CalPERS Funds Could Reduce California's Congestion Crisis
State's massive infrastructure needs could get big boost
By Shirley Ybarra

The California Public Employees' Retirement System (CalPERS) says it will allocate up to 3 percent, or $7 billion, of its $234 billion fund for investment in transportation, energy, water, utilities, communication and other infrastructure over the next few years.

Anyone sitting on the state's gridlocked roads should be thrilled by the possibility.

As U.S Transportation Secretary Mary Peters recently noted, staggering pools of capital have been raised in global markets to invest in critical infrastructure. At the end of 2007, the Financial Times estimated between $50 and $150 billion is available for infrastructure investment. CalPERS has certainly kept abreast of the emerging U.S. infrastructure market and sees opportunities to invest in infrastructure that will provide returns for its members.

The McKinsey Quarterly noted that in some situations $1 billion of equity can be leveraged to finance as much as $10 billion in projects. Even assuming a more conservative leveraging estimate-for example 3 to 5 times-the CalPERS investment could support between $20 and $45 billion in infrastructure projects.

Right now, California simply cannot finance the big-ticket infrastructure modernization and expansion projects it desperately needs. Additional public bond issues, the way the state has funded projects lately, are not the best long-term answer. With the help of the CalPERS money, projects that would otherwise not materialize can actually be paid for and completed - despite the state's staggering budget shortfalls and the historical limitations of traditional government financing.

If the entire CalPERS investment would be put towards California's infrastructure, at least $20 billion of necessary infrastructure projects could be completed. California, like other states, is in a severe crunch for transportation dollars. The CalPERS investment is a real solution that will help cities coping with traffic congestion, as well as the state's economy. Issuing more and more bonds to make it look like the projects are "paid" for is not.

Many of the large-scale, mega road and highway projects that would be possible using public-private partnerships might never be built without the private sector's involvement. The state simply doesn't have the money. Other projects that public-private partnerships can help deliver ahead of the state's "normal" schedule could produce a large inflation savings. This translates to "time is money" in any construction project. With CalPERS' possible investment, certain projects can be brought to fruition in a much shorter amount of time and at a lower cost.

California needs to embrace the CalPERS resources as soon as possible. The legislative tenor for public-private partnerships is more favorable in many other states in the U.S., as well as many other countries. CalPERS could look to invest in another state and/or country's infrastructure projects in order to bring the financial returns to its members. And since transportation infrastructure is a major factor in a global competitiveness, investing elsewhere would not be helpful to the California economy.

The California Public Employees' Retirement System is willing to invest billions in infrastructure projects. California lawmakers should look at the possible CalPERS investments as a lifeline: they could help jumpstart the massive road, highway and other infrastructure projects that California has delayed for far too long. By permitting public-private partnerships and private investors to help build major road projects, California could go a long way towards ending its congestion woes and strengthening its economy.

Shirley Ybarra, former Secretary of Transportation of Virginia, is a senior transportation policy analyst at Reason Foundation. An archive of her work is here. Reason Foundation's transportation research and commentary is here.

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