For a variety of reasons, the mixed track record of rebuilding projects suggests that the $1 trillion that President Donald Trump wants to invest in U.S. infrastructure by way of public-private partnerships may not be a slam-dunk for investors.
As several PPPs have demonstrated recently — such as the Chicago Skyway's $2.83 billion sale in 2015 and Westinghouse Electric's high-profile bankruptcy declaration in March — infrastructure funding can swing from success story to cautionary tale.
Amid a patchwork of decaying U.S. roads, bridges, schools and water systems, an increasing share of municipal debt is being devoted to shoring up these structures. According to data from investment management firm PIMCO, about 58 percent of the outstanding tax-exempt municipal debt in the Barclays Muni IG Index is issued for infrastructure purposes.
Yet experts warn that, for a variety of reasons, most infrastructure projects lack the revenue stream and return on equity needed to attract private investors.
"We see a lot of need for infrastructure investment, but the areas where [it's needed] are not necessarily aligned with what public-private partnerships may target, or with what the state and local governments might be willing to turn over to a private operator," David Hammer, executive vice president and head of municipal bond portfolio management at PIMCO, told CNBC in a recent interview.
In view of past experiences, "it's unlikely that you'd see state and local governments use public-private partnerships to address water and sewer needs," for example, Hammer added.
That's true even for cash-strapped cities like Detroit, whose water and sewer system is one of its more valuable assets — making officials reluctant to fully privatize the system, he added.
To be certain, there's still a healthy appetite for public-private investment for massive projects such as New York's $4 billion overhaul of a major terminal at LaGuardia Airport. Meanwhile, a more than $1 billion revamp of John F. Kennedy International's Terminal 8 was considered a success for private investors.
However, Westinghouse's cost overruns for its nuclear power plants show how hard it's become for private entities to ensure an appropriate rate of return when the political or regulatory winds shift against them. Given the long timetable required to birth such projects, roadblocks can be hard to predict.
"These are often generational projects. The idea is that the requirements surrounding those projects, for the safety of all of us, will change as our knowledge base changes," said Nick Venditti, a portfolio manager at Thornburg Investment Management.