Alternative funding being looked for now – Causes broad support for private involvement

Alternative funding being looked for now – Causes broad support for private involvement

To date, all of these projects have been devel-¶ oped and initiated by states, private investors, or ¶ a combination of the two, often with federal sup-¶ port, such as TIFIA grants and permission to build ¶ on the interstate right-of-way. With federal trans-¶ portation funding limited by macroeconomic bud-¶ get concerns, many in Congress are looking to be ¶ more proactive. Both the House and Senate reau-¶ thorization draft proposals welcome and encourage ¶ greater private-sector involvement in transportation ¶ investment.¶ In June 2011, House Committee on Transporta-¶ tion and Infrastructure Chairman Jon Mica (R–FL) ¶ released a 22-page summary of his highway reau-¶ thorization proposal,4 which included several pro-¶ visions that would encourage states to utilize P3s ¶ and access other sources of funds to meet their ¶ transportation needs. While Chairman Mica has ¶ since announced that his committee will issue a ¶ new reauthorization plan in early 2012, it is likely ¶ that his P3 proposals will be included. Chairman ¶ Mica’s earlier P3 proposals included:¶ •? Allowing states to toll new capacity on the Inter-¶ state Highway System;¶ •? Increasing funding for the TIFIA loan program ¶ from $122 million per year to $1 billion per year;¶ •? Increasing the maximum percentage of a project’s ¶ total cost that can be funded through TIFIA from ¶ 33 percent to 49 percent;¶ •? Requiring that TIFIA applications be approved or ¶ disapproved within 75 days of when the applica-¶ tion is filed;¶ •? Allowing states to pay their own credit subsidy ¶ cost to obtain a TIFIA loan if the appropriation ¶ of $1 billion per year runs out in any particular ¶ year;¶ •? Requiring the U.S. Secretary of Transportation to ¶ compile and make available the best practices of ¶ how states can work with the private sector in ¶ developing, financing, constructing, and operat-¶ ing transportation facilities; and¶ •? Requiring the Secretary of Transportation to ¶ develop standard model contracts for public–¶ private transactions for the most popular types ¶ of P3s. States could then use these contracts as ¶ templates when developing contracts for specific ¶ projects.

No political pressure involved in trending towards private infrastructure

Mansour, ‘06

[Asieh Mansour, managing director, 2006, RREEF America L.L.C. Real estate/infrastructure division of Deutsche Bank AG ]

Interestingly, infrastructure privatization in the US is not a particularly partisan issue. For ¶ example, the Democratic mayor of Chicago has privatized a portion of the region’s transport ¶ infrastructure (the Chicago Skyway), while the Republican Governor of Indiana has privatized ¶ the Indiana Toll Road. ¶ Problems with Old/Public Model Benefits of Privatized Model¶ • Underinvestment • Increased investment¶ • Fees that are not cost reflective • Cost-reflective fees¶ • High costs • Improved incentives for efficiency¶ • Low productivity • Access to superior management¶ • Accountability; providing appropriate service level • Improved service quality¶ • Shortages¶ Source: RREEF Research¶ Exhibit 2¶ The Case for PrivatizationReal Estate Research 5¶ Privatization: Empirical Evidence ¶ From a public policy perspective, the benefits or lack thereof from privatization depend ¶ substantially upon how it is structured and regulated. This parallels the experience in the US of ¶ regulating private infrastructure, such as rail, air transport, telecommunications, gas and ¶ electricity. There is little political pressure in this country to take private infrastructure public, ¶ so there is clearly more of a move towards private rather than public ownership. ¶ Efficiency is a key argument of privatization. Those in favor suggest that goods can be most ¶ efficiently provided by the private sector (Wood, 2004). They argue that privatization is a ¶ mechanism for achieving optimal economic efficiency. If the entity is given a profit incentive ¶ to maximize its service and efficiency, the private sector is likely to outperform the public. A ¶ private firm, so incentivized, can optimally reallocate scarce resources, improving technology ¶ and management. Although it has been tried, there is little evidence that such incentives can ¶ effectively be established within public enterprises to produce superior performance. ¶ The argument that the profit incentive requires higher charges to be assessed needs to be ¶ addressed, however. Private ownership and/or operation of infrastructure must be sufficiently ¶ more efficient than its publicly owned predecessor to cover its profit targets. Therefore, the ¶ privatization should be structured so that at a minimum, the public receives service at least as ¶ good from the private entity as from its public counterpart for the same price. To the extent ¶ that the private firm can provide better service is a winning situation for the community.
Politics – Non-Transparent

Not using tax money solves public and political opposition to infrastructure

Ellen Dannin, Fannie Weiss Distinguished Faculty Scholar and Professor of Law, Penn State Dickinson School of Law, Winter 11, [“Crumbling Infrastructure, Crumbling Democracy: ¶ Infrastructure Privatization Contracts and Their ¶ Effects on State and Local Governance ¶ ,” NORTHWESTERN JOURNAL OF LAW AND SOCIAL POLICY, http://ssrn.com/abstract=1776350] E. Liu

McNulty was wrong, and his comments came a year too late. Had he read the ¶ Northwest Parkway privatization contract4 he would have learned that under its “adverse ¶ action” provisions, the contractors had the right to object to new or improved roads and ¶ mass transit systems. In addition, the contractors had the right to receive compensation ¶ for lost anticipated revenues if those roads or transit systems were built during the term of ¶ the ninety-nine year contract.5 Most people would be surprised to learn that contracts to ¶ privatize major infrastructure, such as the Northwest Parkway, Chicago parking meters, ¶ proposed Indianapolis parking meters, and proposed Pennsylvania Turnpike contracts ¶ give private contractors these rights.6 ¶3 ¶ Moreover, this was the case even though neither McNulty nor any member of the ¶ public could have raised objections to the contract before it was consummated, for the ¶ terms were not released until after the deal was signed.7 Agreeing to multi-decade ¶ infrastructure privatization contracts, despite providing no opportunity for public scrutiny ¶ of the contract terms or right to object, is not unique to the Northwest Parkway lease. For ¶ example, in 2008, Mayor Richard Daley insisted that the Chicago City Council approve ¶ the seventy-five year lease of the city’s parking meters within two days after council ¶ members first saw the terms of the complex 279 page document.8 ¶4 ¶ However, even when contract terms are made public, few people read or ¶ understand their effects. Reporter Steve Katula explained: ¶ Virginia’s contract for the Beltway HOT lanes are not just far from ¶ free to taxpayers and even worse if people carpool. The structure of the ¶ deal ultimately minimizes public outrage until it’s too late, saddling ¶ taxpayers with a high bill and no voice. ¶ . . . . ¶ Most Northern Virginians were completely unaware of the VDOT ¶ “Megaproject” prior to construction, and this illustrates the problematic ¶ nature of complex contracts that promise free stuff. ¶ ¶ When taxpayer dollars are (supposedly) not involved, citizens (and ¶ even politicians) retract from the process, especially from boring ¶ contractual details . . . . [T]he supposedly free and complex, “black-box” ¶ nature of the HOT lanes deal served to discourage input and criticism. ¶ Despite VDOT following legally-mandated procedures for public input, ¶ the result was an opaque deal-making process, and a bad deal for ¶ Virginians. ¶ . . . . ¶ But with the cards now on the table, one must ask what was wrong ¶ with the original estimates? Why the promise they could do the project on ¶ a totally private basis, followed by the late-in-the-game change? Why did ¶ politicians, VDOT, The Washington Post, and the public believe the ¶ almost magic promises, and why was there so little reaction when the ¶ nature of the project funding changed, but the reward mechanism to the ¶ private contractor did not?9

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