Bloomberg's Business Miracle

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F or 42 years, a gargantuan machine has been chewing its way through the bedrock granite 200m below New York's streets to create a 100km tunnel that is part of an upgrading project of the city's water supply and sewage system. Though it won't be fully finished until 2020, the $6bn (€4.6bn) project has been a 50-year race against time. Should either of the existing two tunnels - opened at the turn of the previous century - require sudden repairs, a shutdown of at least a year would be required, during which nine million residents and countless businesses would face water shortages.

Nevertheless, it takes real resolve to dig in for such contingencies when New York has so many more immediate problems to deal with. That such an endeavour has even got this far in the face of three fiscal crises is testament not just to construction ingenuity, but also financial engineering.

Three-term city mayor Michael Bloomberg's $4bn (€3.1bn) contribution to the tunnel is twice that of his predecessors. His administration has also committed another $2bn (€1.5bn) towards extending the No 7 subway line to the Hudson Yards, a West Side stretch of Manhattan undergoing a $15bn (€11.6bn) facelift as the city's fourth major business district.

Add in the $100m (€77.7m) of resources that Bloomberg is ploughing into the hi-tech campus on Roosevelt Island and a further $260m (€202m) allocated towards the overhaul of Governors Island and it's a marvel that New York's credit rating is still just a notch below the US's own triple-A rating. By comparison, several penny-pinching cities throughout Europe have seen their borrowings teetering on the brink of junk status.

So how is it that New York, once the poster child for reckless public spending, seems so flush? The answer lies in a succession of financial instruments designed to leverage the public purse in ways that unlock private capital, rather than taxing its citizens further. The principle mechanism has been tax-free municipal bonds or 'muni bonds', a borrowing tool under which long-term debt is backed by either the city's taxing power or future revenue streams.

Pioneered by New York City in 1812, the 'muni market' in the US alone is now valued at about $3.7 trillion (€2.95 trillion). While there have been some recent high-profile defaults, New York has successfully raised $30bn (€23.8bn) for infrastructure projects. The water tunnel now being built was financed through the issuing of 'water bonds' and the collection of dedicated water and sewer fees.

The No 7 subway extension involves the largest use of municipal Tax Increment Financing (TIF) bonds, a tool devised by California for capturing the future value of any public improvement. TIFs simply raise money by borrowing from the open market against the expected increase in property-tax values within the development area.

In this case, the value of the 50- and 60-storey towers sprouting up across the Hudson Yards should be immeasurably enhanced by the new subway line and stations being constructed to service them. The local tax base is bound to soar as a direct result of that subway investment. TIFs allow those who put up the money to earn a slice of the bonanza.

Some of New York's political and banking elite, including Tom Green, head of Citi's Infrastructure Finance Group, believe that similar financial tools would work in fast-developing foreign cities in Africa or in parts of Europe where the public sector is struggling to meet the material upfront costs of infrastructure.

While most cities in Europe don't benefit from the kind of tax incentives that underpin the giant US sub-sovereign marketplace, there are signs of movement. In March, the UK government announced support for €185m of TIF financing to help local authorities promote development and urban regeneration. More recently, the EU will set aside €230m in European Investment Bank guarantees to support the issuance of 'project bonds' for investment in energy, transport and the digital communications infrastructure.

It is not clear yet how these European project bonds will be received by credit rating agencies such as Fitch, which last year cast doubts over such EU instruments. And there have been cautionary tales of over-ambitious growth forecasts in some US cities. But New York has a huge inbuilt advantage: it is home to Wall Street. With that financial backyard comes not only expertise in structuring long-term risk-sharing deals, but also a concentration of high-net-worth individuals who have an interest in maintaining their standards of living.

Bloomberg is convinced that once investment is made in infrastructure, momentum builds pretty quickly. For example, as part of several broadband initiatives to expand New York's broadband connectivity, Bloomburg is in advanced discussions with Time Warner Cable, which could help achieve the wiring of several hundred additional buildings in the city for high-speed internet. Time Warner has already made a substantial investment in deploying fibre-optics to the city's commercial districts.

Many of those shaping Europe now believe that more collaboration is needed between city authorities, financiers and experts. "We have to change our whole approach to financing infrastructure projects," says Baldomero Falcones, CEO of Fomento de Construcciones y Contratas (FCC), one of only 10 Spanish giants on the Fortune 500 list.

His Barcelona-based global construction group is heavily involved in a range of huge projects, from building Central America's first metro to Spain's high-speed rail and the largest oil recycling plant on the US east coast in Baltimore. In Falcones' view, a more holistic approach is the way to go.

