Using Pension Funds to Build Infrastructure and Put Americans to Work

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Using Pension Fundsto Build Infrastructure and

Put Americans to WorkDonna Cooper and John F. Craig March 2013

WWW.AMERICANPROGRESS.O


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Using Pension Funds toBuild Infrastructure andPut Americans to Work

Donna Cooper and John F. Craig March 2013

COVER PHOTO

A worker levels dirt or a light rail bridge construction project over the Willamette River in Portland, Ore., Friday, Oct. 5, 2012. The LaborDepartment reported Friday that the unemployment rate ell to 7.8 percent in September, a decline o 0.3 percentage point and the lowestsince January 2009. The government said the economy created 114,000 jobs, about as expected, and generated 86,000 more jobs in Julyand August than rst estimated. AP PHOTO


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1 Introduction and summary

6 Background

6 Tax-related infrastructure incentives

7 Direct federal financing incentives

9 U.S. pension funds are increasing their commitments to invest in U.S.

infrastructure projects

14 U.S. pension funds are increasing their capacity

to invest in infrastructure17 Barriers to pension fund growth

18 Increasing the pace of pension-fund investments in infrastructure

27 Conclusion

28 About the authors and acknowledgements

29 Endnotes

Contents


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1 Center or American Progress | Using Pension Funds to Build Inrastructure and Put Americans to Work

Introduction and summary

Americas inrasrucureis roads, bridges, waer and sewer sysems, energy

grids, and elecommunicaions sysems, o name a ewis oudaed and is, in ar

oo many places, crumbling due o lack o sucien public invesmen.1 Americas

consrucion workers aced levels o unemploymen close o 14 percen in 2012,2

and our consrucion indusry is experiencing lackluser levels o aciviy, as he

value added by he indusry in 2011 was sill more han $100 billion lower han

he prerecession high.3 And while public and privae employee pension unds are

conroning disressing levels o ununded liabiliies due o he mos recen markecrash and rising levels o reiremenwih 90 percen o he pension unds ha

responded o a Wilshire Consuling survey reporing higher amouns o liabiliies

han asses4public pension unds and privae unds managing union pensions

have more han $4.5 rillion in asses.5 Any one o hese indicaors alone would

signal deep economic disress. ogeher, hey should be seting o alarm bells ha

new economic policies are needed. Te Cener or American Progress is calling or

new ederal policies ha encourage responsible pension-und invesmen in U.S.

inrasrucure projecs because such policies can help reverse hese negaive rends

and make a signican conribuion o puting he economy on sounder ooing.

Te Cener or American Progress esimaes ha all levels o governmen, ogeher

wih he privae secor, inves approximaely $130 billion annually in energy,

surace ransporaion, and waer inrasrucure.6 Bu he esimaes also show ha

an addiional $129 billion per year is needed or a leas he nex 10 years o repair

and improve our ransporaion and waer sysems, dams and levees, and energy

inrasrucure, all o which are criical o supporing globally compeiive busi-

nesses and a high qualiy o lie in communiies across America.7

Privae invesmen rom sources such as pension unds canno close his gap ininrasrucure unding unilaerally. Neverheless, i makes sense o nd ways o

accelerae privae invesmen in inrasrucure so ha annual governmen appropria-

ions can be direced o projecs in which user ees or oher dedicaed revenues such

as gas axes or sales axes and he expanded use o ollingees charged or he use


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o highway aciliiesis no likely o be sucien o repay invesors. CAP esimaes

ha a leas $60 billion a year in inrasrucure improvemens could be nanced

wih privae capial, hereby relieving ederal and sae budges o his upron cos,

alhough in some cases governmen appropriaions may be par o he mix o unds

used o repay invesors over ime.8 Even wih a ready and eager pool o privae inves-

men capial, public policies ha promoe an increase in dedicaed revenues areneeded o generae he unds necessary o repay invesors or heir risk and eor.

Canada, Ausralia, and many o he EU naions are invesing more in heir

inrasrucure and modernizing i a a more rapid pace han he Unied Saes.9 A

signican porion o his updaing and expansion is being nanced wih pension-

und capial invesed in projecs hrough public-privae parnerships, which give

invesors an equiy sake in he inrasrucure asse hrough a long-erm lease

commonly known as a concession agreemenor hrough ourigh ownership.10

In some high-prole inrasrucure projecs overseas, U.S. pension unds are major

invesors. Te larges public pension und in he Unied Saes, he CaliorniaPublic Employee Reiremen Sysem, or insance, recenly ook a 12.7 percen

equiy sake in he London Gawick Airpor wih a $155 million invesmen.11

Pension unds are making hese ypes o invesmens when opporuniies align

well wih heir invesmen-porolio needs and can hus conribue o achieving

und solvency. Over he nex decade invesmen consulans orecas ha pen-

sion unds will inves $3.5 rillion in radiional inrasrucure and wha is ermed

social inrasrucurepublic buildings such as schools, governmen aciliies,

and hospials.12 According o Te Financial News, he invesmens in hese

unds would build 170,000 new hospials or pay or 73,000 miles o hree-lane

moorway, enough o circle he globe hree imes.13

Tis hey level o invesmens represens a very small share o overall U.S. and inerna-

ional pension-und invesmens. Te Organisaion or Economic Co-operaion and

Developmen, or OECD, esimaes ha less han 1 percen o pension unds world-

wide are invesed in inrasrucure projecs, excluding indirec invesmen in inra-

srucure via he equiy o lised uiliy companies and inrasrucure companies.14

U.S. pension unds are much less acive in inrasrucure invesmen han heircounerpars in Canada, Ausralia, and he European Union. In Ausralia, reiremen

unds, known as superannuaion unds, are increasingly invesing in inrasrucure. 15

While hese Ausralian unds also sruggle o nd nancially easible domesic

inrasrucure projecs in which o inves, heir domesic marke is mauring. An


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average o approximaely 5 percen o heir asses is invesed in Ausralia, wih some

unds invesmen sakes in he double digis and represening as much as $80 billion

available o inves in inrasrucure.16 Te quesion is: Why are U.S. pension unds

less acive in inrasrucure invesmen han heir inernaional counerpars? Wha

can be done o spur such invesmen in nancially rewarding and publicly needed

domesic inrasrucure projecs? Tis repor highlighs he key challenges haU.S. pension unds ace in increasing ransporaion-relaed invesmens in roads,

bridges, pors, waerways, airpors, ransi, and rail. I hen discusses policy opions

ha are aimed a reducing or removing hese barriers.

One key acor in he relaively low level o pension-und engagemen in U.S. inra-

srucure invesmen is he exisence o he robus ax-exemp municipal-bond

marke, ypically reerred o as he muni marke. In 2012 his nearly $400 billion

marke oered saes and localiies easy access o low-cos capial or inrasruc-

ure projecs.17 Municipal bonds are nancially benecial o invesors wih ax

liabiliies. Since pension unds are no axable eniies, inrasrucure projecsnanced wih ax-exemp deb don oer pension unds a nancially atracive

vehicle hrough which o make invesmen in U.S. inrasrucure projecs. Tas

he reason pension unds don ener he muni marke. Likewise, neiher sae

and local governmens nor quasi-governmenal eniies such as pors and airpors

need o engage pension invesors because o he srengh o he muni marke.

Beyond he muni markes eec o crowding ou ax-exemp invesors, where

here are inrasrucure invesmens in he Unied Saes ha oer a compeiive

rae o reurn o pension unds, he unds hemselves have conroned signi-

can barriers o invesmens. Tese barriers include a lack o experience; lack o

invesmen-review capaciy; he pauciy o opporuniies or invesmens ha

align wih pension-und needs and expecaions; a mismach beween inrasruc-

ure deal srucure and size and pension-und needs and obligaions; an aversion

o operaional and headline risks where here is a possibiliy o negaive publiciy

associaed wih he invesmen; and poliical confic and uncerainy where he

viabiliy o an invesmen can become subjec o legislaive acion.

