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A Golden Gate for Investors

Permitting banks and private firms to buy or lease transportation infrastructure will ease government burdens and benefit investors as well as the general public. Pro or con?

Pro: Hello, Risk-Free Revenue

For any corporation looking for a guaranteed cash stream, buying U.S. public infrastructure—highways, bridges, airports, shipping ports, and parking garages—is a sure thing.

Just compare the stability of infrastructure next to the vulnerability of a retail or wholesale enterprise—say, a Cajun restaurant or a luxury pet-supplies distributor. Bested by new competitors, those two could see business dry up in a matter of months.

But human and vehicular traffic never stops on roads or in air or shipping terminals. Competition? Any new options will take years to discuss, let alone materialize, at government’s usual glacial pace.

Estimates say $100 billion in public property—including a lease for the Pennsylvania Turnpike that could bring $30 billion—will change hands in the next two years.

This, of course, means federal, city, and local governments benefit as much as the investors. Governments can use the money for relief at a time when they are facing total expenditures of $155.5 billion to improve highways and bridges in 2007 alone. That figure has doubled in the past 10 years. Chicago’s 99-year lease on its Skyway, a 7.8-mile elevated toll road, has paid off the city’s public debt and contributed $100 million to programs like Meals on Wheels.

In some cases, governments may even negotiate a deal whereby the new private owners or lessees of roads and bridges share a percentage of the tolls with them.

Nonetheless, the private operators of infrastructure will be unfettered by public bureaucracy. They will avail themselves of Corporate America’s most magnanimous asset: innovation. They can try out solutions to traffic jams, perhaps by lowering fares in off-peak hours.

The new owners and lessees can also offer better physical upkeep of infrastructure. Filling potholes costs big money, and you can bet a corporation will look for ways to prevent them and keep other damage from getting worse—without government red tape delaying progress.

Con: Good-bye, Public Good

Governments have to answer for poor performance and excessively elevated fees at the voting booth. If the private investors responsible for infrastructure fail to satisfy U.S. citizens, where is the recourse?

Yes, the government seller or lessor can place some restrictions on the new owner, requiring repairs to be made in a timely fashion, for example. But strapped for cash, many a government official will eagerly accept spoken—or entirely absent—promises.

To pay for upkeep of their new assets, corporate owners can raise tolls and other charges without the checks and balances of government to temper any greed. Hikes would put a strain on lower- and middle-income Americans.

Were consumers paying tolls on government-owned roads and bridges, some of the money would come back to them in the form of law-enforcement protection, aid to low-income families, or any other manner of public spending. The corporate fee collectors, however, offer benefit only to their already-affluent private investors.

And, in the cases where newly purchased roads, airports, and other venues don’t rake in the cash corporations expected, they can turn around and sell them. Who knows whether the new owners will follow any public-minded rules the original owners agreed to?

Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS), and the Carlyle Group are among the Wall Street firms now interested in buying infrastructure. Certainly those venerated names know how to run a business venture, but their motivation is moneymaking, not public service.

Firms are marketing infrastructure to investors as a separate asset class, one that offers both safety and high returns. Failure of those promises to pay off soon enough could result in $8 Cokes at the airport and monthly parking garage fees that rival drivers’ car payments.

And bid farewell to gratis crossings on the Brooklyn Bridge and other fee-free infrastructure if they’re leased or sold. Any new operator will surely suggest drivers pay their way with more than a smile. Private owners may also fail to give their new workers the health and pension benefits the government offered.

Finally, take into consideration that the span of the new lease agreements are up to 100 years—not much leeway for them to revert to government operations should new arrangements go sour with the public.

Opinions expressed in the above Debate Room essays are for the sake of argument and do not necessarily reflect the views of BusinessWeek,, or The McGraw-Hill Companies.

Reader Comments

jerry bouchillon

Another loser in the privatization of public assets is the American taxpayer. The assets purchased by the "investors" are capitalized and then depreciated over their IRS stated life-expectancy—thereby creating large federal and state income tax deductions that, in turn, reduce taxable income and income taxes that might otherwise be generated by those investment dollars. Who picks up the bill? The American taxpayers like me.


If I am paying $50 a month in tolls alone because there are no reasonable alternatives, at the very least I want that money to be spent on upkeep and safety of the highways, not to line the pockets of wealthy investors.


Hampton Beach.

another one

Don't I already own some of these things myself as a result of paying taxes for a good many years? Who has the right to sell the infrastructure the American people collectively own from their tax payments? Can we expect a reduction in tax rates after government relinquishes responsibility for infrastructure?

I somehow doubt it.

