Peter Luchetti, Table Rock Capital’s Founder and Managing Partner, was appointed by Gov. Jerry Brown to the California Infrastructure Bank’s board in September. Luchetti spoke with TPR at the California Economic Summit about the ways in which this background will influence his new role, how he came to join the I-Bank, opportunities for infrastructure development at the local level, and the promise of public-private partnerships.
“For me, [my priorities are] to change the procurement and capital deployment culture in California in a way that creates an enormous number of jobs.” -Peter Luchetti, I-Bank Boardmember
You were recently appointed by the governor to the California Infrastructure Bank. Share with our readers, as context for this interview, your background in infrastructure investment.
Peter Luchetti: I worked for Bank of America for 17.5 years, and before that I was at Goldman Sachs for 6.5 years. At Bank of America, I held three jobs, one of which was running Global Project & Structured Finance, a group of 180 people focused on infrastructure investment, lending, equity investing, and advisory work in 32 countries and several sectors including transportation, energy, water and wastewater, social infrastructure, and communications. We did all varieties of transactions around the world.
After leaving Bank of America, I started Table Rock Capital, which initially started as an advisory firm focused on infrastructure. I was at a stage of my life and career where I wanted to do something in a boutique format, not a large corporate format. Bank of America when I left it had 250,000 employees; my firm has six. It was a big change. In a boutique format you can do things corporations can’t do. They’re big. They have policies. You can’t always do what you want to do in a large corporation. I also felt strongly about the social equity and social policy agenda surrounding infrastructure, as well as the integration of economics, investing, and rigorous finance. How do you marry being a great investor with the social issues we face today around infrastructure? It affects our quality of life, our environment, our global competitiveness, and the performance of our economy. I think all of those are important social agendas that have to reconcile with an investment agenda. I think there is a crisis in public administration today around these objectives. The public procurement process in the U.S. is in need of a one-in-50 year overhaul aimed at improving productivity, cost effectiveness, performance, and overall user satisfaction.
This interview takes place at the California Economic Summit after a roundtable discussion about infrastructure. Elaborate on how you became involved with the California Economic Summit and how you found your way onto this expert panel.
Peter Luchetti: I sit on two boards. One I’ve sat on for six years—The Bay Area Council Economic Institute (BACEI). I’ve written five white papers on infrastructure. (I try to write one white paper a year to be current and keep my mind deeply engaged in the topic.) All of my papers have been focused on some aspect of the infrastructure asset formation process and investment thesis in California. Sean Randolph is the president of BACEI, and we’ve written the papers together. Now, other people from my firm are writing papers with Sean, which has turned out to be a great stimulus for us because we don’t have a research department. BACEI is an extension of our research department.
To answer the first part of your question, I got involved with the California Economic Summit through BACEI. Since I’m considered (I think it’s fair to say) to be one of a handful of people in the state who’s an expert on infrastructure and alternative finance—with global knowledge and now working in the US—one thing leads to another.
It now is understandable why Governor Brown would ask you to serve on the California Infrastructure Bank. But what enticed you to say yes?
Peter Luchetti: A couple of things. Number one, the Chair of the Board of the California Economic Development Bank is Mike Rossi, who’s presently the governor’s all-around economic advisor. I’m not sure how to describe his job—he seems to do a lot of things for the governor.
Mike was Chief Credit Officer at Bank of America. I worked with Mike very closely over the years, and I had grown to respect him there. He is a very smart, very rigorous businessman, and he understands credit. He’s a man with great heart—we talked about the challenge of two California’s and bringing opportunity to disadvantaged communities at today’s conference, and Mike would be the first guy there to find solutions for those challenges. I believe strongly in that agenda. So I said, “here I have an opportunity to work again with a guy I like, who I think can get things done, who’s also got a policy mindset and the heart to move all of California forward.”
What opportunities attracted you to accept service on the State I-Bank Board?
Peter Luchetti: Let me start with what I wanted to focus on in the position. I saw the opportunity to leverage that history with Mike. We also have Teveia Barnes, who is the director. Before I ran Project & Structured Finance at B of A, I was the global head of Derivatives, Trading Operations for B of A, and Teveia was my General Counsel. I knew her from when I was in my late twenties and early thirties running a big trading business for B of A. I hadn’t talked to her in a long time. I hadn’t seen her in 15 years, and up she pops as the Director of the I-Bank.
Mike recruited her, too. Here was a chance for three people that knew and respected each other to get back together to do something important. I think that Mike, Teveia, and I don’t know all the answers. We have a full board with a lot to contribute—the treasurer’s office, the finance office, and the transportation folks. I am wholly optimistic we can do some really innovative things with the I-Bank mandate together.
