“We are privatizing ourselves into one disaster after another,” veteran journalist Ted Koppel said recently on NPR. “We’ve privatized a lot of what our military is doing. We’ve privatized a lot of what our intelligence agencies are doing. We’ve privatized our very prison system in many parts of the country. We’re privatizing the health system within those prisons. And it’s not working well.”
The privateers have an army of contractors, consultants, think tanks (with the Reason Foundation in the lead) and lobbyists. In particular, they see the country’s huge aging transportation infrastructure as a great money-making opportunity. Our roads and bridges are crumbling, and traffic congestion is widespread. The federal highway trust fund is running out of money.
In a 2007 article called “Roads to Riches: Why investors are clamoring to take over America’s highways, bridges and airports — and why the public should be nervous,” Business Week noted that “[i]nfrastructure is ultra-low-risk because competition is limited by a host of forces that make it difficult to build, say, a rival toll road. With captive customers, the cash flows are virtually guaranteed.”
A few months ago, the Colorado Department of Transportation reached a 50-year deal with a private consortium to handle the improvement, maintenance and operation of U.S. 36.
This is a “public-private partnership,” or P3, which is a concept pushed by an infrastructure-industrial complex composed of global construction corporations, investment banks, private-equity firms and elite law firms organized as vertically integrated consortiums. The influential American Legislative Exchange Council (ALEC) has pushed “model legislation” for P3s in statehouses across the nation.
The U.S. Public Interest Research Group (PIRG), a consumer advocacy group, issued a report in 2009 entitled “Private Roads, Public Costs,” which said that P3s can result in governments ceding substantial control over regional transportation policy to companies accountable only to their shareholders, and not to the public.
Phineas Baxandall, a senior analyst for tax and budget policy with PIRG and author of the report, considers the U.S. 36 plan a “mixed bag.”
“There are a lot of positive things about this project,” he said, “but the private financing is essentially just a high-priced loan. Instead of raising more of their own public revenue to finance the road, the state will make larger annual payments to the private road builders.”
The consortium’s financial adviser is Goldman Sachs, the big Wall Street investment bank. Mother Jones, in a 2007 exposé on highway privatization, revealed that Goldman simultaneously has lobbied governments to privatize highways, advised them as they structure the deals and bought a piece of the action.
Other Wall Street firms — Morgan Stanley, the Carlyle Group, Citigroup and many others — have also “fallen in love” (in Business Week’s words) with P3s.
Elliott Sclar, director of the Center for Sustainable Urban Development at Columbia University, is concerned about this new craze. In a 2009 paper, he drew parallels between the way bankers and investors are bundling P3s and the way they handled mortgages just a few years ago. He even wonders if P3s have become the “new sub-prime.”
“If sub-prime is no longer the magic elixir that produces money, what’s beginning to happen is the public-private partnership is becoming that, and nobody is looking closely at them,” he says. “The problem becomes, in a stagnating economy, when there aren’t very many private opportunities to get return on investment, the last thing left standing is the public stream of revenues. And that’s what they’re going after.”
In the midst of the financial crisis in 2008, in an address to the National Council for Public-Private Partnerships, the chairman of a major finance company said, “Desperate government is our best customer. There will be a lot of desperate governments out there.”
Many costs of these partnerships can be hidden (such as high fees or poor service). In Denver, the private consortium that operates the Northwest Parkway has a clause in its 99-year contract that prohibits any public road improvements near their toll road because they “might hurt the parkway financially” by providing an alternative route for drivers.
There is no such thing as a free lunch. But there is a common good.