If a company owns the main road I travel on, what alternatives do I have if the fees are too high? There is no market if the consumer doesn't have a choice.

Jonathan Lorenz

I just sent its first formal complaint. It went something like "Stop price-gouging everyone who drives on your roads."

Wai L. Chui

If you own the road providing the only convenient connection between one part of the city and another, you can charge a monopolistic price. That surely would be golden for you. I am sure that there are a few "investors" out there who want to buy the Golden Gate Bridge.

Tonya Askins

One of the many questions I have that I have not seen addressed anywhere is when private investors own these properties, Golden Gate Bridge, for example, can't the investors then decide to alter the structure or demolish it without the consent of the taxpayers?

I refuse to drive on toll roads, because I think it is unethical. I hate paying $10 to $20 to park, and I would be outraged to hand over landmarks, parks, and historical monuments to investors to do with as they please.

This is a great energy conservation plan, sell the roads let investors charge what they please and no body drives anymore. YAY for the environment (sarcasm).

I am extremely disturbed by this and I think it needs to be stopped before it gets out of hand.

Douglas Friedman

I have two comments about the article. First, it refers to governments using the revenues raised from leasing toll roads for "investments in social programs." There is no such thing. There is spending on social programs. The abuse of the word investment was begun by liberals years ago and brought to highest abuse by the Clinton Administration. That the writer uses the term shows his liberal bias.

Second, is the reference to the possibility that the "public" could continue to "own" the roads by using other means. I live in Pennsylvania, and there is no way in which I own the roads. It's politicians who control them and the money. The public just pays the tolls. That won't change regardless of who runs the roads.


Selling public works is a symptom of past bad government. If state and local governments had lived within their budgets over the years instead of overspending, and had come up with long-term budget plans to keep it that way, they would not now be stuck trying to come up with one-shot revenue deals like selling highways. Plus, there is no such thing as a free lunch. Selling toll roads now to plug budget holes means the government won't have the revenue from these roads over the long term.

mitch stanley

Does anyone remember the Highway Trust Fund—build and repair highways?
Regrettably, the Trust contains an IOU, because we borrowed dollars to pay for Social Security, Medicare, etc.

When we need the money for building and/or repairing roads, there is no money. Thus, we sell the assets, because we cannot afford to maintain them.

Just wait until you need your Social Security dollars or health care. Our government is printing fiat money, just like Robert Kioyosaki said.


As a potential investor, I just wonder if I can alter the structure later to build some profitable things? If not, I can't see any investment opportunity there. If yes, would the government please think it over and over before properly pricing it?

American in Provence

Privatizing publicly owned and operated highways is easy, straightforward, and profitable to investors and costly to the public. The model already runs very smoothly in France, where if you wish to go from Marseille to Paris, you'll have to pay toll fees totaling $67. The distance is roughly the same as Boston-Washington, D.C. So it’s a lifestyle choice. In the U.S., we seem to want to be able to travel relatively cheaply, having publicly owned and operated interstate roads and gasoline costing about half of what it costs in France. Of course, France has a very extensive railroad network, with low cost fares on that network for merchandise and people. In addition, you can reach most major cities by the TGV (bullet train). For instance, Marseille-Paris by TGV costs 240$ (regular second class fare, as low as 120$ for always available discount fares), and the trip last 3 hours from center city to center city. In the U.S. if we privatize superhighways, we have to think about cost and convenience issues. During an interim period, the cost of merchandise transportation will skyrocket; then the market will arbitrage out trucking in favor of railroading (to the extent that railroads are built or upgraded). So privatizing interstate superhighways is a short-term remedy to current debt-related problems but does not settle all cost and convenience issues related to people and merchandise transportation.

Prof. Graziano Maldonado

People must be vigilant of the ethical behavior of investors and related social responsibility issues. Once those deals are executed, their burden will last for a long lapse.

Economic development must be based on products and service innovation, government downsizing, and privatization, but not by crunching taxpayer pockets.

Ed Cubanski

The duty of elected officials is to act, govern, and legislate to ensure that the law, action, or agreement benefits the majority of citizens, within the realm of social and environmental conscience, without taking advantage of the disadvantaged. Corporate finance and the boards that control companies have one duty, and one duty only: to maximize profits for shareholders. I doubt leasing public infrastructure would have any long-term strategic benefit, and only reap short-term political gain. Otherwise, the only way the leasing entity will ensure the bottom line is met for shareholders is to defer continued road maintenance and improvements. Citizens must unite and ensure that leasing does not occur. The year 2030 is not too far off.

