Infrastructure Goes Private
By Scott Reeves Aug 28, 2008 9:30 am
Selling airports, roads and bridges may be best way to save them.
Big oops: There’s no way local, state and federal governments have that kind of dough.
Possible Solution: Privatization.
Selling airports, roads and bridges can bring an immediate cash infusion to government and is likely to provide long-term benefit to the public and investors.
The $52 billion Ontario Municipal Employee Retirement System last year generated a 12.4% return on its $5 billion infrastructure investments, above the 9.9% benchmark, but down from 2006’s 14% return, The New York Times reports.
But you can bet labor unions will oppose privatization because they see it undercutting job security of their members.
Democratic Representative James L. Oberstar of Minnesota, chairman of the House Committees on Transportation and Infrastructure, has said his panel will “work to undo” public-private partnerships that don’t protect the public interest.
Private investors make money by boosting revenue. This can be done by upgrading the infrastructure to increase capacity or by raising tolls. Paradoxically, the public may object to the improvements brought by privatization - reconstruction means delays while construction of a new highway by the government means shorter trips.
Privatization doesn’t deliver immediate miracles. The development of high-occupancy toll, or HOT, lanes around Washington took six years to complete after Fluor Corporation (FLR) made an unsolicited bid in 2002.
However, interest in infrastructure investment is intense and new deals continue to be signed or discussed.
Australia’s Macquarie and Spain’s Cintra, foreign funds with extensive international investments, signed leases for the Chicago Skyway, and the Indiana Toll Road. Midway Airport in Chicago could be transferred to private investors this fall.
Florida approved plans for groups that included JPMorgan (JPM), Lehman Brothers (LEH) and the Carlyle Group to bid for a 50- to 75-year lease on Alligator Alley, a toll road known for sightings of alligators lazing it up in the sun.
The prospect of long-term leases and steady returns has caught the interest of major investors such as KKR (formerly Kohlberg Kravis Roberts), Morgan Stanley (MS), Goldman Sachs (GS) and Credit Suisse (CS).
The California Teachers’ Retirement System recently authorized up to $800 million for infrastructure investments. The California Public Employees Retirement System has set aside $7 billion for such investments through 2010.
Theory is one thing. Practice is another.
Indiana Governor Mitch Daniels confronted a sharp backlash when the state pocketed $3.8 billion for a 75-year lease on the Indiana Toll Road. One bumper sticker read, “Keep the toll road, lease Mitch.”
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Reply
2008-08-28 09:59:06
Toll roads in Colorado
We have a toll road, E-470, which forms a part of Denver's beltway along with C-470, the state road.
C-470 is busy but not clogged most of the time. E-470 is largely empty and I would guess carries 10% of C-470's traffic. That's because one 20 miles trip involves paying 4 or 5 tolls unless you buy an electronic pass.
I am thinking that what privatization would do is put into the hands of corporations the most profitable routes and leave the states and feds maintaining the necessary but not profitable roads. An analogy might be education, where private schools tend to strip off the affluent kids with good homes and leave the kids of single moms who need ESL classes for the public schools.
C-470 is busy but not clogged most of the time. E-470 is largely empty and I would guess carries 10% of C-470's traffic. That's because one 20 miles trip involves paying 4 or 5 tolls unless you buy an electronic pass.
I am thinking that what privatization would do is put into the hands of corporations the most profitable routes and leave the states and feds maintaining the necessary but not profitable roads. An analogy might be education, where private schools tend to strip off the affluent kids with good homes and leave the kids of single moms who need ESL classes for the public schools.
2008-08-28 12:49:25
Sell the public assets, use the money to bail out the (private) financial system. What a plan!
2008-08-28 13:28:44
I am consistently amazed, though I know by now I shouldn't be, at two items:
1. The ability of large institutions, both public and private, to turn the creation and delivery of virtually any good or service into a hopelessly bureaucratic morass thick with waste and corruption, and
2. The shamelessly gleeful willingness of seemingly otherwise intelligent people to promote schemes that all but promise the privitazation of outsized gains and the socialization of inevitable losses incurred down the line.
Infrastructure is a public good; it should be financed and owned by the public, all of whom may profit down the line by its presence and its orderly functioning. The public's ire is rightly drawn by wasteful, inefficient governments and other large institutions, just as it is rightly drawn by crime, whether personal or institutional. Privatization of infrastructure is a terrible idea precisely because it perfectly combines the ability of large institutions to sponsor, promote, and hide corruption while simultaneously painting on a thin veneer that looks like "the free market at work."
1. The ability of large institutions, both public and private, to turn the creation and delivery of virtually any good or service into a hopelessly bureaucratic morass thick with waste and corruption, and
2. The shamelessly gleeful willingness of seemingly otherwise intelligent people to promote schemes that all but promise the privitazation of outsized gains and the socialization of inevitable losses incurred down the line.
Infrastructure is a public good; it should be financed and owned by the public, all of whom may profit down the line by its presence and its orderly functioning. The public's ire is rightly drawn by wasteful, inefficient governments and other large institutions, just as it is rightly drawn by crime, whether personal or institutional. Privatization of infrastructure is a terrible idea precisely because it perfectly combines the ability of large institutions to sponsor, promote, and hide corruption while simultaneously painting on a thin veneer that looks like "the free market at work."
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