One reason o address hese barriers is ha adding pension unds o he inves-

or able increases he number o willing invesors, which in urn increases hesupply o capial, creaing a healhier markeplace ha can produce a lower cos

or capial. In addiion, engaging pension unds a he invesor able can mean ha

here is an invesor ha will demand employmen policies ha will ensure ha

workers are well rained and well paid hroughou he consrucion and operaion

o he projecs.18 For hese reasons, CAP believes ha a sraegy ha increases


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pension-und invesmen in inrasrucure will conribue o increasing he pace

o American inrasrucure repair and improvemen while boosing he likelihood

ha our projecs are buil by well-rained workers who can do high-qualiy work.

New ederal and sae policies and resources can address some o hese chal-

lenges by helping make pension unds more knowledgeable o and comor-able wih inrasrucure invesmens. Opions include policies ha close he

knowledge and capaciy gap hrough educaion and raining, increase invesor

condence in he inrasrucure secor, and boos he predicabiliy o reurns

on such invesmens. Specically, we sugges:

Closing the information gap to build experience

Esablish a naional inrasrucure bank ha has he capaciy o hire expers who can

work wih pension unds where invesmen needs align wih inrasrucure projecs.

Provide seed capial o launch a nework o ee-suppored nonpro inerme-

diaries ha are no aliaed wih any inrasrucure unds or oher privae-

invesmen vehicles o disseminae o pension-und sa, rusees, and advisors

experise in pension and inrasrucure invesing.

Suppor small working conerences where pension-und managers and projec

sponsors work joinly on producs, merics, emplaes, and any oher necessary

documens or inormaion ha can enable pension unds o review projecs

according o heir needs and give projec sponsors a well-inormed approach o

seeking parnerships wih pension unds.

Esablish an indusry-sandard group ha would bring pension unds ogeher

o esablish benchmarks or inrasrucure invesmen and consider pruden ee

srucures or public pension unds invesing in projecs unded in par hrough

ax credis, public grans, or publicly subsidized deb.

Use he raining capaciy o he U.S. Deparmen o ransporaion o prepare

sae ransporaion deparmens o work in parnership wih pension unds,including hrough he creaion o emplaes or responsible conracor policies

and claricaion abou wha caegories o projecs are likely o be approved

or privae nancing, as well as hrough claricaion o sae perormance and

he earnings expecaions o privae invesors. ap he experise o he U.S.

Deparmen o Labor o increase he undersanding o Employee Reiremen


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Income Securiy Ac-relaed requiremens and he degree o which inrasruc-

ure invesmens mee hose requiremens or privae-pension-und rusees,

managers, and advisors. Where urher claricaion is required, he Deparmen

o Labor should underake releasing such guidance.

Increasing confidence in the soundness of infrastructure investments

Fund a pension-rusee raining insiue ha prepares maerials or pension-

und duciaries and adminisraors ha can build rusee undersanding o inra-

srucure invesmen and separae he acs and myhs abou invesmens made

in his secor. Charge he insiue wih creaing ools o help rusees consider

risksso ha sound decisions can be made abou he likelihood o nancial or

headline risks and he opions or addressing hese risks should hey maerialize.

Increasing the financial return to pension funds for investing

Launch a new ederally subsidized, axable bond insrumen ha can oer pen-

sion unds sucien reurn or deb invesmens in inrasrucure. Enable inra-

srucure projecs where pension unds are majoriy equiy owners in order o

ap he ax-exemp bond markes or he share o ownership under heir conrol.

Improve U.S. loan-guaranee and credi-enhancemen opions o improve pro-

ecions available or projecs in which pension unds are equiy owners.

Ensuring that project financing is reliable and predictable

Enable saes o use olling on all highway lanes where olling is viable hrough-

ou he Naional Highway Sysem.

Increase he amoun o dedicaed and predicable ederal revenues available or

saes o use o oer a reliable and compeiive rae o reurn o invesors.

Tis paper describes he curren sae o pension-und aciviy in inrasrucure

invesmens in he ransporaion-relaed secors, explains he barriers o mobiliz-

ing more pension-und invesmen in he secor, and oers recommendaions o

address hese challenges.


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Background

Te U.S. governmen oers many incenives or privae invesors o parici-

pae in ransporaion- relaed and oher inrasrucure invesmens. Tese

opions include ax-exemp municipal bonds, ax-exemp privae-aciviy bonds,

androm 2009 o 2011subsidized axable bonds known as Build America

Bonds. Te governmen also exends credi o privaely nanced inrasrucure

projecs via subsidized loans and loan guaranees rom programs such as he

ransporaion Inrasrucure Finance and Innovaion Ac. A review o hese ed-

erally suppored invesmen approaches is useul in undersanding he landscapeo inrasrucure invesmenand how changes o i migh increase pension-und

ransporaion-relaed invesmens.

Tax-related infrastructure incentives

Te ederal governmen currenly has several ax-expendiure programs ha are

argeed in par oward increasing he amoun o privae capial invesed in inra-

srucure. ax-exemp municipal bonds and privae-aciviy bonds can be used o

nance a variey o inrasrucure projecs, as ollows:

Tax-exempt municipal bonds: Saes and localiies may issue ax-exemp munic-

ipal bonds in order o und publicly owned inrasrucure aciliies, including

roads, waer aciliies, and various oher publicly owned projecs.19 Purchasers o

he bonds are no axed on he ineres earned on hese bonds, which allows he

governmenal issuers o atrac wiling invesors while beneing rom a reduced

projec cos as a resul o he lower ineres rae.20

Private activity bonds: Saes and localiies may also issue ax-exemp privae-aciviy bonds on behal o privaely owned aciliies, including airpors, pors,

local mass ransi sysems, and public-works aciliies.21 Tese bonds provide

privae-inrasrucure owners access o an aordable opion or nancing he

mainenance and developmen o publicly used aciliies.


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By ar, he mos powerul ederal subsidy or atracing privae invesmen in rans-

poraion inrasrucure is ax-exemp deb. Ou o he approximaely $340 billion

in long-erm, ax-exemp bonds issued in 2010, approximaely $24 billion was

issued or new ransporaion projecs and $22 billion was issued o renance pre-

vious ransporaion projecs.22 ax-exemp municipal bonds are highly valued by

sae and local governmens because hey oer relaively simple access o low-coscapial. Te ax-exemp naure o hese bonds, however, does no atrac invesors

who have no U.S. ax liabiliy, which is precisely he case or pension unds since

hey are ax-exemp eniies.

In 2009 and 2010 he American Recovery and Reinvesmen Ac o 2009 cre-

aed a bond program ha encouraged invesors wihou ax liabiliy o inves in

municipal bonds. Saes and localiies were permited o issue Build America

Bonds, which were axable wih a ederal subsidy o 35 percen ha he sae or

local governmens could use o subsidize he ineres coss.23 Te issuance o hese

bonds oaled approximaely $120.1 billion in 2010, wih ransporaion consruc-ion and improvemen projecs making up $29.4 billion o he oal.24

Te issuance o he Build America Bonds saved sae and municipal governmens

approximaely $20 billion, and because o he oherwise axable bu higher iner-

es raes hese bonds oered, hey were quie atracive o long-erm insiuional

invesors such as pension unds.25 Tough he Build America Bond program

expired a he end o 2010,26 he program demonsraed he poenial ha sub-

sidized axable bonds have or encouraging ax-exemp insiuional and oher

invesors such as pension unds o ener he inrasrucure secor.

Direct federal financing incentives

In addiion o subsidizing ax-exemp bonds, he U.S. governmen also lowers he

cos o inrasrucure projecs hrough several direc-loan and loan-guaranee pro-

grams. Tese programs oer projecs or companies ha pass rigorous sandards a

ederal subsidy ha boh lowers he projec cos and susains invesmen reurns,

making projecs more easible or privae invesors such as pension unds.

