Bacon's Rebellion

Democracy Thrives in Sunlight

Private Sector to the Rescue

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by

James A. Bacon
in

The United States needs to invest between $132 billion and $155.5 billion a year to improve transportation conditions, contends BusinessWeek magazine, but motorists pay only $54 billion a year for road repairs and maintenance. Another $11 billion a year will be needed over the next 20 years to replace aging water treatment facilities and comply with safe-drinking-water regulations; federal funding is less than 10 percent of the total national requirement. Tens of billions of dollars more are needed to repair dams, wastewater treatment plants and waterways.

Who’s going to pay for it all? It looks like the private sector will play a major role. Private investment companies are raising hundreds of billions of dollars to take over aging infrastructure. The good news is, government won’ t have to raise taxes. The bad news is, the private sector will have to raise tolls and fees.

That raises a great debate: What latitude should private investors be given in raising tolls and fees? What return on investment is reasonable? Could government do the job better for less money? BusinessWeek explores the issues here.

My criteria for Virginia are very simple:

(1) Pay now or pay later — pay much more later. The more government delays maintenance of infrastructure, the more it will cost to fix it down the road. Whether state government, local government or a private operator is in charge, hewing to higher maintenance standards generally pays off.

(2) User/beneficiary pays. Politicians will resort to all sorts of trickery to disguise who’s paying the taxes, levies, penalties and fees that fund infrastructure maintenance and improvemetns. Infrastructure should be paid for by those who use the infrastructure, or those, such as landowners whose property gains value, who benefit from it. Furthermore, the payments should be totally transparent so people can seek alternatives. (Virginia’s recent transportation legislation is a case study in indirect subsidy and opacity. We need to go back and fix it.)

(Hat tip to Jonathan Mallard for pointing me to the article.)

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4 responses to “Private Sector to the Rescue”

  1. E M Risse Avatar
    E M Risse

    Right On!

    Pandering politicians, 19th century ideologues and go-along-to-get-along goverance practioners who have been spooked by the no tax crowd and who have no clear vision of what a sustainable future would look like, have let infrastructure run down.

    The sooner it is fixed the better.

    Two important caveats:

    Infrastructure for the contemporary, technology and quality-of-services rich civilization costs a lot to create and maintain — a whole lot more than the “low tax” crowd thinks.

    That means high fees or high taxes. There is no alternative — other than 18th centruy standards of living and quality of life for things like health care, food security, potable water, etc.

    (In the context of an earlier post by Larry Gross re energy conservation — “how does Dominion make mone selling less kilowatt hours?” Charge more, especially for peak period use and for non-energy conserving users.

    Second: Before much is spent on new / renewed / replaced / upgraded infrastructure every project needs to be certified as being supportive of desired future patterns and densities of land use (aka, functional and sustainable human settlement patterns.)

    EMR

  2. Larry Gross Avatar
    Larry Gross

    re: “…Pay now or pay later — pay much more later.”

    Once an infrastructure need is identified the clock starts ticking…

    The longer it takes to acquire the necessary funding – the more expensive the infrastructure will cost – as they say – time is money.

    Many localites simply do not have adequate financial reserves to move quickly enough once a need is identified. Even VDOT has this problem.

    Private investors have absolutely no problem with this concept -whether they are going to build a new Home Depot or a Toll Road – the rule is the same. The longer their money is tied up – and not producing income – the less return they get on their investment so they go immediately to the capital market and immediately start spending it.. to get the project built as quickly as possible.

    What’s not really appreciated is that Govt rojects that go on “wait” lists have two key metrics associated with them:

    1. – WHEN is the anticipated build date?

    2. – What will the cost of the project be on THAT BUILD DATE – NOT in Today’s dollars.

    What government often does, including VDOT – is that they estimate a project’s cost in Today’s dollars even if the build date is years away or sometimes not even known because so much money is needed and the current funding stream just cannot produce.
    ( I-81, I-73 and US-460 are good examples).

    Private investors on the other hand, have financial bottom lines… that do not give them the leisure of maintaining “wish lists” while inflation eats the estimated costs.

    Are there dangers in having private investors build infrastructure?

    You bet there is but one of the responsibilities of good government is to NOT let taxpayers get ripped off

    – neither by investors……

    but also not by bogus cost estimating, maintaining un-fundable wish lists and letting inflation double or triple the costs.

    If a private investor can deliver a project on time and on budget for less than what the government could deliver…at about the same cost to those that pay to use it .. what not do it?

  3. Toomanytaxes Avatar
    Toomanytaxes

    If we have major problems with the condition of public infrastructure in Virginia, why the devil are we going to spend $5 billion plus to construct the Silver Line (the boondoggle to Dulles) when the State’s own study shows that this extremely expensive project will not provide any significant traffic congestion relief?

  4. Ray Hyde Avatar
    Ray Hyde

    So it sounds like, one way or another, we need to spend between three and four times as much money as we are now.

    I don’t see how you can expect that kind of money to come from a handfull of toll roads. You can’t extract that kind of money from a small porion of the population.

    If we turn this work over to the private sector, then we will have to pay profit on it a well. Wether the profit costs less than government inefficiency costs is an open question.

    If you are a believer in government inefficiency, and that we should therefor have more private operations, then what makes you think that the government will be efficient in its oversight responsibilities?

    If we hand over that much of governments work to private operations, then what reductions in government costs can we expect?

    I don’t think those wish lists are unfundable, we have just chosen not to fund them. Turning this work over to private operations is only a different way of setting the priorities: whatever gets done, we will still pay for.

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