Infrastructure Finance for the Public Good: How Asset Recycling Can Untangle the New York MTA’s $50 Billion Debt Load


Systematic infrastructure underinvestment – a $2.6 trillion ‘gap’ – and accelerating climate change have become facts of life in the United States. Though typically attributed to politics, this Article posits the circumstances as a market disequilibrium rooted in an interplay between unique dimensions of infrastructure and distinctive features of the U.S. approach. Recently-passed legislation, including the Infrastructure Investment and Jobs Act, is insufficient to overcome these long-standing challenges.

Based on a broad, global study of effective approaches to infrastructure finance, as well as a multi-disciplinary analysis of the economics, engineering and finance literature, this Article proposes addressing the U.S. infrastructure disequilibrium through asset recycling. Asset recycling is an innovative strategy, pioneered in Australia, premised on: (i) monetizing existing, government-owned infrastructure; and (ii) reinvesting the proceeds in development of new assets, which can be ‘recycled’ again, creating a virtuous cycle on a debt-neutral basis.

The Article illustrates this approach through a detailed, empirical case study of the New York MTA, the nation’s largest transit agency. The MTA has over $50 billion of debt, COVID-19-related losses exceeding $20 billion and bond covenants, as well as state law explicitly prohibiting bankruptcy. The analysis finds that monetizing solely the MTA’s bridge and tunnel assets (but not the subway) through a long-term concession could, conservatively, generate $33 to $53 billion – sufficient to repay the majority, if not entirety, of the MTA’s obligations, giving it the wherewithal to build the sustainable infrastructure that New York deserves.

Beyond the mechanics and empirics, the underlying principles – leveraging private capital, coupled with robust oversight – have far broader implications, as asset recycling is estimated to represent a $1.1 trillion opportunity. The Article concludes with a discussion of normative and policy considerations, as well as areas for future research, including multi-stakeholder governance frameworks for imperfect public goods, ESG-based contractual mechanisms and the interplay between infrastructure policy and climate change, with an emphasis on broad-based social and allocative equity.

As detailed further alongside the respective discussions, it is critical to note that the primary analyses in this Article are as of late 2021 (when this research was conducted). The Article thus does not reflect changes and subsequent developments, including with respect to prevailing interest rates, financing terms or term structure, as well as legislative and policy developments. Correspondingly, the results of certain analyses may differ today based on evolving interest rate conditions and assumptions which are subject to change, as detailed further in the Article.


“If I . . . took you to LaGuardia Airport in New York, you must think I must be in some third world country,” President Joe Biden once observed upon entering the financial capital of the world’s largest economy.1

According to a recent Council on Foreign Relations report, “U.S. infrastructure is both dangerously overstretched and lagging behind that of its economic competitors, particularly China.”2 With a perplexing enthusiasm, the American Society of Civil Engineers determined that “[f]or the first time in 20 years, our infrastructure GPA is a C-, up from a D+,” with a $2.6 trillion ‘investment gap.’3 Recent legislative efforts, including the 2021 Infrastructure Investment and Jobs Act (“IIJA” or “2021 Infrastructure Act”) and subsequent legislation, offer a starting point but are unlikely sufficient to comprehensively address the problems.4

Policy is conceptualized broadly but experienced locally. Roads, public transit, water and electricity have an extraordinary impact on our quality of life. However, we don’t think much about those things unless they stop working.

The socio-economic importance of infrastructure, and the United States’ chronic underinvestment and neglect toward it, have been thoroughly documented in the economics and engineering literature as well as the media.5 However, these issues have been surprisingly under-researched in the legal scholarship.

This Article aims to bridge that gap through a multi-disciplinary, empirical approach, coupled with a global perspective. It is organized in four parts.

Part I introduces the salient problem – the ‘market’ for infrastructure finance is persistently broken, impairing our economy, quality of life and ability to address climate change – and analyzes the underlying causes. The Article posits that the disequilibrium goes beyond politics, driven by a combination of infrastructure’s unique economic attributes, and exacerbated by distinctive features of the U.S. approach. Though the U.S. typically views itself as private sector-centric, it takes a meaningfully different approach with respect to infrastructure – emphasizing a government-provision model with a federalist delegation of responsibility to the state level, where the majority of infrastructure spending occurs.6

In contrast, other countries have over time incorporated more private sector involvement, adopting ‘hybrid’ models to drive better outcomes – and illustrating the range of options. Based on that holistic, global framework, Part I previews the core proposal: asset recycling.

Asset recycling is an innovative strategy, pioneered in Australia, premised on a two-phase process: (i) transitioning existing, mature infrastructure assets to a public-private-partnership (but not a privatization); and (ii) using the proceeds to finance new projects. As a result, the government develops more infrastructure on a debt-neutral basis. The potential value creation is estimated to exceed $1.1 trillion.7 In contrast, the IIJA will fill only 18.2% to 22.4% of the infrastructure ‘investment gap.’8

Parts II and III contextualize and quantify these issues through a comprehensive, multi-disciplinary case study of the New York Metropolitan Transportation Authority (“MTA”), leveraging the legal, financial, economic and engineering literatures.9 Part II focuses on the MTA and its challenges; Part III details application of asset recycling.

The MTA was selected, in part, because the scale and acuity of its challenges – a debt load exceeding $50 billion, a long-delayed $51.5 billion climate investment program, and “no bankruptcy” bond covenants – crystalize the necessity of innovative solutions. At the same time, the MTA, in many ways, also represents a microcosm of issues plaguing infrastructure policy nationwide, including transit systems from Boston to Chicago and San Francisco burdened by eerily similar woes,10 an “increasingly unreliable” electric grid 11 and failing water systems from Michigan to Mississippi.12 Particularly for public transit, the aftereffects of the Covid-19 pandemic have rendered dull, long-standing pain into a far more acute ailment, closer to a broken arm.

Part III empirically illustrates why a tailored asset recycling strategy presents a highly attractive avenue for addressing the MTA’s predicaments. Based on a thorough financial analysis as well as extensive market research, the Article estimates that a concession (distinct from a sale) for just the MTA’s bridge and tunnel assets could, conservatively, generate between $33 and $53 billion (and potentially up to $62 billion) in proceeds, sufficient to repay a majority, if not the entirety, of the MTA’s debt – giving it the wherewithal to invest for the future.13

Part III concludes by detailing the integrative value creation from asset recycling, as well as distinctions between the proposed approach and ‘privatization,’ as the term is commonly understood. Though the empirics are MTA-specific, given similar challenges facing infrastructure nationwide, the proposal has applications and implications well beyond New York.

Part IV explores normative dimensions and policy considerations. First, it outlines key factors for implementing asset recycling, including asset selection, governance and contractual structure, with provisions tied to environmental, social and governance (“ESG”) metrics. Second, it discusses governance frameworks for imperfect public goods, such as infrastructure, finding corporate-centric approaches imprecise, and recommending application of broader multi-stakeholder models. Finally, it discusses the interplay of infrastructure and climate change, emphasizing that allocative equity and socio-economic justice must be at the heart of infrastructure policy.

  1. Infrastructure Finance, Ownership & Control

Understanding the challenges facing U.S. infrastructure generally, and the MTA specifically, requires some background on how these types of assets are financed, operated and governed.

Infrastructure financing and ownership structures exhibit significant variation across jurisdictions worldwide.14 Some nations, like Australia and Japan, are relatively open to private sector involvement and investment in infrastructure. Others, particularly in Europe, take something of a middle ground. The U.S., in contrast, emphasizes public sector ownership and financing of infrastructure. However, the U.S. approach has varied over time, with the private sector previously playing a larger role – and more recently there have been growing examples of U.S. private sector involvement.15

The diversity of approaches illustrates a salient point: there is no ‘right’ answer,’ and more than one option.

This part of the Article sets the stage for the broader discussion. First, it introduces the salient problem – a persistent breakdown in the ‘market’ for infrastructure finance – and describes the why, focusing on distinctive aspects of the U.S. public sector-centric model. Then, it contextualizes the policy proposals through analysis of global approaches, finding increasing prevalence of ‘hybrid models.’ Finally, the discussion previews the asset recycling proposal, and contrasts the associated policy dimensions with the 2021 Infrastructure Act.16

  1. Background & Economic Foundations

The ‘market’ for infrastructure exhibits persistent disequilibria, impairing our economy, quality of life and ability to address climate change. Some of the challenges are inherent to infrastructure; others, as discussed below, are arguably exacerbated by America’s approach.

  1. Taxonomy

Though a commonly used term, the definition of “infrastructure” is surprisingly complex and seemingly amorphous.17 Taxonomically, in simplest terms, it can be grouped into two categories: (i) ‘traditional’ (‘hard’ or ‘economic’) infrastructure and (ii) non-traditional (‘soft’ or ‘social’) infrastructure.18 This distinction arguably explains much of the politicized debate around the recent Infrastructure Investment and Jobs Act.19

Figure . Infrastructure Taxonomy

For our purposes, we can think of infrastructure as “shared means to many ends” which do not directly produce goods or services, but provide the “underlying framework” or “foundation,” facilitating processes that do.20 Because this Article largely focuses on economic infrastructure, and transportation specifically – with case study-specific elements denoted in Figure 121 – for the sake of relative simplicity, it will at times use the term ‘infrastructure’ to reference just those elements of the broader taxonomy.

  1. An Imperfect Public Good with Externalities

Contemporary legal frameworks can (albeit, sometimes unintentionally) trend towards viewing public goods and private goods as a binary choice,22 roughly corresponding to the respective public and private law frameworks.23 Accordingly, infrastructure is frequently termed a “public good,”24 the traditional economic definition of which requires that it be:25 (1) ‘non-rivalrous’26 and (2) ‘non-excludable.’27

Yet, in reality, infrastructure28 is closest to an imperfect (or impure) public good: one that satisfies the two conditions only to a certain extent, or only some of the time.29 For instance, a lighthouse or road without tolls or traffic can functionally resemble a public good. Yet, that same road can also feel closer to a private good through the rivalrous impact of rush-hour traffic and exclusionary effect of tolls. The imperfect public good construct informs much of the incongruence, and, at times, inconsistency, in how society and policy makers view infrastructure.30 Conceptualizing infrastructure as an imperfect – rather than ‘pure’ – public good supports deep government involvement, but does not create a normative disconnect in respect of private sector participation or multi-stakeholder models.

Infrastructure also exhibits “externalities,” defined as second order effects on individuals not party to a transaction.31 Specifically, infrastructure can generate positive externalities through increased efficiency and other economic effects, and, critically for our purposes, reduce negative externalities. For instance, driving produces negative externalities through pollution, noise and congestion – indeed, the transportation sector accounts for 36% of U.S. emissions.32 Public transit – with some of the lowest carbon emissions per kilometer traveled – can provide an externality-minimizing substitute, essential for emissions goals, thus enhancing the aggregate welfare.33

  1. Market Disequilibrium

Infrastructure is essential for both economic activity and quality of life. Yet, the ‘market’ for it exhibits pervasive disequilibria.

Economists have attributed America’s brisk post-World War II growth in part to robust infrastructure investment.34 A large-scale ‘meta study’ of 3,000 papers found an average cumulative ‘multiplier effect’ of one-point-five times,35 while other research indicates a three-times multiplier for transportation investment.36 Other studies have found that traffic congestion costs the U.S. up to $120 billion per year, while airport delays add up to over $35 billion annually.37

Despite the well-understood importance of infrastructure, markets, both public and private, have a hard time providing a societally optimal supply of foundational shared resources. The affermentioned U.S. ‘infrastructure funding gap’ – estimated between $2.6 and $3.8 trillion – is, in essence, a market disequilibrium.38 At present, U.S. infrastructure spending as a percentage of GDP is the second lowest amongst the G20, ahead of only Mexico, resulting in by far the largest investment gap amongst G7 nations.39

Illustrating the real-world implications, on January 28, a Pittsburgh bridge collapsed shortly before a scheduled speech by President Biden regarding the 2021 IIJA.40 Beyond the headlines, society experiences the consequences of this market breakdown daily through transit delays, gridlocked traffic and power outages.41

As the full costs of climate change are internalized, the importance of infrastructure will only grow – as will the costs of our prevailing disequilibrium, and the failure to act.42

  1. U.S. Approach: Public Sector-Centered Model

Though the U.S. often views itself as highly centered around free markets and private assets, it follows a markedly different approach with respect to most infrastructure. Relative to other jurisdictions, the U.S. generally places a heavier emphasis on public sector infrastructure ownership and financing.43 At the same time, largely as a function of dual-federalism, the U.S. delegates this responsibility to the state and local levels, with infrastructure assets typically financed through a combination of taxes and municipal bonds.

  1. Normative Underpinnings

The ‘public good’ normative construct appears to underpin much of the U.S. approach to infrastructure.44 Figure 3 below charts infrastructure finance against the level of private sector participation, creating a two-by-two matrix. The U.S. model in the bottom left quadrant, maps to public sector financing and control.45

Figure . Matrix: Infrastructure Risk & Control Allocation

The top right quadrant maps to “privatization,” with certain private sector-owned infrastructure assets.46 The bottom right quadrant reflects a common public perception regarding privatization: private gains, socialized costs.47

The negative connotation around “privatization” is not undeserved; privatization often carries negative consequences. For instance, in 2008, Chicago ‘privatized’ certain parking assets, resulting in a significant loss to the city.48 Privately-run prisons have been exceptionally problematic; the Justice Department found them “more violent” than government-run institutions and recommended a “phase out.”49

However, the potential harms of ‘privatization’ – while quite real and significant – need not be inherent to private sector participation. Indeed, when coupled with comprehensive oversight, certain shared resources, such as telecommunications and electricity, can be ably provided by private operators.

  1. Historical Context

Infrastructure ownership and financing structures in the U.S. have gone through multiple phases – briefly public, then private, and, for the last century, public again – underscoring that our contemporary conceptualization is not the only approach.

The history of U.S. infrastructure development displays something of a dissonance, underscored by “[t]wo sets of broad and at times conflicting ideas”50 – an emphasis on maximizing “overall economic development and individual economic opportunity,”51 tempered by “broad fears of irresponsible accumulations of either political or economic power.” 52

In simplified terms53, U.S. infrastructure finance – particularly for transportation and public transit – has gone through essentially three phases.54

The first, in the front half of the nineteenth century, saw extensive public sector investment in infrastructure assets.55 Subsequently, depressions in 1837 and 1857 were followed by a sharp contraction in public sector capital deployment due to resource limitations.56

The second phase, from the mid-nineteenth century until around the Depression era, was marked by significant private investment.57 Over time, however, many of the enterprises found themselves in financial distress, oftentimes due to frictions with respect to rate-setting.

That pullback in private capital led to the third phase, in effect today, characterized by an emphasis on public authorities, rather than the private market, assuming responsibility for infrastructure, and particularly transit.58

The MTA nicely illustrates this arc of U.S. infrastructure history. The system began as two privately owned, competing lines. Subsequently, in 1932, New York City began operating a third line, which was buttressed by significant government funding and credit.59 A dispute regarding fare increases followed. By 1940, NYC orchestrated a merger of the three entities. Following a transition period of relatively independent operation, the entities become more closely integrated, ultimately leading to the present-day structure.60

The questions then were not dissimilar to those discussed today. In 1941, one scholar observed:

Theadministrative problems that appear where government becomes an entrepreneur and manager had indeed been present since 1932 . . . But unification raises in full force difficult questions in the adaptation of governmental concepts and procedures to the conduct of economic undertakings.61

  1. Federalism & Municipal Finance

Along with a public sector emphasis, a second distinctive dimension of U.S. infrastructure finance is the delegation of responsibility to the state and local levels, rather than the federal government.

This delegation reflects America’s dual-federalist framework, a constitutional construct where individual states are themselves sovereign, with powers not granted to the federal government generally reserved for the state level.62 As part of this division of labor, the states are traditionally responsible for providing – and financing – a range of economic63 and non-economic infrastructure, including police, education and healthcare.64 At the same time, the states retain control over land use and property laws, both of which are critical for physical asset development.65 Within the states, allocation of power is further sub-divided at various levels, with public corporations often used as financing vehicles for infrastructure and other capital spending.66

As a consequence, the U.S., in effect, has two relatively distinct ‘sovereign’ debt markets – the $21 trillion treasuries market, which reflects federal borrowing, and the $4 trillion municipal bond market, which reflects state and municipal entities.67 About two-thirds of infrastructure projects are funded through municipal bonds issued by state and local governments; infrastructure, in turn, represents the bulk of municipal debt.68

The municipal market is composed of two main instruments: (1) “full faith and credit” general obligation bonds and (2) revenue bonds, used to finance infrastructure like the MTA.69 Three features of revenue bonds are notable for our purposes.

First, the “revenue bond” structure exists because municipal entities generally cannot borrow on a ‘traditional’ secured basis,70 due to difficulties of lien enforcement with respect to government property.71 Revenue bonds bypass this challenge by granting liens in a circumscribed revenue stream – typically infrastructure, but also dedicated taxes72 — which forms the co-called “Trust Estate,” rather than in the revenue-producing asset.73 Revenue bonds’ cash flow function is essentially a waterfall. For instance, with respect to an infrastructure project, gross revenues from user fees might first be used to cover operating expenses, with remaining net revenue flowing to the trust estate, and then to bondholders, with any excess funds kept in reserve or used for other debt needs.74

Second, revenue bonds can receive special statutory protections in bankruptcy, with well-documented legal difficulties in ‘impairing,’ or reducing, such obligations, complicating infrastructure financial distress.75 For natural monopolies, the challenge is particularly pronounced, as it can effectively require rate increases beyond what their constituencies can afford.76 Though recent decisions have pared back certain revenue bond protections, significant uncertainty remains.77 This broad-based set of legal issues illustrates the fact that, while certain aspects of the MTA’s restructuring challenges described in Part II are distinctive, they are, fundamentally, manifestations of wider concerns regarding resolution of infrastructure financial distress – and requiring broad-based solutions.

