Infrastructure finance has seldom had a higher profile in the United States. Investment in infrastructure became fashionable amongst institutional investors towards the end of the credit market boom, and worries about deficiencies in the country's infrastructure stock became more prevalent.

But it took the after-effects of the credit crunch for infrastructure to gain much of a political following. Spending on infrastructure has proved to be the least politically divisive form of economic stimulus, and exploited lingering fears among policymakers that a lack of spending on infrastructure was harming the competitiveness of the US economy.

So far, however, neither the spending, nor the political support, have made public private partnerships (PPPs) any easier to launch or close. So far in 2009 two large deals have closed, for Florida's I-595 and the debt-free concession for Chicago's metered parking system. This roughly tracks the market's patchy progress in 2008, which witnessed first-half financings for the SH130 in Texas and the Capital Beltway in Virginia.

But the list of failures and setbacks is much longer. The proposed lease of Chicago's Midway airport collapsed, while a lease of Florida's Alligator Alley failed to attract any bids. Several concessions have attracted brickbats before coming to market. Opposition to privatisation caused Milwaukee's council to delay a study of a concession before it got round to choosing a financial adviser.

Most recently, negotiations over two concessions that feature payments from government bodies – the North Tarrant Express in Texas and the Denver FasTracks transit project – have been complicated by interventions from lawmakers and office-holders. Project finance bankers and developers, who have developed a fatalistic attitude towards US PPP's prospects, are starting to despair at the United States' dispersed political culture.

Texas: On the brink

Texas was once the promoter of the most ambitious concession-based road-building programme in the US, then the first state to experience a sustained backlash against the practice. The Texas Department of Transportation (TxDOT) is now struggling to keep afloat the second, and third, concessions that it will bring to market.

The state's attorney-general, Greg Abbott, is refusing to sign off on the concession agreement for the North Tarrant Express toll road. Cintra holds the concession for the $2.2 billion 22.5km managed lanes project, which incorporates a free route and high-occupancy toll lanes.

According to Abbott, the department will be obligated to pay $740 million to Cintra, but binding one legislature to the actions of an earlier one is not permitted by the state's constitution. The department and the Cintra-led consortium are still trying to work out a way of drafting the payment agreement that would satisfy both the attorney-general and potential lenders.

Any thought that they might have had of fudging the issue will have evaporated when the state's legislature failed to reauthorise TxDOT, along with four other state agencies, by the end of its last session (under Texas law every state agency has to justify its existence every 12 years. If an agency is not reauthorized, it goes out of existence). The reauthorisation failure, the result of a last-minute snarl-up with an omnibus bill that failed to pass, should be easy to rectify with a special session.

Cintra executives have said that they have a long period within which to close financing, and the developer has lined up a combination of a loan from the Federal Highway Administration's TIFIA programme, commercial bank debt from Calyon, BES and Banesto, and a JP Morgan-led private activity bond issue. But Cintra has already been deprived of one concession – for the SH-121 – when the North Texas Tollway Authority intervened after Cintra won its concession to take over the project.

The attorney-general has not even started reviewing the second Cintra-held concession, for the New LBJ I-635 managed lanes project. Cintra brought in equity from the Dallas police and firemen's pension funds for that project, a bid to incorporate local equity that has yet to immunise the project from criticism. The governor of Texas, Rick Perry, provided initial impetus to P3 in Texas, together with the state's late transportation commissioner, Ric Williamson. Perry's recent preoccupation, however, has been with asserting aggressively the state's sovereignty and his position within its Republican establishment.

Few other PPP struggles can match the drama that Texas has to offer, though they have similar dynamics. Opposition in Texas runs from strictly legalistic constructs like Abbott's, to local worries about land expropriation, to paranoid rumblings that new roads in Texas are designed to ease the path to a world government. Together they have proved so effective that Texas is now on few sponsors' maps.

Death by several cuts

Opposition to PPP has become more responsive, and more organised. Opponents of a proposed lease of the city of Milwaukee's water company moved quickly to pressure councillors into delaying the selection of a financial adviser, saying that selecting a firm would make it very unlikely that the city would reject the lease option.

Milwaukee, said the city's controller Martin Morics, faced stagnant revenues from taxation and transfers from the state of Wisconsin, and no way to exploit the surplus that the company produced. Opponents, both among the public and on the city's council, suggested that a less drastic reconfiguration of the city's relationship with the water company might allow it to access any surplus.