Dave Gardner

This is one more desperate move by governments to deal with the mounting externalized costs of the past 60 years of growth. Ignoring the true cost of all this public infrastructure and its upkeep has helped convince our society that growth (economic and population) is a big win for everyone. In reality the general public loses, and this is one major piece of evidence. Communities are buckling under the strain of infrastructure backlogs.

It's such a problem I'm actually producing a documentary about it, Choking on Growth: Our Misguided Quest for Prosperity, part of a series called Growthbusters.

robert miller

We have created a modern day Rome. I see people who look at this government and blindly support it: We are told who to vote for by the parties, and I do not believe that any of our Constitutional rights are left. The government is big business, and the churches have combined together as one against the American people. I will feel free when given the chance to vote to disband the federal government and both parties, and have a government in place that follows the true Constitution with no interpretations. So, I say, if they go bankrupt, who cares? It would be a good thing for American citizens and America in the long run.


If government privatizes these infrastructures, the quality will not be guaranteed. Once these infrastructures are sold to private businessmen, the only aim of these businessmen will be to seek profit as great as possible. They will not pay attention to the quality; furthermore, if the businessmen build infrastructure that is not sound, the consequence will be invisible at first, till one year or several years later, the problems of the poor quality of the infrastructure will emerge. Although those in favor of selling infrastructure will argue that the businessmen and the government will sign a contract that states clearly the duties and responsibilities, after some years, there will be many factors affecting the quality of the infrastructure. The two parties will be mired in these kinds of issues, which will lead to a waste of time and publics taxes, and it will blemish government reputation.


- If I have to pay a toll to drive on the previously public-owned roads, will the taxes I pay now to upkeep them go down accordingly? We all know the answer: no.
What is being proposed here is that the government desert what has been traditionally one of its duties and transfer duties to contractors and the control of critical infrastructure to profit-hungry private entities without putting the government's tax appetite on a diet to compensate.
- The Golden Gate Bridge has a monopoly between San Francisco and Marian County: Why doesn't a private enterprise invest in building another bridge next to it to compete with it? The answer is that they would not be interested in doing so unless they are given a monopoly on that market.
- Keep going on the same trend, and the next thing that we will be doing is paying fees at privatized schools without any relief in property and other taxes.
- Will privatizing the Army and Air Force be next?


Investment with high returns and no risk? That used to be called a monopoly in the 1880s. Are we back there yet? Where is progress?

Brian Chase

More people are using our infrastructure in this country due to population growth and globalization, but there is increasingly less public funding available to maintain‐let alone improve—it. As a result, if you don't want additional private sector investment into public infrastructure, then your primary options to accommodate this growth are to increase federal and state gas taxes as well as other, more direct user fees such as tolls that are currently being imposed by government entities.

At the federal level, gas taxes are unlikely to be increased anytime, soon because the public does not believe these funds will be well spent. If you doubt this, then just take a look at the sheer number of Congressional earmarks in the most recent highway reauthorization bill (SAFETEA-LU), which included funding for the infamous "Bridge to Nowhere."

At the local level, public officials are reluctant to increase tolls because it is unpopular and will damage their ability to get reelected. At the same time, however, they tend to be overly generous with pension and medical benefits to public employees, because these promises make them more popular and help them to remain in office. It also can take many years for the true costs associated with these future promises to become evident, but recent accounting disclosure rules are making clearer the magnitude of these unfunded public pension liabilities. Governor Corzine in New Jersey is dealing with this problem right now, which is one reason why he is considering an asset monetization of the New Jersey Turnpike.

Most of us work for private companies, and we already accept that they can provide our electricity, gas, and phone services, so why not allow them to play a greater role in responding to our transportation needs? Regardless of your answer, well-maintained infrastructure is important, because it affects our quality of life and ability to compete economically.

r douglas

Anyone who thinks private enterprise is going to do anything to help cities by this investment is smoking something illegal. Watch them walk away from these investments after X-number of years, leaving them in disrepair and getting the cities, states, etc. to lay out more money. I think there has already been a case in the Denver area where they colluded with government officials to maintain the monopoly status of a toll road by having the city or county interrupt the flow of traffic on a competing road.


We already have a privatized military. They protect government officials and do the dirty work in our wars. Never heard of Blackwater? One of hundreds of private security firms (mercs for hire).

B White

Given the corruption in the local DOTs (I look at what has happened here in NC), I am hoping these for-profit companies will get work done quickly, properly, and under budget. I am hoping the newly minted NC Turnpike Authority won't use this to hold the Research Triangle hostage to build new toll roads.