Finally, municipal bonds are typically tax-exempt for residents of the issuing state, which encourages individuals to hold municipal bonds directly,78 but can disincentivize investment by already-tax-exempt institutional investors, such as pension funds.79

  1. Global Perspective: Public-Private ‘Hybrid’ Models

Over time, many jurisdictions around the world have become more receptive to private sector participation in infrastructure, resulting in what this Article terms ‘hybrid’ models.80 For purposes of discussion, at a simplified level, the approaches can be segmented between three main categories:

  • United States. Heavy emphasis on public sector infrastructure ownership and finance.81
  • Europe. Generally favoring hybrid models, including Public-Private Partnerships.82
  • Japan and Australia. Higher prevalence of privately-owned infrastructure assets. 83

This sub-section presents an intellectual framework underlying the ‘hybrid’ model, and details specific approaches and considerations with respect to public-private-partnerships, and particularly concessions.84 Then, it outlines asset recycling, which underlies the proposal in Part III, and discusses certain disappointing dimensions of the 2021 Infrastructure Act.

  1. ‘Hybrid’ Models Overview

‘Hybrid’ models incorporating public and private sector capital and participation are not new, and have long existed in varying forms across different sectors, in the U.S. and abroad.85 Conceptually, the ‘hybrid’ approach is perhaps closer aligned with the imperfect public good construct.86

Figure 6 below visualizes this by building on an existing World Bank framework – which provides the horizontal axis, detailing a continuum of hybrid approaches – to incorporate the vertical axis of financing options with differing levels of private sector risk assumption.87

The critical insight is the large area in the middle – corresponding to four common types of ‘hybrid’ structures (detailed below) utilized in other jurisdictions – which illustrates vast latent optionality:

Figure . Strategic Map: Infrastructure Ownership, Control & Financing

As before, the U.S. model maps to the bottom left portion, with government ownership and financing; the top right box reflects a structure closest to full privatization. The level of private sector participation increases as one moves from left to right along the x axis.

Conceptually, it is logical that for a particular asset, or asset types, the optimal ownership and capitalization structure can differ, and also evolve over time. In that respect, the division of labor and responsibility between public and private arguably has some parallels to (as well as critical distinctions from), the separation of ownership and control well-documented in the corporate context.88

  1. Public-Private Partnerships: Concessions

Of the four ‘hybrid’ structures, leases and concessions generally map closest to the prevailing American conception of ‘public-private partnerships,’ or ‘P3.’89 Though terminology can vary, for our purposes, we can think of the definition of ‘public-private partnership’ as a “legally binding contract between a public sector entity and a private company. . . where the partners agree to share some portion of the risks and rewards inherent in an infrastructure project.” 90

Concessions, a type of P3 (and, in turn, a subset of ‘hybrid’ models) are the primary focus of discussion, as they underlie the proposal discussed in Part III with respect to the MTA.91 The general concession transaction structure entails a private entity assuming the operation of a project, which is then typically funded through a usage-based model.92 Through the transaction, the public entity:

  • Receives an up-front payment;93
  • Retains title and legal ownership of the asset;94
  • May retain some economics, based on the structure;95
  • No longer bears responsibility for operating and maintenance expenses (or demand risk) 96; and
  • Maintains comprehensive regulatory oversight and governance.97

Concessions are distinct from ‘sales,’ as the government retains title and ownership, while allowing for significant contractual tailoring and economic oversight, well beyond what would be realistically feasible following a sale.98

Fundamentally, concessions and P3s are about optimizing the allocation of the portfolio of risks associated with an infrastructure project.99 Traditionally, in the U.S., those risks have been warehoused solely within the public sector. Reasoning from finance first principles, however, suggests that specific risks should be allocated to the particular parties best suited to bear them. For infrastructure, that re-allocation is core to P3 value creation.100

Relative to the public sector, the private sector is typically better equipped to handle certain exposure, such as demand forecasting, financing structures and construction management, 101 but generally ill-suited for others, particularly with respect to harnessing positive externalities,102 addressing legal uncertainty or working through regulatory and jurisdictional frictions.103

Because of this, the typical role for the private sector has been ‘greenfield,’ or new-build infrastructure.104 The other core infrastructure project categories – ‘brownfield,’ referencing existing operating assets, or ‘rehabilitation,’ an intermediate category – are generally seen as preserve of the public sector, inapposite for private entities.105 Some scholars explicitly consider P3s inapplicable to brownfield projects.106

  1. Asset Recycling

The traditional conception of P3s as only applicable to ‘greenfield’ projects historically rendered the decision framework for brownfield assets rather binary: (i) continued public sector ownership or (ii) full privatization.107

More recently, Australia pioneered a third approach: asset recycling.108 Asset recycling, or “A/R,” is a term of art for the two-phase process of (i) transitioning developed, mature infrastructure assets to private investors through a P3; and (ii) re-investing the proceeds in new infrastructure. The transaction is debt-neutral for the government, and intended to create a virtuous cycle with the asset developed in the second phase subsequently also recycled.109

The value creation could be vast. Professor Geoffrey Garrett, former dean of the Wharton School, estimates a potential asset recycling market size of $1.1 trillion, consistent with work by other researchers.110 As discussed in Part III, asset recycling can conservatively generate $33 to $53 billion in proceeds from a P3 concession for just the MTA’s bridge and tunnel assets.111

  1. Two-Phase Process

As Australia’s former treasurer Joe Hockey explained, asset recycling developed as a function of necessity. After determining that “the easiest way to improve productivity was to build new improved infrastructure,” Australia found that “like every other Government, [they] didn’t have the money.”112

A nation’s infrastructure base can be conceptualized as two components: (i) the stock of brownfield or rehabilitation projects, with associated maintenance and operating expenses; and (ii) a flow of new greenfield assets, needed to support a growing economy while adjusting to exogenous shifts like climate change, and requiring up-front capital investment.113

The innovation of asset recycling is that it leverages the stock of assets to finance development of the flow, in the process also reducing carrying costs and ideally creating a virtuous cycle of continued reinvestment.114

Fundamentally, asset recycling is thus an extension of the P3 framework, but applied to ‘brownfield’ or existing infrastructure assets. Mechanically, the two-phase asset recycling process operates as follows:

  • Monetization. The government monetizes revenue-generating public assets through P3, such as a long-term lease or concession.115
  • Reinvestment. Monetization proceeds are re-invested:
    • Typically, in new assets to allow subsequent ‘recycling’; or
    • Rehabilitation of existing infrastructure assets.116

Subsequently, the ‘new’ assets can also be recycled, creating a virtuous cycle, on a debt-neutral basis, as new investment is financed through from monetization of assets rather than borrowing.

  1. Examples: Australia, Indiana and Puerto Rico

The Australian Asset Recycling Initiative (“ARI”) – as well as certain limited early U.S. transactions – illustrate the model’s application and value proposition.117

Australia presents a particularly apt comparable because, like the U.S., it has a dual-federalist system, with states delegated significant powers. The ARI optimized around this through state-led project selection, coupled with a 15% federal incentive for states that monetized assets and began new projects within specific timelines.

The state of New South Wales (NSW) was most active in Australia’s program, generating over $25 billion in proceeds as of 2020.118 NSW structured certain transactions with retained economics, for instance selling only 50.4% lease interests in Ausgrid, the nation’s largest electricity distribution network, and Endeavour Energy, an electric generation operation.119 In all cases, the public sector largely maintained the pre-transaction regulatory structure, ensuring robust oversight.120

At the same time, while relatively less common, a number of U.S. transactions have successful employed hybrid models, including asset recycling and P3s.

In 2006, the State of Indiana sold a 75-year concession to operate the 156-mile Indiana East-West Toll Road.121 Reflecting commercial best practices, Indiana utilized a robust investment bank-led marketing and auction process, leading to a $3.8 billion valuation,122 and negotiated extensive contractual protections, ranging from rate setting to trash removal.123 Additionally, the state was disciplined in capital allocation, reinvesting the $3.8 billion proceeds into other transportation projects, allowing for a fully-funded 10-year transportation program.124

More recently, the Port Authority of New York and New Jersey collaborated with private parties to modernize the LaGuardia (“LGA)125 and JFK airports through P3s.126 Indeed, airports are a common P3 vector with a number of transactions announced and ongoing in the U.S. and abroad.127

The LGA P3 transaction involved development of a revamped Terminal B, as well as certain associated improvements, with a new entity, LaGuardia Gateway Partners, serving as the project sponsor. Through the transaction, LaGuardia Gateway Partners was responsible for designing, building, financing, operating, and maintaining the project, with a lease period through 2050. Financing for the deal closed in 2016,128 though construction completion was meaningfully delayed by Covid-19.

The preliminary verdict appears positive. LaGuardia’s newly revamped Terminal B received a sustainable infrastructure accolade129 and – in what the Wall Street Journal compared to “Arby’s winning a James Beard”130 – UNESCO’s 2021 Prix Versailles award for “best new airport in the world.”131

While LGA’s P3 experience may prove above-average – Puerto Rico’s recent electric transmission P3, for instance, appears less than award winning132 – the transformation of “what was once regarded as the nation’s worst airport into a world-class facility” illustrates the latent potential for America’s aging infrastructure.133

  1. The Infrastructure Investment and Jobs Act Falls Short

Though commendable for recognizing America’s infrastructure and climate-related challenges, the 2021 Infrastructure Act falls short on a number of dimensions. Most consequentially, the IIJA is estimated to provide only 18.2 to 22.4% of the ‘investment gap.’134

Australia’s ARI, in contrast, effectively utilized private capital, coupled with extensive oversight, to leverage the program without straining government budgets. If the IIJA was structured similarly – a 15% incentive match coupled with asset recycling – the legislation’s allocated capital could be sufficient to close the funding gap entirely.135

The IIJA cknowledgees a theoretical role for private capital, but, rather unambitiously, stops at the research phase, merely asking the Secretary of Transportation to submit a report to Congress by 2024 with proposals to “address [] impediments” to private capital deployment, including asset recycling.136

As a related matter, the ARI was more fiscally efficient, creating a debt-neutral solution for the states, supported by transparent incentive funding from the federal government.

Unlike the IRA, IIJA funding is relatively murky, leaning on the Highway Trust Fund to the point of rendering it insolvent, with a Congressional Budget Office analysis of the legislation estimating a $191.5 billion shortfall by 2031.137 That is important because, notwithstanding the generally positive multiplier associated with infrastructure investment, the net economic impact is highly sensitive to the funding profile, with the potential for negative economic returns from inapposite policy.138

Finally, the ARI’s structure elegantly optimized around dual-federalism, respecting traditional allocations of responsibility through state-driven asset selection, but advanced national priorities through the matching program.

In contrast, the IIJA arguably over-emphasizes delegation to administrative agencies; the Department of Transportation, for instance, is responsible for allocating about half of new funding, totaling $274 billion. While there are logical arguments for greater utilization of federal capital for infrastructure,139 it does represent a departure from traditional divisions of responsibility, risking sub-optimal capital allocation and unnecessary jurisdictional frictions.140

II. Case Study: The MTA’s Tribulations & Restructuring Limitations

The challenges – and opportunities – facing U.S. infrastructure are well illustrated by the New York Metropolitan Transportation Authority (“MTA” or “MTA Group”), proprietor of New York City’s subway system. The MTA is the largest revenue bond issuer and a cornerstone of the $4 trillion municipal debt market.141 It is also critical for both economic activity and day-to-day life in the nation’s financial center.142 The MTA is struggling under a debt load exceeding $50 billion, reeling from over $20 billion of Covid-19-related losses and facing potential long-term demand deterioration.143 At the same time, the MTA’s “state of crisis” pre-dates Covid-19, reinforcing the long-standing nature of the underlying issues.144

Though perhaps exceptionally acute, the MTA’s circumstances are also not unique. Its challenges closely parallel those facing infrastructure nationwide – with early 2022 transit utilization 59% below pre-pandemic levels,145 an aggregate $39.3 billion public transit funding shortfall and over $40 billion of unfunded liabilities.146 On a relative basis, Boston’s MBTA is arguably more leveraged than the MTA, with $5.4 billion of debt against less than one-tenth of the revenues. The Chicago Transit Authority carries $4.44 billion of debt, while Washington’s MATA has $2.7 billion.147 Thus, with some caveats, the themes identified in the case study are, in many respects, broadly applicable nationwide.

This part of the Article is divided in two sections. First, it offers an overview of the MTA’s governance, financials and capitalization, and subsequently discusses the MTA’s twin challenges of Covid-19 and climate change adaptation, as well as federal support to date. Second, it details limitations on the MTA’s ability to restructure its obligations, due to policy, contractual and legal constraints.

In sum, the MTA is an essential public entity facing deep financial challenges, but unable to restructure its obligations – illustrating the necessity of innovative solutions.

  1. Overview, Financials & Covid-19

The MTA operates the nation’s largest “integrated mass transportation” network, comprised of New York City’s famed subway, bus lines and commuter trains, as well as toll bridges and tunnels in and out of the city. The system was created through the municipalization and merger of two private lines with a third government-controlled competitor.148

The MTA is a public benefit corporation and a component unit of the State of New York, established in 1965 pursuant to New York Public Authorities Law Title 11.149 A public benefit corporation is a “corporate entity separate and apart from the State of New York . . . without any power of taxation.”150

The MTA Group is structured as a group of “related entities”, with the MTA itself essentially functioning as a holding company above subsidiary public benefit corporations, and adjacent to affiliate entities responsible for different aspects of the system.151 The MTA Board “serves as the overall governing body of these related entities,”152 which are considered component units of the MTA.153 These component units maintain some interrelationships, but fundamentally operate independently.

Thus, the MTA is not unlike a large conglomerate with distinct business units ultimately overseen by a single board of directors.154

As detailed in Appendix II, the MTA Group consists of ten primary entities, the most pertinent of which can be segmented into two core components:155

  1. Transit and Commuter Systems (henceforth, collectively, the “Transit System”), comprised of the NYC subway (formally, the “NYC Transit Authority” or “NYCT”),156 bus lines (the “MTA Bus Company”) as well as the Long Island Rail Road and the Metro North Commuter Railroad (collectively, the “Commuter Trains”); and
  2. the Triborough Bridge and Tunnel Authority (“TBTA”), “a public benefit corporation empowered to construct and operate toll bridges and tunnels and other public facilities in the City.”157
  3. Operations & Financials

At a high level, the MTA has two core top-line drivers: (i) operating revenues, comprised of transit system fares and TBTA tolls; and (ii) dedicated taxes and government subsidies at the state and local levels. Historically, operating revenues made up about 56% of the MTA’s top-line, with taxes and subsidies covering the balance. In 2019, for instance, the MTA generated operating revenues of $9.1 billion, supplemented with $7.3 billion of dedicated taxes.158

The chart below shows MTA revenues by component unit for the period from 2015 to 2021.159 The data can be divided into two periods: (i) the ‘baseline’ between 2015 and 2019, and (ii) Covid-19’s impact in 2020 and 2021. During the baseline period, revenues were extremely consistent and steadily increasing, reflecting the MTA’s large and growing customer base with a relatively inelastic demand profile.160 As discussed below, this is precisely the revenue structure most attractive to fixed income investors, allowing for high system leverage. COVID-19, represented by the red oval, was a “once in a 100-year fiscal tsunami,” resulting in a 56.2% collapse in NYCT revenue.161

Figure . MTA Component Unit Revenues: 2015 to 2021

Historically, the subway (highest line above, in orange), was by far the MTA’s largest component, responsible for between 54% and 56% of baseline period revenues. TBTA tolls, the second largest top-line component, accounted for between 23% and 25% of baseline period revenues. The Commuter Trains were third largest, and the bus system a significant fourth.

Economics vary considerably across MTA operating units. Most importantly, the TBTA is the only ‘profitable’ part of the system, contributing the entirety of unit-level operating income and generating cash flow to subsidize the rest of the MTA Group. Further, the TBTA held up significantly better during Covid-19, with a much shallower decrease and faster rebound.

In the 2015-2019 baseline period, the MTA Group essentially operated on a break-even basis, with the revenues just matching expenses, even after including tax subsidies.162 To put it differently, the MTA historically operated with minimal margin for error.

  1. Capitalization

The MTA’s aggregate funded debt exceeds $51 billion, with $50.3 billion of direct obligations and nearly a billion of indirect liabilities as of 2021.163 The system’s operations are inherently expansive and capital-intensive, and generate insufficient earnings to fund investment needs. Because of this, the MTA has required extensive borrowing to finance capital costs across its operating segments. Historically, its robust top-line has supported a relatively low cost of capital and generally favorable market access.

Figure 9 below provides a snapshot of the MTA’s largest obligations as of Q1 2021.164 As common for U.S. infrastructure, the MTA’s obligations are largely “revenue bonds,” supported by dedicated revenue streams and paid through a ‘trust’ structure.165

Figure . MTA Group Debt Summary (Q4 2021)

The MTA’s pledged revenue obligation (as of Q4 2021) fall into four primary categories, with two backed by fare or toll operating revenue, and the others representing securitizations of tax revenues166:

  1. $28.75 billion of Transportation Revenue Bonds (“TRB”), equal to 58.6% of total pledged obligations, backed by Transit System “farebox revenue” from the NYC subway, buses and commuter trains;
  2. $9.41 billion of TBTA bonds, backed by bridge and tunnel toll revenues;167
  3. $5.53 billion of dedicated tax fund (“DTF”) bonds, backed by the Mass Transportation Trust Fund (“MTTF”) and Metropolitan Mass Transportation Operating Assistance (“MMTOA”) receipts; and
  4. $5.37 billion of payroll mobility tax revenue-backed obligations (“PMT Bonds”).168

The MTA’s financial position deteriorated significantly in 2021, with debt increasing $5.2 billion and liquidity shrinking by $1, despite extensive federal support.169 Further, limited investor appetite for additional fare-linked exposure required the MTA to introduce the PMT bonds, a new obligation type backed by securitized tax-revenue, perceived as “more stable.”170 That said, despite initial shocks171, the bond market view appears to have calmed considerably, with MTA spreads relatively tight relative to higher credit quality issuers.172 The below is an MTA-produced diagram, detailing the consolidated flow of funds underlying its obligations:173

Figure . MTA Pledged Revenues Flow of Funds

The MTA pledged revenue structure reflects a system built around subsidizing the NYC subway — a deliberate policy determination intended to optimize the associated externalities.174 The flow of funds works essentially as follows. The TBTA and NYCT, both operating entities, collect toll and farebox revenues, which are first used for their operating expenses and then go to pay for debt service. The DTF and PMT are not operating entities – really, closer to securitizations of tax revenue – and thus don’t have operating expenses, only their debt service. Because of the Transit System’s structural shortfall, the three other types of bonds – TBTA, DTF and PMT – provide “excess funds” (after operating expenses and their debt service) to support the TRB obligations, without which the MTA Group could not meet the TRBs’ debt service requirements.