Transportation Infrastructure Finance and Innovation Act.Trough loan guaranees,direc loans, and sandby lines o credi, he ransporaion Inrasrucure Finance

and Innovaion Ac, or IFIA, provides assisance o signican surace-ranspora-

ion projecs.27 Trough IFIA, he U.S. Deparmen o ransporaion grans loans


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o qualied projecs a an ineres rae near U.S. reasury raes, wih a credi subsidy

paid or by appropriaed ederal unds.28 Te Federal Credi Reorm Ac requires

ha o esablish he credi subsidy, a cos assessmen mus be perormed by boh he

U.S. Oce o Managemen and Budge and he Deparmen o ransporaion ha

akes ino accoun expeced repaymens, deauls, recoveries, and any ineres or ees

colleced over he lie o he loan, adjused o curren dollars.29

Each dollar o ederalunding used oward providing credi subsidies under IFIA allows he Deparmen

o ransporaion o issue approximaely $10 in lending near U.S. reasury iner-

es raes.30 In addiion, he ac requires projecs o have no more han 33 percen

o heir esimaed projec cos paid or by ederal credi assisance.31 As such, each

dollar appropriaed o provide credi subsidies hrough he ac resuls in up o $20 in

invesmen rom oher governmenal and privae sources.32 Te program has been

approved o provide up o $1.75 billion in credi subsidies in 2013 and 2014,33 which

in urn will provide up o $50 billion in new inrasrucure invesmen.34

Railroad Rehabilitation & Improvement Financing program. Tis program auho-rizes he Federal Railroad Adminisraion o provide up o $35 billion in direc

loans and loan guaranees o nance improvemens o racks, bridges, yards, and

buildings and develop new inermodal aciliies ha connec oher orms o rans-

poraion o railways.35 Te program has made $1.7 billion in loan agreemens o

dae, and almos $1 billion o ha lending has occurred since he sar o 2009.36

Te credi subsidy or his program is calculaed in he same manner as he rules

The ederally subsidized loan programs lower project costs, which in

turn can modestly boost the long-term rate o return or investors. As

a result, inrastructure projects that tap these loans are increasingly

attracting private investors, including pension unds such as:

Teachers Insurance and Annuity Association - College

Retirement Equities Fund, or TIAA-CREF. One o the largest U.S.

pension unds, with $502 billion in assets under management,38 this

pension und is a 50 percent equity partner in the private company

that will design, build, nance, operate and maintain the I-595 road-

way in Broward County, Florida, over a 35-year contract.39 The

sion und invested more than $100 million in the $1.8 billion pr

which also received a TIFIA loan o $603 million in 2009.40

Dallas Police and Fire Pension System.A $3 billion und,41

became a partner in the North Tarrant Express project in 2009. Th

pension und invested about $43 million in this $2 billion express

project in the Fort Worth area,42 which also had a $650 million TIF

loan and raised $398 million rom issuing private-activity bonds

exempt bonds available to private owners o publicly used acilit

New infrastructure capacity made possible by pension funds working in partnershipwith federal loan programs


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o he Federal Credi Reorm Ac, bu unlike he ransporaion Inrasrucure

Finance and Innovaion Ac, unding or he Railroad Rehabiliaion &

Improvemen Financing program is no appropriaed by Congress o ose he

credi subsidy.37 As a resul, he borrower pays back o he governmen he ull cos

o he loan plus he ull cos o he credi subsidy.

U.S. pension funds are increasing their commitments to invest in

U.S. infrastructure projects

Federal laws wisely require ha pension-und rusees base heir invesmen deci-

sions exclusively on wha is in he bes ineres o und beneciaries. As a resul,

pension-und rusees mus limi und invesmens o hose ha oer reasonable

and predicable reurns and pose risks ha are appropriae o keeping pension

promises. A he same ime, is possible o argue ha crumbling inrasrucure,

high unemploymen, and weak labor proecions canin he long rununder-mine pension unds nancial condiions. Sill, he relaively brigh-line rules ha

prescribe duciary responsibiliies o pension rusees are reasonable because

broader inerpreaions o beneciary ineress can be subjec o manipulaion ha

could pu reirees a risk and exacerbae he ununded-pension-liabiliy crisis.

Broadly stated, the duciary responsibility o pension-und trustees andadministrators o private single- and multiemployer pension unds or

public pension unds are similar, though particular details might difer.

The Employee Retirement Income Security Act governs the duciary

duty o private-pension-und trusteesincluding those or multi-

employer pension undswhich typically cover union retirees.44

These private-pension-und trustees are subject to the exclusive

interest and sole purpose rules, which require that they act in the

sole purpose o providing benets to the und while incurring only

reasonable administrative costs.45

Public pension unds, which manage the retirement benets ostate and local government retirees, are not subject to the Emp

Retirement Income Security Act but instead to the specic laws

individual states.46 State laws oten include a duciary duty sim

to what is required under the Employee Retirement Income Se

Act.47 But unlike the Employee Retirement Income Security Act

may also impose certain requirements with respect to the kind

investments that public pension unds can make.48

Pension-fund trustee fiduciary standards


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According o Larry Beeerman, he direcor o Harvard Universiys Capial and

Sewardship Projec, Pension unds looking oward inrasrucure invesing are

doing so because hey believe ha heir invesmen goals could well be aligned wih

he atribues o inrasrucure nance, and hey have or are building or apping

he capaciy o careully review inrasrucure invesmen opions.49 Specically,

pension-und rusees are mindul ha inrasrucure invesmens may oer:

Sae invesmens in monopolisic markes, where long-erm reurns are no

likely o be undermined by compeiion. In invesmen parlance, his means ha

he secor oers high barriers o enry or compeiors.

Predicable earnings oen dened in sae or local law, where he source o rev-

enue or repaymen wih dened growh and infaion proecion is delineaed.

Many public-privae-parnership concession leases wih public eniies, or

insance, link annual revenues o he consumer price index or higher. In some

cases hey oer invesors availabiliy paymens, which are muliyear, legallybinding commimens o direc paymens rom he governmen o he invesors.

Relaively inelasic invesmens ha are o a signican exen immune o major

economic changes and are no overly impaced by demand. Consequenly, a

dramaic reducion in use or revenues ha is derived rom use is unlikely unless

he inrasrucure asse isel ails.

A long ime horizon on which he inrasrucure projec generaes reurns o he

pension und ha srech over a decade or more.

Because inrasrucure projecs possess he above atribues, more and more U.S.

pension unds are enering he inrasrucure-invesmen markeplace. Beeerman

esimaes ha, sixy o seveny U.S. pension unds are currenly invesing in or may

soon inves in inrasrucure projecs.50 According o Beeerman, I is more ypical

ha pension unds ake he role o an indirec invesor, placing a porion o he pen-

sion und asses wih a privae inrasrucure invesmen und.51 Pension unds ha

ake his indirec roue become one invesor among many in a privaely managed

inrasrucure und ha akes an equiy sake in numerous inrasrucure projecs.

Some unds, however, are aking he direc invesmen approach, such as

he IAA-CREFs invesmen in he IFIA-suppored expressway projecs

described above. Anoher example o he direc invesmen approach involves

he naions larges public pension und, he Caliornia Public Employees


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Reiremen Sysem, orCalPERS, which is a co-owner o Cenerpoin, one

o he naions larges real esae and logisics rms. Wih CalPERS inves-

men, Cenerpoin ook over and hen redeveloped he inland por in Jolie,

Illinoisa $1 bi llion projec ha includes an inermodal cener ha can

suppor he movemen o 500,000 shipping conainers annually.52 Tis is an

example o a pension und ha is invesing as a direc invesor in some cases andas an indirec invesor in ohers.

o increase he pace o pension-und invesmen in inrasrucure, Richard

rumka, presiden o he American Federaion o Labor and he Congress o

Indusrial Organizaions, or AFL-CIO, and Randi Weingaren, presiden o

he American Federaion o eachers, announced a he 2011 Clinon Global

Iniiaive a join union pledge o move $10 billion in pension-und asses ino

he inrasrucure secor in ve years.53 Tese union leaders are eager o push

pension unds o nd ways o inves in inrasrucure ha also mee he unds

duciary requiremens.

