Arizona has warned it will need to raise up to $532 billion (€337 billion) for essential infrastructure projects over the next 25 years.
With the US state’s population expected to grow by 65 percent over the next quarter of a century, Arizona said it would need to invest between $417 billion and $532 billion in energy, water, transportation and telecommunications infrastructure just to keep pace with rising demand.
Unveiling its first major study into the issue, Arizona Investment Council said transportation needs were the most pressing, with the bill for road, rail and air infrastructure improvements expected to top $311 billion. Roads and highways will take up the lion’s share of the needed capital, around 80 percent.
Without significant investment, AIC warned delays would increase almost six-fold over the next 25 years, with little over a third of all road journeys forecast to be at an “acceptable level of service” by 2025 compared to 77 percent in 2002. Over the next 25 years, passenger road use is set to more than double, while truck freight tonnage will double and air freight tonnage will triple.
“The fact is we are not spending enough on infrastructure to keep pace with growth. In some areas, our infrastructure is wearing out faster than we can replace or maintain it,” said AIC president Gary Yaquinto.
Infrastructure as an asset class has grown rapidly over the past year, with major investment banks and private equity firms all seeking to raise dedicated funds. In the past couple of months alone, PERE has reported that Goldman Sachs has launched a fund targeting $7.5 billion, while Morgan Stanley has just closed its $4 billion fund – $1.5 billion above its original target. Lehman Brothers is also targeting a $1 billion infrastructure fund, while Global Infrastructure Partners – a venture from Credit Suisse and General Electric – has raised $5.6 billion for the sector. ING Group is also seeking €1 billion for an infrastructure fund.
Last week, Citi Infrastructure Investors and Spanish toll operator Abertis Infraestructuras won the right to lease the Pennsylvania Turn for $12.8 billion (€8.2 billion) in a deal that, if approved by legislators, would constitute the largest highway privatiziation in US history.
According to the AIC report, Arizona would also need significant investment in energy, water and telecommunications in order to meet future demand. Yaquinto added: “We must be open and forthright with the public regarding costs as we move forward. This is the only way we can ensure Arizona’s economic competitiveness and quality of life.”
The energy sector would face a funding gap of around $109 billion if existing funding regimes were maintained and not increased to meet rising demand, the AIC report said. In the past 10 years, electricity demand has increased about 41 percent, with the state meeting most of that demand by building gas-fired plants. By 2025, electricity demand in Arizona is set to increase by about 85 percent and infrastructure improvements expected to be up to $86.5 billion
To bring Arizona’s telecommunications infrastructure, such as access to high-speed data, voice and video services, to the standard of Japan, France and Korea would take up to $25 billion of investment. The state would also need to spend more than $109 billion over the next 25 years on improving its water and wastewater infrastructure. Current funding sources fall $30 billion short.
“This study provides hard evidence that infrastructure investment must be made – and the amount of that investment is staggering,” concluded Yaquinto.