The critical point to understanding the MTA Group’s financial predicament is that the TRBs constitute the majority of the its obligations, but the Transit System does not generate sufficient revenue to cover their associated debt service requirements, effectively requiring cross-subsidization.

  1. The MTA’s Challenges

The consistency of the MTA’s historical performance allowed markets to get comfortable with a capital structure leveraged to perfection and contractual terms set in stone – including a ‘no bankruptcy’ clause. Then, the world changed.

As described in a recent State Comptroller report, the MTA is “facing significant long-term financial challenges, including risks to its capital plan and pressure from escalating debt, while the impacts of climate change demand a sharper focus on preparation for and response to extreme weather events” (emphasis added).175

Many of the MTA’s challenges pre-date the Covid-19 pandemic, but have been significantly exacerbated by it.176 At the same time, the core issues – particularly systematic infrastructure underinvestment, exacerbated by climate change – are hardly unique to the MTA, but rather a reflection of issues consistently facing the U.S. infrastructure sector as a whole.177

This section proceeds in three parts. First, it will discuss the ‘revenue side’ in respect of the impact of Covid-19 on the MTA’s financial position. Second, it will discuss the ‘cost side’ focusing on effects of climate change through a discussion of the MTA’s now-delayed $51.5 billion capital program.178 As discussed below, though impossible to precisely quantify,179 climate change adaptation and mitigation efforts will unambiguously require significantly higher capital expenditure for decades to come.180 Finally, it will outline pandemic period government support measures, and challenges to further assistance.

  1. Revenues: Covid-19 Ridership Declines

Covid-19’s unprecedented shock nearly created a liquidity crisis for the MTA. Though, the potentially more significant impact may ultimately be structural degradation of the MTA’s long-term revenue profile, and, correspondingly, credit quality stemming from secular demand changes.

An MTA-commissioned McKinsey study estimated Covid-19’s aggregate impact to total about $20 billion through 2024, with “[o]perating revenues . . . projected to be down $10.7 billion, subsidies $6.9 billion lower, and expenses $2.7 billion higher.” 181

This is likely to be particularly acute for the NYCT subway system, which supports nearly $30 billion of TRBs. The MTA’s 2022 Final Proposed Budget was unambiguous, stating that:182

NYCT’s financial outlook remains fragile, with current projections. . . forecasting NYCT will only reach 87.5% of pre-pandemic ridership by the start of 2024, resulting in significantly less farebox revenue.

The chart below shows MTA ridership figures across system components on a quarterly basis as compared to pre-Covid-19 levels:

Figure . MTA Group: Ridership Volume Pre-and Post-Pandemic (2020, 2021)

The data can be divided into three core periods, each represented by a different oval:

  • The first (red oval, at left), reflects the direct impact of Covid at the worst part of the pandemic in early 2020. That period saw the sharpest utilization declines across system units. The MTA’s subway system (dotted red line) – its largest revenue driver – experienced some of the deepest declines, with ridership down over 90% in April, 2020; the Metro-North and LIRR saw even steeper deterioration.183 However, consistent with the revenue data above, the TBTA experienced a far shallower drop and faster recovery.
  • The second period (light green oval, at center), corresponds to the nationwide vaccine roll-outs starting around mid Q1 through Q2 2021. This period saw significant recovery across system components, with the TBTA returning to utilization above 90%. The NYCT improved to nearly 40% utilization, with the LIRR and Metro-North close behind.
  • The final period (teal oval, at right) corresponds to Q4 2021. Due to continued vaccination increases, the NYCT has improved utilization to nearly 60% of pre-Covid levels, with the LIRR and Metro-North reflecting a similar upward trend. TBTA utilization, meanwhile, essentially recovered to pre-Covid levels, with some days in November 2021 actually exceeding pre-Covid period traffic.

The trends in the ridership and revenue data are highly consequential for thinking about the future of the MTA Group, and, correspondingly, the system’s options for regaining its financial footing. Infrastructure utilization is, in many ways, a reflection of day-to-day life.184 Shifting work and life patterns – including the increase in remote and ‘hybrid’ work185 – ultimately raises serious questions about the long-term demand structure for the Transit System186 and TBTA in a post-pandemic world.187

  1. Costs: Climate Change

The revenue side of the equation is unfortunately only half the problem for the MTA. “With extreme weather events becoming more and more frequent – [climate change] clearly has to be a major priority for the agency,” remarked Janno Lieber, the MTA’s chief executive officer at a September, 2021 board meeting.188 Indeed, for over a decade, the MTA has viewed climate change adaptation as being “imperative.”189

For our purposes, the two sets of issues are closely related as the shock from Covid-19 also forced the MTA to delay its long-planned capital investment program to conserve cash, as noted above.

The economics and engineering literature has identified the “increasingly urgent” issues, as well as the novel challenges, facing transit systems as a result of climate change and adaptation.190 In a recent paper, Martello, et al, developed a quantitative framework for incorporating climate costs, using the Massachusetts Bay Transit Authority in Boston as a case study.191

In many ways, the impacts of climate change are not necessarily creating wholly new issues, as much as they are exacerbating long-standing problems in novel ways and at unprecedented rates.192

In 2012, system-wide damage from Hurricane Sandy totaled over $5 billion; the MTA has not yet completed repairs.193 In 2017, then-governor Cuomo declared a “state of emergency” following a series of tragic events.194 More recently, in September, 2021 Hurricane Ida’s record-setting rainfall caused subway flooding in 46 locations, requiring the MTA cut service overnight, leaving many passengers stranded.195 A New York Times analysis determined that the MTA’s maintenance budget was largely unchanged over the last 25 years, despite passenger volume more than doubling.196

To address these issues, in 2018, the MTA unveiled an ambitious capital program, which called for $51.5 billion of system-wide investment in the 2020-2024 period (the “2020-24 Capital Program”), 70% more than the 2015-2019 capital program.197 The 2015 capital program “did not directly address climate resilience,” while the 2020-24 Capital Program discussed climate largely in context of broader capital needs.198

Due to the financial impact of Covid-19, the MTA delayed deploying the 2020-24 Capital Program. While the MTA has filed its 2021 budget, which incorporates various elements of capital spending, it has yet to directly address how the 2020-2024 Capital Program will be amended and deployed.

While the MTA has been understandably reluctant to put an explicit number on the costs of climate change, the impact is clearly large, requiring significant new investments, well above and beyond prior programs – and potentially beyond the $51.5 billion capital plan delayed by Covid-19.

  1. Pandemic Period Government Support

At the depths of Covid-19 in 2020 and 2021, the MTA only averted a full-blown liquidity crisis through multiple rounds of federal support, totaling “almost $15 billion.”199

First, in 2020, the MTA received an approximately $4 billion infusion from the March, 2020 CARES Act, the single largest allocation of $25 billion in transit support.200 Over the course of 2020, demand did not recover, resulting in large deficit forecasts going into 2021. The MTA warned of potentially drastic service and workforce reductions – affecting up to 40% of subway lines and 9,300 jobs.201

Because of this, the MTA received a second $4 billion federal infusion through the December 2020 stimulus bill,202 which addressed the MTA’s 2021 shortfall, postponing potential layoffs and service cuts.203 The MTA also expects to receive “more than $10 billion” of direct and indirect support through the 2021 Infrastructure Act.204

Along with fiscal support, when it was shut out of bond markets,205the MTA also leveraged federal monetary measures, borrowing $3.36 billion from the Federal Reserve’s Municipal Liquidity Facility.206 The only other issuer to utilize the facility was the state of Illinois which borrowed $3.2 billion.207

New York state’s fiscal year 2020-21 budget also incorporated provisions to support the MTA, including increasing its total bond cap to $90.1 billion (from $55.497 billion) and creating “new authorization” for the MTA to issue up to $10 billion of bonds annually for three years through 2022.208 The MTA has taken advantage of this though the PMT bond issuances, however the market’s appetite for additional exposure appears unclear.

Additional proposals to support the MTA have included a levy on package deliveries, notwithstanding the lack of a clear nexus to the MTA’s activities and operations.209

Further federal support is hardly unproblematic, either. Particularly as the worst of the pandemic passes, allocations of federal capital for state-specific projects raises distinct policy questions in respect of the traditional divisions of responsibility for infrastructure.210 Lawmakers from California and Texas, for instance, may query federal resource allocation to effectively subsidize the New York MTA, from which they do not benefit.

The combination of government support and delayed capital spending have stabilized the MTA’s near-term financial position. However, it continues to project multi-billion-dollar deficits and has not ruled out future service cuts or workforce reductions.211 Based on the data, it appears that exogenous changes have fundamentally altered the core revenue model predicating the MTA’s $50 billion of debt, logically requiring changes to reflect the MTA’s its altered reality.

  1. Why Can’t the MTA ‘Right-Size’ its Obligations?

Normally, an entity facing severe revenue pressure and an increasingly unsustainable debt burden would have broadly three sets of avenues for healing itself: (i) improving the ‘business’; (ii) re-negotiating its obligations out-of-court; or (iii) if all else fails, bankruptcy protection.

This section discusses each of these three approaches, concluding that the MTA cannot utilize any, leaving it stuck between a rock and the proverbial hard place.212

  1. Limited ‘Commercial’ Options

The MTA’s financials show a business facing secular demand declines across key customer segments, coupled with a rising cost structure. For a private company, the traditional avenues for endogenously ‘right sizing’ its financial position fall into two categories: (i) increasing revenues or (ii) decreasing costs. However, this is where the MTA’s position as an imperfect public good with public purpose –responsibilities beyond the numbers – comes into sharp focus.213 Specifically, for the MTA, potential fare increases or service cuts present policy concerns, as such measures can arguably function like a regressive tax, most punitive on individuals with limited means.

The MTA’s operating revenues are basically a function of price (fares) and quantity (number of users). As a result of Covid-19, quantity declined while prices stayed constant, resulting in less revenue. However, despite likely long-term demand pressure, the MTA cannot simply raise rates to make up the difference.214

Demand elasticity for public transit appears highly non-linear across income and wealth. This, in many ways, is this is a function of the uneven distribution of return-to-work mandates. While many higher-income ‘white collar’ workers can work remotely, the typically-lower-income ‘critical workers’ have often had to continue coming to work even during the pandemic.215 Middle class workers are now starting to return as well.216 These lower-income individuals are most price sensitive and least likely to have access to more expensive substitutes, like ride-share services.217 Given the circumstances, fare increases simply do not seem like the right thing to do, and, to its credit, the MTA is holding back for the time being (in part due to federal aid).218

The MTA’s cost structure is also relatively fixed, as cost-reduction measures would entail decreasing service or further paring back capital investment.219 However, given the nature of the NYC subway system – with a dense Manhattan core and ever-thinner arteries towards the boroughs – service cuts also carry elements of a regressive tax, with disproportionate impact of reduced transit options for lower-income individuals living outside of Manhattan. At the same time, given the continued effects of climate change discussed in Part II.A.3, additional reductions in capital investment are problematic and likely to increase long-run total expenses.220

Furthermore, a combination of higher fares and deteriorating service (not to mention safety issues)221 could further reduce the ridership base, leaving ever-fewer people to shoulder the MTA’s debt burden, and risking a utility “death spiral.”222

Fundamentally, the reality is that the MTA was on shaky financial footing pre-pandemic; Covid-19 accelerated the challenges, but did not cause them, suggesting that even a return to pre-pandemic volumes will not be a comprehensive solution. However, particularly given the MTA’s rapid financial deterioration and economic importance, it cannot afford to continue kicking the proverbial can.223

  1. Contractual Hurdles to Creditor Negotiations

Given the clear policy constraints on exercising traditional commercial levers, the MTA’s next step may be to attempt to re-negotiate its obligations to creditors. For many organizations, an out-of-court transaction provides a viable alternative for ‘right-sizing’ obligations.

While a bankruptcy prohibition, detailed in the next sub-section, is rather uncommon – indeed, largely impermissible for corporate or individual debtors224 – for sovereign borrowers it is very much the effective norm, as there is no formal forum or process for adjustment of debts of a sovereign nation.225 Thus, all sovereign debt restructurings are, in highly simplified terms, carried out on a contractual basis through bilateral negotiations with creditors. In effect, a sovereign debt restructuring is a modification of contracts for entities without the ability to file for bankruptcy. From that vantage point, while the MTA’s challenge is somewhat unique, it is not entirely novel.

In practice, however, an out-of-court solution for the MTA is unlikely to be viable for at least 3 reasons.

First, to account for the lack of an insolvency forum, the contractual structure of sovereign bonds has evolved to include features that the MTA’s bonds lack. A key innovation in this regard was the development of so-called collective action clauses, or CACs.226 CACs are essentially a mechanism to bind creditors to a transaction upon reaching a requisite threshold of votes. CACs can be (i) ‘single series,’ applying to solely a particular series of bonds, or (ii) ‘global,’ allowing modifications to be made by bondholders aggregated across series.227 Many of the MTA’s bonds, however, do not appear to have contractual modification provisions at all – in other words, they did not contemplate ever being amended.228

That is markedly worse than even the circumstances facing distressed sovereigns, like Lebanon and Argentina.229 Global collective action clauses allowed Argentina to effectuate a modification by votes of bondholders aggregated across series in its recent restructuring. Even Lebanon’s sovereign contracts, which lack global CACs, allow for modification of individual series with 75% consent.230

Figure . Collective Action Clauses – Argentina, Lebanon & The MTA

Lacking these contractual provisions makes restructuring the MTA bonds out of court very difficult as it would require wholesale consent, which appears problematic given innately high hold-out risk.231

A second and closely related issue is the sheer complexity of the MTA’s capital structure, which features hundreds of outstanding bonds, with a range of tranche sizes and maturities.232 Those bonds are held by a wide array of investors – including likely many individuals233 — the identities of which are often not publicly known. Even with CACs in place, the structure would make for an unwieldy transaction; without CACs it may well prove impossible.

Finally, conflict between bondholders at different issuing entities is possible, if not likely. Leverage is highest (and credit quality lowest) for the TRBs. However, those bonds benefit from a second-lien on the other three sets of cash flows, making it difficult to see how a deal could play out on a purely consensual basis.

  1. Bankruptcy Ineligibility

As discussed above in Part I, dual-federalism is an integral facet of the U.S. governmental framework. This creates unique tensions for municipal bankruptcy. Bankruptcy law is a national framework promulgated by the federal government. It does not apply to the states themselves, however, because they are ‘dual-sovereigns’ alongside the federal government.234 Each state must specifically authorize municipal entities within it to utilize Chapter 9, the Bankruptcy Code provisions specific to “municipalities.”235

As discussed below, covenants in the MTA’s bond documents, as well as New York state law, prohibit the agency from filing for bankruptcy. Though certain provisions of New York state law render the situation somewhat less cut-and-dry than perceived by market participants, the practical reality is that the MTA would have significant challenges in pursuing a formal debt adjudication process.

  1. Lack of Chapter 9 Authorization

Chapter 9 eligibility is governed by a five-prong test under Section 109(c) of the Bankruptcy Code. The first two prongs are likely to be most relevant for purposes of this discussion.236 Pursuant to those provisions, an entity is permitted to file under Ch. 9 “if and only if such entity: (1) is a municipality;237 [and] (2) is specifically authorized . . .. to be a debtor under such chapter.”238

The Bankruptcy Code defines a “municipality” as a “political subdivision or public agency or instrumentality of a State.”239 In New York City Off-Track Betting Corp, for instance, the court determined a public benefit corporation operating a horse betting parlor to be “’municipality’ as defined by the current Bankruptcy Code.”240 The MTA is thus quite likely to meet this definition.

The second prong is where the challenge arises. That provision holds that unlike corporate and individual debtors, a municipality cannot file for bankruptcy unless it is specifically authorized to do so. Some states explicitly prohibit municipal filings; others, including New York, condition the ability to file for Chapter 9, and may prohibit it for certain entities, as appears to be the case with respect to the MTA.241

Indeed, the market consensus view is that the MTA doesn’t just lack authorization to file for Chapter 9, but is specifically prohibited from doing so.242 The relevant language in the MTA’s TRB bond documents provide as follows:243

No Bankruptcy. State law specifically prohibits MTA, its Transit System affiliates, its Commuter System subsidiaries or MTA Bus from filing a bankruptcy petition under Chapter 9 …. As long as any [TRB] are outstanding, the State has covenanted not to change the law to permit MTA or its affiliates or subsidiaries to file such a petition. Chapter 9 does not provide authority for creditors to file involuntary bankruptcy proceedings against MTA or other Related Entities.

The underlying state law language referenced in the MTA TRB documents is arguably even firmer, providing that:

So long as the [NYC Transit Authority] or any of its subsidiaries, or [the MTA], shall have outstanding any notes, bonds, lease, sublease or other contractual obligations . . . neither the authority nor any of its subsidiaries shall have the authority to file [under Ch. 9], and neither any public officer nor any organization, entity or other person shall authorize the authority or any of its subsidiaries to be or become a debtor under said chapter nine . . .”244

On their face, the provisions appear generally consistent with the market view.245 Indeed, analysts have noted that the MTA’s “inability to file for bankruptcy protection [is] an important criteri[on]” in supporting its ability to borrow.246

  1. State Law Alternatives Inoperable

Aside from the sovereign context, the premise of an entity being ‘shut out’ from bankruptcy protection is uncommon, but not entirely new.247 The most prominent recent example is perhaps the Commonwealth of Puerto Rico, which found itself underdoing a severe financial crisis and unable to file for bankruptcy within existing frameworks. 248

Puerto Rico’s predicament was ultimately addressed by the PROMESA legislation, which was inspired by A Two-Step Plan for Puerto Rico, in which Professors Skeel and Gillette proposed addressing Puerto Rico’s unique challenges by: (i) first creating a financial oversight board and, (ii) second, giving the Commonwealth a formal mechanism for adjusting its debts.249

Here, New York State law appears to provide the MTA access to an “oversight board,” somewhat akin to the “first step.” Critically, however, the MTA likely lacks access to the second step of a “formal mechanism for adjusting its debts.”

