Thoughts on Infrastructure Privatization From a Former Sec. of Transportation

Not long ago, Federico Pena, who served as both Secretary of Transportation and Secretary of Energy under Bill Clinton and more recently as a member of Obama’s transition team, offered us a four point plan for how he thought the country should be investing in infrastructure. Afterwards we had a chance to discuss another subject that’s on his mind these days: public-private partnerships. With state budgets in shambles, it’s a big national conversation that’s inevitable, but that hasn’t yet started in any meaningful way.

We spoke about how over the last twenty years we’ve spent hundreds of billions on transportation infrastructure and essentially seen no gains. You threw out some ideas that would really shake up our present ways of doing things. But the DOT bureaucracy is notoriously thorny. How realistic is it talk about dramatically new ways of doing things?
I am one of those people who believe that the overwhelming majority of people who work in these departments are tremendously competent. That said, anytime you bring a new paradigm, it’s challenging. But the good news is, we have a new president and new Congress who are really trying to bring creative thinking to these problems. And I think the American people, as shareholders in this enterprise, are demanding it from them.

But in terms of process, what should they be doing?
I’m hopeful that they will sit down with the private sector. There a number of billion dollar-plus venture capital and private equity firms, including Goldman Sachs and others, and they are already competing for and bidding on public-private partnership investments in highway, transit, etc. They’ve got plenty of capital. But we need bring them in and ask: How can we use federal dollars to leverage your private sector dollars to meet these extraordinary demands we face as a country? Some people are talking about needing to $300 billion a year for the next 50 years for transportation and energy. The needs are so huge, we really need to find ways to bring in new sources of capital.

States are obviously in very tough shape fiscally, so a lot of previously sacrosanct public assets might come up for sale. But Americans seem to really dislike the idea of selling off major parts of our infrastructure to private investors.
There are many ways to do it that protect the taxpayer and consumer. For instance you can cap the rate of return for the private sector, and any profits after that are shared with the locality or the state. We need to make clear that these are now acceptable funding sources to help meet these, again, extraordinary needs we face right now. Because every year we delay making these investments, it will be much more expensive the future. It becomes a matter of rebuilding instead of repair. This requires an education of the American people about his this financing is going to work – that has to come from the leadership though.

Do you think Ray LaHood and Steven Chu are good candidates to push this forward?
I think they are both capable. I had a brief conversation with LaHood. He said he would like to pick my brain and I said I would be available whenever. I had a very constructive conversation with Steven Chu when I was in Washington for the inauguration. I think they’re both open to new ideas. The challenge here is to have them reach out and bring in new thinkers from the private sector to come in help them think through some of these new challenges.