Demolition as part of Presidio Parkway project, a high-profile public-private partnership construction project. (Photo Credit: Kevin Toy/Flickr)
It’s a problem state government can’t solve with existing resources, the private sector won’t take on without public partners, and nonprofits can’t address alone.
California lacks funding for every type of infrastructure—from moving goods to moving information—but the scope of this challenge (a $300 billion shortfall over the next 10 years just for maintaining the state’s transportation system) has proven too much for traditional public investment. The state and federal government simply haven’t been able to close these gaps.
At the Growing the Impact Economy Summit in San Francisco this week, a group of infrastructure experts and practitioners explored a different way of doing business: building a new working relationship among the public, private, and nonprofit sectors in the so-called “fourth sector,” an emerging legal and organizational framework that may be the key to addressing the state’s most complex challenges.
“The question is: How do you meet in the fourth sector?” asked Peter Luchetti, managing partner at Table Rock Capital and the governor’s appointee on the board of the California Infrastructure & Economic Development Bank, who facilitated the Impact Summit’s infrastructure action lab, one of several priority areas explored in the conference. “In infrastructure, this is fairly straightforward: From communications to broadband, energy to water, funding translates into actual projects—improving the built environment and expanding economic development by investing capital.”
In the rest of the world, Luchetti pointed out, these projects don’t exist solely in the public domain. During his 12 years running Bank of America’s global project finance operation, Luchetti put together infrastructure deals everywhere from Bangladesh and Pakistan to Chile, Chad, and Cameroon. “Every one of those projects wouldn’t have been done if people hadn’t rallied around the fourth sector,” said Luchetti, referring to carefully constructed arrangements between governments, NGOs, and private investors that allowed communities lacking resources to build everything from oil pipelines to local roads.
“In the U.S., this isn’t how we do business. Here, we live in just one sector: People dig in their heels when you approach them with an idea that blurs these lines,” said Luchetti. “We need to take what we’ve learned from the developing world, where it was proving extremely difficult to get projects done, adopt those ideas and bring them here.”
12 new ideas for closing infrastructure funding gaps
How exactly to do this in California was the focus of the infrastructure action lab—with experts from across the fourth sector making 12 commitments to explore new approaches to investing in everything from goods movement and broadband to water facilities. These ideas are outlined below, along with the organizations that have committed to supporting them.
- Work to align a designated portion of California’s new cap-and-trade investments (an over $2 billion-a-year source of revenue) with the Public Utility Commission’s energy efficiency and broadband access initiatives in communities of need. While the state has made reduction of greenhouse gas emissions a top priority, local governments are also competing for hundreds of millions of dollars in funding for “energy efficiency” projects from the PUC. A fourth sector effort can bring together state agencies, local governments, and energy utilities to better align their efforts to support low-income communities and expand broadband access. Partners: California Emerging Technology Fund and the Local Government Commission.
- Develop a plan for multi-modal goods movement funding solutions, in particular new financing opportunities to support a Southern California Association of Government (SCAG) goods movement plan that has been stalled for 15 years due to lack of funding. With the creation of California’s new Enhanced Infrastructure Financing Districts authority, local governments now have a financing platform that can support regional infrastructure investments by bundling an unprecedented array of local funding streams—and connecting them with private capital. “We’ve never had capacity before to organize ourselves to address these issues,” said Mark Pisano, a longtime SCAG director who is now with the Southwest Megaregion Alliance, outlining the complex congestion and air quality challenges associated with the movement of goods out of Los Angeles ports to the region’s far-flung distribution centers. “With EIFDs, we finally have it: a way to tap into the wealth that will be created by a project and translate it into funding streams to get it done. This is the closest thing we have to a public benefit corporation in the state. Now it’s a cultural issue: How can we develop the leadership we need to use them? That’s our challenge.” Partners: Southwest Megaregion Alliance, California Transportation Commission board member Fran Inman, California Infrastructure & Economic Development Bank, California Economic Summit.
- Pilot an Enhanced Infrastructure Financing District for a portion of the Hollywood Freeway. The Southern California Association of Governments has issued a request for proposals to form the first EIFD in the state to support the construction of a 44-acre park sitting atop a section of the 101 freeway as it passed through a densely populated part of North Hollywood. Partners: SCAG, Southwest Megaregion Alliance, Local Government Commission, California Economic Summit.
- Influence the agenda for the new legislative special session on infrastructure with fourth sector and CA Economic Summit principles. The governor has convened a special session this summer to explore funding options for the state’s transportation system, including improvements to the state’s key trade corridors. For decades, this system has relied on gas tax revenues that are now struggling to keep pace with demand as cars become more fuel-efficient. The California Economic Summit and fourth sector partners will urge lawmakers to develop a stable long-term source of funding—provided at the necessary scale and prioritizing the needs of low-income communities—that can be distributed quickly, paired with a set of clear outcomes, and structured in ways that allow a match from the private sector. Where possible, these resources should also be able to interact with local EIFDs. Partners: California Economic Summit, Southwest Megaregion Alliance.
- Develop a way to expand the reach of EIFDs by allowing local governments to tap a broader portion of community-wide property tax revenues for fourth sector investment. While existing law allows local governments to reinvest the growth in property tax revenues created within a financing district, there may be ways to attract more private investment: One option would involve allowing EIFDs to finance projects not just with revenue from the districts—but by tapping a portion of the community-wide growth in property taxes attributable to the state’s Vehicle License Fee backfill. Partners: Southwest Megaregion Alliance, CA Fwd, CA Economic Summit.
- Develop regional/urban impact investing intermediary to build and finance projects, as well as a business plan that will allow institutional investors to partner with public and philanthropic partners to support community and economic development. This place-based effort aims to promote regional partnerships that can help channel capital from investors, which are currently invested globally, back into local economies. Partners: Bay Area Impact Investing Initiative.
- Develop a proposal to identify and recruit a volunteer network of experts who can contribute to developing fourth sector business plans. This effort will seek out retired and active financial professionals willing to offer pro bono services and then to match these individuals with not-for-profits and public agencies that need assistance formulating and writing financial plans attractive to debt and equity investors. Partners: Public Sector Credit Solutions, CA Fwd.
- Develop business plans for watershed-wide planning systems that can be used by local agencies, private investors, and community-based groups to make sustainable land use decisions. This includes creating a financing plan for the Newport Bay Watershed Idea Book (Partners: Table Rock Capital, Connective Issue, Inc., and Stakeholders Capital), as well as stormwater capture systems along the Los Angeles River (Partners: Southwest Megaregion Alliance, Connective Issue, Inc., Stakeholders Capital, NCLSteele Consulting).
- Promote the California I-Bank as convener to develop capacity for fourth sector investment in infrastructure, possibly including regional meetings. This effort could support project proponents eager to develop business plans that could access both public and private investment. Partners: I-Bank board member Peter Luchetti, CA Economic Summit.
- Develop a new business model for funding major water storage projects which will leverage existing funds and protect watersheds. Partners: MWH Americas, Southwest Megaregion Alliance, CA Economic Summit.
- Complete survey of California’s more than 14,000 existing capital improvement projects, then solicit ideas from the group to peer review a set of questions for local leaders about using EIFDs, public-private partnerships, and the fourth sector. Crowdsource a statewide map of infrastructure projects. Partner: Crowdbrite, Local Government Commission.
- Structure a San Joaquin Valley Fourth Sector Equity Fund for economic development, focusing in particular on ideas for funding innovations in agriculture and water use. Partners: CA Economic Summit, City of Fresno, California Infrastructure & Economic Development Bank.