Avoiding the Road to Disaster

The nation's infrastructure is crumbling in the government's hands. It's time to make public works private and profitable.

JUNE 2, 2008

By THOMAS G. DONLAN, Barrons

IF YOU DOUBT THAT A RECESSION IS APPROACHING, YOU MUST not be able to hear the bell that's been ringing for months. It's the signal for massive government investment in infrastructure. It rings in every economic slowdown, as contractors and construction unions make common cause to sustain themselves with public funds.

Whenever the economy looks shaky, highways, sewers, waterways, dams, parks, schools, power plants and power lines, schools, airports and the air-traffic-control system, even broadband communications networks are described as crumbling, overburdened and in great need of new investment. Every time, the infrastructure funding movement declares that the national economy depends on public investment in concrete projects. And every time, delayed appropriations of billions for public works hit the market just in time to set off a new round of cost-push inflation.

Highway Hypnosis

The biggest and most beloved form of public works is the national highway system. And the collapse of an Interstate highway bridge in Minneapolis last August set off the latest round of bell-ringing. In the follow-up to the disaster, we learned that it was one of about 75,000 bridges in the U.S. designated as structurally deficient. (It had been scheduled to be replaced in 2020.) We learned that the American Society of Civil Engineers has given U.S. infrastructure a grade of "D," trending toward a "D-minus." We learned that there's $1.6 trillion worth of backlog in the public-works budgets of the federal government, the states and localities. We should have learned that all these diagnoses were made and ignored several years ago.

Oddly enough, however, those who want to repair the neglect also want to send vast amounts of money to the same neglectful governments that did not keep up with their responsibilities when times were good.

Congress is working on bills to create a National Infrastructure Bank with power to borrow $60 billion, or maybe a National Infrastructure Development Corporation modeled, outrageously enough, on those pillars of sound finance called Fannie Mae, Freddie Mac and Sallie Mae.

Do we really need more quasi-governmental borrowing, with quasi-governmental guarantees and quasi-sound results? Let's try something else. Let's try making public works private and profitable. Governments at every level could sell off their infrastructure and retire outstanding debt, reducing taxes to match the reduced burden. The purchasers could then put the infrastructure on the unheard-of regimen of pay-as-you-go. That means more toll roads and higher tolls on them, while relieving politicians of direct responsibility for the charges.

Consumers would learn that you get what you pay for and then you must pay for what you get, even in the realms of infrastructure that they have been so falsely assured were the birthright of every citizen.

Sticker Shock

Public works are already built by private firms hired by governments. Where the governments and their contractors are reasonably honest, there are reasonably good results. It's only maintenance that government keeps for its payroll, and neglects.

Unfortunately, people do not like to pay for things that used to be free of visible fees. When the Army Corps of Engineers uses federal tax money to pay for local flood-control projects, local governments like the city of New Orleans are reluctant to kick in even a share of the cost; much less do the beneficiaries want to pay the full cost of the benefits. Cities choked by traffic congestion prefer to choke some more while waiting for a federal grant rather than put tolls on roads and bridges to pay for transit investments.

Gov. Mitch Daniels of Indiana showed a better way in 2006 when he pushed his state legislature to lease the East-West Toll Road for 75 years in return for a $3.8 billion lump-sum payment.

Gov. Jon Corzine of New Jersey took the Daniels plan and tried to think bigger. He urged sale of the Garden State Parkway and the New Jersey Turnpike, but the legislature turned thumbs down. So Corzine offered a simple alternative -- higher tolls. His plan called for 50% hikes every four years, through 2022. Or, he said, New Jersey could raise the gasoline tax 50 cents, or the sales tax by two cents, or the income tax by 20%.

If he thought that would frighten the people into privatization, he was wrong. The people and their lawmakers made it clear they want low tolls on those two highways and free roads in the rest of the state. Crumble, schmumble -- let the feds pay for it.

Neighboring Pennsylvania has also tried to face up to its neglect of highways, raising tolls on the venerable Pennsylvania Turnpike in 2004 and proposing tolls on the parallel Interstate Highway 80. (For a report on Pennsylvania's plan to lease the Turnpike, see "The Road to Riches for Pennsylvania.") With one of the highest state gasoline taxes, Pennsylvania has spent $3.8 billion on bridge repair since 2003, but hasn't made progress; it has more structurally deficient bridges than it did when Gov. Ed Rendell started the repair program.

Even Texans rejected a highway-privatization plan, and Virginia, another state that asserts its devotion to private enterprise, rejected a private company's proposal to take over a toll road in Northern Virginia and build a rail line with part of the revenues.

A Question of Fairness

A National Surface Transportation Policy and Revenue Study Commission reported in January that the federal motor fuel tax should be raised from the current 18.4 cents to as much as 40 cents a gallon. Transportation Secretary Mary Peters broke with the majority report on the issue of fuel taxes. She and a couple of allies on the commission argued unsuccessfully that fuel taxes should be replaced with tolls and other forms of user fees, especially congestion fees that would raise tolls at times of high congestion and lower them when there's room on the roads.

More fuel taxes are pretty much out of the question anyway in these days of $4 gasoline, in these days when presidential candidates propose fuel-tax cuts so people can drive more. But congestion prices sound unfair to some legislators.

We should take infrastructure out of their hands. Private operators who earn profits on what the traffic will bear can do a better job of serving the public interest.