Denver's FasTracks illustrates the combined effects of disparate sources of opposition. The city's Regional Transportation District has yet to issue a request for proposals for the $1 billion availability payment-based concession, for which it had shortlisted three consortiums (for more on the process, search for "fastracks" at www.projectfinancemagazine.com). But the deal, designed to spur urban development in Colorado's largest city, has sparked opposition both inside and outside government.

Three issues have been publicly blamed for the delay: delays in securing Federal stimulus funding, delays in acquiring land for some of the works covered by the concession and a lawsuit that challenges the way the project has been incorporated into the redevelopment of Denver's Union Station. The RTD has also faced pressure from parts of the Colorado legislature for an audit and re-examination of its use of private financing.

The PPP has also invited speculation that multi-year payment obligations might be counted as debt, and therefore need to be approved by voters because of the state's Taxpayer's Bill of Rights. The concession has not yet sparked a formal complaint, but indicates that government in the US is only now beginning to work through the implications of using private entities to build infrastructure that requires subsidies.

"I take these disputes as a positive sign," says David Horner, a former chief counsel at the FHWA who is now a counsel at Allen & Overy. "It shows that government is starting to grapple with these issues, that PPP is acquiring a wider audience, and that there's growing activity. It's unsurprising that some projects are encountering difficulties." The US debate over PPP has focused so far on revenue-producing assets, whether greenfield or brownfield, chief among them toll roads. Only recently have availability and acceptance payments, mostly for roads, become important components in new concessions.

Florida fighting

Successful availability deals will need to find a middle ground between satisfying lenders that government commitments are sufficiently robust and satisfying constitutional niceties, and critics of deals will attack them from either side. Conspicuous in avoiding controversy was Florida, which closed the first financing to use availability payments in March. The $1.59 billion I-595 project incorporated $525 million in acceptance payments, and benefited from a $607 million TIFIA loan, but $255 million in commercial debt is backed by long-term payments from the Florida Department of Transportation (FDOT).

There are a number of reasons why Florida might have escaped the fate of other deals requiring public subsidy. Florida is collecting tolls on the road, but wants to retain flexibility in setting them as a congestion management tool. The state DOT operates relatively free of day-to-day political interference. The cynic might add that the residents of the state, one of the worst hit by the subprime crisis and its aftermath, have their attention focused elsewhere.

The state's track record in closing deals is as spotty as that of Texas. The Alligator Alley concession failed to attract any responses to its request for proposals, or at least none by the deadline for bids. In the delicately choreographed way that bidders sometimes express their displeasure with bidding processes, Global Via, one of the last two interested bidders, is believed to have submitted its bid late, much as OHL submitted a non-compliant bid on the North Tarrant Express in 2008.

Alligator Alley's collapse was indirectly a result of credit market conditions, although the other of the two remaining bidders – a Vinci/Alinda grouping – was prepared to contribute an all-equity deal. The 125km road has a relatively low toll rate, and little support for drastic increases. While a bank committing long-term debt might have been comfortable with this profile, equity investors are less interested in such a low-growth asset, and the two bidders are believed to have been unable to match the department's expectations from the sale of the operational asset.

Port of Miami Tunnel, on the other hand, combines the credit market collapse and a particularly fluid political situation. Repeatedly delayed, first by the demise of the monoline insurance market, and then by the demise of co-sponsor Babcock & Brown, it was abandoned by FDOT in December, and since resurrected because of pressure from Miami's politicians. Meridiam, which replaced B&B shortly before the initial rejection, now joins Bouygues, which is set to build the tunnel, as sponsor.

The state and consortium have now reached commercial close on the $1.3 billion project, and have managed to secure $397 million in debt from TIFIA, which was not originally set to contribute to the financing. The concession will be funded from a mixture of state and local funding, equity, commercial debt and the TIFIA loan, and availability payments will make up the bulk of the sponsor's revenues. There is no sign that Florida's voters or politicians are any more troubled by the use of the mechanism than they were for I-595, and there is certainly much less opposition than the Alligator Alley lease attracted.

Deep breath, PPP fans

Against this discouraging backdrop, PPP's supporters comfort themselves with three important correctives. The first is that states are still exploring PPP, and sponsors are still responding to requests for proposals. San Francisco's Bay Area Rapid Transit recently issued a combined request for proposals and request for qualifications for its much-delayed and frequently-restructured Oakland airport Connector project. The light rail line will now be procured as a design-build contract, with a separate operating contract attached.

