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October 16th, 2008
THE DIG
Hard Times

Already, the financial crisis has affected infrastructure projects throughout America.

On Sept. 19, the St. Louis Post-Dispatch reported, “Troubles in the national credit market have forced Missouri to scrap a plan to use private funds to fix its 802 worst bridges.” Proposed in 2006, the Missouri Safe and Sound Bridge program “was offered as a new model for states wanting to repair or replace hundreds of decaying bridges without issuing more bonds.” By forming this Public-Private Partnership (PPP), the state would have hired a single contractor to work on and pay for the project through private financing. In turn, the state would have reimbursed the contractor for the work and 25 years of upkeep. When the project was first proposed, private financing had lower interest rates than public. But, as the credit markets have raised interest rates, private financing is too expensive. The state is now forced to bond money to itself in order to get the project underway.

According to the Miami Herald on Sept. 27, another PPP in Florida, the Port of Miami Tunnel project, may also stall. Similar to the Missouri Safe and Sound Bridge program, the current economic downturn has caused the credit and bond markets to continue to make privately funded ventures more costly than public. Under the tentative plan, the tunnel is to be built and operated for 35 years by Sydney-based Babcock & Brown Limited and Paris-based Bouygues Travaux Publics SA. It is also supposed to be the largest infrastructure project ever built and overseen by a single private entity. Lehman Brothers Holdings Inc., until the investment bank liquidated in mid-Sept., was to have been the lead underwriter for the project. But, even in uncertain economic times, the private financiers still want to go ahead with the project. The state of Florida, however, hopes to wait until December to make a final decision.

In New York on Sept. 26, The New York Times reported, state officials announced a $16 billion plan to replace, not rebuild, the Tappan Zee Bridge over the Hudson River. The new bridge, if built, would have room for commuter trains and high-speed bus lanes. The state will both seek federal financing and consider private partnerships to fund the project.

But, even as PPPs remain as an alternative option to replace and repair America’s aging infrastructure, interest rates in the credit and bond markets are still too high for some projects to be privately financed or considered by state governments.

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