Asset Recycling

Asset recycling is a value capture mechanism in which public entities derive revenue to invest in new infrastructure by leasing or selling a government-owned asset to private sector investors. In the transportation sector, these assets are most often toll highways or bridges. Given that existing toll facilities have a proven revenue generation history, investing in asset recycling projects is attractive to private investors because it offers a stable return and far less risk than investing in new toll facilities.

In addition to generating new revenue typically in the form of an upfront lease payment, asset recycling also enables project sponsors to transfer the ongoing maintenance and operating costs to the private sector. In many cases, asset recycling projects also require private sector investors to make capital improvements or expand the capacity of the leased facilities. While asset recycling does not involve increasing public debt, it does require that sponsoring agencies cede all or a portion of the revenue generated by recycled facilities for the duration of the lease period. The upfront lease payment can be reinvested into a new but currently unfunded project or program of projects.

Asset recycling has seen modest use to date in the U.S. In the highway sector, five toll highway and bridge facilities were leased to private entities between 2004 and 2011. While several initial private sector investors have been challenged to realize expected returns from their investments in the near-term, public sector sponsors have generally benefited from their long-term lease transactions. Even with several changes in lease ownership, no impacts on facility users or project sponsors have resulted since the provisions of the original agreements, including commitments to operate and maintain the roadways, to follow established methods for toll rate increases, and to share excess profits still stand. Additionally, upfront payments secured upon lease execution have provided demonstrable benefits. At a minimum, they helped retire debt on burdensome or troubled assets for all five projects, and in three instances, permitted the project sponsors to make investments elsewhere in their respective region or state.

Beyond highways within the transportation sector, asset recycling has been applied to airports, seaports, parking facilities, and intermodal transit facilities.

Asset recycling has been used extensively in Australia, where the national government established a AU$5 billion incentive program in 2013. The Australian program provides state governments with an additional 15 percent in national funding of the capital raised from recycled assets. Between 2013 and 2016, a total of AU$15 billion was raised in Australia from recycling existing transportation power generation assets. The state of New South Wales also created Infrastructure NSW to act as an independent body in overseeing the asset recycling process. Infrastructure NSW has funded three new highway projects using revenue generated by its asset recycling program: Newal Highway, a AU$78.8 million 28-kilometer facility in an important freight corridor; a 9.8-kilometer AU$52.5 million extension of Princess Highway, and the 12-kilometer AU$30.4 million New England Highway bypass route.

Projects

Chicago Skyway - Chicago, Illinois

Indiana Toll Road - Indiana

Moynihan Train Hall - New York, New York

Northwest Parkway - Denver Metro Region, Colorado

Pocahontas Parkway/Richmond Airport Connector - Greater Richmond, Virginia

Puerto Rico PR-22 & PR-5 Lease - Northern Puerto Rico

Resources

Asset Recycling Fact Sheet

View Resources on Asset Recycling