o aciliae more union-pension-und invesmen in inrasrucure, Ullico, a mul-

iemployer, union-owned insurance company,54 launched an inrasrucure und in

2012 ha is inended o give pension unds an opporuniy o inves in inrasruc-

ure improvemens in he Unied Saes.55 Te und operaes similarly o oher

privaely run inrasrucure unds. I expecs, however, o oer pension unds an

opion or indirec inrasrucure invesmens a lower ransacion coss, as well

as a long-erm invesmen horizon wih seady compeiive reurns rom projecs

ha also mee an explici policy ensuring ha workers righs will be proeced. 56

In December 2012 Ullico announced ha i closed is rs inrasrucure deal, an

agreemen o make upgrades o he waer and wasewaer aciliies o he ciy o

Rialo, Caliornia.57

Despie he growh o ineres among pension unds in inrasrucure invesmen,

unds are having a dicul ime nding nancially viable projecs in he Unied

Saes. CalPERS, he naions larges public pension und, or insance, has sough

o inves beween 40 percen and 80 percen o is inrasrucure allocaion o $5

billion in U.S. inrasrucure.58 Tey have ye o reach he low end o ha arge,

wih less han hal o heir curren $1 billion in inrasrucure invesmens locaedin he Unied Saes.59

When looking across pension unds, we see hain addiion o he divergence

in he orm o invesinghere is a range o how pension unds designae unds


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or inrasrucure invesmen. In some cases, pension unds make specic asse

allocaions o inrasrucure. Tis designaion is helpul because i makes he

unds inenions clear and also oers a way o rack he rising level o ineres

and invesmen. Allocaions made in his manner are a imes misleading; many

unds place inrasrucure invesmens under oher asse classes such as real esae,

privae equiy, and real assesand someimes under opporuniies invesmensraegies, where unds have a small unallocaed porion o heir capial ha hey

may inves a heir discreion. As a resul, is impossible o accuraely esimae he

level o pension-und allocaions or invesmens in inrasrucure.

Te ollowing is a summary char o some o he larger pension unds in he

Unied Saes where a new class or inrasrucure invesmen was creaed or a

specic inrasrucure-invesmen policy was adoped.

TABLE 1

Examples of large pension funds with infrastructure investment policies

Pension funds Size of fund Investment target Infrastructure investment

Caliornia Public Employee

Retirement System, or

CalPERS

$243.2 billion60

The current allocation o $5 billion set aside

or inrastructure investments is approximately

2 percent o the pension unds total assets.61

CalPERS is currently targeting between 40

percent and 80 percent o its inrastructure

budgetbetween $2 billion and $4 billion

toward inrastructure investments in the

United States, with a target o 20 percent o

the U.S. budgetup to $800 milliongoing

toward Caliornia projects.62

As o June 2012 CalPERS had made $1

billion in investments in inrastructure

including the purchase o a 12.7 perce

stake in the London Gatwick Airport o

million.64

Caliornia State Teachers

Retirement System, or

CalSTRS

$152.5 billion65

CalSTRS, the second-largest public pension

und in the United States, created its inrastruc-

ture portolio in 2010,66 and it is looking to

increase its allocation to inrastructure invest-

ment to 2.5 percent o total assets.67

In October 2012 CalSTRS invested $48

million into our new inrastructure pro

in Caliornia, bringing the pension un

total inrastructure investment up to $

million.68 Some o the projects that Ca

is currently providing unding to includ

Presidio Parkway in San Francisco and

Oakland power plant.69

Florida Retirement System

Pension Plan$124.8 billion70

Along with commodities and real estate, inra-

structure investments are included in the pen-

sion plans strategic investments allocation.71

In August 2012 strategic investments m

up 4.7 percent o all assets, less than h

the 11 percent asset allocation.72 In Oc

2012 the Florida State Board o Admin

tion, which manages the pension und

their rst inrastructure investment, a $million commitment to Global Inrastr

Partners II.73


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U.S. pension funds are increasing their

capacity to invest in infrastructure

Tere are serious marke problems slowing down U.S. pension-und invesmens

in inrasrucure projecs a home. Bu even i he marke was beter aligned, U.S.

pension-und inexperience and lack o capaciy in he inrasrucure-invesmen

secor are signican acors ha require atenion.

When pension unds embark on a new area o invesmen, here are many ques-

ions o answer ha require specic and reliable inormaion.103 Pension unds

need o undersand, or insance, he economic and nancial srenghs and riskso he secor. In he case o inrasrucure, his is complicaed because he secor

covers many subsecors, including bridges; roads; ransi; passenger rail; reigh

rail; pors; airpors; drinking waer and wasewaer sysems; energy generaion

and disribuion; and public buildings such as schools and governmen ceners.

Each o hese subsecors has is own ederal, sae, and someimes local sauory

requiremens, regulaions, and economies, as well as is own nancial reurns,

volailiies, and leverage rends. Pension unds and pension-und advisors need

a deep undersanding o he nuances o and he acs relaed o each subsecor so

hey can responsibly selec secors and projecs.

Oher quesions have o be explored as well, such as:

How much should be invested in infrastructure? Te issue o liquidiy is increas-

ing on he minds o pension-und rusees as more and more baby boomers reire.

While inrasrucure invesmens may well oer long-erm predicable reurns, as

individual asses hey are no easily sold, hence hey are relaively illiquid. Funds

need o consider wha shares o heir unds can be invesed in relaively illiquid

invesmens or subsiue inrasrucure or anoher illiquid invesmen. Pension

unds can make more liquid inrasrucure invesmens by invesing in open-ended invesmen unds ha permi he pension und o redeem is invesmen

beore he end o he lie o he projec.


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Should a new investment class be established or an existing class be modified?

Funds have o decide wha invesmen class inrasrucure alls wihin, such as

alernaive invesmens, real asses, or a separae class o asses esablished speci-

cally or hese invesmens. Tis is a undamenal decision since pension-und

invesmen policies are ypically se by he invesmen-class ype. o make his

decision, unds also need o esablish a clear deniion o wha hey mean by heerm inrasrucure.

A case in poin: CalPERS invesmen in he Jolie Por projec was made rom is

real-esae asse class. A he ime o he invesmen, he pension und didn have

an inrasrucure asse class. As Harvard Universiys Beeerman poins ou, Te

lack o pension unds inernal capaciy o assess complicaed inrasrucure inves-

mens is one acor which holds back heir paricipaion in hese ransacions.104

What are the preferred methods of investment? Funds need o decide i hey

wan o be an indirec invesor and as such pu heir unds in an exising privaelymanaged inrasrucure-invesmen porolio. I hey decide on he indirec-invesor

approach, unds mus decide wheher ha porolio should be one ha is liseda

publicly raded porolioor one ha is unlised. Addiionally, aer deciding ha

indirec invesing makes sense, hey mus hen consider he pros and cons o open-

ended or close-ended privae-invesmen unds. Alernaively, pension unds could

become a direc invesor, where hey share direc ownership and responsibiliy or

he operaion o he asse. U.S. pension unds have learned ha he privae-equiy

model o invesmen requires ha high ees be paid o asse managers. In addiion,

he privae-equiy invesmen model severs he inheren alignmen o long-erm

invesmen in a long-lived asse since he privae-equiy model is predicaed on a

relaively shor-erm commimen o he invesmen.105 Here again, CalPERS has

explored hese issues in deph. In an eor o promoe a new deal srucure ha

can work or is pension und, he und released inrasrucure erms shees ha

prescribed, or insance, he role ha he pension und will ake on as invesor, he

minimal projec size and level o invesmen ha he und will make, and he oal

and annual reurn ha mus be me or he und o consider invesing.106

What nonfinancial conditions should be expected of investment? Given ha pub-

lic and muliemployer pension unds exis o mee he needs o organized labor reir-ees, he unds need o decide whai anylabor proecions associaed wih he

consrucion and mainenance o asses are necessary. I a public or muliemployer

pension und decides o inves in a projec, he und needs o consruc a responsible

conracor policy ha codies required workorce-relaed guaranees.


