It’s unlikely that public funds alone will supply what’s needed. Rising gasoline prices have made it politically unpalatable to increase fuel taxes, while some state and local budgets are already groaning under the weight of decades of borrowing, making massive new debt offerings more and more difficult. More federal transportation money? The problem is that 98% of our bridges and 97% of our roads are owned and operated by state and local governments — and that these governments have often used past increases in federal transportation aid simply to replace their own infrastructure spending.
The U.S. Department of Transportation estimates that world-wide there have been more than 1,100 public-private deals in the transportation field alone in the last 20 years, with a value of some $360 billion.
Only recently have a few intrepid U.S. politicians tested the waters, with startling results. Confronting a $3 billion transportation-funding shortfall, Indiana Gov. Mitch Daniels in 2006 auctioned off the rights to operate the Indiana Toll Road to a private consortium for a staggering $3.85 billion.
In effect, the private operators gave the state a fat up-front payment in exchange for the right to collect tolls for 75 years. The agreement requires the private operator to invest in rebuilding the road over time, and as well to follow a lengthy list of operating standards, from how best to fill potholes to how quickly to clear roadkill. The agreement also limits toll increases, setting out a schedule of fee hikes over the years that the new owner must adhere to.
The winning bidder — a consortium of Cintra of Madrid and Macquarie Infrastructure Group of Sydney — agreed to these conditions and still offered far more than anyone expected. This demonstrates a basic principle that anyone who has ever sold something on eBay readily understands: The true worth of something is what someone is willing to pay for it.
The success of the Chicago and Indiana sales now has some political leaders scrambling to find other privatization possibilities. There are some estimates that several dozen deals could transpire in the next two years, yielding up to $80 billion for governments.
But selling existing assets may turn out to be only a small part of the story. Budget-squeezed governments are also accepting bids by private investors to finance, build and operate new roads.
Some objections to private ownership are simply cynical ploys by politicians looking to maintain their hold on public assets, especially since roads and bridges operated by transportation authorities are often job-patronage mills.
Also, if you missed it, check out Governor Rendell on CNBC (mainly the last 20 seconds or so), in which he states that private investment is needed to prevent disasters like the Minnesota bridget collapse, and admits that a lease of the Turnpike could have fetch Pennsylvania $500 million more than Act 44 (at least).