Following New York City’s financial distress in the 1970s, New York enacted a so-called “municipal distress statute,” allowing a financial control board”250 to be put in place during a financial “emergency period,” for any “municipality,” other than the city of New York That legislation also provides a state-level mechanism251 for the resolution of debts, subject to state court approval, rather than Chapter 9, as well as specific authorization for a financial control board to effectuate a petition in federal bankruptcy court.252

However, the main hurdle to utilizing the state-level provisions is 903 of the Code, which generally prohibits state-specific proceedings from binding non-consenting creditors.253 In Puerto Rico v. Franklin California Tax-Free Tr., the Supreme Court reiterated that Section 903 acts as a “pre-emption provision” for purposes of state-law-created bankruptcy processes.254 This suggests that New York likely could not utilize its municipal distress statute to bind creditors without their consent.

Further, putting aside Section 903, satisfying the contractual bond document language discussed above would require making the difficult argument that an emergency financial control board is not a “public officer nor any organization, entity or other person” for purposes of the MTA Act.

Perhaps even more importantly, Chapter 9 access would not necessarily be a panacea for the MTA or other revenue bond issuers, given the challenges in restructuring revenue bonds.255 Thus, while many dimensions discussed above are inherently distinctive to the MTA, the underlying issues – deteriorating financials and insufficient avenues for adjustment of obligations — are broad-based, with applicability to a range of municipal infrastructure entities.

III. Asset Recycling: MTA Application

What actually needs to happen is for the US to adopt an infrastructure asset recycling programme, and now it has a golden opportunity to do so.”256 – Jigar Shah, Director, Department of Energy Loan Programs Office

A tailored asset recycling strategy provides a highly attractive avenue for resolving the MTA’s financial challenges, with significant implications for infrastructurepolicy nationwide.

This Article finds that a concession for just the TBTA assets can, conservatively, generate $33 to $53 billion in proceeds, sufficient to repay the majority, if not entirety, of the MTA’s $51 billion debt load. As a result, the MTA will have the financial wherewithal to make long-needed investments for the future – without further government support.

This section is organized in three sub-parts. First, it discusses the asset recycling proposal, with a focus on structural safeguards. Second, it details the underlying valuation analyses, including a waterfall model showing the deleveraging impact. Finally, it contrasts the proposal with alternatives, illustrating superior value creation and distinguishing it from privatization.

  1. Transaction Structure

Asset recycling, as discussed above, is a two-phase process consisting of: (i) monetization of existing infrastructure and (ii) reinvestment of the proceeds.257

Applied to the MTA it could be structured as follows (henceforth, the “MTA A/R”):

  • First, through a long-term concession, the transaction would ‘monetize’ only the TBTA assets – not the Transit System itself (the “TBTA Concession” or “TBTA P3”).
  • Second, proceeds would be used to deleverage the Transit System, rather than for investment in new infrastructure, as is more typical.258

From a technical perspective, as shown in Figure 13 below, the MTA A/R transaction is predicated on separation of the two operating segments, and a concession agreement for only the TBTA assets.259 The transaction would not contemplate any operational or ownership changes to the Transit System.

Figure . MTA A/R Transaction Structure

Three aspects of the above structure are notable for our purposes:

  • Entity Formation & Governance (Step 0). Preliminary step of forming and capitalizing the concessionaire special-purpose-vehicle (SPV), the entity formally party to the TBTA Concession, and establishing bespoke governance reflecting the specific agreement and associated safeguards. 260 This critical gating step is denoted as preliminary step 0 (rather than step 1) to reflect that the primary transaction should not move forward unless this can be satisfactorily accomplished.261
  • Monetization / Contract (Step 1). Under the agreement, the MTA:
    • Receives $30-50 billion concession payment
    • Retains ownership and title of the TBTA assets; and
    • Transfers all maintenance obligations to the SPV
  • Reinvestment (Step 2). The MTA applies the Concession Payment proceeds to repay its obligations.262

As a general proposition, the asset recycling framework offers the MTA significant optionality in respect of process control, transaction structuring, retained economics, governance and oversight.263 For instance, the MTA could retain residual economics in the TBTA assets, mimicking Australia’s approach in some transactions.264

The TBTA Concession must be particularly thoughtful with respect to the regulatory structure.265 Of particular importance are toll rates and asset maintenance, where there must be continuity comprehensive public sector oversight and regulation, akin to Australia’s approach.266 Another guidepost may be rate-setting for investor-owned utilities, with substantive rate changes requiring regulatory approval following a public process with comprehensive disclosures.267

  1. Concession Valuation

Perhaps the single most intriguing aspect of the proposed transaction is the extremely attractive valuation of a long-term TBTA asset concession. This sub-section of the Article empirically analyzes both the monetization and reinvestment phases of the proposed transaction.

The concession is valued using two methodologies,268 each of which embeds multiple layers of highly conservative assumptions: (i) EBITDA multiples, the industry-standard approach, which produces a midpoint value of $43.05 billion; and (ii) discounted cash flows, which yields a range between $37.03 and $42.74 billion.

  1. EBITDA Multiples

EBITDA multiples are a common valuation methodology for mature infrastructure assets, such as toll roads and bridges.269 Methodologically, the main advantages are relatively simplicity, with limited inputs, and a capital structure neutral framework, making it preferable to the DCF in this context. Prior research on toll asset transactions has found an EBITDA range between 18.3x and 35.5x, with an average of 26.2x, and suggested a range between 20x and 30x (the approach taken below).270 The author’s review of publicly-available data regarding recent transactions found an average of 29.6x EBITDA, with the two U.S. transactions in the data set both above 30x.271 Other research has observed a significant premium placed on U.S. infrastructure by investors, finding an EBITDA multiple of 60x, relative to the mid-teens for comparable French assets.272

The below sensitivity analysis uses as the midpoint the TBTA’s MTA-estimated 2022 forward EBITDA of $1.72 billion, with a range between $1.67 and $1.82 billion.273 Given the pricing on U.S. transactions, a multiples range between 25x and 35x is likely more appropriate, but to provide a conservative estimate, the shaded box corresponds to a 20x to 30x range. At 20-30x, the analysis indicates a midpoint of $43.05 billion, with a range between $33.4 and $53.2 billion; at 25x to 35x, the midpoint is $51.66 billion, with a range between $41.8 and 62.02 billion.

Figure . TBTA Concession – EBITDA Multiples Valuation & Sensitivity Analysis

  1. Discounted Cash Flows

The analysis below values the TBTA Concession based on discounted cash flows, with forecasted figures for 2022-2025 from the MTA Group’s 2022 Final Proposed Budget.274 Importantly, P3 valuations are highly sensitive to the concession length and overall contractual structure. Correspondingly, the below shows the present value based on contract lengths of 30, 50 ,75 and 99 years (common in such deals).275

As shown below, the MTA forecasts that TBTA revenue will be relatively steady between $2.2 and $2.3 billion going forward, while costs will widen somewhat from $501 million in 2021 to $600 million by 2025. The model incorporates the impact of higher post-deal leverage, resulting in increased interest expense totaling about $867.6 million annually, and net income around $850 million annually through 2025.276 Cash flows are discounted based at the estimated pro forma post-transaction weighted average cost of capital.277

Figure . TBTA Concession – DCF Valuation

For a 99-year lease, the analysis finds a value of $37.03 billion, incorporating pro forma impact of increased post-transaction leverage and interest expense, or $42.74 billion on a constant capital structure basis. This is likely rather highly conservative given that the analysis (i) uses a highly conservative estimate of the cost of capital;278 and (ii) models a steady margin contraction, which implicitly assumes relatively low volume without meaningful rate increases.

  1. Concession Reinvestment Waterfall Analysis

This analysis focuses the second phase of asset recycling – capital reinvestment – illustrating the transformative balance sheet impact.

shows a simplified capitalization, accounting for the P3 transaction pro forma based on EBITDA multiples between 20x and 40x. The analysis applies a waterfall of payments, with funds first going to the TBTA bonds, then the TRBs, then DTF and then PMT, and finally the outstanding revolver.279

Figure . Asset Recycling: Capital Reinvestment Pro Forma Waterfall Analysis

The above analysis shows a vast impact on the MTA Group’s financial profile at any of the EBITDA multiples — specifically:280

  • Even at a 20x EBITDA multiple, all of the TBTA bonds, and $25 billion, or 87%, of TRB bonds would be paid off.
  • At a 25x multiple, the entirety of the TBTA and TRB bonds, as well as most of the DTF bonds would be paid down, leaving total debt of just $7.21 billion.
  • At 30x, 35x and 40x, the transaction would repay the entirety of the MTA Group’s debt, while yielding incremental payments of $1.4 billion, $10.01 billion and $18.62 billion, respectively.

The resulting deleveraging would create an entity with not only a sustainable debt profile, but also capacity to invest incremental billions into building the sustainable infrastructure of the future.

  1. Benefits & Contrast to Alternatives

The proposed MTA A/R transaction creates significant new value, representing a financially superior option relative to available alternatives. At the same time, from a policy perspective it is distinct from – and distinctly preferable to – a privatizations or sale of assets.

  1. Financially Superior to Additional Debt

The value creation from asset recycling is aptly illustrated through a comparison to a potential alternative: the TBTA taking on more debt, and using the proceeds to retire TRB obligations.281 There is some industrial logic to this, as the TBTA could support more debt but instead subsidizes the TRBs – this would just move the obligations to the ‘box’ truly responsible.

below shows the pro forma impact, relative to the asset recycling waterfall in Figure 15. Theoretically, the TBTA could support approximately between $10 and $15 billion of additional debt.282 As illustrated in the “new bond issuance” box below, this would imply reducing TRB obligations from $28.75 billion to between $13.75 and 18.75 billion, and increasing the TBTA’s leverage by a corresponding amount.

Figure . Pro Forma Comparison: MTA A/R vs Incremental TBTA Bond Issuance

While resulting in a somewhat more sustainable TRB debt burden, the critical failing of this approach is that it does not reduce aggregate MTA debt, but merely re-arranges it. Though a more logical allocation, it still leaves the MTA without room for much-needed capital investments.

In contrast, even at a 20 or 25x EBITDA multiple (well below average U.S. transactions), the MTA A/R yields a respective $10.3 and $12.9 billion in incremental value. That value creation comes from monetization of latent TBTA equity.283

At present, there is no ‘value’ attributable to TBTA equity exposure. The MTA A/R transaction would unlock it by creating investable equity in the concessionaire SPV. This would also expand the potential investor base, with respect to both institutions284 and geography285.

The elegance of the transaction is further reinforced by market dynamics: there is an insatiable demand for yield, and $300 billion of infrastructure-specific ‘dry powder’ and sector capital estimated to grow to $1.87 trillion by 2026.286 By supplying exactly what the market wants – a marquee infrastructure asset with high, consistent and stress-tested cash flows – the MTA would be able to command a premium while offering a uniquely compelling value proposition to a broadened investor base.287

  1. Rationalizes Structure & Capital Strategy

At present, the MTA houses two fundamentally different businesses with minimal economies of scale or scope, and seemingly no clear synergies warranting keeping them together.288 Indeed, the primary linkage between the TBTA and the Transit System is the second lien on TBTA cash flows supporting the TRB obligations.289

The contractual structure and capitalization of the MTA group makes a separation of TBTA assets feasible. The MTA and TBTA are operationally and legally separate entities, as the TBTA is an affiliate rather than a subsidiary of the MTA. They are also separately capitalized.290

The TBTA already subsidizes the NYCT, but does so in a relatively financially inefficient manner. Instead of making annual payments through TBTA excess funds, the P3 transaction would simply bring forward those cash flows by monetizing otherwise “latent equity,”291 taking out the MTA Group’s debt and savings billions in annual debt service costs.292

This has the additional benefit of temporally aligning the MTA’s revenues and liabilities. At present, the MTA has extensive unfunded climate liabilities that risk swelling if not addressed. With the caveat of commercial best practices in monetization and reinvestment being essential,293 given the circumstances, bringing forward the TBTA Concession payment is valuable because the MTA’s problems are very much in the present.

  1. Distinct from a Sale or ‘Privatization’

A concession is also meaningfully distinct from either a sale or privatization. Some scholars have argued that long-term concessions effectively represent a sale akin to full privatization because, amongst other considerations, the asset’s useful may fully depreciate by the time the government regains control.294 While the economics of a long-term concession can indeed mirror that of a sale, two distinctions are relevant for our purposes.295

First, the physical asset encompasses a limited portion of the TBTA’s true value; the real economics stem from title and ownership to a natural monopoly.296 For instance, the TBTA’s capital assets are marked around $6.6 billion, representing at most 15-20% of the concession value. If asset is at the end of its useful life by the end of the contract, the MTA could simply enter into a greenfield concession for a private entity to develop and manage replacement assets, earning itself a replacement revenue stream.297

Second, and most importantly, a concession allows for bespoke contractual structuring with embedded optionality to an extent not feasible in a sale transaction, as discussed below.298 Following a sale, the primary ‘checks’ would be regulatory – which can be effective – though more significant actions could implicate constitutional considerations, including ‘takings’ issues.299

Some commentators have suggested a ‘traditional’ privatization of the Transit System to resolve the MTA’s financial challenges.300 While effective in other jurisdiction – such as Japan, which is pursuing an IPO of the Tokyo Metro – the approach would not work for New York, implicating significant commercial and policy issues, while offering few benefits.301

Commercially, the Transit System, and NYCT in particular, is unlikely to be particularly attractive for investors. The economic value of the TBTA stems from its stable EBITDA and significant free cash flow; the Transit System offers neither. Further, while the TBTA is operationally not dissimilar to commercial real estate302, the Transit System is a complex enterprise with tens of thousands of employees.

More importantly, a Transit System privatization would raise serious policy concerns. The Transit System is part of the socio-cultural fabric of New York City. It also closely interplays with core police powers and regulatory functions, including coordination with law enforcement.303 Further, the Transit System reduces negative externalities, which is difficult for the private sector to internalize.

Indeed, a core rationale for the MTA A/R is to resolve the MTA Group’s financial challenges to ensure a ‘fresh start’ through which the MTA has the wherewithal to develop and finance a world-class transportation system for the future – and the public good. Notably, in contrast to the MTA, other jurisdictions, such as Japan, have privately-owned transit systems.

IV. Policy Implications & Considerations

This final Part of the Article discusses normative considerations and policy implications raised by the earlier analyses, while identifying areas for future research.

  1. Principles for ‘Hybrid’ Models

As the MTA proposal illustrates,304 asset recycling, and ‘hybrid’ models more broadly, offer a vast opportunity – estimated at over $1 trillion in the aggregate.305 Leveraging our stock of existing infrastructure to finance the development of new assets can create a virtuous cycle that alleviates the infrastructure investment gap – helping mitigate climate change and build a sustainable economy for the future.

However, deployment of asset recycling must be thoughtful and disciplined. The strategy can work well for certain assets; for others, it may be inapposite, perhaps even counterproductive. This is well illustrated by a contrast between the TBTA and Transit System. The TBTA is a highly-mature, cash-flowing asset with limited operations, and largely removed from much discernable ‘public purpose’; it does not need to be owned by the government. The NYCT, in contrast, likely should be in public hands; it is integral to core governmental functions – including public safety and substantive policy.306

That contrast helps illustrate some guiding principles regarding asset selection. First, the transaction has to provide integrative value creation – in other words, a payoff profile that results in a better aggregate outcome than the alternatives. For instance, while as some have pointed out, a transaction for profitable MTA assets decreases future years’ cross-subsidy cash flows, monetizing the TBTA’s otherwise-latent equity provides upfront net present value in excess of those cash flows: a quintessential accretive solution.307 Second, asset selection must be mindful of externalities. Certain asset types are likely better suited for private sector participation, particularly mature infrastructure with limited potential to reduce negative externalities, which represents an area of divergent incentives between the public and private sectors. Finally, assets closer to ‘core’ governmental powers – like the Transit System – are less likely to be viable candidates for ‘hybrid’ models. From that vantage point, our prevailing approach raises some normative inconsistency. Privately-run prisons and emergency services, for instance, appear incompatible with this framework.308

Subsequently, once a potential asset has been selected, it is essential to follow governance and communications best-practices. Along with thoughtful, comprehensive public disclosures, the public sector entity should also maximize engagement, with any transaction subject to robust debate and public comment, with an open-mindedness towards incorporating changes.309 Furthermore, as the assets are held in trust for the public welfare decisions must be subject to robust democratic processes, including, if applicable under respective state law, public referendums.

From a fiscal and process perspective, a structural risk – illustrated by less successful transactions310 – is the government being a “forced seller.” In other words, budget considerations should not drive short-sighted decisions on long-term agreements – asset recycling is intended to generate funds for infrastructure, not operating budgets.311 Optimizing the transaction structure also necessitates discipline; the MTA, for instance, would not be unwise to reject any TBTA Concession insufficient to repay a large majority of outstanding debt. This can be supported by a robust marketing and auction process facilitated by experienced independent advisers.312

Finally, given the economics of the respective assets – with rates ultimately paid by the public – a transaction must optimize not only the upfront payment, but instead balance consideration with governance rights and rate-setting oversight. Indeed, generating too much upfront is likely to result in ongoing tensions over rates, quality, or concessionaire financial distress. In that regard, the contracting structure is essential — and presents an area ripe for further research, including for instance structures incorporating retained economics coupled with equity ‘ratchets’ triggered based on ESG-specific considerations. As long as the mechanics are effectuated contractually, with ex ante clarity, the approach need not be problematic, but instead could offer an innovative, integrative approach to optimizing inherent trade-offs.313

  1. Governance: Nexus Between Public & Private

Our prevailing governance frameworks are well suited for public and private goods, with a rich literature regarding allocations of power between shareholders and managers – the separation of ownership and control.314 Infrastructure, however, raises distinctive considerations, given its disposition as an imperfect public good with externalities and, frequently, natural monopoly dimensions. That said, infrastructure is also not wholly different from either private assets – the MTA, after all, is an operating business with revenues, expenses and capital needs – or public goods, given its importance to the public good.

This suggests traditional governance frameworks may be insufficient, or at least imprecise – but certainly not wholly inapposite. The ethos, quite intentionally, in many ways dovetails with the shifting corporate law landscape and increased emphasis on multi-stakeholder considerations.

