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Reason Foundation

Officials Should Embrace Private Infrastructure Investment

Bridge tragedy underscores need to tap private sector capital, expertise

Leonard Gilroy and Geoffrey Segal
August 9, 2007

The I-35 tragedy in Minneapolis is shining the public spotlight squarely on America's decaying infrastructure. A recent Federal Highway Administration report estimated that the $70 billion annual capital investment in our highways is roughly $9 billion less than what's needed just to maintain our highways and bridges; an additional $60 billion per year would be needed to improve and expand the highway network to keep up with the increasing demand for road space.

The challenges and needs of our infrastructure network are no secret to federal and state officials. The unfortunate reality is that most states lack the resources to adequately maintain their current roads and bridges, let alone build the new projects needed to reduce the traffic jams that are increasingly stifling the efficient movement of people and goods. Congressional earmarks and pork projects have steered limited resources away from priority projects.

It is time to rethink how we fund, build and maintain our infrastructure.

For some, the remedy is easy—a massive federal spending program funded by a hike in the federal gas tax. This would be a short-sighted response that would inevitably pass the problems along to future leaders. Gas taxes are an unsustainable and highly inequitable funding source because inflation and the increasing fuel-efficiency of our vehicles eats away at the money generated. As for a new federal spending program, a strong federal role, which emphasizes politics over pragmatism, is precisely what got us into this mess. Congressional earmarks—spending on pork projects—have been diverting limited resources away from priority projects for too long.

This business as usual approach is not going to fix an increasingly broken system. Unfortunately we'll be left with worsening gridlock, aging infrastructure, and a transportation system incapable of meeting the needs of a growing economy and population. Fortunately, a new paradigm has emerged—private capital and public-private partnerships—to deliver a 21st century infrastructure network.

Reason Foundation's recently published 21st Annual Privatization Report includes a lengthy section demonstrating how the private sector can play a significant role in financing and developing all sectors of infrastructure. This has been happening in Europe, Australia, and other parts of the world for decades, but is just starting to happen here. In the last few years, private companies have raised at least $100 billion of capital for investment in U.S. infrastructure.

This is part of a larger, bipartisan trend in which the doors to private capital and expertise are increasingly being opened by innovative, forward-thinking policymakers.

Chicago Mayor Richard Daley, a Democrat, started the trend by leasing a toll road, the Chicago Skyway, for $1.83 billion. Daley has continually asked questions like, why is the city of Chicago running parking garages? Daley has privatized over two dozen activities and has taken the first steps towards possibly leasing the Midway Airport.

Its no surprise that Indiana is the only state in the nation with a fully funded transportation investment plan after Republican Governor Mitch Daniels initiated a lease of the state's underperforming toll road for $3.85 billion. New construction spending will quadruple in the next eight years, including more lane widening and additions than can possibly listed. US-31, I-65 and I-69 will all be the beneficiaries of new investments, to name a few.

Texas Governor Rick Perry (R) launched a bold and ambitious transportation program in which private companies are playing a significant role in financing, constructing, and operating the road capacity needed to reduce congestion, improve air quality, and goods movement. Even Pennsylvania Governor Ed Rendell, a Democrat, said his state could "have generated another half-billion dollars for bridges, roads, and highways had we leased the Turnpike to a private operator."

Roads and bridges are in the spotlight today, but our infrastructure challenges don't just stop with our roads. Many of our nation's water systems have been in service longer than originally designed and the cost to upgrade them is truly staggering. Indeed, the Government Accountability Office pegs the cost between $485 billion and $1.2 trillion. Ports and waterways, airports and electricity generation needs bring the infrastructure price tag to a staggering amount.

Fortunately, there is a track record for private sector participation in these areas. Over 2,400 publicly-owned water and wastewater systems contract with private firms to provide system operations and maintenance services, and thousands of private, regulated water and wastewater utilities serve approximately 15 percent of the U.S. population. Consumers routinely purchase phone, internet, and electricity services from highly-regulated private companies subject to strict government oversight.

The solution to our infrastructure is more private participation, not less.

Americans, culturally infused with a healthy skepticism of big government and reliant on private-sector know-how in all other facets of their daily lives, somehow suspend their disbelief where infrastructure is concerned. They should find it unacceptable that countries like France—which has fully privatized its equivalent of our interstate highway system—are embracing private infrastructure investment, yet we're stuck with a transportation system held hostage by politics and government inefficiency.

The choice is clear. In this case, business as usual will result in higher taxes and marginal improvements at best. Embracing public-private partnerships puts us on a new path with new sources of capital that don't further burden the taxpayers.

There is little doubt that our infrastructure needs significant investment and improvement, and the money just isn't there to do everything. Its time to modernize our infrastructure policy. Public-private partnerships are vital to the overall success and development of our infrastructure. Private capital markets are standing at the door willing to help. It's time for lawmakers to welcome them in.


Leonard Gilroy is Director of Government Reform


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