HCS is officially a PRI Network Supporter 
HCS is officially a PRI Network Supporter
| Introduction to "Connecting the Dots" a new Heartland Blog Series This blog series authored by John Williams, Chairman & CEO of Impact Infrastructure, LLC and his associates is entitled, "Connecting the Dots." The series will focus on exploring questions and answers that fund trustees, consultants and institutional investors will need to ask if they are considering investments to rebuild America's infrastructure. The goal of the series is to expose investment managers and fiduciaries to techniques that are being used to reveal and track the full value of high impacting projects in the built and natural environment. There is great interest in investments in infrastructure, public buildings and ecosystem goods and services. At the same time, the use of institutional investments for infrastructure is contested turf. Elected officials, economists and labor leaders have sometimes rightly opposed pension investments in infrastructure due to the unwise use of privatization and resulting job losses and negative community impacts. However, new investment models are being developed that respect the roles and obligations of the public sector and the rights of working families. This series will guide readers through the latest developments as to tools and frameworks including performance metrics, risk analysis protocols and value-based rating systems that are advancing toward standardization and application in the project vetting process.
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America's New Infrastructure Bankers
First of Series, "Connecting The Dots"
By John Williams, Chairman & CEO of Impact Infrastructure, LLC and Adjunct Faculty Member at Columbia University’s School of International and Public Affairs
Seven years ago, destruction from Hurricane Katrina included levee and floodwall collapses and ultimately caused more than 
1,800 deaths. The importance of critical infrastructure was never clearer and the massive cost of ignoring it more evident. The destruction, loss of life, impacts to commerce and the cost of recovery were staggering. Thankfully, the federal government was able to bankroll billions of dollars in recovery and infrastructure replacements. After Hurricane Isaac, the residents of New Orleans (still haunted by the Katrina disaster) are expressing relief that the new levies provided adequate protection. Had Katrina struck today, instead of 2005, would the federal government have been willing to act as the “banker” for recovery and replacement?
According to the US EPA’s Clean Water and Drinking Water Gap Analysis released in 2002, there was a total gap (the difference between investment needs and anticipated needs) of $500 billion for capital investments and ongoing operations and maintenance costs. According to Governing Magazine, “the federal National Surface Transportation Infrastructure Financing Commission projects a federal highway and transit funding gap totaling $2.3 trillion through 2035 (Russell Nicholas and Ryan Honeywell).” Add in gaps in energy production and transmission, waste management, storm water management, as well as school and investments in other public building and the numbers swell into many trillions of dollars.
Donna Cooper of the Center for American progress reported in a February 2012 article, Meeting the Infrastructure Imperative, that two traditional adversaries, the U.S. Chamber of Commerce and the AFL-CIO, jointly called upon Congress to focus on upgrading our national infrastructure. Ms. Cooper concluded that, “Sadly, that hasn’t happened - yet.”
Even though our communities are battered by investment backlog, bridge failures and major storms (complicated by record summer and winter temperatures), local governments are strapped for cash. There is a lack of will to provide funding at the federal level.
Who will step in the role as America’s infrastructure bankers?
There is a growing interest in this field on the part of “Impact Investors:” family offices; philanthropic organizations; and pension funds that control large pools of capital. Thomas Croft, Managing Director of the Heartland Network estimates that institutional investors own $24 trillion worldwide, with nearly half coming from U.S. workers. According to the Global Investing Network (GIIN), “Impact investments aim to solve social and environmental challenges while generating financial returns.” These investors are eager to move into opportunities that deliver reasonable returns at reasonable risk. Infrastructure projects are a natural match. They provide long-term predicable returns, inflation protection, and positive social and environmental impact. Investments in infrastructure construction, operations and maintenance generate significant number of middle class and entry level jobs.
What about traditional banks? John Acher wrote in a Reuters article (Pension Funds Harness Wind Power to Drive Returns), published on August 12, 2012, that a “funding gap has emerged because banks are staying away, in compliance with new rules aimed at reducing risk.” The lack of government support and traditional loans make infrastructure financing even more difficult. Acher goes on to cite a OECD report published in September 2012, estimating that less than one percent of pension funds worldwide were invested in infrastructure projects.
Why not infrastructure projects? Members of the investment community frequently point to the lack of deal flow, cost of transactions, and deficiencies in due diligence that under-value benefits and overstate risk as being at the core of the problem. It is easier to invest in exotic vehicles like hedge funds and derivatives. Yet, Julie Creswell, NY Times, wrote on April 1, 2012 that “pensions find riskier funds fail to pay off.” She goes on to reveal that, “while their fees have soared, their returns have not. In fact, a number of retirement systems that have stuck with more traditional investments in stocks and bonds have performed better in recent years, for a fraction of the fees.”
Clearly the use of institutional investments is contested turf. Unions and policy leaders have sometimes opposed pension investments in infrastructure due to the unwise use of privatization and resulting job losses. However, new investment models are being developed that respect the role and obligation of the public sector and the rights of working families. It is time for fund owners, directors and trustees to demand a greater overall return (including impacts like job creation and positive social, environmental and governance impacts) to accompany infrastructure investments. Other problems, such as the lack of a project pipeline, cost of transaction and due diligence issues, are beginning to be addressed thanks to the mobilization of emerging "Infrastructure Banks."
Emerging new banks include the California Infrastructure and Economic Development Bank, the Chicago Infrastructure Trust,
and the West Coast Infrastructure Exchange. Each of these and others anticipate partnerships with institutional investors to fill the gap in the project evaluation process. There is progress being made to create a value- based rating systems that will pre-vet projects and guide them into the pipeline, reduce the cost of transactions and address risk and returns on a broader, more transparent and objective basis than ever.
The planning and engineering community is slowly but surely beginning to wake up to their obligation and will soon be equipped to thoroughly assess the sustainable business cases associated with the facilities they are designing. Program sponsors are beginning to face the reality that they must make the case for their projects in competition with many others to secure funding as investment priorities.
With all of this happening, the stage is set for the new American Infrastructure Bankers to step up and fill a role formerly played exclusively by public funding sources. These investors have the opportunity to reinforce the nation’s infrastructure and economy, while strengthening the human capital resources of our nation.
