Turbulent Transports: Is Infrastructure a Good Investment?
Toll roads and bridges were once the hottest private deals.
In a speech yesterday at the Brookings Institute, President Barack Obama announced plans to spur job growth by spending more money on infrastructure. Building and improving our roads, bridges, and municipal systems, he hopes, will be a key component of much needed employment.
Public, private, and public again: Investments in infrastructure have come full circle.
A few years ago, of course, private infrastructure was the rage. States and local governments would sell public assets -- roads, bridges, airports -- to private operators in return for huge upfront sums, which would usually be used to plug budget gaps. The private companies would enjoy a steady long-term revenue stream.
But the private deals of our public systems have largely failed to deliver, a consequence of dried-up credit and skepticism from voters and politicians.
The highest profile example was the failed attempt to privatize the Pennsylvania Turnpike for $12.8 billion.
In addition, the first stimulus plan from Obama -- a $787 package dispersed earlier this year -- provided temporary relief to states and localities, so they didn't have to turn to Wall Street investment banks and private investment funds that have entered the infrastructure business.
The push for privately operated infrastructure began when Chicago leased its seven-mile Skyway for $1.8 billion in 2004. Two years later, Indiana followed suit with its 157-mile toll road for $3.8 billion. Others rushed in to lease highways, lotteries, and parking meters, with some price tags reaching $10 billion.
But the casualties began last year, and the momentum accelerated.
In September 2008, an investor group led by Citigroup (C) withdrew its offer to buy the 537-mile Pennsylvania Turnpike after Gov. Ed Rendell had his proposal blocked in the state legislature.
In Chicago, a long-awaited $2.5 billion plan to buy Midway Airport fell apart in April when investors couldn't get enough money.
The 16-mile Southern Connector highway, outside Greenville, South Carolina, announced it will default January 1 on the $312 million borrowed to build the four-lane highway.
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