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, BusinessWeek.com, or The McGraw-Hill Companies.