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Barriers to pension-fund infrastructure-investment growth

Despie he growh o pension-und invesmens in inrasrucure globally, he

Organizaion or Economic and Cooperaive Developmen survey o pension-

und inrasrucure-invesmen aciviy in 2011 ound ha specic barriers are

in he way o moving a larger share o pension asses ino inrasrucure.111

Tesurvey looked a he way in which he governmen works and he way in which

pension unds operae, ideniying as a resul general marke ailures where he

inormaion necessary or an ecien marke o uncion is no available.

TABLE 2

OECD survey findings: Pension funds and infrastructure, 2011

Government barriers Pension-operation barriers Market barriers

Fragmentation o decision making

on projects among diferent levels o

government

Lack o expertise in the inrastructure sector Negative perception o inrastructure value

Lack o clarity about what is available or

investment

Size o unds not well aligned to need; some

unds are too small to take on big projects,

while other plans are too big and ace a

shortage o big investment opportunities

Lack o transparency in the sector

High bidding costs with long time hori-

zon beore decision

Misalignment o interests among some

private-inrastructure investment unds and

pension unds

Shortage o data and no benchmarks

Lack o long-term political commitment

Short-termism, in which the und is looking

or projects that achieve total return bench-

marks in less that a decade.

Early projects ostered risk concerns

Regulatory barriers

Source: Organisation for Economic Co- operation and Development, Pension Funds Investment in Infrastructure (2011), available at http://

www.oecd.org/sti/futures/infrastructureto2030/48634596.pdf.
http://www.oecd.org/sti/futures/infrastructureto2030/48634596.pdfhttp://www.oecd.org/sti/futures/infrastructureto2030/48634596.pdfhttp://www.oecd.org/sti/futures/infrastructureto2030/48634596.pdfhttp://www.oecd.org/sti/futures/infrastructureto2030/48634596.pdf


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In addiion o he barriers ound in his survey, in 2011 CalPERS held a series o

roundable discussions in Caliornia o discuss sraegies or increasing is pension-

und invesmens in U.S. inrasrucure projecs.112 Te roundables unearhed addi-

ional barriers o invesmen, including he ollowing weaknesses in he public secor:

Lack o experise or raining or relevan sae-agency sa on how o approachprivae-invesmen inrasrucure projecs

Need o sreamline Caliornias public-privae-parnership law and remove is

sunse provision, wih he goal o increasing invesor condence and creaing

more fexible opions or privae paricipaion

Absence o emplaes or evaluaing rae o reurn or privae projecs

Lack o a cenral exchange where invesors can learn abou invesmen opporuniies

In addiion o hese srucural barriers o pension-und invesmen in inrasruc-

ure, U.S. unds are nding invesmen opions ha ake heir asses ouside o he

Unied Saes o European, Asian, Canadian, and Ausralian inrasrucure proj-

ecs. According o Feliciy Gaes, co-head o Cii Insiuional Invesors, One o

he main reasons aciviy is happening in oher naions is because so many coun-

ries are more atuned o working wih privae invesors o nance public inra-

srucure and hey are willing o pledge governmen revenues o pay back invesors

more readily han in he Unied Saes. As a resul, in hose counries here is a

healhier pipeline o large-scale projecs wih decen credi raings, backed by

reliable revenue sreams ha oer reurns high enough or pension invesors.113 In

addiion, he public agencies ha plan and nance inrasrucure invesmens have

gained invaluable experise ha helps hem undersand and address he ineress

o privae invesors, including pension-und invesmen advisors.

Increasing the pace of pension-fund investments in infrastructure

In he Unied Saes ederal and sae policies ha expand opions or privae

invesmen in inrasrucure projecs have oen aced opposiion rom organizedlabor.114 Te main reason or his resisance has been he eliminaion o public

jobs when inrasrucure projecs are shied under privae ownership. In addiion,

some privae-invesmen eors have atemped o skir ederal labor proecions


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ha ensure prevailing wage raes. Increasingly, however, privae invesmen in

inrasrucure is being srucured in ways o proec workers and wages.115

Some pension-und invesmen is helping drive hese changes. Brian Clarke, he

Norh American execuive direcor o business developmen or Indusry Funds

Managemen, he large Ausralia-based pooled-pension inrasrucure und, poinsou ha pension-und invesmens in inrasrucure projecs can grow union jobs.

According o Clarke, Tere is a percepion ha projecs done via a [public-privae-

parnership, or P3, model] means losing jobs. Our experience is jus he opposie.

When IFM proposed a P3 o redevelop he Melbourne Airpor, i had 200 ull-ime

employees all o whom were in a union. oday, he redeveloped airpor provides

employmen or 12,000 people and majoriy o he jobs are union jobs.116 While he

conex and legal environmen in Ausralia is quie dieren ha in he Unied Saes,

he paterns se by he Ausralian unds approach may oer a useul guide or how o

srucure pension-und invesmen in U.S. inrasrucure projecs.

As a resul o hese promising rends, CAP proposes he ollowing new public

policies o accelerae he learning curve and build capaciy, increase condence in

he inrasrucure secor, and make he secor more atracive o pension invesors.

Close the information gap and build experience

Currenly, hose pension unds looking a he inrasrucure secor are working

independenly o build secor knowledge and experise. In some cases, pen-

sion unds have collaboraed on heir learning process, bu he examples o ha

sor o collaboraion and reach are rare.117 As a resul, o increase he pace o

pension-und invesmen, new naional srucures need o be creaed o collec

and disseminae inormaion ha is boh relevan and responsive o he needs o

pension-und sa, rusees, and advisors. o ha end, we propose ha Congress:

Esablish a naional inrasrucure bank ha has he capaciy o hire expers who

have he background and experise o build working relaionships wih pension

unds and ideniy projecs ha can oer pension unds responsible opions or

heir inrasrucure invesmens. Te inrasrucure bank would no need o behe sole venue hrough which pension unds inves in U.S. inrasrucure proj-

ecs, bu i can have as an explici purpose he esablishmen o a relaionship

wih pension unds and he developmen o a rack record o join invesmens.


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Use he raining capaciy o he Deparmen o ransporaion and he

Deparmen o Labor o prepare sae ransporaion deparmens o work in

parnership wih pension unds, including raining on duciary sandards and

requiremens, creaing emplaes or responsible conracor policies, and clariy-

ing wha caegories o projecs are likely o be approved or privae nancing and

mee he perormance and earnings expecaions o pension-und invesors.

Mobilize he experise a he Deparmen o Labor o educae privae pen-

sion unds on he ways in which inrasrucure invesmens compor wih he

Employee Reiremen Income Securiy Ac. Where here is a need or addiional

clariy regarding he duciary requiremens and hese invesmens, provide

guidance o resolve hese open issues. Par and parcel o his recommendaion

would be he ormaion o clear policy by hese ederal agencies on he ways in

which pension unds can appropriaely inves in inrasrucure and mee heir

duciary obligaions.

Pooled approacheswhere pension unds create common multi-

pension und structures to manage inrastructure investments

ofer the unds a vehicle or building their expertise while sharing

the cost o doing so.

Industry Funds Managementan Australian investment manage-

ment company owned by 30 Australian pension undswith more

than $40 billion under management, has been ocusing on investing

in domestic and international inrastructure or years, in addition to

its more traditional investment opportunities.118 Through Industry

Funds Managements Australian Inrastructure Fundwhich has

invested in domestic projects since 1995and their Global Inra-

structure Fundwhich targets opportunities in OECD member

countriesIndustry Funds Management currently has roughly $13.5

billion invested in inrastructure worldwide.119 These unds inve

in core inrastructure projects such as airports, seaports, renew

energy projects, and toll roads.120

In the United Kingdom the new Pension Inrastructure Platorm wcreated by the Pension Protection Fund, the National Association

Pension Funds, and the U.K. Treasury.121 The Pension Inrastructur

ormwhich is scheduled to launch in the rst hal o 2013 with

than $1.5 billion in assets rom 10 pension unds122is targeting

inrastructure as well as private transportation, energy, and telec

munications.123 This platorm, which ocuses solely on inrastruct

and targets pension clients exclusively, provides pension unds w

expertise necessary to encourage pension-und investment.

