Creative Solutions to Regional Infrastructure Deficits

By ADRIENNE LINDGREN, Editor, USC Master of Planning

The West Coast of the United States is due to experience a 1 trillion dollar infrastructure deficit over the next thirty years.  California is in desperate need of alternative transportation to the automobile, while some estimate that roughly 40% of Oregonian bridges are structurally deficient.  This is deeply troubling for the future of the region, given that a highly-developed infrastructure system is critical to promoting and maintaining economic growth.  In order to remain competitive in the global economy, the West Coast needs to pool its resources and build their badly needed infrastructure.   Fortunately, officials from the Oregon State Treasury recently initiated action on a new regional development initiative, the West Coast Infrastructure Exchange.   The purpose of the Exchange is to facilitate the development of badly needed infrastructure investments along the coast.  By engaging local governments from British Columbia to Southern California, the officials are hoping to integrate development to enhance and promote regional economic growth.

There are some general trends that are exacerbating the problem of disinvested infrastructure, and they are not unique to the West Coast of the United States.  Across the globe, sovereign debt crises have rendered many federal government unable to provide the financing required for territorial development.  Additionally, as an investment type, infrastructure lacks clarity and consistent data that allows investors to compare it to other investments, like equities.  The inability on behalf of investors to realistically associate the risks and returns associated with such investment is thus a major barrier.

Vancouver to San Diego

Vancouver to San Diego

At the same time, decentralization of decision-making, coupled with increasing regionalization of economies, is forcing local and regional areas to reconsider what methods are available to them for financing, coordinating, and building infrastructure.  This presents regions with an important opportunity for development.  Rather than depending on top-down, federally-funded infrastructure projects (many of which are inevitably tainted by the politics that secured their financing), regions are looking to mobilize their shared resources to fulfill multiple needs such as infrastructure development and job creation.  The increased presence of public-private ventures in the United States signals a promising route to sustainable development of important transport networks and energy projects. New forms of potential investment, such as EB-5 Visas and pension funds, are making this dream feel more like a possible reality.

Let us pause on the financing issue for a moment, as this is an important piece to understanding the future of infrastructure development.  Due to a perceived lack of safe investment areas, investors across the country and the world are sitting on millions of dollars of uninvested cash.   This includes wealthy foreigners looking to locate their capital off-shore, pension funds like CalPERS, in addition to uninvested union funds.  And unlike some other investors, like venture capitalists, these investors are looking for long-term payout.  This is especially true of union and pension funds, which aim to start collecting returns for their investors 20-30 years from the initial investment.

SR 520 Floating Bridge.  Seattle, Washington.

SR 520 Floating Bridge. Seattle, Washington.

Taking a step back, twin needs reveal themselves.  Infrastructure investment has the exact time-line these investors are looking for, as most infrastructure projects start generating returns around 20 years after investment.  Moreover, these investments provide unemployment relief for the industries that have been most deeply affected by the Great Recession, notably construction.  For pension and union funds, this represents an important opportunity to invest their cash directly in industries and projects that employ their members.  But despite the potential for a mutually beneficial relationship, as noted in a recent Economist article, less than 1% of the world’s pension funds are invested in infrastructure.

For wealthy foreigners looking to invest private capital in the United States, the West Coast presents an important opportunity as well.  One of the world’s most abundant economies and deepest markets, the territory stretching from British Columbia to Baja California is ideal for implementing such infrastructure investments, as they are geographically low-risk given the current and projected population of the region.  More importantly, the West Coast represents a collection of some of North America’s most important city-regions for contemporary migration and economic growth.  The development of Regional Investment Centers as part of the EB-5 Visa program represents an important opportunity for regional coordination and development of critical infrastructure projects.  Even so, the majority of this capital is currently put into real estate projects, like hotel development.

Bonneville Dam, Oregon.

Bonneville Dam, Oregon.

The most major problem with coordinating these kinds of investments is communicating their returns to investors.  As previously mentioned, infrastructure as an investment category lacks a comprehensive and consistent methodology for assessing risk and return.  That’s where the West Coast Infrastructure Exchange comes in.  With a panel of experts and a collaborative agreement from British Columbia, Washington, Oregon and California, the West Coast Infrastructure Exchange is trying to facilitate the process of marrying private investment to infrastructure development by managing projects and project selection more effectively, collaborating with industry experts and innovators, and connecting these critical projects to innovative financing mechanisms.  With the concept developed initially in 2011 by the Oregon Treasury, the Exchange has recently completed a basic feasibility analysis of the Exchange with the help of CH2M Hill and a $750,000 grant from the Rockefeller Foundation.

The mission of the Exchange is to generate employment, economic competitiveness and a higher quality of life by focusing on regional needs such as sanitation facilities, airports and dams.  By coordinating the efforts of British Columbia, Washington, California and Oregon, the Exchange hopes to accumulate political and financial capital for cross-border infrastructure development.  But beyond the barriers to connecting investors to infrastructure projects, there are some political and logistical issues that confront the project, notably coordinating infrastructure development across state and national borders.  Part of the goal of the Exchange is to harmonize the respective local and state processes for implementing infrastructure.  As the CH2M Hill report indicates, facilitating the political coordination of two countries and three states will require substantial strategy and collaboration of key stakeholders.

Bay Bridge.  Oakland, California.

Bay Bridge. Oakland, California.

The task is ambitious but by no means impossible.  British Columbia is a major center of innovation for infrastructure development, so their expertise and past experiences will be important to learn from.  As a regional leader and the largest state on the West Coast, leadership from California will be key for building and maintaining momentum.  Beyond local examples of success, there are examples across the world from Australia to the European Union on how to finance, develop and govern large-scale infrastructure projects.  Drawing on the international experiences and local expertise, the West Coast has the potential to spearhead a truly unique alternative for regional infrastructure development.

Known for its creativity, innovation, and prosperity, if the West Coast hopes to remain the best coast, then its infrastructure needs to develop the same reputation.

Check out the West Coast Infrastructure Exchange here.

Check out the report from CH2M Hill here.


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