Lots of people point to the $2.2 trillion shortfall in infrastructure investment in this country, and suggest that privatization of public assets is the best way to deal with the situation. So, for example, this might mean leasing a highway to a group of investors and giving them the right to charge tolls. The rationale is pretty sound: government at all levels is cash-strapped, there is tremendous public need, and profit opportunities (in theory, anyway) abound. But in practice, results on this front have been pretty awful in this country, and today there was more bad news as a privately run toll road in South Carolina teeters on the edge of going bust.
What’s going on?
As with the S.C. road, many existing deals are proving to be financial failures. The Australian financial giant Macquarie signed a $3.8 billion, 99-year lease on the Indiana toll road in 2006 which has utterly imploded since then. Last month the bank marked down the value of the asset by 70%. Another billion dollar deal for the Chicago Skyway toll road looks nearly as bad.
A primary problem is that traffic projections were much too optimistic. Partly that’s a result of the recession. Partly, it’s a result of the fact that Americans–for the first time in decades–are driving fewer miles, a trend that is seeming more and more like basic and lasting cultural shift. And, finally, there’s the fact that some people just don’t like paying tolls, so they take alternative routes.
In theory, the lease holders could make up for a lack of traffic volume by raising tolls — but, in this country anyway, they tend face pretty tight contract restrictions about what they can charge.
The political climate has also been lousy. In Chicago, a deal to lease parking meters turned into a major embarrassment after a state investigation pointed out that the city had gotten totally ripped off and neglected to do some very basic calculations before signing the paperwork. Plus, the company that’s running the meters is an unmitigated disaster and everybody hates them, even Mayor Daley.
Most of the biggest deals have simply been called off. Citibank’s plan to lease Midway airport was scuttled last April. A proposal to lease the “Alligator Alley” highway in Florida proved to be a fiasco and got exactly zero bids. That came a few months after Pennsylvania’s $13 billion deal to lease the Turnpike to an investor group led by Citibank died when it hit resistance in the state legislature.
There are plenty more examples. But the point is, if we’re going to count on private capital for maintaining and improving our infrastructure, it’s time to get a bit more serious about doing it right. A easy start would be for Congress to give states blanket authority to toll Interstates. Coming up with $100 billion or so in seed capital for a sensibly organized federal infrastructure bank would be another.
But if Americans fundamentally dislike the idea of privately held Interstates, airports, and so on… then let’s acknowledge that we’ll have to start paying higher taxes to cover the infrastructure investment gap (be they income taxes, gas taxes, or government-levied road use fees). Or, alternatively, we can just give up and let things go to seed. But it’s going to be one of these options.
Tags: FAILURE
Time to recapitalize! Tear up roads and infrastructure that are not being used as heavily to pay for the ones that are being used the most. We see it with the military all of the time – retire the old planes to pay for the new ones.
That’s just one definition of a private-public partnership though – privatization of a formerly public resource. And while it’s gotten a lot of attention over the past few years, I think it sits on the far end of a full spectrum of private-public relationships, many of which probably still function well…
What governments should do in this country, if they wish to go the public-private route, is to lease assets for much shorter periods of time, say 30 to 40 years, like they do in Europe. The government may not get as much money up front, but the private company will make its money back in a much shorter period of time, so recessionary periods wouldn’t be as much of a cause for alarm.
I agree with letting states have blanket authority to toll interstates. As far as taxes go, I’m comfortable with sales taxes, gas taxes, and/or mileage taxes for roads. More income taxes are a travesty, IMO.
Exactly right! Once those expecting lifetime employment as elected officials (if they lease it off it’s all “their” fault when tolls rise and roads fall) AND those expecting massive profits (easy guaranteed cost plus X profit%) come to realize the roadways are not all gavy perhaps the public interest will prevail.
As beaurocratic as some States are, it is very difficult to comprehend how a Private (spelled foreign corporation) entity can pay the extra costs for funding (regular vrs municipal bond costs); pay to build toll plazas with all the high tech equipment; train and staff toll takers; supervisors; and the internal affiars types to catch the invariable thieves; pay for road maintainence plus PROFIT all together more economically than a DOT.
The only answer is the taxpaying public gets schewered over and over. (How many times do big rigs pay for highways? Higher fuel taxes, tag taxes, profit taxes, interstate use taxes, AND now hundreds per state in tolls? Guess who foots that one.) (Checked out the increase in toll rates to cover loss in traffic to provide guaranteed profit of the Indiana or Illinois capers? Or ALL the politicians who went to jail for kickbacks on bond deals?)
Now to get nutless unindicted elected ‘representatives’ of the people to gather themselves to intelligently analyze costs and expenses, raise taxes accordingly (once ever 20 years just doesn’t cut it), then make certain contracts are for the best interest of the taxpayers who fund it all one way or the other.
Adam -
Thanks — agreed. Tweaked opening paragraph to be clearer.
Jebediah
I’m going to have to disagree with you on this one. The government is the only entity in this nation that is really too big to fail. With out a stable government we have no economy. That is why we must keep our government small. If some Highway Authority Corporation in SC goes bankrupt and closes it’s doors, that’s okay. Really, it’s okay for a couple of Rich guys to loose money every now and then. Our economy doesn’t need them to make money. Some other rich guys will buy their assets for cheap at an auction and will run the toll roads with a different plan. That’s how capitalism works, and that’s why it is so robust. Capitalism requires bankruptcy for the same reason Evolution requires extinction. It opens the doors for other smart people to make money. Government should not be in the business of owning things -or at least as little as possible. Government’s job should be making laws that protect people from other people and enforcement of those laws.
I’m for public-private partnerships, or even fully private partnerships with strong regulators. If cars and train actually competed in the open market, trains would have won hands down and we would still have a huge national rail system. We actually had one 70 years ago, then society decided to pick a winner and start building Highways. The government placed heavy taxes on the rail lines (both profit taxes and property taxes for all of the land) and then used that money to build highways that people would ride on for free. Surprise, cars won. If I had my way, every limited access highway would be private and tolled. Then people would have to give careful consideration to how they travel. That would open the market up for real competition. Planes get you there the fastest, cars might still be cheaper than trains, but not so much so that it’s a no brainer. If I-35 was tolled between Dallas and Austin, there would be a High-Speed Rail line built in 5 years, we wouldn’t need to expand the highway, and TexDOT would be running a surplus instead of a deficit.
“then let’s acknowledge that we’ll have to start paying higher taxes to cover the infrastructure investment gap”
We cant get the money by not spending it on something else? Seriously, given the choice of $700 billion worth of infrastructure or $700 billion for a bunch of well connected banks, ill take the infrastructure any time.
Colin, I wonder if that would be your opinion had the financial system failed, as seemed very possible a year ago. Note also that the banks are paying back their money, and in some cases the government is making a tidy profit. You seem to miss the point that “bailing out a bank” does not involve spending billions of dollars as infrastructure projects do, it involves risking said money.
Had the Bank system failed, the government would have had to step in, and take over anyways. You bailed out a bunch of greedy leeches, who had no problem gambling with other people’s money, but couldn’t stomach using their own.
$700 Billion well spent? Hardly.
[...] proposed partnerships are now being scuttled as it becomes apparent they would be financial mistakes. The proposed NAFTA Superhighway crossing [...]
[...] proposed partnerships are now being scuttled as it becomes apparent they would be financial mistakes. The proposed NAFTA Superhighway crossing [...]
[...] proposed partnerships are now being scuttled as it becomes apparent they would be financial mistakes. The proposed NAFTA Superhighway crossing [...]