At base, the operative inquiry centers on optimizing our governance frameworks to avoid the pitfalls of ‘privatization’ while maximizing the benefits of private sector capital and expertise.

The MTA case study provides some touchpoints, as well as areas for further scholarly inquiry. First, as shown in

, there is vast optionality between America’s current public sector-centric infrastructure construct and ‘privatization’ – indeed, a continuum that can be optimized for a range of variables, including financing, ownership, control, funding models and oversight structures.315 Potential parallels may be drawn from the regulatory structures used by highly-regulated industries including financial institutions, defense firms, and investor-owned utilities.

Second, the appropriate frameworks may vary depending on assets and circumstances, eschewing any ‘one-size-fits-all’ approach. For instance, certain infrastructure – such as airports or toll bridges – may be well suited for a concession structure. Others, may warrant a lesser level of private sector involvement, but perhaps more than none at all. Geographic differences may also be relevant; New Yorkers, for instance, tend to have deeper feelings for the MTA than other constituencies feel towards their respective transit systems.

Third, with respect to private sector participation, the investor base is not irrelevant. While, aside from geo-political considerations,316 a significant amount of the allocation may be left for market mechanisms, some policy considerations remain. Certain stakeholders may have greater normative alignment with broader policy goals – such as pension funds, in particular.317 While we may be ill-served by investment mandates, policy also should not disincentivize participation by such investors.318 In that regard, asset recycling offers value by transitioning assets to a taxable structure that can allow tax-exempt asset managers to consider the investments on an apples-to-apples basis.

Finally, the optimal frameworks must put sustainability first, particularly with a focus on externalities – internalizing the negative, and incentivizing the positive. From that perspective, multi-stakeholder models could add value by having a broader range of impacted parties ‘at the table,’ providing voice to considerations and constituencies that are, all too often, not heard in the respect of matters impacting them the most.

  1. Infrastructure Policy & Climate Change

Climate change and infrastructure are deeply intertwined. Without appropriate shared resources, it is difficult to overcome a crisis of externalities, aptly termed a ‘tragedy of the horizons.319 This Article raises a number of considerations with respect to the optimal corresponding policy mix– particularly from the perspective of allocative equity with respect to costs and risks.

In many ways, it comes back to divisions of labor and responsibility – first as between the private and public sectors,320 then between levels of government,321 and ultimately, amongst individuals with an emphasis on social equity.322

With respect to the public-private interplay, as discussed above, the critical takeaway is that more private sector involvement may be beneficial, subject to appropriate safeguards. Further, while private capital can fill gaps, it is the government that must ultimately drive.

From that vantage point, a larger federal role in infrastructure policy may be logical – perhaps overdue – arguably warranting a transition away from the traditional federalist delegation of infrastructure responsibility to the states. The federal government has a structurally lower cost of capital with broader market access, incentives to look beyond state borders,323 and is ultimately responsible for coordination with other nations.324 However, the state and local expertise should not be ignored, particularly with respect to asset selection and project implementation.325

Finally, policy must be mindful of the deep underlying inequities of wealth, income and power that plague America. Thus, we must ensure that policy is not functionally creating regressive taxes, such as rate increases for natural monopoly assets.326 Equity, from both an allocative and socio-economic justice perspective, must be at the heart of infrastructure policy.


Infrastructure is an essential “shared means to many ends.”327 Yet, the ‘market’ for it exhibits pervasive disequilibria – with a $2.6 trillion funding gap – impairing our economy, quality of life and ability to address climate change. The disequilibrium goes beyond politics, driven by a combination of infrastructure’s unique economic attributes, and distinctive features of the U.S. system, including a public sector-centric framework and federalist delegation of infrastructure responsibility to the states.

Other countries take very different approaches, driving better outcomes – and illustrating that there is more than one option. Based on a holistic, global analytical framework this article proposes asset recycling as a solution, illustrated through the MTA case study.

The MTA is used, in part, because of its scale – with over $50 billion of debt, a long-delayed $51.5 billion climate investment program and ‘no bankruptcy’ bond covenants – but mainly because it reflects broader issues plaguing infrastructure policy nationwide. Transit systems in Boston, Chicago, Washington and San Francisco are burdened by eerily similar challenges. Our electric grid is “increasingly unreliable”; Flint’s water poisoned a generation of children.328

Asset recycling offers an extremely attractive solution for the MTA’s financial woes, with potential to repay the majority of its debts, freeing up resources to build the sustainable infrastructure New York deserves.

Beyond the mechanics and empirics, the underlying principles – leveraging existing assets to engage private capital, coupled with robust oversight – have implications well beyond the MTA, while the magnitude of the challenges reinforces the necessity of innovative solutions.


  1. Appendix I. Detailed MTA Financials
  1. Appendix II. MTA Organization & Component Units
  1. Appendix III. MTA Capital Structure (Q4 2021)

1 Marc Santora, Some See Biden’s ‘Third World’ Description of La Guardia as Too Kind, N.Y. Times (Feb 7, 2014), []; Compare, Dana Varinsky, Donald Trump Called LaGuardia Airport ‘third world’, Bus. Insider (Sept. 27, 2016),; But see, infra notes 125-132 and accompanying text (describing public-private partnerships to revitalize LaGuardia and JFK airports).

2 James McBride & Anshu Siripurapu, The State of U.S. Infrastructure, Council on Foreign Relations (Nov. 8, 2021), [] (henceforth, “State of U.S. Infrastructure).

3 2021 Report Card for America’s Infrastructure, Am. Soc’y of Civ. Eng’rs,

4 Infrastructure Investment and Jobs Act, Pub. L. No. 117–58, 135 Stat. 429 (2021).

5 See supra notes 1-3; See also, ira, n.notes not defined., 39-41, 96, 177-178 and accompanying text.

6 See infra, note..Part I.B.3.

7 See infra, notes109-110.

8 For detailed analysis, See Lev E. Breydo, Inequitable Infrastructure: An Empirical Assessment of Federalism, Climate Change and Environmental Racism, N.C. L. Rev (forthcoming, 2024).

9 See Edward Glaeser & James Poterba, Economic Perspectives on Infrastructure Investment 6 (Aspen Econ. Strat. Grp. Jul. 14, 2021) [] (observing a “collision of paradigms” between engineering and economics with respect to infrastructure, noting that “[u]nlike engineers, who are often asked what it will cost to build a bridge but not asked to measure its benefits, economists are rarely asked to determine the cost of a bridge” but often asked about the cost-benefit analysis).

10 See infra note 147 and 223.

11 Katherine Blunt, America’s Power Grid Is Increasingly Unreliable, Wall St. J. (Feb. 18, 2022),

12 Melissa Denchak, Flint Water Crisis: Everything You Need to Know, NRDC (Nov. 8, 2018), (“In Flint, nearly 9,000 children were supplied lead-contaminated water for 18 months”); Alyssa Lukpat, Jackson Water Crisis: Mississippi Capital Residents Have Little to No Drinking Water. Here’s Why., Wall St. J. (Aug. 31, 2022)

13 As discussed supra, the analyses in this Article are as of late 2021 (when this research was conducted) and reflect then-prevailing market conditions and financing rates, including term structure. Correspondingly, the results of certain analyses may differ today based on evolving interest rate conditions and assumptions which are subject to change. See supra Part III for further discussion.

14 James McBride & Anshu Siripurapu, The State of U.S. Infrastructure, Council on Foreign Relations (Nov. 8, 2021),

15 See infra II.C. As discussed infra, there is also notable heterogeneity in approach based on asset type.

16 Certain aspects of this discussion are reiterated, further detailed and expanded upon in a subsequent follow-on Article. See Lev E. Breydo, Inequitable Infrastructure: An Empirical Assessment of Federalism, Climate Change and Environmental Racism, N.C. L. Rev (forthcoming, 2024).

17 See Brett M. Frischmann, Infrastructure: The Social Value of Shared Resources 3-5 (Oxford Univ. Press 2012) (defining “infrastructure resources” as “shared means to many ends.”); see also Glaeser & Poterba, supra note 9, at 4 (noting “[t]he term ‘infrastructure’ is a relatively recent addition to our national vocabulary, and its meaning has evolved over time”); Infrastructure, Black’s Law Dictionary (11th ed. 2019) (noting “standard” definitions of infrastructure); Infrastructure, Merriam-Webster Dictionary Online, []; William Morris & Mary Morris, Morris Dictionary of Word and Phrase Origins 309 (2d ed. 1988) (providing a historical account of how the term’s meaning has evolved).

18 This framework reflects a ‘classical’ economic perspective. It is, by intention, simplified to present a complex issue for relatively circumscribed purposes in this Article. It excludes certain categories, like digital infrastructure, such as AWS and cloud providers (telecommunications includes the ‘hard assets’ enabling digital services, but not the services themselves). Some scholars also taxonomize infrastructure along two dimensions: (i) between economic and social, and (ii) between services (‘soft’ infrastructure) and assets (‘hard’ infrastructure); See Mark Dyer et al., Framework for Soft and Hard City Infrastructures, 172 Urb. Design & Plan. 219, 219-222 (2019).

19 Compare, Jim Tankersley & Jeanna Smialek, Biden Plan Spurs Fight Over What ‘Infrastructure’ Really Means, N.Y. Times., June 24, 2021; Editorial Board, A Not So Grand Infrastructure Deal, Wall St. J., (July 29, 2021),; See also supra, note 4.

20 Frischmann, supra note 15, at 4; Jeffrey E. Fulmer, What in The World is Infrastructure?, Infra. Investor, Jul./Aug. 2009, at 30, 32 [] (Defining infrastructure as “[t]he physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions”).

21 See infra, parts II, III (detailing MTA case study, as labeled).

22 Jesse Malkin & Aaron Wildavsky, Why the Traditional Distinction Between Public and Private Goods Should Be Abandoned, 3 J. Theoretical Pol. 355 (1991); Elinor Ostrom, Beyond Markets and States: Polycentric Governance of Complex Economic Systems, 100 Am. Econ. Rev. 641 (2010).

23 This is not always the case, of course. Commercial law involves both public and private law; bankruptcy, for instance, is a federal statutory framework for addressing bilateral (private) economic relationships. The interplay in commercial law, however, is distinct from this discussion, which is perhaps more akin to blending across the spheres rather than coordination amongst silos.

24 Professor Garrett, former Dean of Wharton, noted that “[t]he classical position on infrastructure is that it is a “public good” — something critical to society that “the market” would undersupply — and hence the natural domain of government.”; see Geoffrey Garrett, What the U.S. Could Learn from Australia About Financing Infrastructure, Knowledge at Wharton (June 8, 2018), [].

25 See Paul A. Samuelson, The Pure Theory of Public Expenditure, 36 Rev. Econ. & Stat. 387, 387 (1954) (defining a “collective consumption good” as “[goods] which all enjoy in common in the sense that each individual’s consumption of such a good leads to no subtractions from any other individual’s consumption of that good…”); see also, Richard Musgrave, A Theory of Public Finance (McGraw Hill 1959) (incorporating non-excludability criterion); Hal R. Varian, Microeconomic Analysis (3d ed. 1992) (conceptualizing “public goods” as meeting both Samuelson’s non-rivalrous standard and Musgrave’s non-excludability criterion).

26 “Non-rivalrous” can be broadly defined as accessible by all such that one individual’s use does not impede another’s. Perhaps the simplest example of a rivalrous good is food; once consumed, it is no longer accessible to others.

27 “Non-Excludable” can be defined as being such that it is impossible to prevent other individuals from consuming it. See note 16. For further discussion, See Lev E. Breydo, Inequitable Infrastructure: An Empirical Assessment of Federalism, Climate Change and Environmental Racism, N.C. L. Rev (forthcoming, 2024).

28 This contextualization is intended to be with respect to economic infrastructure, and particularly transit. There are of course important applicable asset-type-specific distinctions. See infra, Part IV.A.

29 Aman A. Bara & Bidisha Chakraborty, Is Public-Private Partnership an Optimal Mode of Provision of Infrastructure?, 44 J. Econ. Dev. 97, 97, 99 (2019). (“This paper considers infrastructure as an impure public good and examines whether a public-private partnership in financing infrastructure service is optimal,” finding “that PPP model is optimal in the provision of infrastructure no matter public capital and private capital are a substitute or complementary to each other”).

30 Randall Bartlett, Is Infrastructure a Public Good? No, Sort Of, And What Role for The Public and Private Sectors, Inst. Fiscal Stud. & Democracy (May 15, 2017), [].

31 R. H. Coase, The Problem of Social Cost, J.L& Econ (1960).

32 Brett Marohl, Today in Energy, U.S. Energy Info. Admin. (July 26, 2021), [].

33 Which form of Transport has the Smallest Carbon Footprint? Our World in Data,

34 David A. Ashauer, Why is Infrastructure Important? Bos. Fed Bank.(1990).

35 Fiscal Multiplier Effect Of Infrastructure Investment, Global Infrastructure Hub (Dec. 14, 2020), [permalink:] (finding an average 2-5 year cumulative multiplier of 1.5x, and 1.6x in recessionary environments, compared to 1.0x and 1.4x for public spending as a whole).

36 Jeffrey Werling & Ronald Horst, Nat’l Ass’n of Manufacturers, Catching Up: Greater Focus Needed to Achieve a More Competitive Infrastructure 45 (Sept. 2014), [permalink:].

37 See supra note 14; Erik Hansen, To Fix America’s Infrastructure, Start with Airports, U.S. Travel Ass’n (May 19, 2017ts

38 See 2021 Report Card for America’s Infrastructure supra note 3, at 8 (estimating $2.6 trillion investment gap); Investment Forecasts for United StatebalGlob. Infrastructure Hub: Infrastructure Outlooktes (estimating $3.8 trillion U.S. investment gap in 21.)).

39 See McBride & Siripurapu, supra note 2.

40 Campbell Robertson & Sophie Kasakove, Pittsburgh Bridge Collapses Hours Before Biden Infrastructure Visit, N.Y. Times (Jan. 28, 2022). [permalink:].

41 See, e.g., Denchak, supra note 12 (discussing the Flint water crisis).

42 Jonathan Woetzel et al., McKinsey Global Inst., Will Infrastructure Bend or Break under Climate Stress?23 (Aug. 19, 2020), [permalink:] (noting that infrastructure is essential to climate change mitigation and will “bear the brunt” of adaptation costs.); Mekala Krishnan et al., McKinsey Global Inst., The Net-Zero Transition viii (Jan. 2022), [permalink:] (estimating global annual cost of $9.2 trillion to achieve net-zero transition).

43 There are notable asset-specific distinctions to this construct; specifically, water and transit are largely public sector-centric, while there is more capital in respect of the regulated utility sector.

44 See supra, Part I.A.2. Infrastructure presents a number of distinct and important dimensions, particularly in respect of frameworks regarding ownership and control. Some of the issues are previewed, infra IV, but comprehensively unpacking the normative layers remains an area of ongoing and future research.

45 Though often used interchangeably, ‘funding’ and ‘financing’ have distinct meanings in the infrastructure context. ‘Financing’ refers to the party providing capital and ‘owning’ risk; ‘funding’ refers to how infrastructure will be paid for. World Bank, Public-Private Partnerships Reference Guide 21 (3d ed. 2017); Richard Abadie, PwC InfraTrends, The Global Forces Shaping the Future of Infrastructure 13 (2021). ). Consistent with the World Bank framework, and for purposes of relative simplicity, this model views “participation” as encompassing elements of both ownership and operational control. See infra note 87.

46 As discussed supra, for purposes of this Article, ‘privatization’ refers to the outright sale of assets, rather than hybrid models, such as public-private-partnerships. See I.C.

47 In other words, perception of arrangements where “governments essentially guarantee . . . substantial payments” to investors, creating a “wealth transfer” at the expense of the public; see

Damon A. Silvers, Private Infrastructure Projects Are A Wealth Transfer From The Public To Wall Street, N.Y. Times, (April 8, 2015),

48 Kristin E. Schultz, Public-Private Partnerships: Structuring the Revival of Fiscally Distressed Municipalities, 15 N.Y.U. J.L. & Bus. 189, 207–209 (2018) (describing Chicago transaction as “exploitation”).

49 Timothy Williams, Inside A Private Prison: Blood, Suicide and Poorly Paid Guards, N.Y. Times (Apr. 3, 2018), [permalink:].

50 Charles Jacobsen & Joel Tarr, Ownership & Financing of Infrastructure: Historical Perspectives, 4 (World Bank, Pol’y Rsch. Working Paper No. 1466, June 1995) [hereinafter Infrastructure: Historical Perspectives].

51 Id. at 5.

52 Infrastructure: Historical Perspectives at 6–8; Charles W. Calomiris & Stephen H. Haber, Fragile By Design: The Political Origins of Banking Crises & Scarce Credit, 153–202 (2014) (discussing historical U.S. concerns about concentrations of power as a reason for relative industry and regulatory fragmentation in the U.S. banking sector).

53 This framework does not (or intend to) capture the complex history of U.S. infrastructure or public finance, but merely seeks to illustrate that the prevailing frameworks have changed over time.

54 Infrastructure: Historical Perspectives at 8.

55 Robert W. Poole, Jr., Asset Recycling to Rebuild America’s Infrastructure, Reason Found (Nov. 2018).

56 Id.

57 Clifford Winston, Last Exit: Privatization and Deregulation of the U.S. Transportation System 2 (Sept. 2010) (noting that “by 1860 at least 7,000 private U.S. corporations had formed to operate bridges, canals, ferries, railroads, and roads.”); US. Gov’t Accountability Office, GAO-08-44, Highway Public-Private Partnerships: More Rigorous Up-front Analysis Could Better Secure Potential Benefits and Protect the Public Interest 11–12 (2008).

58 Infrastructure: Historical Perspectives at 8-10.

59 Ameena Walker, NYC Subway Cars Throughout History, Curbed, (Sept. 20, 2017), [permalink:].

60 See Part III.

61 Arthur W. Macmahon, The New York City Transit System: Public Ownership, Civil Service, and Collective Bargaining, 56 Pol. Sci. Q. 161, 161–98 (June 1941) (emphasis added).