Pooled pension fund models: The experience of Australia and the United Kingdom


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Increase confidence in soundness of infrastructure investments

Pension unds invesing in inrasrucure have grown skitish abou he secor

because some high-prole nonpension-unded inrasrucure projecs ailed o

mee heir nancial arges. Tese inrasrucure ransacions were srucured as

privae-equiy invesmens, and many o hem have had rouble generaing pro-jeced revenues, necessiaing ha hey deaul on paymens o bondholders.124

Te Indiana oll Road, or insanceone o he larges ransporaion public-

privae-parnership projecs in he Unied Saesis no generaing sucien

revenues o mee invesors expeced rae o reurn.125 Due o he dramaic and

unpredicable reducion in vehicle rac ha has occurred over he pas our

years, he nancial reurns are lower han expeced or needed.126 Aside rom roads,

however, he experience wih careully srucured public-privae parnerships o

build and improve pors, airpors, energy inrasrucure, andin some cases

waer sysems shows ha here is some poenial or public asses and quasi-publicinrasrucure asses o be developed in ways ha promoe high-qualiy inrasruc-

ure invesmen and reasonable reurns or invesors. Given he enormiy o he

needs o our ransporaion-relaed inrasrucure, greaer pension-und inves-

men in hese secors can oer access o a new and needed source o capial. o

make his happen, however, ederal eors o build pension-und condence in

he inrasrucure secor are necessary and should include:

Funding a pension-rusee raining insiue aimed a helping pension-und

adminisraors educae pension-und rusees on how o diereniae beween

he acs and myhs o headline risk so ha rusees undersand when i is likely

ha a projec will cause negaive publiciy or he invesors. Public pension

boards are ypically comprised o a mix o nonplan member appoinees, eleced

or someimes appoined acive workers and/or reirees, and eleced ocials or

heir designees.127 Privae muliemployer pension undsalso known as a-

Harley plansrequire ha boards o rusees be comprised o equal pars labor

and managemen.128 Pension-und advisors and sa need approval rom rusees

beore making any new invesmen-policy or allocaion decisions. I is imporan

ha rusees have he resources and knowledge ha hey need o make eecive

decisions, including wih respec o inrasrucure invesmens. Measures ohelp build rusee knowledge and resources can increase he pace and qualiy o

board deliberaions on hese maters.


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would be axable. Te amoun paid by he sae or local issuers, however, would

be subsidized by ederal paymens. Insead o having he subsidy depend on he

marginal ax rae or he bond buyer, he ederal governmen could se he level

o subsidy ha i is willing o pay. We recommend ha hese axable bonds have

a ederal subsidy level o 28 percen, he level a which he Obama adminisra-

ion assers hey would be revenue neural.131

Enable inrasrucure projecs where pension unds are majoriy equiy owners

o ap he ax-exemp bond markes. Currenly, ederal law permis he publicly

owned porion o invesor-owned uiliies o bene rom he ax-exemp provi-

sions o privae-aciviy bonds. Public pension unds are undamenally public

eniieshey are creaed by sae law and unded by sae appropriaions and

public employee conribuions. In essence, hey are eniies o sae and local

governmen. As such, he ax-exemp provisions o privae-aciviy bonds could

be available o he porion o inrasrucure ransacions under ownership o a

public pension und.

Improve U.S. loan-guaranee and credi-enhancemen programs o ensure ha

hey are powerul enough o make projecs sucienly nancially viable o

atrac privae invesors, including pension unds ha are looking o make eiher

an equiy or deb invesmen.

Te case or considering U.S. loan guaranees is growing more urgen.

Governmen guaranees are increasingly generous and available o privae-inra-

srucure invesors in he European Union, he Unied Kingdom, and Ausralia.

In he summer o 2012, or insance, he European parliamen approved he

Europe 2020 Bond Projec, which is inended o accelerae progress in mach-

ing Europes $2.6 rillion inrasrucure-improvemen needs wih more privae

invesmen.132 Te specic new arrow in heir quiver is a Projec Bond Credi

Enhancemen program oered by he European Invesmen Bank. In essence,

he bank will ake a subordinaed deb posiion or up o $200 million or 20

percen o he projecs cosswhichever is lowerin order o boos he

credi qualiy o a bond and hereby increase invesor condence and reduce

issuers ineres coss. A srong backsop o his sor is likely o make European

Invesmen Bank-backed projecs more atracive o U.S. pension unds hansimilar projecs in he Unied Saes, where he risk o repaymen will be greaer.


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In he Unied Kingdom new legislaion passed in Sepember 2012 will allow he

governmen o guaranee up o $64.4 billion o inrasrucure invesmen.133 Tis

measure was passed in par o make sure ha in insances where credi condi-

ions prevened inrasrucure projecs rom obaining nancing, he projecs

could begin as planned.134 Tis loan-guaranee program should resul in privae

invesors searching or inrasrucure opporuniies nding he Unied Kingdoma more atracive desinaion.

Ensure project financing is reliable and predictable

Te ollowing recommendaions are essenial o spurring any sor o privae or

more public invesmen in inrasrucure developmen.

Enable saes o use olling on all lanes where olling is viable hroughou he

Naional Highway Sysem. Under curren law, while addiional oll lanes maybe added o roads on he Naional Highway Sysem, curren olling policy does

no allow saes o implemen olls on exising lanes.135 Tis means ha olling is

no available as a soluion or highways hrough rural areas or where addiional

lanes are no warraned by demand. Tis limiaion on olling means ha many

roadways ha migh oherwise generae sucien oll revenues o suppor

deb-nanced repairs and are in need o repair will coninue o erode given he

shorage o sae and local unds or improvemens.

Increase he amoun o dedicaed ederal grans o saes so ha hey can con-

denly dedicae unds or availabiliy paymensregular, legally binding general

revenue or oher revenue-backed paymens o invesors or providing upron

capial or needed projecs.

Te recommendaions ha we propose canno ac as subsiues or he $49 bil-

lion in addiional ederal unding or inrasrucure improvemen ha we believe

is needed annually or he nex 10 years.136 Nor can we expec more privae

nancing wihou changes o sae and ederal policies ha enable public-privae-

parnership srucures o be creaed and ap dedicaed revenues or repaymen.137

Alhough 33 saes have legislaion ha enables he use o public-privae parner-ships,138 many saes have only approved a se number o projecs, while ohers

have green-lighed only a single projec. Te ennessee public-privae-parnership

saue, or insance, only allows or wo oll roads o be creaed,139 and he Alaska


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legislaion only auhorizes a public-privae parnership o be used or he purpose

o building he Knik Arm Bridge near Anchorage.140

Te combinaion o addiional ederal unds, new policies o promoe privae

invesmen, and our proposals o spur pension-und invesmen oer a compre-

hensive sraegy or innovaive approaches o rebuilding our inrasrucure hawill garner srong public suppor.


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Conclusion

Te Unied Saes mus nd he capial o suppor a leas $1.3 rillion in inrasruc-

ure upgrades over he nex 10 years. While pension-und invesmens alone will no

ll his unding gap enirely, pension unds have he asses o conribue a signican

share o capial oward rebuilding our crumbling inrasrucure. In 2009 public pen-

sion unds in he Unied Saes were managing approximaely $3 rillion in asses,

and an addiional $1.5 rillion more was in oher privae pension plans covering

unionized workers.141 I jus 5 percen o hese pension-und asses were invesed

in nancially responsible inrasrucure opporuniiesprojecs oering pensionunds an accepable expeced rae o reurn$225 billion would be available o

inves over ime in inrasrucure projecs. Given he invesmen models used by

pension unds and oher privae-inrasrucure invesorswhich ypically have a 60

percen deb-o-equiy modelhis scale o pension invesmen in inrasrucure

would enable nearly $600 billion in inrasrucure improvemens.142

In a counry as large as he Unied Saes and wih he scale o needs ha we ace,

disparae eors by individual pension unds o gure ou how o inves in inrasruc-

ure is no a viable sraegy or mobilizing he wealh o capial held by pension unds,

rebuilding he naions inrasrucure, and puting Americans back o work in a big way.

