Abstract

Systematic infrastructure underinvestment - a $2.6 trillion 'gap' - and accelerating climate change have become facts of life in the United States. Though typically attributed to politics, this Article posits the circumstances as a market disequilibrium rooted in an interplay between unique dimensions of infrastructure and distinctive features of the U.S. approach. Recently-passed legislation, including the Infrastructure Investment and Jobs Act, is insufficient to overcome these longstanding challenges.

Based on a broad, global study of effective approaches to infrastructure finance, as well as a multi-disciplinary analysis of the economics, engineering and finance literature, this Article proposes addressing the U.S. infrastructure disequilibrium through asset recycling. Asset recycling is an innovative strategy, pioneered in Australia, premised on: (i) monetizing existing, government-owned infrastructure; and (ii) reinvesting the proceeds in development of new assets, which can be 'recycled' again, creating a virtuous cycle on a debt-neutral basis.

The Article illustrates this approach through a detailed, empirical case study of the New York MTA, the nation's largest transit agency. The MTA has over $50 billion of debt, COVID-19-related losses exceeding $20 billion and bond covenants, as well as state Jaw explicitly prohibiting bankruptcy. The analysis finds that monetizing solely the MTA's bridge and tunnel assets (but not the subway) through a long-term concession could, conservatively, generate $33 to $53 billion - sufficient to repay the majority, if not entirety, of the MTA's obligations, giving it the wherewithal to build the sustainable infrastructure that New York deserves.

Beyond the mechanics and empirics, the underlying principles - leveraging private capital, coupled with robust oversight - have far broader implications, as asset recycling is estimated to represent a $1.1 trillion opportunity. The Article concludes with a discussion of normative and policy considerations, as well as areas for future research, including multi-stakeholder governance frameworks for imperfect public goods, ESG-based contractual mechanisms and the interplay between infrastructure policy and climate change, with an emphasis on broad-based social and allocative equity.

As detailed further alongside the respective discussions, it is critical to note that the primary analyses in this Article are as of late 2021 (when this research was conducted). The Article thus does not reflect changes and subsequent developments, including with respect to prevailing interest rates, financing terms or term structure, as well as legislative and policy developments. Correspondingly, the results of certain analyses may differ today based on evolving interest rate conditions and assumptions which are subject to change, as detailed further in the Article.

Document Type

Article

Publication Date

5-2024

Publication Information

2024 Journal of Law and Mobility

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