WE ARE ALL THIRD WAY/NEOCONOMIST NOW:

If infrastructure investments could generate reasonable and relatively safe returns for public pension funds, they would provide an intriguing investment alternative. In a new California Policy Center study, my co-authors and I outline infrastructure investment alternatives for pension funds and private investors. We also discuss policy changes needed to encourage these investors to help rebuild America.

Let's be clear on how this option differs from federal funding. Politicians often call federal spending an investment, but that's just rhetoric. Real investors expect financial returns, in the form of interest, dividends and/or capital appreciation. If the federal government spends money to subsidize state freeways, it won't see a financial return on its "investment." There is no stream of toll revenues to provide dividends, nor does a freeway have any resale value.

While drivers dislike tolls, the ability to collect such revenue transforms highway spending into an investment -- one that may be attractive to pension funds. Toll revenues also provide road operators with both the incentive and the resources needed to maintain and improve their highways. If a toll road becomes congested or potholed, drivers may look around for alternatives, shrinking toll income available to investors. To avoid this situation, toll road operators may be expected to resurface their highways more frequently and to add new lanes more quickly.

In Canada, Europe and Australia, it is common for pension funds to invest in highways and other infrastructure. In 2011, for example, an Australian pension fund took over the Queensland Motorway. Since then, it has improved the highway and made a large profit. Earlier this year, an Australian-led consortium bought the Indiana Toll Road (a segment of I-90) out of bankruptcy, with the California Public Employees Retirement System (CalPERS) taking a 10 percent share.

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