Presiden Barack Obama has called on Congress o suppor a naional rebuilding

campaign. A srong parner in his campaign can and should be public and privae

pension unds. I is up o Congress o pu in place policies ha can make a new

orm o public-privae pension-und parnership possible.

A ocused naional eor o address he barriers o pension-und invesmen can

pave he way o more pension-und invesmen in inrasrucure projecs ha

oer he righ balance o a predicable and desired reurn. Tis could be especiallypowerul in insances where pension unds are equiy invesors. Assuming such a

role gives pension undsin paricular, hose o unionized reireesa high lever-

age posiion rom which o advocae or he ineress o workers involved in he

consrucion and operaion phases o he projecs.


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1 Donna Cooper, Meeting the Inrastructure Imperative(Washington: Center or American Progress, 2012),available at http://www.americanprogress.org/is-sues/2012/02/pd/inrastructure.pd.

2 Bureau o Labor Statistics, Databases, Tables & Calcula-

tors by Subject: Labor Force Statistics rom the CurrentPopulation Survey, available at http://data.bls.gov/timeseries/LNU04032231?data_tool=XGtable(last ac-cessed February 2013).

3 Bureau o Economic Analysis, Interactive Access toIndustry Economic Accounts Data: Gross Output byIndustry, available at http://www.bea.gov/iTable/iTable.cm?ReqID=5&step=1#reqid=5&step=4&isuri=1&402=1&403=1 (last accessed February 2013).

4 Wilshire Consulting, 2012 Report on State RetirementSystems: Funding Levels and Asset Allocation (2012),available at http://www.wikipension.com/images/6/6e/Wilshire_2011.pd.

5 In 2009 public pension unds were managing $3trillion in assets, while private unds serving unionpensions managed an additional $1.5 trillion. See Na-

tional Association o State Retirement Administrators,Public Pension Plan Investment Return Assumptions(2013), available at http://www.nasra.org/resources/issuebrie120626.pd; Employee Benets SecurityAdministration, Private Pension Plan Bulletin Abstractof 2009 Form 5500 Annual Reports (U.S. Department oLabor, 2011), available at http://www.dol.gov/ebsa/PDF/2009pensionplanbulletin.PDF.

6 Cooper, Meeting the Inrastructure I mperative.

7 Ibid.

8 Ibid.

9 Building Americas Future, Falling Apart and FallingBehind (2011), available at http://www.bauture.com/sites/deault/les/Report_0.pd.

10 Georg Inderst, Pension Fund Investment in Inrastruc-ture. Working Paper 32 (Organisation or EconomicCo-operation and Development, 2009), available at http://www.oecd.org/insurance/privatepensions/42052208.pd.

11 CalPERS, CalPERS Acquires a Stake in London GatwickAirport, Press release, June 18, 2010, available at http://www.calpers.ca.gov/index.jsp?bc=/about/press/pr-archive/pr-2010/june/gatwick-airport.xml.

12 Sebastian Walsh, Pension unds tipped or $3.5trninrastructure spree, The Financial News, April 16,2012, available at http://www.enancialnews.com/story/2012-04-16/pensions-tipped-or-inrastructure-spree.

13 Walsh, Pension unds tipped or $3.5trn inrastructurespree.

14 Organisation or Economic Co-operation and Develop-ment, Pension Funds Investment in Inrastructure(2011), available at http://www.oecd.org/sti/utures/inrastructureto2030/48634596.pd.

15 Inderst, Pension Fund Investment in Inrastructure.

16 Ibid; Ernst and Young, Financing Australias inra-structure needs: Superannuation investment ininrastructure (2011), available at http://www.ey.com/Publication/vwLUAssets/Financing_Australia_inra-structure_needs/$FILE/Superannuation_Investment_In_Inrastructure.pd.

17 Dan Seymour, Munis See 3d Busiest November onRecord,The Bond Buyer, November 30, 2009, availableat http://www.bondbuyer.com/issues/118_229/new-issue-volume-november-2009-1004416-1.html.

18 Bill Barnhart, Expanding Public-Private PartnershipsP3or U.S. Inrastructure Projects (Washington:Center or American Progress, 2013).

19 Joint Committee on Taxation, Overview o Selected TaxProvisions Relating to the Financing o Inrastructure(2011), available at https://www.jct.gov/publications.html?unc=startdown&id=3789.

20 Ibid.

21 Ibid.

22 The authors calculations are based on long-term bondssold in 2010. Airports and dock and wharves wereincluded in determining the issuance o private-activitybonds sold or transportation purposes. Transporta-tion was included in determining the issuance omunicipal bonds sold or transportation purposes. S eeInternal Revenue Ser vice, SOI Tax Stats - Tax-ExemptBond Statistics, available at http://www.irs.gov/uac/SOI-Tax-Stats-Tax-Exempt-Bond-Statistics (last accessedDecember 2012).

23 Joint Committee on Taxation, Overview o Selected TaxProvisions Relating to the Financing o In rastructure.

24 Internal Revenue Service, SOI Tax Stats - Tax-ExemptBond Statistics.

25 Cooper, Meeting the In rastructure Imperative.

26 Joint Committee on Taxation, Overview o Selected TaxProvisions Relating to the Financing o In rastructure.

27 Federal Highway Administration, TIFIA, availableat http://www.hwa.dot.gov/ipd/tia/(last accessedDecember 2012).

28 Federal Highway Administration, TIFIA Dened, avail-able at https://www.hwa.dot.gov/ipd/tia/dened/index.htm (last accessed January 2012).

29 John Grith and Richard W. Caperton, Managing Tax-payer Risk (Washington: Center or American Progress,2012), available at http://www.americanprogress.org/issues/economy/report/2012/05/03/11571/managing-taxpayer-risk/. For the Federal Credit Reorm Act, see 2U.S.C. Chapter 17A Congressional Budget and FiscalOperations, available at http://uscode.house.gov/download/pls/02C17A.txt.

30 Federal Highway Administration, TIFIA Dened.

31 Ibid.

32 Federal Highway Administration, TIFIA.

Endnotes
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ort.xmlhttp://www.calpers.ca.gov/index.jsp?bc=/about/press/pr-archive/pr-2010/june/gatwick-airport.xmlhttp://www.oecd.org/insurance/privatepensions/42052208.pdfhttp://www.oecd.org/insurance/privatepensions/42052208.pdfhttp://www.bafuture.com/sites/default/files/Report_0.pdfhttp://www.bafuture.com/sites/default/files/Report_0.pdfhttp://www.dol.gov/ebsa/PDF/2009pensionplanbulletin.PDFhttp://www.dol.gov/ebsa/PDF/2009pensionplanbulletin.PDFhttp://www.nasra.org/resources/issuebrief120626.pdfhttp://www.nasra.org/resources/issuebrief120626.pdfhttp://www.wikipension.com/images/6/6e/Wilshire_2011.pdfhttp://www.wikipension.com/images/6/6e/Wilshire_2011.pdfhttp://data.bls.gov/timeseries/LNU04032231?data_tool=XGtablehttp://data.bls.gov/timeseries/LNU04032231?data_tool=XGtablehttp://www.americanprogress.org/issues/2012/02/pdf/infrastructure.pdfhttp://www.americanprogress.org/issues/2012/02/pdf/infrastructure.pdf


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73 Barry B. Burr, Florida State Boards inrastructure debutpart o $1.25 billion in commitments, Pensions &Investments, October 9, 2012, available at http://www.pionline.com/article/20121009/DAILY/121009864.

74 MainePERS, Market Value, available at http://www.mainepers.org/Investments/Market%20Value.htm(lastaccessed December 2012).

75 MainePERS, MainePERS Asset Allocation, available athttp://www.mainepers.org/Investments/Asset_Alloca-tion.htm (last accessed December 2012).

