Dale Bonner
Senior Advisor; Chairman, Plenary Group USA
California and Public Policy and Real Estate and Regulation
Dale Bonner is chairman of Plenary Group USA, a long-term investor, developer and operator of infrastructure in the United States.
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Infrastructure's Last Mile
By: Dale Bonner
December 14, 2012
In the telecommunications industry, the "last mile" is a phrase that refers to the final leg of the communication networks that delivers connectivity to retail customers. The last mile is also the first mile from the user to the network or system. The last mile is often the most complex part of the system, with the greatest number of bottlenecks.

The metaphor provides a fitting backdrop for on-going arguments for more private investment in public infrastructure. Numerous "high-level" reports making the case for private investment have focused on macro trends, aggregate estimates of need, and a top-line rationale for using private capital.

This growing body of literature offers little insight to the needs, opportunities and execution capability within fragmented sub-national markets. In other words, current literature fails to address the more complex, but critically important "last mile" issues causing bottlenecks and delays in private capital flows. Over the past several years, much of the case for private investment has asserted or assumed that the economic downturn and resulting fiscal crises would motivate state and local governments to sell public assets to help finance infrastructure and other public services.

Whether and on what terms public owners would be willing or incentivized to sell assets or look to the private sector to help development new capacity raises a host of thorny issues that differ by region and not simply by nation.

CaliforniaaEUR(TM)s aging infrastructure continues to deteriorate as demand continues to grow, making it increasingly clear that government cannot look solely to legacy programs to meet infrastructure demands. At the same time, institutional investors seek access to high-quality infrastructure assets that generate steady, inflation-linked cash flows.

California comprises thirteen regional economies, each with infrastructure needs, priorities and resources that vary with the regional economy and demographics. The pace and quality of investment opportunities will therefore vary significantly by region.

With a new crop of decision-makers about to emerge from national, state and local elections, now is a good time for the public and private sectors to come together to take a hard look at the California investment landscape. That should include a more granular examination of the opportunities and benefits of putting more private capital to work to solve infrastructure problems across California's regional economies.

Here are some of the indicators of opportunity and readiness for private investment that have been proven successful in other countries:

• Favorable political, legal and regulatory conditions and processes
• Demand inelasticity that defines a stable revenue stream (either by the nature of the activity or contractual arrangements)
• Favorable contract structures and risk sharing
• Qualifications and experience of government sponsors, project management, and corporate joint venture and financial partners
• Effective governance structures with clear roles and responsibilities
• Economic and social returns

Measuring these and other indicators at a regional level should provide a more clear picture of where private investment is most economically justified in the near and long-term; which regions have assets that are, or soon could be, in investible format, and which are best prepared to execute in the near and mid-term. A "last-mile" perspective would also help focus attention on what needs to be done to jumpstart investment in California and perhaps spur competition among regions to improve policy, finance and execution capabilities across the State.