The Wall Street companies being bailed out by taxpayers aren't the only irresponsible parties in the US financial system. Big-spending government officials are going to need a rescue, too - and, ironically enough, many are turning to the oft-vilified private sector for help.
New York state's multibillion-dollar budget deficit is the second-largest of the states', behind only California's $15 billion. But Gov. Paterson is doing a better job of looking for long-term solutions than "Governator" Arnold Schwarzenegger, who recently hinted his state might need a $7 billion federal bailout to pay its bills.
Paterson has already vetoed 39 bills to curb spending. And now he's forming a commission to study how the state can benefit from public-private partnerships.
Chicago Mayor Richard Daley has learned how effective partnering with the private sector can be:
- In 2005, he leased a 7.8-mile stretch of toll road for $1.8 billion. The private company operates and maintains the road, earning its money back through tolls. The city used the upfront cash to pay down debt and establish a $500 mil- lion rainy-day fund.
- Daley also didn't see why the city was in the parking-garage business. So he leased four downtown parking garages, bringing taxpayers $563 million.
- Most recently, he announced the lease of Chicago's Midway Airport to a private company for $2.5 billion.
All these moves have raised the city's credit rating, lowered its borrowing costs and shored up pension funds. Similar opportunities abound in New York, and Paterson is wise to explore them.
Take the Tappan Zee Bridge. Substandard and falling apart, it's a poster child for our crumbling infrastructure. There's a $6.4 billion plan to replace the bridge, but the state doesn't have the money.
The private sector could finance some (perhaps all) of the new bridge as part of a 50-to-99-year lease deal. The state would own the bridge, but a company would pay to build, operate and maintain it - making its money back by charging tolls over the life of the lease.
All in all, the Empire State has $70 billion in transportation projects waiting for funding. Two years ago, it identified several potential public-private partnership projects that would help eliminate the backlog - including expansion projects for the Staten Island Expressway, Van Wyck Expressway, I-84 and other major highways.
The private sector could expand those roads by adding new variable-priced toll lanes. These 21st-century lanes use tolls that rise and fall during rush hours to guarantee that traffic is always moving at the maximum speed limit. Toll collection is all electronic, no toll booths. The lanes deliver congestion relief for drivers, as well as a speedy path for emergency vehicles and improved bus service.
With massive infrastructure needs but not enough money, New York can partner with the private sector to build projects that would never be built otherwise. But it has to be done right.
The government must choose its partners wisely and write contracts that protect taxpayers and penalize underperformance. It must explicitly spell out what toll hikes are allowed.
No detail is too small. The contract on the Indiana Toll Road, which was leased for $3.8 billion in 2006, specifies everything down to the cleanup time requirements for roadkill.
Also vital is what government does with cash. The revenue New York gets from any privatization deals should go for long-term infrastructure projects or to pay down bonded debt.
Any windfall needs to deliver lasting value for taxpayers. Leasing valuable assets and then diverting the cash to cover operating shortfalls in other parts of the budget may be a tempting Band-Aid but is terrible fiscal policy.
Setting up the public-private partnership commission is a very positive step toward reducing New York's multibillion-dollar deficit. Paterson has shown he's serious about getting the state's financial house in order - showing leadership of a kind that's conspicuously missing in Washington, DC, these days.