review that goes into each of CalSTRS' investments, he said that in the 2014 calendar year, the fund staff looked at 136 different projects, of which only 17 seemed had enough merit to bring in the due diligence team. Of those 17, only two projects were deemed worthy of investment. He posited that the council needs to work on learning what is getting “lost in translation” in the vetting process. 

He later added that while global institutional capital was clearly poised and ready to invest substantially in infrastructure development, it was also plain that the bulk of it was not being invested in the US.

The council touched on many hot-button issues throughout the full discussion – municipal bonds, political and regulatory uncertainty, American infrastructure falling behind, and the lack of analytics and data surrounding the asset class – but as Peterson put it in his closing remarks, at the core of the new council is its aim to address issues on the “soft side of infrastructure […] which have to do with financing, barriers to entry, approvals, environmental approaches, how you look at municipalities, states versus national [and] what are the programs that are in place today”.