76 Meridiam seals CalSTRS, MainePERS commitmentsto close $1bn inra und, AltAssets, October 16, 2012,available at http://www.altassets.net/private-equity-news/by-news-type/und-news/meridiam-seals-calstrs-mainepers-commitments-to-close-1bn-inra-und.html.

77 Michigan State Employees Retirement System, Com-prehensive Annual Financial Report or the Fiscal YearEnded September 30, 2011 (2012), available at http://michigan.gov/documents/orsstatedb/State_Employ-ees-2011_CAFR_375807_7.pd.

78 Michigan State Employees Retirement System, Invest-ment Policy Statement (2012), available at http://www.michigan.gov/documents/treasury/State_Employ-ees_Final_0810_331896_7.pd.

79 R.V. Kuhns & Associates, Inc., Memorandum to State

o Michigan Retirement Systems, State EmployeesRetirement System Asset/Liability Study - ExecutiveSummary (2012), available at http://www.michigan.gov/documents/treasury/AssetLiabilityStudy_StateEm-ployees_368378_7.pd.

80 Michigan State Employees Retirement System, Invest-ment Policy Statement.

81 Ibid.

82 New Mexico Educational Retirement Board, Invest-ment Perormance Analysis For the period endingSeptember 30, 2012 (2012), available at http://www.nmerb.org/pds/3Q2012Report.pd.

83 New Mexico Educational Retirement Board, Inrastruc-ture Portolio: Quarterly Perormance Measurement,Fourth Quarter (2011), available at http://www.nmerb.

org/pds/4Q2011_inrastructure.pd.

84 Ibid.

85 NYC pension und should invest more locally: ocial,Reuters, February 14, 2012, available at http://www.reuters.com/article/2012/02/15/us-newyorkcity-pen-sions-idUSTRE81E01P20120215.

86 Ibid.

87 Ibid.

88 Jacob Gershman, Looking to Pension Funds to Pay orProjects, The Wall Street Journal, November 2 2, 2011,available at http://proessional.wsj.com/article/SB10001424052970204531404577052612265434278.html.

89 New York State and Local Retirement System, 2012

Comprehensive Annual Financial Repor t For Fiscal YearEnded March 31, 2012 (2012), available at http://www.osc.state.ny.us/retire/word_and_pd_documents/publi-cations/car/car_12.pd.

90 Ibid.

91 Ibid.

92 State Universities Retirement System o Illinois, Invest-ment: The Comprehensive Annual Financial Reportor Fiscal Year Ended June 30, 2012 (2012), availableat http://www.surs.com/pds/ann_rep/content/PDFS/INVEST.pd.

93 Ibid.

94 Ibid.

95 Teacher Retirement System o Texas, 2012 Comprehen-sive Annual Financial Report (2012), available at http://

www.trs.state.tx.us/about/documents/car.pd.

96 Teacher Retirement System o Texas, Investment PolicyStatement (2012), available at http://www.trs.state.tx.us/investments/documents/investment_policy_statement.pd.

97 Teacher Retirement System o Texas, Investments inPlain English, available at http://www.trs.state.tx.us/global.jsp?page_id=/investments/investments_in_plain_english (last accessed December 2012).

98 Alastair Scott, Teacher Retirement System o Texascommits to inrastructure und, Preqin, July 7, 2010,available at http://www.preqin.com/blog/101/2681/trs-inrastructure.

99 Teacher Retirement System o Texas, Investments inPlain Eng lish.

100 Washington State Investment Board, 2012: Thirty-FirstAnnual Report (2012), available at http://www.sib.wa.gov/nancial/pds/annual/ar12.pd.

101 Washington State Investment Board, Asset ClassDetails (2012), available at http://www.sib.wa.gov/nancial/pds/ctalt.pd.

102 Ibid.

103 Larry W. Beeerman, Pension Fund Investment inInrastructure: A Resource Paper, (Cambridge, MA:Capital Matters, 2008), available at http://www.law.harvard.edu/programs/lwp/pensions/publications/occpapers/occasionalpapers3.pd. Beeermans paperlays out an exhaustive and descriptive list o decisionsthat pension unds need to make beore investingin inrastructure. See also Organisation or Economic

Co-operation and Development, Pension Funds I nvest-ment in Inrastructure.

104 Personal communication rom Larry Beeerman.

105 Kiel Porter and Sarah Krouse, PPF chie: private equityunsuitable or inra unding, Financial News, November7, 2012, available at http://www.enancialnews.com/story/2012-11-07/pp-chie-criticises-pe-model-or-inrastructure.

106 CalPERS, Inrastructure Investment Outreach Review.

107 Ibid.

108 Borealis Inrastructure, Prole, available at http://www.borealis.ca/prole.htm(last accessed on November 2012).

109 OMERS Worldwide, Major Investments, available

at http://www.omers.com/investments/Our_Invest-ments_Major_Investments.aspx(last accessed onDecember 2012).

110 OMERS, Beyond: Pension Investment Insight romOMERS (2011), available at http://www.omers.com/pd/Beyond_Spring_2011_issue8.pd.

111 Organisation or Economic Co-operation and Develop-ment, Pension Funds I nvestment in Inrastructure.
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112 CalPERS, Inrastructure Investment Outreach Review.

113 Personal communication rom Felicity Gates, co-head,Citi Institutional Investors, March 4, 2013.

114 Barnhart, Expanding Public-Private PartnershipsP3or U.S. Inrastructure Projects.

115 Ibid.

116 Personal communication rom Brian Clarke, NorthAmerican executive director o business development,

Industry Funds Management, December 11, 2012.

117 Imogen Rose-Smith, Pension Funds Ride to the U.S.Economys Rescue, Institutional I nvestor, January 2,2012, available at http://www.institutionalinvestor.com/Article/2950099/Search/Pension-Funds-Ride-to-the-US-Economys-Rescue.html.

118 Industry Funds Management, About IFM, available athttp://www.im.net.au/about-im/(last accessed Janu-ary 2013).

119 International Funds Management, Our track recordwasnt built overnight, available at http://www.im.net.au/im-inrastructure-unds/ (last accessed December2012).

120 International Funds Management, Australian Inrastruc-ture, available at http://www.industryundsmanage-

ment.com/im-inrastructure-unds/australian-inrastruc-ture/ (last accessed December 2012: login required).

121 Sarah Rundell, PIP in to inrastructure, Top 1000Funds, September 26, 2012, available at http://www.top1000unds.com/news/2012/09/26/pip-in-to-inra-structure/.

122 Michael Trudeau, Inrastructure pensions plat-orm gets 10th backer, The Financial Times Advisor,February 18, 2013, available at http://www.tadviser.com/2013/02/18/pensions/group-pensions/inrastruc-ture-pensions-platorm-gets-th-backer-ckrk6cL94ub-B0ZCEWR7HwJ/article.html.

123 Sarah Rundell, PIP in to inrastructure.

124 Federal Highway Administration, Project Proles:Dulles Greenway, available at http://www.hwa.dot.

gov/ipd/project_proles/va_dulles_greenway.htm(lastaccessed January 2013).

125 Ryan Holeywell, The Indiana Toll Road: A Model orPrivatization? Governing the States and Localities, Octo-ber 2011, available at http://www.governing.com/topics/mgmt/indiana-toll-road-model-privatization.html .

126 From January 2002 to January 2006, vehicle miles trav-eled in the United States rose annually rom the prioryear or remained relatively fat. These trends were thebasis o the projected toll-road revenues. Beginningin 2008, however, vehicle miles traveled has droppedannually1.7 percent rom 2007 to 2008, 3.1 percentrom 2008 to 2009, and 1.6 percent rom 2009 to 2010.Overall vehicle miles traveled dropped by more than10 billion vehicle miles nationwide in those three years,and the numbers have not yet rebounded. As a result,the Indiana Toll Road revenues are ar below projections.

See Federal Highway Administration, Oce o HighwayPolicy Inormation, Trac Volume Trends, available athttps://www.hwa

Using Pension Funds to Build Infrastructure and Put Americans to Work

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