THE BLOG
02/21/2013 08:01 am ET | Updated Apr 23, 2013

SOTU: Obama Embraces Public-Private-Partnerships

In November of 2009, President Obama asked his Economic Recovery Board:

Obviously we're entering into an era of greater fiscal restraint as we move out of deep recession into a recovery. And the question I've had is people still got a lot of capital on the sidelines there that are looking for a good return. Is there a way to channel that private capital into partnering with the public sector to get some of this infrastructure built?

In the State of the Union Address, Obama answered his own question.  He announced a Partnership to Rebuild America intent on shepherding private capital into infrastructure projects:

And to make sure taxpayers don't shoulder the whole burden, I'm also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods; modern pipelines to withstand a storm; modern schools worthy of our children. Let's prove that there is no better place to do business than the United States of America. And let's start right away.

Almost all commentators of the State of the Union address either glossed over the proposal or else treated it as half-baked.  However, we don't have to be clairvoyants to understand what Obama is proposing with his Partnership to Rebuild America.  Rather, we need to place his proposal in the context of his own and others views on using private capital to rebuild our infrastructure.  Then we can assess where to go from here.

Here are four noteworthy aspects of his proposal:

1) The President justifies his partnership program by focusing primarily on the business case.  This focus is a departure for Obama who typically makes his case based upon job creation, increased mobility, and  resiliency.  For him, infrastructure has been about what binds us together.  Obama makes the business case in this way:

Ask any CEO where they'd rather locate and hire: a country with deteriorating roads and bridges, or one with high-speed rail and internet; high-tech schools and self-healing power grids.

2) Although Obama is making the cases for partnerships, he reminds us that the American Recovery and Reinvestment Act included partnerships.  In fact the Act included fifty-two partnership programs. Importantly, Obama underscores how popularthese partnerships have been among members of Congress. He puts it this way:

And I know that you want these job-creating projects in your districts. I've seen you all at the ribbon-cuttings.

3) One challenge that lawmakers face with public-private-partnerships is that different states have diverse needs.  For instance, no more than a dozen states make use of the transportation partnership program, TIFIA.  As such, the President chooses sectors - transportation, oil and gas pipelines, and schools- which every state in the nation can make use of one or several.

4) Obama almost always focuses on the repatriation of American firms as his main goal on the investment front.  With a Partnership to Rebuild America, he makes clear that his goal is to attract global businesses. He singles out the German multinational Siemens:

The CEO of Siemens America - a company that brought hundreds of new jobs to North Carolina - has said that if we upgrade our infrastructure, they'll bring even more jobs.

Where done go from here?

1)  The Obama Administration must convince Congress to embrace this approach which has proponents and detractors in both parties.  This means making clear what types of projects would be funded.

2) Given the number of cities and states as well as the diversity of private investors (pension funds, sovereign wealth funds, private equity, banks, etc.), one size fits all solutions will not address challenges effectively.  This means the Partnership to Rebuild America must have a fair amount of institutional capacity.

3) Importantly, lack of money is not stopping large-scale infrastructure initiatives.  Plenty of investors are keenly interested in our infrastructure.  Instead, we face a political problem.  Many projects are at a standstill or faltering entirely for political not financial reasons.  As a result, investors crave a decisive President who can bring projects to closure.  Obama has gone some way by introducing the Partnership program.  Having the President voice support for partnerships will go a long way to address the need for business confidence.  In doing so, however, the Administration must make certain that it is not throwing money at political problems.  Most infrastructure companies are not going to say "no" to free money.

4) Obama makes clear that partnerships reduce individuals tax burden. Tying the discussion to the reform of the tax code gives a sense that we can cut taxes and invest in a revenue neutral way. At least in this area.