Peter Luchetti: For me, it’s to change the procurement and capital deployment culture in California in a way that creates an enormous number of jobs. I live in San Francisco, I love the technology community, and I love entrepreneurialism. A lot of times when you love something, there are also certain things you don’t like. Think about your strengths and weaknesses. Sometimes they’re your advantage; sometimes they’re your disadvantage. But let’s be frank with each other—the technology sector creates more wealth than it does jobs, and for a relatively small number of people.
Now, if we could tap that same spirit of entrepreneurialism and deploy infrastructure capital, depending on whose statistics you want to use, you would create 15,000 to 25,000 jobs for every $1 billion invested—the kind of jobs that would be taken by many of those workers who have been hurt the most in the recession. The construction jobs, the engineering jobs, the design jobs. If you take the estimate of $753 billion in infrastructure need in California and you multiply it out by 15 to 25,000 jobs, you would have the lowest unemployment rate in the country. We would cut unemployment by half in California. What we need to do is execute on that program over 10 years, raising and investing one tenth each year of the $753 billion . If we could bring some measure of the creative and entrepreneurial spirit that is so vital and vibrant in Silicon Valley to the process that forms infrastructure assets and spawns investment, it would be a huge win for California. That’s my goal.
How will the I-Bank platform facilitate getting to goal?
The I-Bank possesses an established institutional framework and enabling legislation that covers a significant portion of what needs to be accomplished. We live in a politically complex period of history where people are very cynical about government. In writing five white papers on infrastructure, I have made many presentations across the US and in California, testified at legislative proceedings, and talked to many politicians. I can tell you that as a country and a state, the knowledge, information, and intelligence about how to solve many of the challenges we face today is unsurpassed on a global basis. But we still struggle to reach agreement and foster the kind of leadership and execution strategies that get things done, at a cost and in a time frame that fosters confidence in our country and economy. We struggle to overcome the cynicism and pessimism. I hate to think of what it would take to create the I-Bank from scratch in California today. The good news is that we already have an I-Bank with a very solid legislative mandate. Now let’s get to work!
Finally, Australia, the Canadian province of British Colombia, and the United Kingdom all participated in today’s California Economic Summit roundtable discussion. What do these jurisdictions have that you’d like to see at least discussed in a California I- Bank meeting?
I’m really excited about the I-Bank. If you look at the legislation that defines the I-Bank, in terms of what we have versus what’s out there around the world, we could do the vast majority of the things our competitors are doing around the world. It’s not a perfect overlap, it’s not a perfect solution, but there’s a lot we can do. And, most importantly, we need to focus on being globally competitive.
This is the argument Mike Rossi’s been making to me. He’s saying, “Why don’t we just do what we can do? Why do we need to go to the legislature? Let’s take what we’ve got and make something happen.” So the question really becomes, what to do now with the current mandate? That’s what I think is the starting point.
I have been on the job at the I-Bank since October, and it is immediately apparent that there are many deals we can do now.
When you’ve exploited all that, which is a lot to exploit, then we can talk about trying to get new legislation to do the hard stuff. You probably go by sector. You pick on energy for a moment. We have really not leveraged effectively the ability to do energy efficiency and demand projects in California through municipalities. I’m going to guess there’s probably $10 billion worth of work there. If we found a way through the state’s revolving loan fund to create a special program—sort of a master trust agreement—for deals with municipalities on energy efficiency and demand, and if we charged those payments through a new law that enables billing through the existing utility billing process, we would probably create 150,000-200,000 jobs.
I heard this morning that since the recession ended, we’ve created about 268,000 jobs. We would double the number of jobs created since the end of the recession, bring the unemployment rate down from the 12 percent range to the 9 percent range. Think about the consequences of accomplishing this with one large project. Well, cutting across all the sectors in California (Transportation, Water & Waste Water, Energy, Social Infrastructure and Communications), we could create tens of thousands of jobs for the kind of workers who aren’t trained to participate in the high end technology and research communities that everyone likes to focus on.
Now let’s move on to water and wastewater. There’s EPA money available, apparently, and people are suggesting we look into a leveraging opportunity here. I have a lot of good relationships with the major banks. They say, “Why don’t you leverage the EPA money and do what some of the other states have done?” There’s $3 billion worth of EPA money sitting on the sidelines for California. California hands it out dollar for dollar. New York hands it out a dollar per six dollars. They leverage it and private capital comes in. So why don’t we take $3 billion and make it $18 billion? If we did $18 billion times 20,000 jobs, you do the math. Now you’re talking about 300,000 or 400,000 jobs—construction jobs.