Today's emergence of the modern P3 market is the reemergence of a standard way of building in America. In a classic case of, 'everything old is new again,' today's P3s are deeply rooted in an old way of delivering public projects.
Public and private ventures have been the norm in the U.S. counterintuitively, today's federal and state largess- their abilities to fund large projects like the Interstate System that was launched in 1956 and built into the 1990s- is the exception. Before World War II, when the federal and state governments were without reliable sources of tax revenue, governments did what they've begun to do again; they leveraged their assets, offered concessions and partnered with private enterprise in order to deliver public projects.
In the early 1800s, when a youthful U.S. did not have the funds for large public projects needed to support a growing population and robust economy, private investment built the nation's turnpikes and later laid its railroads. In exchange for making improvements, the states and federal government offered private firms what it had plenty of: land. Right-of-ways were tendered in the form of land grants. The public benefited from privately built roads and railroads constructed on public property. The private ventures running the roads and rails were often profitable businesses, capable of making further improvements that generated a healthy cycle of economic development.
The Golden Gate Bridge, built between 1933 and 1937, is a classic example of an "old school" public-private partnership. Erecting the largest suspension bridge in the world, across one of the earth's most scenic landscapes required a $35 million commercial loan from a large national bank based in California and four private investment firms. Private citizens agreed to post their properties as collateral in order to obtain the construction loan. The War Department in Washington, D.C., and California's Sacramento-based state legislature granted permits and permission. Landowners in six counties on both ends of the bridge formed the Bridge District in the 1920s.10
The impetus behind the Golden Gate's ambitious public-private partnership of the 1930s is similar to what's driving today's P3 market: financial collapse. In 1932, during the darkest days of the Great Depression, the Bridge District's directors agreed to push forward with a $200,000 cash advance and funding promised to them by the commercial bank. The Bridge District had seen their hopes of public funding disappear with the stock market crash in 1929. In choosing a private sector loan instead of waiting on unlikely funding from the Reconstruction Finance Corporation, President Herbert Hoover's Depression-era emergency funding agency, the Bridge District, avoided costly bureaucratic delays to the start of construction.
In its 75th anniversary year, the stalwart public-private partnership now hailed as the Golden Gate Bridge and Highway District, continues to collect revenue while maintaining the bridge's impressive superstructure which carries 38 million vehicles annually. The quasi-private authority is also operating buses and ferries that make up two public transit systems. A modern P3 project to rebuild an arterial highway leading to the Golden Gate Bridge called the Presidio Parkway is currently under construction.11
In 1989, ground was broken on the first modern-day P3 in the United States. The project, a 47-mile highway outside Denver, Colorado, called E-470, was built by eight counties and cities to accommodate future traffic to the soon to be opened Denver International Airport. Void of federal or state funding, E-470 was built with private funds. Opening in 1991, four years ahead of the new airport, the toll road paved the way for economic development.
Nationally, E-470 was the first large toll way to install electronic tolling equipment. Regionally, the toll road was a rarity in the western United States. Locally, growth along the E-470 corridor primed the economy and the population along the toll road's corridor is expected to double over the coming years.
In the wake of E-470, toll roads became the standard P3 product in the growing U.S. market. The Chicago Skyway (2005), the Indiana Toll Road (2006), the Pocahontas Parkway (2006), and the Northwest Parkway (2007) are recent examples of P3 toll way projects. A quarter of a century later, the scope of P3s in the U.S. has finally broadened beyond the toll plaza.
As the US P3 market has developed, the appetite for infrastructure investment has increased steadily as well. As early as 2008, the largest U.S. public pension fund, the California Public Employees' Retirement System (CalPERS), with over $230 billion in assets, stated its intention to allocate 3% of its assets to infrastructure. Other U.S. pension funds, including the California State Teachers' Retirement Systems (CalSTRS), Washington State Investment Board, the Teachers Retirement System of Texas (TRS), the Oregon Investment Council, New Mexico Investment Council, the Alaska Permanent Fund Corp., and the Kansas Public Employees Retirement System, have made similar commitments toward infrastructure investing.12 Even in the private sector side, infrastructure is becoming a more attractive investment option. Specifically, Ullico Investment, an investor for many union pension funds is raising a fund to invest in U.S. infrastructure. We have even started to see the green shoots of P3 investments by U.S. based capital sources in TIAA-CREF's acquisition of I-595 and Dallas Fire and Police Pension Fund's investment into the North Tarrant Expressway and LBJ Expressway projects. Overall, infrastructure investing and P3 specifically are still in their early stages here in the United States, but the interest in the sector from domestic sources is large and growing.
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10 Zee, John, "The Gate: The True Story of the Design and Construction of the Golden Gate Bridge," Simon & Schuster, New York, 1986, p.291
11 Van Der Zee, John, "The Gate: The True Story of the Design and Construction of the Golden Gate Bridge," Simon & Schuster, New York, 1986, p.152
12 Pension Fund Investment in Infrastructure (A Survey): OECD, September 2011 Global Infrastructure (Winter 2012): Bingham McCutchen LLP, 2012