62 The construct is not entirely unique to the U.S., but is perhaps more pronounced. In many other nations, sub-national units of government are functionally more akin to administrative entities, with the ability to issue their own debt but generally lacking the powers of a sovereign. See U.S. Const. Amend. X (“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people”); Steven L. Schwarcz, Global Decentralization and the Subnational Debt Problem. Duke L. J. 51, no. 4 (2002): 1179–1250. As a consequence of dual-sovereignly, U.S. states are ineligible for bankruptcy, while municipal entities in respective states must be specifically authorized to utilize Chapter 9. See supra, Part II.B.

63 US. Gov’t Accountability Office, GAO-08-44, Highway Public-Private Partnerships: More Rigorous Up-front Analysis Could Better Secure Potential Benefits and Protect the Public Interest 12 (2008) (noting state responsibility to maintain highways).

64 Charles M. Tiebout, A Pure Theory of Local Expenditures, 64 J. of Pol. Econ. 416, 418 (1956) (observingMusgrave and Samuelson implicitly assume that expenditures are handled at the central government level. However, the provision of such governmental services as police and fire protection, education, hospitals, and courts does not necessarily involve federal activity. Many of these goods are provided by local governments”).

65 See, e.g., Joseph F. Zimmerman, National-State Relations: Cooperative Federalism in the Twentieth Century, 31 Publius: J. of Federalism 15 (2001); James R. Alexander, State Sovereignty in the Federal System: Constitutional Protections under the Tenth and Eleventh Amendments, 16 Publius: J. of Federalism 1 (1986).

66 A significant amount of U.S. infrastructure is formally owned at the county level, including 38% of bridges. See NACO, Legislative Analysis for Counties: The Infrastructure Investment & Jobs Act (Nov. 7, 2021),

67 The much larger U.S. Treasury market is used to fund the federal government, which may at times downstream resources to support the states, including through Covid-19 relief programs. See infra Part II.A.3.c.

68 See Muni Facts, Muni. Sec. Rulemaking Bd,

69 Investor Bulletin, Municipal Bonds: Understanding Credit Risk, Securities & Exchange Commission, See infra II.A.2, detailing the MTA’s revenue bond-financed capital structure.

70 Juliet M. Moringiello, Municipal Capital Structure and Chapter 9 Creditor Priorities, Brookings Inst., at 5 (2016), [] (“Creditors of private entities have recourse to the entity’s property in the event of non-payment. Creditors of public entities do not because the law considers municipal property to be held in trust for the public. Access to property is a key feature in the design of creditors’ rights laws, but municipal creditors have no rights to their debtors’ assets”).

71 The basic issue is that action against governmental property can raises police power-related concerns. See David A. Skeel Jr., What Is a Lien? Lessons From Municipal Bankruptcy, U. Ill. L. Rev. 675 (2015); Juliet M. Moringiello, Municipal Capital Structure and Chapter 9 Creditor Priorities, Brookings Inst., at 5 (2016), [] (“By statute, custom, and common law, municipalities are restricted in their ability to grant security interests in other property” beyond the dedicated revenue stream, which “prohibit[s] creditors from seizing municipal assets to satisfy claims against the municipality”).

72 Lev Breydo & Sean O’Neal, Will The USVI Follow Puerto Rico’s Path?, Bond Buyer, Mar. 27, 2017 (discussing the USVI’s tax-backed revenue bond structure). See supra Part II.A.2, discussing MTA capitalization.

73 Through revenue bonds, a lender receives security in the form of a pledge of revenues – though, special revenue bonds are non-recourse debt, making the bonds payable only from the municipality’s pledged special revenues. In re Heffernan Mem’l Hosp. Dist., 202 B.R. 147 (Bankr. S.D. Cal. 1996).

74 Security for special revenue bonds can be in the form of: (i) A gross pledge where the bondholders’ lien attaches to the entire revenue stream; or (ii) A net pledge, where the bondholders’ lien attaches only to the revenues that are in excess of the expense of the operation and collection. Bank of N.Y. Mellon v. Jefferson Cty. (In re Jefferson Cty.), 482 B.R. 404, 434-435 (Bankr. N.D. Ala. 2012).

75 Special revenue bonds receive unique protections under section 922 of the bankruptcy code, and until recently those protections were understood to include collection of post-petition interest. Id.; See also David A. Skeel Jr., Is Bankruptcy the Answer for Troubled Cities and States? Hous. L. Rev. 1063 (2013); Alexander D. Flachsbart, Municipal Bonds in Bankruptcy: S 902(2) and the Proper Scope of “Special Revenues” in Chapter 9, 72 Wash. & Lee L. Rev. 955, 982 (2015) (“the first key to bondholder treatment in municipal bankruptcy is the presence or absence of property rights to municipal revenue”).

76 For instance, some courts have required issuers to raise rates in order to repay bond obligations. . See State ex rel. Allstate Insurance Co. v. Union Pub. Serv. Dist., 151 S.E.2d 102 (W. Va. 1966); See also Robert S. Amdursky, Clayton P. Gillette, & G. Allen Bass, Municipal Debt Finance Law, at 336-40 (2d ed. 2013) (noting that “the remedy as interpreted in Allstate effectively shifts the risk of the project’s success from bondholders to the ratepayers”). More recently, some of the most difficult issues with the Puerto Rico restructuring arose in respect of the Commonwealth’s utilities.

77 In a 2019 decision the First Circuit held that the holders of special revenue bonds cannot compel the debtor to apply special revenues to debt service postpetition (though the debtor could do so voluntarily). In re Fin. Oversight & Mgmt. Bd. for P.R., 919 F.3d 121, 132 (1st Cir. 2019). See Appleby et al., First Circuit Panel Upends Protections Available to Special Revenue Bondholders, Pratt’s J. Bankr. L., July/Aug. 2019, at 1.

78 Unlike corporate debt, most municipal bonds are held by individuals – 46% directly, and 26.8% through mutual funds (per SIFMA data) — on a geographically circumscribed basis.

79 A GAO Report found that “pension plans have no incentive to invest in lower-interest municipal bonds, since plan earnings are already tax exempt.” U.S. Gov’t Accountability Office, GAO-95-173, Private Pension Plans: Efforts to Encourage Infrastructure Investment, at 3 (1995). This is notable because the premise of leveraging pension asserts to fund infrastructure investment is commonly suggested. See Clive Lipshitz & Ingo Walter, Bridging Public Pension Funds and Infrastructure Investing (2009); Caitlin Devitt, Infrastructure bill features first-of-its-kind P3 asset recycling requirement, The Bond Buyer (Nov. 9, 2021, 1:57 PM), (noting that “if government-owned assets come into play [through the IIJA], U.S. public pension funds make natural investors”).

80 See supra note 14.

81 This is particularly with respect to transportation and water infrastructure; energy and telecommunications infrastructure have incorporated more private capital, as well as somewhat distinct business models. See Id. (noting “United States invests less in transportation infrastructure as a percentage of GDP than many other wealthy countries, including France, Germany, Japan and the United Kingdom”).

82 McQuaid, Public Private Partnership in the European Union: Experiences in the UK, Germany and Austria (“The political context of governments differs between the UK, Germany and Austria, but each government currently has a positive view of Public private Partnership (PPP). There are many similarities to the drivers for PPPs in Austria, Germany and the UK.”); Yong Hee Kong, European Experiences in PPP (and some regional countries), PPIAF (noting that in 2004/5, more than 150 PPP transactions closed in Europe “more than ½ of world total”).

83 William Langley, Sydney Airport Agrees $17.5bn Takeover Deal with Pension Funds, Fin. Times (Nov 8, 2021), In 1987, Japan privatized Japan Railways Group, dividing it into seven for-profit stock companies, four of which are publicly-listed. Eleanor Warnock, Lessons from Railway Privatization in Japan, Tokyo Rev. (Oct. 11, 2018),; see also Stephen Smith, Why Tokyo’s Privately Owned Rail Systems Work So Well, Bloomberg (Oct. 31, 2011, 7:15 AM),; Max Zimmerman, What The World Can Learn From Life Under Tokyo’s Rail Tracks, Bloomberg (Sept. 10, 2020, 5:00 PM); see also John Calimente, Rail Integrated Communities in Tokyo, 5 J. of Transit & Land Use 19 (2012).

84 See infra Part III.

85 See Jody Freeman, The Contracting State, 28 Fla. St. U. L. Rev. 155, 166 (2000).

86 See supra Part I.A.2.

87 PPP Arrangements/Types of PPP Agreements, World Bank,

88 See infra Part IV.

89 See Kelsey Hogan, Protecting the Public in Public-Private Partnerships: Strategies for Ensuring Adaptability in Concession Contracts, 2014 Colum. Bus. L. Rev. 420 (2014) (describing P3s).

90 See Patrick Sabol & Robert Puentes, Private Capital, Public Good: Drivers of Successful Infrastructure Public-Private Partnerships, Brookings Inst., at 4 (Dec. 2014), [] (providing above P3 definition, while noting “elusive” nature of “precise” definition);

91 See supra Part III.

92 There is a well-established precedent upholding these types of agreements, particularly in respect of natural monopoly assets. SeeThe Binghamton Bridge, 70 U.S. 51, 74 (1865) (holding if you will embark, with your time, money, and skill, in an enterprise which will accommodate the public necessities, we will grant to you, for a limited time period or in perpetuity, privileges that will justify the expenditure of your money, and the employment of your time and skill”).

93 The monetization process typically involves a large-scale marketing effort, with the concession price set at auction. See Part I.C, discussing Indiana Toll Road.

94 The private sector entity is, formally, a newly-created special purpose vehicle, capitalized with debt and equity from investors. Investors own that vehicle, not the infrastructure asset itself.

95 For instance, the government of NSW retained significant economics in certain assets. See infra note 118.

96 See Emily Thornton, Roads to Riches, Bloomberg, (May 7, 2007, 12:00 AM), [] (noting “[t]he burden of maintaining roads, bridges, and other facilities . . . is becoming difficult to bear. Federal, state, and local governments need to spend an estimated $155.5 billion improving highways and bridges in 2007 . . . up 50% over the past 10 years”).

97 See infra, note 1 – -120 and accompanying text.

98 See infra III.C., discussing distinctions.

99See Martin Blaiklock, Infrastructure Finance: An Inside View (2017).

100 “PPPs that do not transfer risk—and benefit from the private-sector’s risk-management capabilities—will likely fall short of expectations”. Frank Beckers & Uwe Stegemann, A Smarter Way to Think About Public–Private Partnerships, McKinsey Global Inst. (Sept. 10, 2021),

101 The private sector is, broadly speaking, generally best equipped in handling tasks more closely resembling typical private entity endeavors, often involving an element of risk management and resource allocation.  See Id. (noting that “[i]in the private sector . . . construction and commercial risks can have massive financial consequences. . . For this reason, successful private contractors have built up strong capabilities in risk management across the entire life cycle of a project, from development through construction to the end of the operating phase. And private investors and lenders have developed sophisticated controlling mechanisms—the “muscles” that companies cannot survive without”). See also Matt Wheeler, Collaborative Project Investigates Public-Private Partnerships, Syracuse News (Apr. 26, 2017), (noting study “found that public-private partnerships infrastructure projects in the United States have a significantly greater likelihood of meeting schedule and cost requirements when compared to conventional approaches . . . . ‘These partnerships are not ideal for all projects, but they are a good option for big projects . . . [w]e found that they are particularly well-suited for transportation, hospitals, schools and water systems’”).

102 The presence of broad-based externalities suggests that the private sector will tend to under-supply infrastructure (as it is agnostic towards externalities that it cannot capture). Are Big Infrastructure Project Castles in the Air or Bridges to Nowhere?, The Economist (Jan. 16, 2017), [] (noting that “infrastructure can have positive externalities that are not captured by investors but will benefit society (the building of the internet or America’s interstate highway system, for example)”).

103 Certain such considerations identified in a Federal Highway Administration study include regulatory risks, site risks, and permitting risks. See Fed. Highway Admin., Risk Assessment for Public-Private Partnerships: A Primer 13-16 (2012), A separate FHA analysis suggests that certain political risks, such as policy changes with impact on project economics “cannot be managed by the private party at all and would be expensively priced if transferred,” which suggests optimization through retention by the public entity. See Fed. Highway Admin., Guidebook for Risk Assessment in Public-Private Partnerships, (2013)

104 For ‘greenfield’ (i.e., new-build) projects, at a high level, the process can be broken down into five phases: (i) design; (ii) building; (iii) finance; (iv) maintenance; and (v) operation. Id.; See also, Private Partnership Model and its Merits in Attracting Foreign Direct Investment, Mahanakorn Partners Grp. (June 22, 2017),

105 See E. R. Yescombe & Edward Farquharson, Public-Privae Patnerships for Infrastructure—Principles of Policy and Finance (2d ed. 2018) 40-47; Public Private Partnerships: Issues and Considerations, Practical Law Finance (last visited Feb. 12, 2022); Barbara Weber, Mirjam Staub-Bisang & Hans Wilhem Alfen, Infrastructure as an Asset Class: Investment Strategy, Sustainability, Project Finance and PPP 19-22 (2nd Ed. 2016) (henceforth, “Infrastructure as an Asset Class”).

106 “[P]rivate-sector acquisition or management of existing public infrastructure without any major new capital investment or upgrading is not considered to be a PPP as defined here.” See E.R. Yescombe & Edward Farquharson, Public-Private Partnerships for Infrastructure: Principles of Policy and Finance (2d ed. 2018) (henceforth, “P3s for Infrastructure”).

107 ‘Privatization’ is defined as the outright sale of an asset, including transfer of title, thus distinct from the proposals discussed herein.

108 Gillian Tan, Wall Street Sees Big Wish Granted in Biden’s Infrastructure Deal, Bloomberg (June 24, 2021, 5:45 PM), [].

109 Geoffrey Garrett, Why the U.S. Needs to Embrace Private Sector Involvement in Infrastructure, Wharton Mag. (June 21, 2018), [] (advocating for Australia-pioneered asset recycling to close U.S. and global investment gaps); Richard Samans & Michael Drexler, Recycling Our Infrastructure for Future Generations, World Econ. Forum 25 (Dec. 19, 2017).

110 Id. See also, Robert W. Poole, Jr., Asset Recycling to Rebuild America’s Infrastructure, Reason Found. (Nov. 2018) (quoting an approximately $1 trillion estimate for A/R market),; See also Jigar Shah, It’s Time to Revitalise US Infra Through Asset Recycling, Infra Investor (May 2020).

111 As discussed, and detailed supra, Part III, the figures are subject to model assumptions.

112 Joe Hockey, Asset Recycling in America (Nov. 27, 2018),

113 See supra note 104-105 and accompanying text.

114 Is an infrastructure boom in the works?, Economist (Jan. 2, 2021), (observing large amounts of capital raised for infrastructure investment).

115 See II.D, detailing concession structure.

116 Public Private Partnerships: Issues and Considerations, Practical Law Finance.

117 Governance has been a critical feature of the program’s success, including development of a new agency focused on asset recycling, See Infrastructure, New South Wales,; Financing greenfield infrastructure through the sale of brownfield infrastructure, Global Infrastructure Hub; See also, Marsh & McLennan Companies, Infrastructure Asset Recycling: Insights For Governments and Investors (2018), (henceforth, “MMC A/R Report”).

118 See MMC A/R Report.

119 See MMC AR Report at 8-10; supra note 115 and accompanying text.

120 For instance, with respect to Ausgrid: “[t]he State will continue its roles as licensor and safety and reliability regulator of Ausgrid, while the Australian Energy Regulator will continue to determine network revenue.” See NSW Treasury, Past Transactions,

121 Because the winning consortium ultimately filed for Ch. 11, the transaction was sometimes considered a failure. Though deeper discussion is beyond the scope of this article, it is worth noting that the state did not retain economics, allowing it to keep the full up-front payment and protecting tax payers, while the allocating of demand and financing risk to the private sector were not conceptually unreasonable. See generally, Jeffrey Hooke, The Hoosier State’s Public Private Partnership Challenge, Comm. Econ. Dev,

122 The winning bid was 26.2% higher than the second, priced at an estimated 60.2x EBITDA multiple, with an 80% LTV financed by $3.03 billion of bank loans. Xin Zhang, An Analysis of The Current Investment Trend in The U.S. Toll Road Sector, DSpace@MIT (June 2008),

123 See, Aaron M. Renn, The Lessons of Long-term Privatizations: What Chicago Got It Wrong and Indiana Got It Right, Manhattan Inst., (July 2016).

124 Ken Belson, Toll Road Offers New Jersey a Fiscal Test Drive, N.Y. Times (Apr. 13, 2008),

125 See Sakshi Sharma, LaGuardia Airport PPP, US, IJGlobal, (last updated June 30, 2016); Kalliope Gourntis, LaGuardia, the US’ largest P3, reaches financial close, Infra. Inv. (June 2, 2016),

126 In 2017, the Airport Advisory Panel recommended to then-Governor Cuomo that the Port Authority utilize a P3 to make the necessary updates to JFK airport. The contemplated transaction entailed about $15 billion of private capital for updates to 4 of JFK’s terminals; See Airport Advisory Panel, A Vision Plan for John F. Kennedy International Airport 37-38 (2017); Terminal Projects, A Whole New JFK,; Paul Berger, Coronavirus Delays JFK Airport’s $15 Billion Makeover, WSJ (Aug. 9, 2020),

127 Examples of airport P3s include the Denver Airport, Chicago Skyway, Puerto Rico Airport, and internationally, the Melbourne Airport, Sydney Airport, Heathrow Airport, London Gatwick Airport, and Amsterdam Airport Schiphol. See Airport Advisory Panel, A Vision Plan for John F. Kennedy International Airport 37 (2017).

128 Kalliope Gourntis, LaGuardia, the US ’largest P3, reaches financial close, Infrastructure Investor (Jun. 2, 2016),

129 Inst. For Sustainable Infrastructure, Project Awards,

130 Ben Cohen, LaGuardia Airport Is No Longer the Worst. This Team Fixed It., WSJ (Sep. 15, 2022),

131 The Port Authority of New York and New Jersey, LaGuardia Airport Terminal B Wins UNESCO’s Prestigious 2021 Prix Versailles for Best New Airport in the World (2021),

132 The Puerto Rico Electric Power Authority, or PREPA, the Commonwealth’s integrated electric monopoly, announced a plan to transition to a P3 structure. PREPA has been mired in a long-running $9 billion restructuring, where revenue bond issues featured heavily, and is transitioning to the P3 structure in large part to deleverage. The transaction is structured as a long-term concession, with the government retaining asset ownership. See 2021 Fiscal Plan for the Puerto Rico Electric Power Authority (May 27, 2021).