"Public authorities used to tender for big projects, expecting competition to get the best price but not always the best solution. From now on, infrastructure companies such as FCC could look for financial partners to put together our technical expertise and financial capacity to offer cities the best solution from a technical, economic and sustainable perspective. Needs and solutions should come out at the same time."

NL Bloomberg's businessmirakel

Boyd Farrow kijkt hoe New York op ingenieuze wijze geld inzamelt voor de stadsinfrastructuur

Zo'n 42 jaar al graaft een gigantische machine haar weg 200 meter onder de straten van New York. De doelstelling? Het bouwen van een tunnel als onderdeel van het stedelijke watervoorziening- en rioleringssysteem, dat $6 miljard zal gaan kosten. Voorziene einddatum: 2020.

Burgemeester Michael Bloomberg is bezig aan zijn derde ambtstermijn en zijn bijdrage van $4 miljard aan de tunnel is het dubbele van zijn voorgangers. Daarnaast belooft hij zo'n $2 miljard te investeren in het verlengen van de 7de metrolijn naar Hudson Yards, ten Westen van Manhattan.

Voeg daaraan de $100 miljoen die Bloomberg pompt in de hoogtechnologische Roosevelt Island campus en nog zo'n $260 miljoen voor de heraanleg van Governors Island. Het is dan ook een wonder dat de rating van New York een peulenschil is in vergelijking met de AAA-rating van de Verenigde Staten zelf.

Hoe komt het dat New York, ooit een sterke voorstander van roekeloze publieke uitgaven, zo succesvol lijkt? Het antwoord ligt in de opeenvolging van financiële instrumenten die werden ontworpen om privékapitaal te scheppen.

Het principemechanisme waren de belastingsvrije gemeentelijke obligaties.

De "muni market", een pionierswerk van New York uit 1812, is in de Verenigde Staten alleen al goed voor zo'n $3.7 triljoen (€2.95 triljoen). Hoewel er onlangs een aantal problemen waren met hoge profielen, slaagde New York erin om zo'n $30 miljard (€23.8 miljard) in te zamelen voor infrastructuurwerken.

En New York heeft een enorm voordeel: het is de thuisbasis van Wall Street. Deze financiële achtertuin zorgt voor een grote concentratie van personen met hoge inkomens die vastberaden zijn hun levensstandaard te behouden. Bloomberg is ervan overtuigd dat, eens de investering in infrastructuur doorgevoerd wordt, de gebouwen er vrij snel zullen staan.

FR Le business miraculeux de Bloomberg

New York a mis en place d'ingénieux moyens pour lever des fonds pour ses infrastructures. Une analyse de Boyd Farrow

Cela fait 42 ans qu'une machine gargantuesque fore la roche à 200 m sous les rues de New York, pour créer un tunnel de 100 km. Cet ouvrage d'art s'inscrit dans un nouveau projet de 6Md $ pour la réhabilitation du système d'approvisionnement d'eau de la ville (prévu en 2020). Alors que New York doit faire face à d'autres problèmes dans l'immédiat, un tel projet a pu voir le jour grâce à d'ingénieux montages financiers.

Le maire, Michael Bloomberg, a contribué au tunnel à hauteur de 4Md $, soit deux fois plus que tous ses prédécesseurs. Son administration a également injecté 2Md $ dans l'extension de la ligne de métro N° 7 jusqu'à Hudson Yards, à l'ouest de Manhattan, un quartier en pleine restructuration pressenti pour devenir l'un des quatre principaux centres d'affaires.

Ajoutez-y les 100M $ affectés par Bloomberg au campus High Tech de l'île de Roosevelt et les 260M $ pour Governors Island, et vous serez étonné que la notation de New York se situe juste sous le triple A des USA.

Comment se fait-il que New York, fervente adepte du contrôle des dépenses publiques, semble aujourd'hui si prodigue ? Regardez du côté des instruments financiers destinés à lever des fonds publics ; ils font appel au capital privé, et notamment aux obligations municipales plutôt qu'aux impôts.

Inauguré par New York en 1812, le « muni market » est évalué aujourd'hui à 3,7 trillions $ (2,95 trillions €) rien qu'aux Etats-Unis. Et malgré des cas récents de défauts de payements, New York est parvenue à engranger 30Md $ (23,8Md €) pour ses projets d'infrastructure.

Bien entendu, la prudence est de mise face à des prévisions de croissance parfois surévaluées dans certaines villes américaines. Mais en tant que centre de Wall Street, New York a un énorme avantage : une sérieuse expertise financière, mais aussi une population fortunée désireuse de maintenir sa qualité de vie. Bloomberg est convaincu que ces investissements dans les infrastructures ne tarderont pas à porter leurs fruits, incitant de plus en plus de firmes à « monter dans le train de la croissance ».

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