I just hope we don't give an inch, and watch these companies take our miles (and kilometers, etc.) and make too much off of the back of the taxpaying drivers.


What would happen if a tanker truck crashed and started a fire that caused the bridge to fall down?


Given that private companies invest in infrastructure for relatively stable and predictable cash flow (nothing is risk free—regulatory, usage, competition risk always exists), it is highly improbable, not to mention illegal in most if not all cases, that they would alter or destroy the infrastructure causing this stable cash flow (profit and all) to go away.

Quality is a huge factor in infrastructure; however, local, state and federal government budgets are stretched thin and cannot fund all of the maintenance and expansion needed for the growing population. Private investment helps to ease this burden, funding repair and expansion projects through the capital markets.

Finally, the statement "The corporate fee collectors, however, offer benefit only to their already-affluent private investors" fails to take into consideration that many of these investors are public pension funds, university endowments, and charitable foundations.


All that this demonstrates is that our society is cannibalizing itself. Collectively, we assume the so-called politicians we elect go into their offices with our society's best interests at heart while the reality is that after all the winning propaganda, they go in with the goal of: What is this opportunity going to do for me? In the meanwhile, we have entrusted these people with the power to decide for us with the money that we collectively bring to the table. We are seeing the results of gross neglect by those individuals and offices that we support, and let's not forget that we the people have been grossly negligent by not making the effort to properly oversee what is going on and demand accountability from those whose salaries we pay. It is a feeding frenzy on the average joe.


This will give politicians more reasons to steal, to line their pockets. There will be lots and lots of money in their charge. And they will find a way to get it.

Brandon W

This is fantastic (seriously). We ought to sell/lease off the entire U.S. highway system. We can then cut taxes and use the influx of cash to build good public transit systems. The higher-cost expressways can go up in price, which will encourage more people to use public transit and lower its cost per rider. Cut taxes, discourage sprawl, discourage environmentally unfriendly cars, encourage public transit—it is an all-around win.


I'm all for it, except the government will just mismanage the windfall anyway. In 15 years that money will be gone, and they won't have that revenue source. So if the government was fiscally responsible, I would be for it, but the fact that they have to sell infrastructure proves they are not. I'm for it because would eliminate government employees who are just a burden to the economy long term. That's the reason we are in this mess in the first place. I'm tired of seeing 15 guys on the side of the road fixing a pothole.


Don't do it; your taxes will rise. As Jerry Bouchillon hinted at above, it is not as simple as user pay. It is important to consider how not only the lease holder pays taxes but also the users. If using a toll road is tax deductible, taxpayers get stuck paying the entire bill anyway. I'm sure all the trucking companies deduct tolls as a business expense, and probably many employers pay for their employees' tolls and then deduct that expense as well.

I heard the podcast with Emily Thornton, who has spent time in Japan, where toll roads have been a huge disaster for local governments, because everyone writes off the costs on their taxes and the local governments, cash strapped as they are, have to increase everyone's taxes to make up the lost revenue.

Not to mention the huge cost of either installing electronic toll equipment in cars or making everyone stop to pay. Drivers not only have to pay the tolls but also are stuck with significantly higher fuel costs because of traffic jams at toll booths.


We have morons running our country. The rich control our politics, and they tell us whom to vote for. This privatization of public property is just another word for " stupid government." How about the public organizing a company to do checks and balances on our government? Imagine the many ways we get taxed; take a good look around your state. Is there that much work going on? No. Our government is going to drive us into the ground.


I am pro-privatization, but most "private roads" today are not privatized. They are multiyear leases with a lot of strings attached. For privatization to have happened, one should be able to dispose of the property. That is currently not the case. The government still ultimately owns the ground. Second, and maybe more important, how free are these companies to set prices? How regulated is this business going to be? The market should determine the prices of road use, not some government board. If road tolls are too high, people will telecommute or start to car pool, meaning that the capital (road) is not utilized to its full potential. An empty road is a road that is losing capital value. Normally, shareholders are unhappy about that, but of course, when government is the ultimate owner of the road, who is complaining?

Tom Rapheal

Of course, if you allow only one business to compete, it is going to be a monopoly. The govornment needs to allow two or more busineses to compete. Also, the statemant asserting that the city could have run it just as well as a business is foolishness. How many government enterprises do you consider efficient?

