We need to build bridges in this country. Not just between people, parties and agendas, but also real bridges – plus roads, improved broadband and other infrastructure.
Increasingly, we need infrastructure to be more productive and resilient to best alleviate growing flooding, pollution and local economic challenges in communities across our country. There are critical public works needs in most communities, but especially among those most vulnerable. America is getting a D+ on infrastructure from the American Society of Civil Engineers. This isn't an acceptable grade for our country.
The society estimates the deficit in deferred infrastructure spending at more than $450 billion a year, with failure to act costing the economy $3.9 trillion and 2.5 million jobs by 2025. At the same time, cities and states are facing new and growing challenges, and are increasingly looking toward forward-thinking solutions.
Existing and traditional infrastructure is being tested not only by infrequent, high-profile events such as Hurricanes Florence, Harvey, and Maria, but also by less extreme and more regular forces like moderate rainfall, sea level rise and urban heat island effects.
Solutions-oriented thinking is what's going to get us through these partisan times. And there is bipartisan support for taking on these efforts, from the president to House Speaker Nancy Pelosi to Senate Minority Leader Chuck Schumer, who met April 29 with other congressional leaders to discuss this concern and their mutual interest in a $2 trillion package.
The meeting went well, but the hang-up is how to pay for it. Another meeting is scheduled for next week to discuss that, with Republicans leaning toward private financing and Democrats toward public spending. But there is a solution that could have some traditional government and private spending, along with a new component that would carry the day for the gap that these means cannot feasibly handle legislatively in a bipartisan way. This involves innovative infrastructure solutions and innovative ways to pay for them.
Enter pay-for-success financing. These financial structures allow repayment based on the outcomes generated by projects rather than on the projects themselves.
One such model is the environmental impact bond, which is typically issued as an actual municipal bond. Private investors provide upfront capital for innovative solutions and take the financial risk that the programs will deliver the economic, environmental or social outcomes at the levels predicted.
By connecting returns to project outcomes, governments pay for success on the back end instead of projections and hope on the front end, and their repayment is linked to the economic and financial value of these outcomes. In this model, everyone's incentives are aligned – taxpayers, governments, investors and implementing firms.
Pay-for-success can connect all these stakeholders without triggering “privatization” concerns since public-sector assets remain with the public sector.
By linking payments to outcomes, pay-for-success has an opportunity to make capital more efficient, and positively affect social and environmental factors. Pay-for-success fills in gaps in existing funding by forging creative connections to additional beneficiaries who may be incentivized to help pay if they can enjoy the financial and social outcomes.
Whether it's issues of health care, education or the environment, there are emerging and innovative approaches to tying outcomes to performance.
For green, resilient, recreational infrastructure, Quantified Ventures is proving environmental impact bonds work in big, well-resourced cities, and smaller, more rural, or less well-resourced areas alike. From stormwater, flooding and coastal resilience challenges in Washington, D.C., Atlanta and Lafourche Parish, Louisiana, to micro-grid efficiency in Camden, New Jersey, to economic and recreational improvements in Athens County, Ohio. Blue Forest Conservation developed the Forest Resilience Bond, an innovative public-private partnership model that enables private capital to fund forest restoration to reduce catastrophic fire risk.
Such vehicles can accelerate the pace and scale of projects, mitigate risk, and enable the evaluation and disclosure of outcomes – all good things when dealing with big infrastructure endeavors.
There is bipartisan precedence for the pay-for-success model in the social sector. Within the last couple of weeks, the FINISH Act – introduced by Sens. Todd Young, R-Ind.; Michael Bennet, D-Colo.; and Rick Scott, R-Fla. – employed this model to help further innovation in higher education.
These tools work. They give more transparency on outcomes. They deliver solid investment returns. They create innovative approaches to solving seemingly intractable problems.
Let's build on these successes through action.
Policymakers: Draft, socialize and support federal legislation that encourages and accounts for pay-for-success models in the infrastructure and environmental sectors.
Voters: Spark innovation in government by encouraging public officials to pilot pay-for-success projects with the aim of delivering equitable results with more efficient spending of dollars.
Investors: Seek out existing and emerging financing structures that yield attractive or better-than-par returns while generating positive social and environmental effects by building critical and multiple-benefit infrastructure.
Public officials: Explore and engage innovative ways to pay for projects. Look to other cities to see how they are doing it, build upon that work and optimize it for your area.
The infrastructure need is well-understood and agreed-upon. The solutions are known. The private capital is available. A comprehensive financing approach will be needed, so let's gather federal dollars, state and local governments' support, private investors and outcomes-based financing to deliver on the promise of America's infrastructure and innovation.
By working together on this venture, Republicans and Democrats can, indeed, build bridges between one another as they build bridges to improve our infrastructure.
Ben Cohen is a director at Quantified Ventures and leads their investments in urban and coastal resilience. Neil Wollman, a former professor at Manchester University, is a senior fellow at Bentley University in Waltham, Massachusetts, and is the previous co-director of the National Prevention Science Coalition.