133 The Port Authority of New York and New Jersey, supra note 131.

134 This is because while the IIJA has a ‘headline’ number of $1.2 trillion, only $550 billion of the total is ‘new’ spending, with the balance reflecting funds already earmarked. At the same time, some of the $550 billion is allocated to categories that are not reflected in the ASCE ‘funding gap’ estimate. A range is provided to reflect potential distinctions in category alignments. For detailed analysis, see Lev E. Breydo, Inequitable Infrastructure: An Empirical Assessment of Federalism, Climate Change and Environmental Racism, N.C. L. Rev (forthcoming, 2024).

135 The ARI in effect generally required only 15% of project capital to be from the Australian federal government, with the balance provided by the province. Correspondingly, based on the IIJA providing an estimated 18.2 to 22.4% of the investment gap, the observation is that this capital could theoretically be leveraged in a similar manner to provide an aggregate level of capital equal to roughly the funding gap.

136 See 2021 Infrastructure Act, Section 71001; Caitlin Devitt, Infrastructure bill features first-of-its-kind P3 asset recycling requirement, Bond Buyer (Nov. 9, 2021),

137 Cong. Budget Office, Baseline Projects: Highway Trust Fund Accounts (July 2021), (estimating $140 billion and $51.45 billion shortfalls in the highway and transit accounts, respectively).

138 The Penn Wharton Budget Project found that the aggregate economic impact of the 2021 Infrastructure Act may be negative if it were entirely deficit financed, in large part due to the ‘crowding out’ effect of public capital expenditure. See Jon Huntley, Explainer: Economic Effects of Infrastructure Investment, Penn Wharton Budget Model (June 15, 2021),

139 See supra, IV.

140 Kate Kelly, One of The Infrastructure Plan’s Biggest Winners is the Pavement You Drive On, N.Y. Times, (Feb. 19, 2022) (citing Federal Highway Administration guidance on project prioritization that state officials felt “undercut them”).

141 See Largest issuers of municipal green bonds in the United States as of July 15, 2021, Statista, [] (showing that MTA Group entities are the first and fifth largest issuers of municipal green bonds in 2021, with a total of about $11.3 billion.).

142 As of Q4 2021. See Appendix II for full capitalization summary and data.

143 MTA Annual Disclosure Statement Update (Nov. 24, 2020) at page 3, Available at:

144 Richard Ravitch, New York’s Subways Need an Independent M.T.A., N.Y. Times, (March 29, 2019).

145 GAO, During Covid-19, Road Fatalities Increased and Transit Ridership Dipped, (Jan. 25, 2022),

146 EBP, Inc., The Impact of The Covid-19 Pandemic on Public Transit Funding Needs in The U.S., Am. Pub. Trans. Ass’n (Jan. 27, 2021).

147 Mass. Bay Transp. Auth., Basic Financial Statements, Required Supplementary Information and Other Supplementary Information 8-9 (June 30, 2021); Chi. Transit Auth., Financial Statements and Supplementary Information 17 (Dec. 31, 2020); Washington Metro. Area Transit Auth., Comprehensive Annual Financial Report 17 (June 30, 2021).

148 This is why some lines are denoted with numbers and others with letters. See Lauren Cook, History of the MTA: Learn About the City’s Transit System from Its Inception, Newsday (Oct. 27, 2016) (observing history of train designations, and earlier private sector operation). See also supra note 50-53.

149 New York Public Authorities (PBA) CHAPTER 43-A, ARTICLE 5, TITLE 11 Section 1263; MTA Dedicated Tax Fund Green Bonds (Series 2017A) Offering Document, at 11.

150 In New York, public benefit corporations are “created by the State for the general purpose of performing functions essentially governmental in nature”. Clark–Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382 (1987).

151 The Related Entities: Legal Status and Public Purpose, Metro. Transp. Auth., (last visited Feb. 4, 2022).

152 The MTA is governed by a 21-member board, with members appointed by the State governor and subject to approval by the State senate.

153 Because of this structure, the entities are consolidated into one reporting entity for accounting purposes, though the MTA also breaks out the financials for each component unit. See Financial and Budget Statements: Interim Financial Statements (Period Ended June 30, 2021),Metro. Transp. Auth. at 5, (henceforth, “MTA 2021 Financials”).

154 See infra note 290.

155 The “Related Entities” include three support entities and a total of seven transportation operating units, of which the NYCT and TBTA are sub-component groups. See Appendix II.

156 N.Y. Pub. Auth. Law § 1203-a (creating the Manhattan and Bronx Surface Transit Operating Authority as a subsidiary corporation).

157 TBTA consists of seven bridges and the Queens Midtown Tunnel and Hugh L. Carey Tunnel. The Port Authority of New York and New Jersey is responsible for intra-state bridges and tunnels connecting the states, including the GW Bridge, Lincoln Tunnel and Holland Tunnel. Bridges & Tunnels, Port Auth. of N.Y. and N.J.,

158 See Appendix I.

159 MTA 2022 Final Proposed Budget; MTA November 2021 Financial Plan.

160 S&P Global Ratings, Metropolitan Transportation Authority, New York; Joint Criteria; Note; Transit (July 7, 2020).

161 Press Release, MTA Announces Cares Act Funding Exhausted Tomorrow, MTA (July 23, 2020),

162 See Appendix II.

163 The Hudson Yards bonds are termed ‘indirect’ obligations because they are not MTA-issued but enjoy a seven-year-long guarantee. See Michelle Kaske & Martin Z Braun, Hudson Yards Makes Muni-Bond Market History For New York Agency, Bloomberg(Sept. 14, 2016),

164 Appendix III details the full capital structure.

165 See Part I.C.3.

166 See Appendix III.

167 Includes $867M subordinated and $193M second subordinated tranche. See Appendix II.

168 The PMT, signed into law in 2009 by then-Governor Paterson, is a tax imposed on the payroll expense of employers and the net earnings of self-employed individuals engaging in business within the MCTD at a pre-set schedule. The PMT bonds are also supported by MTA Aid Trust Account receipts, which includes collections from certain government fees. See KBRA April 12, 2021 Report.

169 See Appendix III detailing year-over-year change from Q1 2020 to Q1 2021.

170 Michelle Kaske, N.Y. MTA Gives New Bondholders Haven From Subway Ridership Drop, Bloomberg (Apr. 19, 2021), (describing the PMT bond issuance and structure, analogizing it to steps taken by Puerto Rico.); Michelle Kaske, New York MTA Kicks Off First-Ever Payroll-Tax Bond Deal, Bloomberg (Apr. 20, 2021), (noting that due to perception of the Kanske PMT bonds as “more stable” they “carry AA+ credit ratings . . . six steps higher than S&P’s BBB+ grade and five levels above Fitch’s A- rating” on the TRBs).

171 Martin Braun, Fear Drives MTA, Illinois Yields to Emerging-Market Heights, Bloomberg, (May 5, 2020), (Noting MTA yields implied market perception of it being “a riskier investment than the government of Mexico”).

172 Based on review of Bloomberg data.

173 MTA Flow of Funds, as of March 17, 2021. For relative simplicity, this figure excludes revenues pledged for the MTA’s 2020-2024 capital program.

174 “The use of TBTA surpluses to subsidize transit and commuter operations has been an integral part of the MTA structure and represents a public policy decision by the NYS Legislature on funding mass transit.” See KBRA TBTA (Sept. 18 2020) at 7.

175 Thomas P. Dinapoli, A Review of Capital Needs and Resilience at the MTA, Off. of N.Y. State Comptroller (Dec. 2021),

176 Emma G. Fitzsimmons, Cuomo Declares a State of Emergency for New York City Subways, N.Y. Times (Jun. 29, 2017),

177 See supra n. 3; See also Paul Burton, Transit’s Climate Challenge, Bond Buyer, (Aug. 9, 2021).

178 Id.

179 Robert Lee Hotz, Climate Scientists Encounter Limits of Computer Models, Bedeviling Policy, Wall St. J. (Feb. 6, 2022, 10:10 am ET),

180 See Krishnan, supra note 41 (noting McKinsey estimates that a net-zero transition will require annual global investment of $9.2 trillion; though the report does not detail U.S. infrastructure-specific figures, it offers one contextual reference point of the magnit.) ).

181MTA Annual Disclosure Statement Update (Nov. 24, 2020) at page 15-16, Available at:

182 MTA 2022 Financials at V-171 (PDF 346).

183 Patrick Mcgeehan, Commuter Trains Have Kept Rolling. Will All Those Riders Ever Return?, N.Y. Times (Aug. 28, 2021), (“Before the coronavirus pandemic, New York City’s commuter railroads had one main job: They delivered 300,000 tightly packed passengers to work each morning, and carried them home again in the evening”).

184 Id.

185 Lev E. Breydo, Legal Sector’s Tech-Enabled COVID-19 Adaptation: Distinct Challenges, Unparalleled Long-Term Opportunities for Dynamic Digital Transformation, SciTech Lawyer (Winter 2021)(discussing the prevalence of remote hearings and overall legal industry adaptation towards digitalization).

186 See note 183.

187 For instance, while the first order demand shock from Covid-19 impacted both commuters and discretionary travelers equally, commuting may experience greater long-term secular demand shifts, reducing NYCT utilization. The TBTA, however, may experience increasing TBTA demand, as individuals coming to the office only a few days a week may feel most comfortable driving. See 25-City Transit Report, McKinsey Global Inst. (2022) (observing that as a result of the pandemic “People who relied on private cars, as well as those who used public transport, actually increased their use of private cars, even as the overall number of trips dipped,” while use of public transit declined for both groups).

188 Michelle Kaske, N.Y. MTA CEO Says Climate Change a ‘Major Priority’ for System, Bloomberg (Sept. 15, 2021),

189 MTA Adaptations to Climate Change, Metro. Transp. Auth. (Oct. 2008),

190 Qing Miao et al., Through the storm: Transit agency management in response to climate change. Transp. Rsch. Part D: Transp. and Env’t 63, 421–32 (noting that “[w]hile many transit agencies have experience and expertise coping with weather disruptions, they are confronted with the new challenge of identifying and developing appropriate long-term adaptation strategies to address greater risk and uncertainty associated with climate change”); see also Henrik Thorén & Lennart Olsson, Is resilience a normative concept?, Resilience, 6:2, 112-128, DOI:

191 Michael V. Martello, et al., Evaluation of Climate Change Resilience for Boston’s Rail Rapid Transit Network, Transp. Rsch. Part D: Transp. and Env’t (August 2021).

192 The issue is not confined to the MTA or New York with Philadelphia and other cities across the Northeast experiencing similar problems. See Bond Buyer, Transit’s Climate Challenge (Aug. 9, 2021) (Noting that in Boston, rising seas pose an “existential threat’” to the MBTA rail network).

193 Garth Johnston, Breaking Down the MTA’s $5 Billion Hurricane Sandy Price Tag, Gothamist (Nov. 28, 2012), (outlining list of Sandy-related expenses provided by the MTA).

194 Emma G. Fitzsimmons, Cuomo Declares a State of Emergency for New York City Subways, N.Y. Times (Jun. 29, 2017), (noting delays and an accident in Harlem where riders “feared they would die after the train struck a tunnel wall and began to fill with smoke”).

195 Ciara Nugent, Hurricane Ida Raises the Question: How Can Cities Keep Subways Safe in an Era of Climate Crisis Flooding? Time (Sept. 3, 2021),

196 Brian M. Rosenthal et al., How Politics and Bad Decisions Starved New York’s Subways, N.Y. Times (Nov. 18, 2017),

197 MTA Capital Program 2020-2024, Metro. Transp. Auth. (Sept. 2019),

198 Thomas P. Dinapoli, State Comptroller, A Review of Capital Needs and Resilience at the MTA, Off. of N.Y. State Comptroller (Dec. 2021).

199 Paul Berger, Sarah Feinberg Tapped to Lead New York’s Metropolitan Transportation Authority, WSJ, June 8, 2021.

200 See supra note 161.

201 Michelle Kaske, New York MTA Warns Of 40% Subway Cut, Shedding 9,300 Jobs, Bloomberg, (Nov. 18, 2020),

202 Id.

203 Bloomberg News Video, MTA Layoffs, Service Cuts Will Be Avoided in 2021 (Dec. 23, 2020),

204 MTA Press Release, Statement from Acting MTA Chair and CEO Janno Lieber on Passage of Infrastructure Bill, MTA, Nov. 6, 2021.

205 Paul Burton, Reeling New York MTA Taps into $2.9B Fed Faculty, The Bond Buyer (Dec. 10, 2020),

206 The MTA used the Facility twice, including a $2.9 billion draw in December 2020, shortly before the program expired. See Municipal Liquidity Facility, Fed. Rsrv. Bank of N.Y,

207 Id.

208 MTA, Annual Disclosure Statement Supplement (Apr. 3, 2020),

209 Proponents argue that a $3 package delivery surcharge could raise up to $1 billion annually; others, including the Tax Foundation, have argued that the proposal would have adverse impacts with less revenue than proponents estimate. See John Samuelsen & Robert Carroll, The tax that can save the MTA: A federal bailout is necessary but insufficient, N.Y. Daily News (Dec. 7, 2020),

210 See supra I.B.

211 Michelle Kaske, N.Y. Subway Sees 3 million Riders in Busiest Day Since Omicron, Bloomberg, (Feb. 9, 2022), (noting that MTA is “in talks with state lawmakers to find new ways to . . . address future shortfalls”).

212 See infra, III, discussing asset recycling as a solution.

213 See supra, I.B.

214 Michelle Kaske, New York MTA Warns It Will Slash Service, Raise Fares Without Federal Aid, Bloomberg, (Aug. 26, 2020),

215 Hugh Son, Morgan Stanley CEO says he was wrong on return-to-office push: ‘Everybody’s still finding their way’, CNBC(Dec. 13, 2021),

216 Joan C. Williams, How the Return to Office Work is Impoverishing the Middle Class, Politico (Dec. 8, 2021),

217 At the same time, discouraging public transit use exacerbates climate change as substitutes are often higher emission. Josyana Joshua, Public Transit Use Must Double to Meet Climate Targets, City Leaders Warn, Bloomberg(Nov. 10, 2021),

218 Michael Gold, Subway Fare Increase ‘Off the Table’ Thanks to Infrastructure Bill, N.Y. Times (Nov. 15, 2021),

219 See note 202.

220Some have suggested operating improvements as an avenue for cost savings. as a general matter, operational matters are outside the scope of this article, but from first principles though a viable supplement on the margin, such changes are likely an order of magnitude short of the needs. See Alex Armlovich, The Track to Fiscal Stability: Operations Reforms for the MTA, Citizens Budget Comm’n (May 25, 2021),

221 Michelle Price, NYC Mayor Says Even He Doesn’t Feel Safe on Subway System, Phil. Trib., Jan. 19, 2022.

222 A utility ‘death spiral’ refers to a vicious cycle where a network with high fixed cost amortization has to raise rates due to rate base erosion, causing further rate base erosion, in a vicious cycle. See Monica Castaneda et al., Myths and facts of the utility death spiral, 110 Energy Pol’y 105–16 (Nov. 2017); Pranshu Verma, Public Transit Officials Fear Virus Could Send Systems Into ‘Death Spiral’, N.Y. Times, (Aug. 15, 2020),

223 See note 144 (former MTA chair describing organization being in “a state of cri”) ”).

224 The case law has long held waivers of the right to file for bankruptcy protection to be unenforceable as a matter of public policy.  See In re Weitzen, 3 F. Supp. 698 (S.D.N.Y. 1933) (holding contractual agreement to waive the benefit of bankruptcy is unenforceable); Fallick v. Kehr, 369 F.2d 899, 904 (2d Cir. 1966) (noting in dictum that advance agreements to waive the benefits of bankruptcy are void); In re Gulf Beach Dev. Corp., 48 B.R. 40, 43 (Bankr. M.D. Fla. 1985) (holding “the Debtor cannot be precluded from exercising its right to file Bankruptcy and any contractual provision to the contrary is unenforceable as a matter of law”); See also, Marshall E. Tracht, Contractual Bankruptcy Waivers: Reconciling Theory Practice and Law, 82 Cornell L. Rev. 301 (1997).

225 See Lev Breydo, The IMF’s Way Forward for Sovereign Restructuring, Reg. Rev. (Dec. 17, 2014),

226 See Mark C. Weidemaier & Mitu Gulati, A People’s History of Collective Action Clauses, 54 Va. J. Int’tL.51 (2014).

227 Mitu Gulati & Lee C. Buchheit, Drafting a Model Collective Action Clause for Eurozone Sovereign Bonds, 6 Cap. Mkt. L. J. (July 2011).

228 Based on review of MTA bond documents.

229 Based on review of Argentine and Lebanese bond documents. See Lev Breydo, Health of Nations Nev. L.J. (forthcoming).

230 See Lev Breydo, Lebanon’s $86.8B Debt Negotiations Complicated by Series-Specific Collective Action Clauses, Reorg Research (2020).

231 “Hold-outs” refers to creditors who decline to support a restructuring acceptable to other creditors with the goal of leveraging their position for higher payment. Chuck Fang, Et Al., Restructuring Sovereign Bonds: Holdouts, Haircuts and the Effectiveness of CACs, Eur Central Bank, (Jan. 2020)

232 The MTA’s MSRB page, for instance, includes 868 distinct series of bonds. See Electronic Municipal Market Access, Municipal Securities Rulemaking Board’s Website Terms of Use (Jan. 1, 2023),

233 See I.C.

234 See David A. Skeel, States of Bankruptcy, 79 U. Chi. L. Rev. 677 (2012); David A. Skeel, Is Bankruptcy the Answer for Troubled Cities and States?, Hous. L Rev. 1063 (2013).

235 Id.

236 The other requirements are that the entity “(3) is insolvent; (4) desires to effect a plan to adjust such debts; and (5)(A) has obtained the agreement of creditors  . . . (B) has negotiated in good faith with creditors and has failed to obtain the agreement of creditors . . . (C) is unable to negotiate with creditors . . .” 11 U.S.C. § 109(c).

