How P3s will help deliver projects under the U.S. infrastructure package
Tackling major projects will take a lot more than government money. Here is where public-private partnerships will flourish
Washington Metropolitan Area Transit Authority’s community solar project is a case study for how innovative funding could help deliver public infrastructure projects expected to come to fruition under the $1.1 trillion U.S. infrastructure package.
In partnership with a private energy provider, Washington Metro installed solar panels on garage rooftops and parking lot canopies at four rail stations around the U.S. Capital.
The result? Seventeen acres of photovoltaic solar panels – the equivalent of 13 football fields – that deliver enough energy to power 1,500 homes and expected revenue of $50 million over 25 years.
“There is no doubt that executing on the promise of the bipartisan infrastructure bill will require private sector investment, and these kinds of public-private partnerships can be a more cost-effective way to deliver innovation and scale,” says Josephine Tucker, Managing Director of JLL’s Clean Energy and Infrastructure Advisory practice.
Public-private partnerships, otherwise known as P3s, are arrangements between governments and the private sector to build public infrastructure like roads, hospitals, schools, or deliver services.
A good example is the National Electric Vehicle Infrastructure Plan (NEVI). Established under President Biden’s Bipartisan Infrastructure Law, it's providing nearly $5 billion through 2026 to help states create a network of EV charging stations along designated Alternative Fuel Corridors.
“Private sector investment will be critical for the NEVI plan and, in order to qualify for these grants, States need to show how they will catalyze these investments,” Tucker says.
While P3s are becoming an increasingly popular way to complete significant infrastructure projects, the U.S. still lags behind other countries when using them, such as the United Kingdom and Canada.
Looking for more insights? Never miss an update.
The latest news, insights and opportunities from global commercial real estate markets straight to your inbox.
According to the Bipartisan Policy Center, government entities in the U.S. spend $500 billion in annual infrastructure investments. Still, no single data source reports how much private capital is invested in public infrastructure.
The House Transportation and Infrastructure Committee reported $61 billion was spent on highway P3s from 1989 to 2013, equating to 1.5% of all projects. A study by the legal firm Husch Blackwell says 186 projects were under development in 2020, up from 94 two years prior.
Some recognizable examples of recent P3s include New York City’s Hudson Yards and the renovation of St. Louis’s Gateway Arch. A public-private partnership will also be used to redevelop New York’s LaGuardia Airport Terminal B.
The Bipartisan Policy Center believes the U.S. can establish methods to attract $250 billion in private capital over five years.
The infrastructure package also expanded the financing tools available for P3s. For example, changes to Private Activity Bond legislation and the Build America Bureau’s TIFIA loan program provides additional options for blending low-cost, long-term debt with private investment to fund P3s.
Private Activity Bonds allow state governments to issue tax-free municipal bonds to benefit private entities that finance specific public works projects.
The Infrastructure Investment and Jobs Act, signed into law last November, doubled available Private Activity Bonds authority for surface transportation projects to $30 billion. It also allows the bonds to be used for broadband and carbon capture projects.
To date, the United States Department of Transportation reports more than $15 billion in Private Activity Bonds issued.
While it can make planning P3s slightly more challenging, the infrastructure bill requires public sponsors to look at the tradeoff and whether a public-private partnership makes sense over the long term.
“The requirement encourages project sponsors to use best practices when planning a P3 project,” says Brian Oakley, JLL Executive Vice President, Public Infrastructure. “Not all projects are good candidates for a P3, so rigorous upfront screening can avoid costly contract changes down the line.”
P3s are also expected to augment funding for underserved communities.
The Infrastructure Investment and Jobs Act allots $20 million annually in grants to states, localities, and tribal governments to help them navigate potential P3 projects, either through building their teams or retaining expert services.
“The funding for technical assistance is really important,” Tucker says. “The Bill is designed to deliver innovation to all communities large and small, rich and poor. The technical assistance funds will go a long way to improve access to innovative delivery and financing tools.”