US stimulus should include private investment-group

CHICAGO Wed Jan 21, 2009 3:23pm EST

CHICAGO Jan 21 (Reuters) - Combining private investment in U.S. infrastructure with federal stimulus money will increase job generation and help state and local governments in their struggle to balance budgets, a group of bankers and lawyers said on Wednesday.

The group, which includes Morgan Stanley (MS.N), Merrill Lynch & Co. MER.N, Citi Infrastructure Investors (C.N) and law firms Mayer Brown and Freshfields Bruckhaus Deringer, wants public-private partnerships to be included in any federal stimulus program.

"This is a golden opportunity for America to do it right, essentially, and to attract private capital where before it hasn't managed to in the kinds of volume that this economy really should be attracting," said Dolly Mirchandani, a partner at Freshfields Bruckhaus Deringer, on a conference call with reporters.

The group, which includes participants in big Chicago and Indiana leasing deals, said more than $180 billion in private capital was available for investment in U.S. infrastructure, such as roads, bridges and mass transit.

Combining the private money with federal funds could boost job creation to nearly 2 million by the final quarter of 2010, according to a report the group released on Wednesday.

To get to that point, however, the group said the federal government should tie stimulus funds to private capital involvement or allow private investors to benefit from tax-exempt debt.

The firms also called for expanded federal pilot programs allowing for privatizations at airports and interstate toll roads, and for the U.S. government to create national standards to smooth the way for public-private partnerships.

Other items on the group's wish list included exempting private activity bonds used for infrastructure from the alternative minimum tax and from limits on the amount of bonds that could be sold on a tax-free basis, creating a national infrastructure bank that could also lend to the private sector for qualified projects and the creation of a top-rated bond guarantor for infrastructure financings.

With most states and cities facing budget deficits due to the slumping economy, the group said public-private deals, like long-term leases of assets, could bolster the governments' financial situation.

"We are advocating that this is another tool in the tool kit that is highly effective and can mitigate tax increases and cuts in services as the economy is going through tough times," said Rob Collins, a managing director at Morgan Stanley. (Reporting by Karen Pierog; Editing by Tom Hals)

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