Why are the Feds Bailing Out the Highway Privatization Industry?

by: Paul Rosenberg

Sun Feb 01, 2009 at 11:56

At Progressive States, we've highlighted the potential and actual taxpayer ripoffs hidden in the industry siren song of selling off public assets like highways. States gets what looks like an attractive upfront payment, but lose in the long-term from lost toll revenue and lost democratic control of transit decisions....

I wrote about "public private partnerships" (P3) and the Gropenator's attempt to ram them down our throats in California for Random Lengths News a year ago, when he first tried to take advantage of the state financial crisis he helped to create. I discovered it was a text-book example of the "disaster capitalism" Naomi Klein described in The Shock Doctrine.

The credit crisis has undermined the financial players who had been leading the charge on privatization, so they are looking for a bailout under the federal recovery plan.   As reported by Reuters, Morgan Stanley, Merril Lynch, and a number of other firms pushing "public private partnerships" -- the industry's preferred euphemism for privatization -- wants part of the stimulus package to flow to them. Their wish list includes federal rules to push privatization of  airports and highways, along with a national infrastructure bank to subsidize loans for private sector deals.

And the privatization industry appears to have already won one item on their wish list in the federal bill -- an obscure but profitable loophole exempting profits from "private activity bonds" issued by local governments used for infrastructure from the federal alternative minimum tax. 

The absurdity here is impossible to overstate.  For over 30 years, primarily thanks to the conservative "tax revolt", America has severely under-invested in its infrastructure. Then the conservatives come along and say, "Well, the government can't do anything, the people are already over-taxed.  Let's let private business help us out!" Which only means it will be that much more expensive for future generations.  That's a conservative "solution" for you!  Only now that we're in an economic crisis, and spending taxpayer money is no object, they want us to spend that money bailing out the privatizers, so they can soak us again in the future!

"Beyond Chutzpah," indeed!

Just to get an idea how badly under-invested we are in our infrastructure--again, primarily because of the conservative "tax revolt" of the past 30 years--the American Society of Civil Engineers has just issued a new report card showing a needed investment of $2.2 trillion dollars.  Here are the grades on the report card:

Aviation D
Bridges C
Dams D
Drinking Water D-
Energy D+
Hazardous Waste D
Inland Waterways D-
Levees D-
Public Parks & Recreation C-
Rail C-
Roads D-
School D
Solid Waste C+
Transit D
Wastewater D-

In my Random Lengths story a year ago, I wrote:

On November 27, Schwarzenegger gave a speech at USC where he touted a major privatization initiative, to be fully unveiled in his State of the State speech in early January.  Not content with the mere $37 billion in infrastructure bonds just approved by voters last year, Schwarzenegger returned to his grandiose blockbuster roots, envisioning projects more than ten times as expensive.

"We need 500 billion dollars in infrastructure over the next 20 years to really catch up with the losses that we have seen over this last 30, 40 years of not building enough infrastructure." Schwarzenegger said. "So of course when you look at those numbers you know that there's not enough money out there in the public sector, in the tax base.  We could never afford that. And this is why I have been promoting public-private partnerships. [P3s]"

There are just two problems here.  First, as historian Robert Cruickshank [aka "Robert in Monterrey" aka "Eugene" at Dkos] noted in a December 9 LA Times Op-Ed, "California's infrastructure backlog -- including schools, waterworks, freeways and transportation -- is largely the product of 30 years of cutting taxes instead of attending to the basic needs of a growing economy and population."  A problem produced by cutting taxes can hardly be solved by more of the same.

This brings us directly to problem number two. Schwarzenegger's favorite example he says that California should follow is British Columbia (BC).  But in early October, Larry Blain, chief executive officer of Partnerships BC, the organization created to oversee BC's P3s, told a conference here in California that P3s do not produce a new source of money.

"Clearly all the money is coming from the government," Blain said. "It's debt of the province, whether you borrow it as bonds, or contract over a 35-year period."

State Senator Alan Lowenthal made the same exact point. "You're not getting something for nothing. The public will ultimately pay for it," Lowenthal said, which is why the plan wouldn't go far with the Democratic legislature. "It just seems like another pyramid scheme to me," he added.  

In true ideological fashion, P3s were being pushed then because we didn't have enough public spending, but private funds were plentiful, and they're being pushed now when we have hundreds of billion in public spending, and private funds are non-existent, even after giving the banks & the rest of the financial sector trillions of dollars.

If Obama wants a prime example of ideology to fight against--ideology that definitely doesn't work.  This would have to be it.

And even with all the might of the rightwing noise machine, it's not exactly wildly popular, either, as Progressive States notes:

Public Opinion and Public Interest Groups Show Strong Opposition to Road Privatization

Our partners at U.S. PIRG have compiled a wealth of information regarding the pitfalls of road privatization.  This section of our dispatch relies heavily on their research and policy work, and we urge readers interested in transportation privatization to explore the resources available on their website.

In a recent memo, U.S. PIRG summarizes survey results of public opinion on road privatization.  

   * 84% of those polled by the National Association of Realtors and Smart Growth America oppose the privatization of public roads and highways.
   * Surveys from several states that have approved or proposed public highway lease deals had similarly negative results.
   * In August 2008, only 29% of Pennsylvanians supported the proposed leasing of the Pennsylvania Turnpike to private investors.
   * Last year, 61% of voters in New Jersey opposed leasing the state turnpike, and that number went up to 85% among voters who self-reported as being well-educated about the details of the proposal.

So, (a) ideological, (b) foolish, (c) wildly expensive, (d) wasteful, and (e) unpopular.

You think Obama and the rest of the Versailles Dems could take a stand against this?