Dallas Area Rapid Transit and Fort Worth Transportation Authority also recently issued a request for expressions of interest for a design-build-finance-operate-maintain concession of the Cotton Belt Rail Line. ACS and the North Carolina Turnpike Authority have signed a pre-development agreement for the Mid-Currituck Bridge. Maryland is exploring a lease of a container terminal, despite the troubles that some leveraged ports acquisitions have experienced. And Highstar's Ports America won a $150 million port concession in Oakland in March, which it says it will fund using equity.

The most high-profile PPP failure – the inability of a Citi Infrastructure Investors-led consortium to close the $2.52 billion lease on Chicago's Midway Airport – had nothing to do with politics. The city, which had been patient while the sponsors tried to line up equity mezzanine and debt financing, walked away with a $126 million break fee.

The city had succeeded, about a month before the Midway collapse, in closing the lease of its on-street parking concession to Morgan Stanley for an equity-funded $1.157 billion. The deal, which involves some increases in parking charges, has not been wildly popular, but it demonstrates to private sector bidders what a determined municipality can achieve. Detroit and Pittsburgh are examining similar schemes.

Sponsors have – with the notorious exception of Texas – kept faith with states' efforts to attract private capital both because of the rewards on offer, and because they have been generous with compensating bidders for their time and expense in assembling proposals. "Sponsors are starting to remember that the early days of PPP and PFI in Europe were rather messy, and adjusting their expectations of the US to match," says one adviser familiar with these markets.

The next big comfort to sponsors is that support for PPP among the US political class is getting louder. President Obama is much more inclined towards PPP than many of his fellow Democrats, possibly because of his roots in Chicago, where Mayor Richard Daley pioneered infrastructure concessions in the US. Influential current and former governors, including Rendell of Pennsylvania, Warner of Virginia, Schwarzenegger of California and Dean of Vermont, have come out in favour.

As an indication of the shift, a former Democratic candidate for governor of New York, Carl McCall, recently released a report that gave qualified support for examining PPPs. The report, from the State Asset Maximization Commission, which McCall headed, was very light on detail and delivered a vague and expansive definition of public-private partnership that has been all but eliminated from transportation finance discourse. But it sounded an enthusiastic note in a state that lacks a PPP law and has public sector unions that approach the clout of their peers in Canada and California.

Popular mandates

Opposition to PPP, while widespread, loud and dispersed, is far from co-ordinated in the US and its states. Meanwhile, public support for PPP, or at least some structures, is solidifying. Investment bank Lazard has hired Mercury Public Affairs to take a poll of public opinion towards private infrastructure investment for the last three years. The latest crop of results looks broadly encouraging, showing increased support in principle for private investment in infrastructure.

The poll indicates that the state of the US economy has assumed overwhelming importance in voters' minds, and confirms a generalised willingness to defer to the private sector in recovery spending, particularly among self-described moderates and voters that slide their votes between Democratic and Republican candidates. It also indicates slightly greater interest in directing existing state funding towards education and healthcare than infrastructure.

Less encouraging signs come from voters' continued hostility to foreign ownership, which suggests that US pension funds will need to be as important sources of political cover as they are of funding to private infrastructure. Voters also prefer shorter concession lengths of roughly 15 years, which usually reduce the proceeds to government of concession sales. The polling also notes that strong support for PPP from Obama would probably translate into increased support for the concept, even though opponents of PPP have the most favourable opinions of Obama.

One new area of polling for the Lazard research is a series of questions about voters' opinion of PPP in the water sector. The choice of sector reflects growing interest, both public and private, in water. The poll showed small majorities in favour of greater private participation.

One of Lazard's main conclusions comes out of its water polling – that PPP would be much more palatable if its implementation were to be supervised by an independent body, much as private electricity and gas utilities in the US are regulated by public utility commissions. The idea has potential, since PPP development has to date resulted mainly in new government or quasi-government bodies that are designed to promote PPP. Regulation of newly-privatised services, whether parking, water or tolls, might in many cases be accomplished through existing commissions, though elected officials may resist giving up that much control.

One PPP adviser was wary of the suggestion. "It speaks to the sort of mind that wants to find a quick and elegant solution to some of the obstacles facing PPP – I think any resolution is likely to be much more organic." But clearing the obstacles will be a political process, "more sociology than financial engineering" said the adviser, and acceptance will take time to permeate the United States' many and varied political structures. They don't make adopting PPP impossible, but they do make it slower.