Edward Stimach

Selling U.S. roads to foreigners is another example of how our politicians are selling off the U.S.A.. We have illegals demonstrating for their "right" to come to this country at their will. They demonstrate against checking the businesses for illegal employees. The U.S. government has built a special bridge over the Rio Grande for Mexicans to bring their children to be educated here at U.S taxpayers' expense. Mexicans will be eligible for Social Security benefits. Mexico owns/operates the port in Kansas City, Missouri. President Bush in 2005 signed off on the Mexico, U.S.A., and Canada Security and Trade agreement, which is similar to the European Union (including a new monetary system). Does anyone recall this being debated in Congress? What happened to the fence project that Congress has allocated to build on the Mexican border? The real beauty will be the new national ID card, which is supposed to come out in 2008--we will be tagged by Big Brother. What have I left out ? The U.S. government should be jailed for violating the laws it made. Do we really have a U.S. government, or is it a proxy new world order?

Ed Christiansen

It boils down to the fact that we as taxpayers have already paid for these public assets. So, I object strongly to leasing them to anyone who will run them for profit. If the governments can't do their jobs, they need to stop the whining, and deal with the issue of their own financial incompetence instead of abdicating. This is, of course, assuming we as citizens have the guts to vote them out. I suggest we vote out any politician who supports leasing public property to private interests who will use it for profit.

Gabriel Roth

Those who oppose highway privatization might consider that we rely on the private sector for most of our necessities, including automobiles, food, water, electricity, telecommunications, and magazines such as Business Week.

Road leases are—or should be—provided competitively, to protect the public interest. Now that road use can be paid for without vehicles having to stop, why should roads not be provided, for profit, as part of the market economy? The private provision of roads is discussed in the book I edited for the Independent Institute: Street Smart: Competition, Entrepreneurship and the Future of Roads (Transaction Publishers, 2006).


The issue at hand has nothing to do with the private sector and its stewardship of such infrastructure. The real problem with this plan is that it involves governments using one-time revenues to fund ongoing expenses. Anyone who ever took microeconomics in college should realize this is a very stupid way to balance a budget. In a few years, they'll have sold everything they could put a price on, and the budgets will still be a mess.


Geez, sounds like the privatization of neighborhoods--in other words, incarcerating homeowners in corporatized planned housing developments called homeowner associations, where the costs and liability of the infrastructure (parks, sidewalk, streets, lighting, etc.) is put on the backs of the homeowners even though they are still paying their fair share of property taxes. Yet they receive no immediate benefit.


I would like to differentiate between existing highways and new infrastructure.

I am strongly in favor of private participation and ownership when it comes to building infrastructure from scratch. They bring in clear competitive value or a new product for which they can charge whatever they can sustain. People who can afford and find value will use it.

But allowing private companies to take over existing highways is ridiculous. The government is taking the road away from the public and giving it to the private players and creating a monopoly. How can the government assist in any manner to create a monopolistic player? Well, 99 years means a monopoly. Renewing a contract every year doesn't.

Moreover, how do you ensure that they would do a much better job than the government and at a better price? It's impossible. And it's wrong to expect private players to worry about public good. It will always be their second priority, with profits being the first.

Privatization is good in any area that can have multiple players.

Allowing private players to venture and produce some new innovation and milk it in a monopolistic way is acceptable. They invented it, own it, and milk it till the patents allow or till competition can figure out a way to catch up or provide alternatives.

But giving them control of existing roads? If the local government is cash-strapped, let them borrow, and pass on the cost to the commuters. If they are going to lose elections because of increased tolls, let them not do anything about the highway. If people don't want to pay for it, then they do not get it. But privatizing roads is a recipe for disaster.

Sky Post

Don’t buy your way out of a current problem by sacrificing a superior future revenue source.

Frank Trainer

There is not a valid rationale for the trend toward privatization of these assets. If the assets can support higher fees and the municipalities need the money, they can borrow the money and support the debt with higher fees. The only thing missing is political will.

You can be sure that these deals come with protection against competing roads and bridges as well as protection against reclamation. If it's a good deal for the private equity group, it's a bad deal for the municipalities.


"The comments I see here are short sighted. The government is not equipped to effectively manage our roads. The current state of roads is indication of that. They do not charge enough for the use of major roads, which results in congestion and poor maintenance. Governments need to focus on getting top dollar for leasing these assets and participating in the upside after debt is retired. The money they receive can be used for paying down debt and other more important social programs."

Then why are our government officials being paid?

Why is Congress giving itself a raise?

I beg to differ my friend. The problem is accountability. Many officials are being paid to do jobs, and instead they end up doing something not job related. Take campaign fund-raising. It may be a necessary thing, but it is severely limited as to how much time a paid government official can use funds for that purpose. Months campaigning instead of dealing with problems? I seriously doubt they are "poorly equipped," and if they are, they should not be in the position.

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