AECOM Unveils Infrastructure Funding Strategy at Davos Global Event
With talk of a future infrastructure bill heating up on Capitol Hill, much of the conversation has centered on how to pay for projects in light of massive funding gaps. A gas-tax hike has gained some traction across the political spectrum, but some design and construction professionals say the conversation needs to include alternate financing and delivery models to meet current demand.
At the 2018 World Economic Forum gathering of global business and government leaders in Davos, Switzerland, AECOM released a new report, “The Future of Infrastructure,” that outlines the issues faced in delivering infrastructure projects and promotes emerging methods as solutions.
In the report, which surveyed more than 500 professionals, 82% of respondents say adequate investment in infrastructure projects is crucial to national prosperity, with “funding shortages” cited as the top reason why projects fail to proceed.
“We have to think differently about this problem,” says Dan McQuade, group president of construction services at AECOM. “What we’ve done in the past won’t work.”
Minding the Gap
The AECOM report explores several potential solutions to address the infrastructure gap, including some related directly to funding mechanisms and others focused on delivery methods and contracting.
Ninety percent of respondents said new or innovative funding methods would be an effective method, with 54% calling it highly effective. Seventy-seven percent agreed that use of public-private-partnership models would be effective, although less than half said it would be highly effective.
The report recognizes, however, that public-private partnerships don’t work in all situations. Notably, “private capital is generally unwilling to invest in greenfield development because of the difficulties in accurately budgeting development costs and timelines and forecasting future revenues in the absence of operating history,” according to the report.
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As such, listed among the suggested tools is “asset recycling,” deploying proceeds from the lease of existing assets to develop new infrastructure.
“We have to think differently about this problem. What we’ve done in the past won’t work.”
– Dan McQuade, AECOM Group President of Construction Services
The report recognizes the ongoing need for the U.S. Highway Trust Fund but calls for moving away from relying on gas taxes to a “mileage-based revenue source that accounts for both gasoline-powered and electric vehicles.”
“I don’t see how you solve this without both private funding and public funding—it has to happen,” McQuade adds.
Raising the national gas tax, which has held at 18.4¢ since 1993, is gaining support. The U.S. Chamber of Commerce recently released a plan that calls for a 25¢ increase, phased in at 5¢ per year for five years. Estimates suggest that the added tax could raise more than $375 billion in the next 10 years.
Casey Dinges, senior managing director of the American Society of Civil Engineers, says this could be the best chance in years to get a gas-tax increase to pass, although many in Congress still perceive it as risky. “I would hope these political leaders take some measure of calm in the fact that 25 states have raised gas taxes over the past five years, and the re-elect rate for those legislators is over 90%,” he says. “It’s more of a perceived political risk than an actual risk.”
Dinges also recognizes that the time for a pure gas-tax model may end in the not-too-distant future. “I don’t know how many more times they can take a bite at the gas-tax apple,” he says. “If you look five to 10 years down the road, you can see the increased migration toward hybrids and electric cars. In the future, a miles-traveled approach will be necessary.”
Adding Rewards
Changes in traditional delivery methods and contracting also ranked high in the AECOM report’s list of potential options. Topping the list, 92% of respondents said structuring contracts to reward for time and cost savings would be an effective solution to the infrastructure funding gap, with 55% ranking it as highly effective.
Nearly as many respondents—91%—say better incentives for private contractors to bid for early-stage projects would be effective. “Enhanced project delivery” was listed as effective by 86% of the survey respondents.
Steve Morriss, president of design and consulting services for the Americas at AECOM, says changes to delivery methods can be promoted—and possibly incentivized—at the federal level, but many of those changes will need to happen at the state and local levels.
“There’s a need for the right partnerships with the national government and local government and industry to solve this, but I don’t think we need to wait for every single party to be perfect and fully up to speed to get this going,” Morriss says. “There’s nothing stopping good local leadership and good engagement with industry to solve some of this.”