11 USC § 101(32)(C) defines ‘insolvent.’ See generally, Clayton P. Gillette, How Cities Fail: Service Delivery Insolvency and Municipal Bankruptcy, Mich. St. L. Rev. 1211 (2019).

237 In re Las Vegas Monorail Co., 429 B.R. 770 (Bankr. D. Nev. 2010) (providing a framework for determining whether an entity is an “instrumentality” for Chapter 9 eligibility purposes).

238 11 U.S.C. § 109(c).

239 11 U.S.C. § 101(40).

240 See In re N.Y.C. Off-Track Betting Corp., 427 B.R. 256, 266 (Bankr. S.D.N.Y. 2010) (finding that because “NYC OTB is a creation of the state, made for the purpose of operating a ‘revenue producing enterprise.’” . . . [it] is a ‘municipality’ as defined by the current Bankruptcy Code”).

241 James Spiotto, Primer on Municipal Debt Adjustment, Chapman and Cutler (2012).

242 Brian Chappatta, MTA Can’t Go Bankrupt. So How Does It Survive?, Bloomberg (June 29, 2020),

243 See MTA Green Bonds (Series 2020E) Offering Document. Certain of the TBTA bonds do not include the affirmative “No Bankruptcy” covenant, but include “Agreements of the State” provisions, which state in relevant part:

The MTA Act provides that, so long as MTA has outstanding any bonds, notes or other obligations, none of …[the] Related Entities has the authority to file a voluntary petition under Chapter 9 of the Federal Bankru-ptcy Code, and neither any public officer nor any organization, entity or other person shall authorize . . .[the] Related Entities to be or become a debtor under Chapter 9 during any such period. . .

Chapter 9 does not provide authority for creditors to file involuntary bankruptcy proceedings against MTA, MTA Bridges and Tunnels or the other Related Entities.

244 NY CLS Pub A §§ 1207(M)(11), 1266(c), 1269.

245 Kroll Bond Rating Agency, Public Finance Rating Report: Metropolitan Transportation Authority (MTA) (February 2, 2021). The report states that:

KBRA understands that New York State law further restricts the power of the MTA to file a Chapter 9 petition under Section 1269 of the New York Public Authorities Law, which does not allow a Chapter 9 filing by the MTA so long as bonds or other obligations issued by the MTA pursuant to Section 1269 or 1266-c of the New York Public Authorities Law are outstanding. Furthermore, pursuant to section 1271 of the New York Public Authorities Law, the State of New York has pledged to not alter the rights and remedies of bondholders in a way that would impair such holders, including altering the prohibition against the MTA filing a Chapter 9 petition included in Section 1269.

246 Brian Chappatta, MTA Can’t Go Bankrupt. So How Does It Survive?, Bloomberg (June 29, 2020), (quoting Fitch’s lead MTA analyst: “We’re very clear that their legal structure and their inability to file for bankruptcy protection is an important criteria . . .Absent that protection, it would have an adverse ramification for how we view the MTA’s financial leverage, which is quite substantial”).

247 Though beyond the scope of this Article, statutes prohibiting an entity from seeking bankruptcy protection raise distinct policy considerations particularly acute for natural monopolies. See Parikh and He, Failing Cities and the Red Queen Phenomenon, 58 B.C. L. Rev. 599 (2017) (finding that states with access to out-of-court restructuring options have lower borrowing costs).

248 Puerto Rico v. Franklin California Tax-Free Tr., 579 U.S. 115, 130, 136 S. Ct. 1938, 1949, 195 L. Ed. 2d 298 (2016) (holding that the Bankruptcy Code “precludes Puerto Rico from authorizing its municipalities to seek relief under Chapter 9. But it does not remove Puerto Rico from the scope of Chapter 9’s pre-emption provision. Federal law, therefore, pre-empts the Recovery Act,” which Puerto Rico passed to restructure certain municipal obligations).

249 Examples cited in the paper included financial control boards in New York and Washington D.C. See Clayton P. Gillette & David A. Skeel, Jr., A Two-Step Plan for Puerto Rico, U. Pa. Inst. Law & Econ., Mar. 15, 2016; David Skeel, Notes from the Puerto Rico Oversight (Not Control) Board (2019),

250 According to the statute: “the term “emergency financial control board” shall mean any such board established by state law for the municipality”.

251 An assignment for the benefit of creditors, an alternative state-level bankruptcy tool, is unlikely to be viable for the MTA as the ABC typically operates to liquidate assets, which is inapposite here.

252 NY CLS Pub A §§ 85.80, 85.90. (“A municipality or its emergency financial control board in addition to, or in lieu of, filing a petition under this title . . . may file any petition with any United States district court or court of bankruptcy under any provision of the laws of the United States, now or hereafter in effect, for the composition or adjustment of municipal indebtedness”).

253 Section 903 of the Bankruptcy Code provides in part: “[A] state law prescribing a method of composition of indebtedness of [its] municipality may not bind any creditor that does not consent to such composition”. 11 U.S.C. § 903(1) (1994). The legislative history explains: State adjustment acts have been held to be valid, but a bankruptcy law under which the bondholders of a municipality are required to surrender or cancel their obligations should be uniform throughout the States, as the bonds of almost every municipality are widely held. Only under a Federal law should a creditor be found to accept such an adjustment without his consent. See H.R. Rep. No. 2246, 79th Cong. 2d. Sess. 4 (1946); See Frederick Tung, After Orange County: Reforming California Municipal Bankruptcy Law, 53 Hastings L.J. 885, 929 (2002), (noting that “section 903 of the Bankruptcy Code was enacted specifically to preempt state bankruptcy laws”. . . The provision was passed in order to overturn the Supreme Court’s decision in Faitoute, 316 U.S. 502, which upheld a New Jersey statute authorizing state adjustment plans for insolvent municipalities to bind creditors without their consent).

254 See supra note 249.

255 See supra notes 71-77 (discussing special revenue bond protections).

256 Jigar Shah, It’s Time to Revitalize US Infra Through Asset Recycling, Infra. Investor. (May 6, 2020).

257 See II.

258 New project investments are more typical because that allows for subsequent ‘recycling’ of the reinvested capital, with the goal of creating ‘virtuous cycle.’ New assets reinvestment may be appropriate for other infrastructure systems. Here, the societal value is resolving the MTA’s financial distress and positioning it for the future.

259 See III.C, discussing separation mechanics.

260 The legal structure of the entity could take various forms, including for instance, from a tax perspective, a REIT, yieldco or perhaps MLP. See supra note 94 (describing structure of SPV concessionaire entity). The public entity, as well as any relevant state and federal regulatory bodies, should have the opportunity to comprehensively review investor composition to ensure consistency with policy objectives and otherwise.

261 As noted supra, the governance considerations with respect to infrastructure, as codified in this preliminary step, represent a target-rich area for further research.

262 See Part III.B.3.

263 See supra note 90-97.

264 See supra note 95; See also, MMC AR Report at 8 (detailing Australia ARI transaction structures, including retained economics and interes.)).

265 See infra IV.

266 See supra I.C, discussing Australian approach.

267 Though somewhat beyond the scope of this discussion, investor-owned utilities are generally regulated by a state commission that approves all changes to methodology, mandates a schedule of maintenance and capital spending and prescribes a regulatory rate of return. See supra note 97.

268 Compared to the corporate counterpart, the infrastructure valuation literature is relatively underdeveloped, presenting an area for further research, particularly in respect of different transaction structures and contractual features. See David Espinoza & Jeremy W.F. Morris 31 Decoupled NPV: a simple, improved method to value infrastructure investments, Constr. Mgmt. & Econ, 5, 471–496; Doyne Farmer & John Geanakoplos, Hyperbolic Discounting is Rational: Valuing the Far Future with Uncertain Discount Rates, Cowles Foundation Discussion Paper No. 1719 (2009) (discussing hyperbolic discounting and curve shape-based valuation of long-dated cash flows.); Arturo Cifuentes & David Espinoza, Infrastructure Investing and the Peril of Discounted Cash Flow, Fin. Times (Nov. 3, 2016), [].

269Toll roads and bridges are often grouped together because of shared toll-based revenue structure and natural monopoly features.

270 Robert W. Poole, Jr., Asset Recycling to Rebuild America’s Infrastructure, Reason Found. (Nov. 2018),

271 Data set composed of: A25 toll road in Montreal (26x), AirporklinkM7 in Australia (28x), Queensland Motorways in Australia (27.5x) and M6 Toll Road in Britain (30x), as well as Chicago Skyway (35x) and Indiana Toll Road (31x), both post-restructuring with notably lower EBITDA multiples than the initial transactions. See supra I.C.

272 Germà Bel & John Foote, Comparison of Recent Toll Road Concession Transactions in the United States and France, 29 Urban Econ. & Reg. Studies J. 397, 398 (2007).

273 Computed based on the MTA’s forecasts included in their 2022 Final Proposed Budget. Estimated O&M and personnel expenses are subtracted from revenues. This potentially understates EBITDA, as certain sub-line items included by the MTA within O&M likely would constitute A&D, and so should be added back in. However, the conservative approach is used to provide further downside cushion.

274 See MTA 2022 Final Proposed Budget.

275 See supra I.C. discussing Australian transactions.

276 Net income on a constant capital structure basis is about $1 billion annually.

277 Importantly, the analyses in this Article were computed in late 2021 and are thus based on the then-prevailing market conditions and financing rates. In the period between the Article’s completion and publication, interest rates have significant increased and the yield curve has materially steepened. The Article does not empirically incorporate an interest rate sensitivity analysis. In part because of this, Part III.B.1 provides EBITDA-multiple-based computations which are not sensitive to interest rates and also reflect the more common, industry prevailing approach.

278 Inputs are as follows: (i) cost of capital based on S&P global infrastructure index developed market constituents (highly conservative given business distinctions and embedded EM risk); (ii) tax rate based on Prof. Damodaran’s NYU Stern cost of capital dataset; with (iii) 70% D/EV, reflecting high asset maturity and market standards. See generally Dieter Helm, Infrastructure Investment, the Cost of Capital, and Regulation: An Assessment, 25 Oxford Rev. of Econ. Pol’y 307, 311 (2009). Frederic Blanc-Brude & Majid Hasan, The Valuation of Privately-Held Infrastructure Equity Investments, EDHC-Risk Inst., (Jan. 2015); U.S. Dept. of Trans., Financial Structuring and Assessment for Public–Private Partnerships: A Primer (2013),

279 As a technical matter, repayment is subject to contractual covenants in the MTA’s outstanding bonds. For some of the PMT bonds, the TBTA is formally the issuing conduit, suggesting that obligations may have to be paid before the TRB bonds. This analysis applies a simpler waterfall to illustrate the main points. At the same time, the change would have no substantive impact for purposes of this Article.

280 Many of the MTA Group’s bonds trade above par and some (though not necessarily all) of the TBTA bonds do not appear to contemplate early repayment, even at a premium. Though somewhat beyond the scope of this discussion, the transaction could be structured such that TRB bondholders are given the option to: (i) tender at par (or a small premium); (ii) retain their bonds but surrender TBTA liens in exchange for replacement liens on a cash-collateralized DSRF tranche; or (iii) accept roll-over debt in the TBTA Concession SPV (or deleveraged TRB issuer).

281 As a technical matter, TBTA and TRB bond documents provisions likely prohibit this. It is presented as an ‘alternative’ to illustrate asset recycling value creation.

282 TBTA 2022 debt service of $716.6M, $9.4B of obligations, and $1.005B net income imply, on a (highly simplified) constant interest expense basis, additional capacity of about $13.2B. $10 to $15 billion range presented to account for both of increased debt cost from leverage, or lower-cost refinanced debt (given prevailing rate environment).

283 The ‘equity’ in public sector entities generally raises some special considerations, for which the literature is limited. In policy literature and practice, most circumstances focus on Value-for-Money, or VfM, analyses and related frameworks.

284 One identified challenge of asset recycling in the U.S. is the transition of tax-exempt assets to taxable. For many investors, however, that is a feature – not a bug. Many institutional investors, such as pensions and endowments are tax-exempt, and thus disincentivized from infrastructure packaged through tax-exempt bonds.

285 Tax treatment also largely circumscribes the investor base to New York in-state residents. However, other parties – particularly liability-driven investors in negative rate environments – may value TBTA cash flows more highly, creating integrative value.

286 Gill Plimmer, Infrastructure Funds Amass $300Bn Ahead of Expected Post-Crisis Boom, FT, (Aug. 15, 2021). (“Infrastructure investors sitting on more than $300bn of unspent private capital are hopeful that a post-pandemic boost in government spending led by US president Joe Biden’s $1tn infrastructure package will drive global opportunities in telecoms, toll roads, clean energy and water projects”).

287 “Investors in European junk bonds have begun accepting interest payments that are lower than eurozone inflation levels for the first time ever, in the latest sign that central banks’ crisis-era debt purchases have shifted the balance between risk and reward”. Naomi Rovnick & Martin Arnold, Real yields on European junk bonds go negative for the first time, Fin. Times (Sept. 7, 2021),

288 In the corporate context, this would be a ‘conglomerate,’ with an often-corresponding discount.

289 See MTA Flow of Funds, available at:

290 See


291 As used here, this term refers to potentially valuable equity value that is effectively “latent” notwithstanding potential financial value.

292 If the TBTA Concession proceeds are insufficient to repay all of the TRBs, the remaining bonds may require consideration for surrendering TBTA credit support, which could be achieved through a consent payment. At the same time, the MTA would not be unwise to only pursue a concession at a valuation sufficient to repay all of its debt (about 30x EBITDA), precluding any transition payments to residual TRB investors.

293 See Part IV, discussing best practices and considerations.

294 Celeste Pagano, Proceed with Caution: Avoiding Hazards in Toll Road Privatizations, 83 St. John’s L. Rev. 351, 363 (2009).

295 This is largely because over a sufficiently long horizon, the value of discounted cash flows asymptotically approaches zero; the concession value, in turn, approaches a perpetuity.

296 Even the much-criticized Chicago transaction retained asset title. See, e.g., City of Chi. & Chi. Parking Meters, LLC, Chicago Metered Parking System Concession Agreement 29 (2008) (“No interest in real estate of any kind (whether in the form of ownership, leasehold interest or otherwise) is conveyed by this Agreement.”).

297 Though beyond the scope of this article, the issue may also be partially addressed through robust maintenance oversight.

298 See infra note 314.

299 See infra IV.

300 Scott Beyer, Is It Time to Privatize New York City’s Subways? Catalyst ( Nov. 6, 2019),

301 Earlier in 2021, Japan approved an IPO of Tokyo Metro Co, which operates nine subway lines in the city, with proceeds earmarked for government debt repayment. Gearoid Reidy & Emi Urabe, Japan Gives Nod to Future IPO of Massive Tokyo Subway Operator,Bloomberg (July 15, 2021),

302 This is largely due to system-wide adoption of EZ-Pass, automating day-to-day functions while increasing collection rates.

303 See supra, Part II.A.

304 See supra, Part III.

305 See supra n.109-112.

306Michelle Kaske, NYC Begins Plan To Move Homeless From Subway As Crime Surges, Bloomberg, (Feb. 22, 2022), See also 2021 Annual Report, MTA Inspector General at 22.

307 Nicole Gelinas, The Public Pays for It, Even if Private Investors Build It, N.Y. Times (Apr. 8, 2015),

308 See supra note 48. See also, Dave Hendricks, Hidalgo County EMS May Shut Down Next Week, Progress Times, (May 14, 2021ek/ (describing likely liquidation of privately-run exclusive emergency service provider for parts of South Texas, following alleged improprieties by ow.) ).

309 See III.A.

310 Robert Channick, Chicago drivers pursue class-action lawsuit against Chiacgo Parking Meters over ‘75-year monopoly’ granted by city, Chicago Tribune (Jun. 24, 2021),

311 This was one of the critical issues identified in respect of the Chicago parking transaction.

312 See Matthew Goldstein & Patricia Cohen, Public-Private Project Where Public Pays and Pays, N.Y. Times (Jun. 6, 2017), (noting that “public officials negotiating these arrangements sometimes lack the financial sophistication and advice to fully understand the deals”). See, Kelsey Hogan, The Business of Nation-Building: Protecting the Public in Public-Private Partnerships: Strategies for Ensuring Adaptability in Concession Contracts, 2014 Colum. Bus. L. Rev. 420 (contrasting Indiana and Chicago P3 transactions).

313 For instance, one could imagine a concession for a 50.1% interest with a ‘ratchet,’ or embedded repurchase option with an ESG metrics-based trigger. Similar provisions exist in credit agreements. This would incentivize the concessionaire to respect stakeholder interests without implicating ‘nationalization’ or ‘takings’ concerns. See Paul J. Davies, Deluge of Debt Is Tied to Carbon Emissions and Diversity, Wall St. J., (May 4, 2021) [] (describing interest rate ‘ratchets’ tied to ESG metrics in loans).

314 Some of the most pioneering work goes back the better part of a century. See Adolf Berle & Gardiner Means, The Modern Corporation and Private Property (1991); Scott Hirst, Lucian Bebchuk & Alma Cohen, The Agency Problems of Institutional Investors, 31 J. Econ. Pers. 89 (2017). 

315 See infra note 314.

316 Kevin Granville, CFIUS, Powerful and Unseen, is A Gatekeeper on Major Deals, N.Y. Times, (March 5, 2018).

317 See Devitt, supra note 136 (noting “[p]ensions are very friendly investors for infrastructure” with the potential to create a “virtuous circle” between the two sectors).

318 See supra note 79 (citing GAO report describing why tax treatment disincentivizes pension funds from infrastructure investments).

319 Mark Carney, (former) Governor of the Bank of England, Speech at Lloyd’s of London (Sept. 29 2015),

320 See supra I.B.2, IV.B.

321 See Supra I.B..

322 See Lev E. Breydo, Inequitable Infrastructure: An Empirical Assessment of Federalism, Climate Change and Environmental Racism, N.C. L. Rev (forthcoming, 2024)

323 See notes 67ined..

324 Press Release, Joe Biden, President, Biden Statement on Paris Climate Agreement (Jan. 20, 2021), [].

325 See I.C.3,4.

326 See supra, II.B.1.

327 See supra, note 16.

328 See supra, note 12.

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