Zig meir das Geld

At a speech in Miami in April, President Obama returned to the topic of infrastructure development in the United States.  It’s a contentious debate that is frustrating to many of us because there seems to be widespread agreement that the U.S. needs updated infrastructure. 

Case in point:  our colleagues at ASCE recently released their updated Report card on U.S. Infrastructure.  This year’s grade, D+, is the worst since 2001.

As usual, what’s holding up investment and improvements in our roads, bridges, ports and other vital infrastructure is….money.  Who will pay?  The federal government, states and municipalities are still recovering from the economic downturn; funds are tight and, even if money can be found, the political climate is hardly conducive to incurring more debt at any level of government.

This is why one of the President’s proposals is particularly welcome:  eliminating the tax penalty currently levied on foreign pension funds investing in U.S. infrastructure. 

The U.S. is – has always been -- one of the most attractive markets for foreign investment in real estate.  And, recently, foreign pension funds have become increasingly attracted to investing in major U.S. infrastructure assets.  The reasons for this are many, but the combination of relative political and economic stability in the U.S. combined with the ability to put large allocations of dollars to work over long periods of time, typically 25 years or more, is attractive to large pension funds looking to match assets to the long term liabilities of their pensioners.  

Funds from Australia, Canada, the United Kingdom and other areas of Europe are already investing heavily in infrastructure in other parts of the world.  But being able to invest on an equal footing with domestic funds in public private partnerships and other ventures would likely increase their interest in U.S. infrastructure because they could diversify the risk in their infrastructure portfolios.