WASHINGTON, DC-For years European and Australian governments have funded infrastructure projects from toll roads to water utility and electrical plants through public private partnerships. This business model has been more the exception than the rule in the US to date. But, a new analysis by the Urban Land Institute and Ernst & Young predicts that this form of funding will become more popular in the coming years in this country. That means, “Not only will it lead to a revitalized infrastructure here, but it will also open new opportunities to institutional investors,” Chris Lawton, a partner with Ernst & Young tells GlobeSt.com.

Infrastructure 2007: A Global Perspective predicts infrastructure will emerge as a new asset class for institutional investors, such as pension funds, which are seeking stable growth that can keep up with inflation. Already in Europe, the report says, a secondary market is poised to develop in which early-in investment banks sell holdings to longer-term pension funds who have gained confidence in the consistent track records of this new asset class.

The report leads off with the dismaying finding that the US’ transportation infrastructure–airports, public transit, railway systems, roads and bridges–is an emerging crisis that will eventually erode cities’ abilities to compete globally. This is due to years of underinvestment by the government.

By contrast, countries in Europe, as well as China, Japan and India have been aggressively tapping the private sector and using various permutations of public-private partnerships for funding, construction, operations and management of infrastructure.

But there are a number of hurdles before the US embraces this model. The report’s survey of transportation planners found that while 37% predicted privatization would be a likely source of future funding, 44% said it would be unlikely.

Still progress is being made towards attaining this goal of greater public-private partnership: 28 states, for instance, have passed legislation enabling private market investment in infrastructure. Also, there have been a number of funds aimed at infrastructure investment launched over the last year or so, Lawton also notes.

“The best measure against which we can compare where the US should be is overseas. In the UK, which has the greatest material PPP market, between 10% to 15% of government spending on infrastructure is via a PPP model.”

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