1. Establish an “Infrastructure Bank” to coordinate, allocate, and maximize investment
in the construction, rehabilitation, replacement, and expansion of infrastructure.
2. Adopt a standard set of criteria for project selection and prioritization
to optimize resources statewide, in accordance with State and regional resilience and economic development strategies.3. Develop a range of sources of revenue and cash flow
to identify appropriate and adequate mechanisms to pay for infrastructure projects and capture cost savings and avoided losses.4. Continue to improve the enabling environment
and overall policy and regulatory landscape for infrastructure investment to facilitate the identification, financing, funding, and efficient use of the State’s infrastructure.Within each of the areas, recommendations include short-term steps; medium-term efforts that require more extensive planning and development; and long-term solutions that require systemic planning, process refinement, capital budgeting, and coordinated implementation.
Each of these recommendations has independent value, but they are significantly more powerful when advanced together.
project has demonstrated the feasibility and speed of this approach, as described in the text box.
The Commission’s infrastructure finance recommendations build upon these successes. New York State should develop an improved, systemic approach to capital investment. The State needs to explore mechanisms for financing the resilience and expansion of critical infrastructure, and should leverage private capital to do so. It will need to rigorously evaluate and prioritize projects in accordance with a statewide and regional economic development strategy. An enabling regulatory and policy environment and new approaches to generating and capturing multiple revenue streams should be employed to fund the infrastructure changes needed to make the State more resilient.
The first two recommendations work in tandem to support the creation of a comprehensive and integrated decision making and investment approach for the State. A critical function of the proposed bank, for example, would be to implement standardized criteria for project prioritization and investment. The third and fourth recommendations are targeted at expanding the pool of possible project revenue sources and improving the enabling environment for infrastructure investments, which could significantly expand the range of activity available to the bank and increase its potential impact. An “enabling environment” is one in which a broad range of public-private partnerships can be used to assist in project finance when there is alignment of interests among the State, communities, and the private sector.
The term “public-private partnership”
(PPP) refers to a wide variety of alternative arrangements for infrastructure design, construction, operation, and finance.
PPPs are designed to transfer more of the risk associated with, and control of, a project to a private partner. In part, this is achieved through bundling multiple stages of project planning and execution, similar to the process that New York State enabled when it passed design-build legislation at the end of 2011. Design-build is authorized in a number of states, and is the most common form of public-private partnership for infrastructure in the United States. In a design-build delivery model, the private partner assumes responsibility for the majority of the design work and all construction activities, together with the risks associated with providing these services for a fixed fee. As noted in the text box, the State’s plan to replace the Tappan Zee Bridge was enabled by the recent passage of design-build legislation.
PPPs may also take a more extensive form in which a private firm provides financing for an infrastructure project, designs and builds it, and, in exchange for a revenue stream such as tolls or other user fees, usually operates and maintains it over
its useful life. This type of PPP may be appropriate in circumstances when it provides the State with greater value for money than a traditional (purely public) approach to infrastructure finance, provided appropriate standards and safeguards are in place. This type of PPP is more common outside the United States, and has been used extensively in Canada, Australia, and the United Kingdom. In 2008, for example, the Australian government created a statutory authority called Infrastructure Australia to plan and coordinate infrastructure investments in the country, including PPPs, based on the premise that new sources of funding were required to bridge the infrastructure deficit and public sector constraints. In countries that enable more
extensive PPPs, large institutional investors such as pension funds may invest in these projects, unlocking significant additional capital for infrastructure finance. The text box below illustrates the infrastructure investment strategy of the Ontario Municipal Employees Retirement System.
Large-scale and complex needs
Delivering the infrastructure that is essential to the economic and physical security of New York State is a massive undertaking.
The State has 19.5 million residents, a
$1.21 trillion economy, and faces a huge range of environmental risks – extreme temperature, heavy rains, snow, sleet, and The Tappan Zee Bridge (New York, United States)
The 3.1 mile Tappan Zee Bridge, the only bridge serving the congested Westchester/
Figure IF-01: Rendering of Selected Design Proposal for the New Tappan Zee Bridge (New York State Thruway Authority, 2012)
ice. More recently, hurricanes and tropical storms, along with record storm surges, have put an increasing stress on New York’s infrastructure. Climate change is expected to increase these risks. As a result of significant investment and programs to expedite project delivery, the State has begun to make progress in upgrading its aging infrastructure and reducing the backlog of operating repair needs. Significant work remains, however, especially considering the risks that extreme weather poses to outdated infrastructure. The Transport, Energy, and Land Use sections of this report detail potential projects.
Significant fiscal constraints New York State invests heavily in its infrastructure in order to deliver what New Yorkers need. In the current fiscal year alone, 46 State agencies and authorities will make nearly $21 billion in capital investments, including maintenance to keep equipment and systems in a state of good repair and investment in the construction of new facilities. Roughly half of this capital spending ($9.7 billion in the current fiscal year) is part of the State budget, with the rest financed by public authorities. Since 2011, the State has taken steps to improve fiscal discipline and substantially limit on-budget capital spending.
The money for capital investment comes from three sources: Federal aid, State pay-as-you-go financing (i.e., revenue from taxes, tolls, fares, and fees), and borrowing. In the decade preceding 2011, total outstanding State on-budget debt grew at a compounded annual growth rate of 18%. This happened, in large part, because the majority of capital spending
increases had been financed by debt without commensurate increases in revenue. In the State’s current capital plan, the percentage of capital expenditures financed by debt is projected to decrease by 8% from 2012 to 2017. Although New York State is seeking funding from the Federal government to help recover from Superstorm Sandy, the current fiscal environment in Washington suggests that further Federal aid will be limited. In addition, the State has a cap on issuing State-supported debt, limited to 4%
of State personal income, and is nearing that cap. For these reasons, New York State faces the challenge of doing more with less in its infrastructure planning.
A capital planning process that was not sufficiently coordinated or entrepreneurial
Historically, New York State has not had a comprehensive, unified, long-term process for evaluating and prioritizing capital projects. Capital resources were allocated in silos without reference to statewide or
Ontario Municipal Retirement System (Ontario, Canada)
The Ontario Municipal Employees Retirement System (OMERS) is one of the largest
regional needs, priorities, or ability to pay, and sometimes without rigorous evaluation of the impact of projects. Recognizing the need for more efficient, effective, and extensive investment in infrastructure, in May 2012 Governor Cuomo launched the New York Works Task Force, described in the text box on this page. The recommendations in this report build upon the important work already underway.
Until 2012, New York State had not taken advantage of the benefits of design-build mechanisms to accelerate and reduce the costs of large public infrastructure projects.
Nor had there been sufficient efforts to spur private investments in such projects.
Well-structured public-private partnerships, defined as discussed in this section, could in certain instances allow the public sector to harness the efficiency and innovation of the private sector while reducing the public sector’s investment risk on large projects.
The Commission recommends taking additional steps to make the infrastructure planning and financing process more entrepreneurial.