Pence's Indiana 'Cautionary Tale' for Privatizing Infrastructure Projects

Despite privatization failures overseen by then-Indiana Gov. Mike Pence, the Trump administration's infrastructure proposal touts public-private partnerships as a key principle in its plans to improve public services. (Photo: Aaron P. Bernstein/Getty)

Pence's Indiana 'Cautionary Tale' for Privatizing Infrastructure Projects

White House plan touts partnerships with private sector while Indiana residents navigate aftermath of roadway privatization approved by Pence, their former governor

President Donald Trump has proposed a $1 trillion investment in infrastructure with a maligned plan that partly relies on enticing rich developers into overhauling public services--a model lauded and previously utilized by Vice President Mike Pence, who has come under fire for road privatization initiatives he approved as governor of Indiana.

Critics of Trump's infrastructure plan, and P3s in general, worry it will allow "Mike Pence's infrastructure mess" to play out all over again, but this time on a national scale.

"Opponents of privatization have depicted Indiana as a heartland cautionary tale of get-rich-quick scheming and secrecy that led the state to sell off valuable public assets, which were then wildly mismanaged," Lydia O'Neal and David Sirota reported for International Business Times (IBT) on Wednesday.

Pence has been a key player in the Trump administration's infrastructure proposal, which is in part guided by a mission to utilize public-private partnerships (P3s) for infrastructure development, a model used around the world--especially in Europe, Asia, and Australia, with a track record that's questionable at best--but still relatively new to the U.S.

In its infrastructure plan's fact sheet (pdf), the administration claims that "the federal government provides services that non-federal entities, including the private sector, could deliver more efficiently," adding that "while public-private partnerships will not be the solution to all infrastructure needs, they can help advance the nation's most important, regionally significant projects."

For these types of partnerships, a government entity contracts with one or more private companies to finance, build, and operate a public service--e.g. roads, bridges, and airports. The company then profits through payments from government, users (such as roadway tolls), or both.

Trump's infrastructure plan echoes what then-Gov. Pence, who has a penchant for P3s, said in 2014, when he signed a partnership deal to extend a long stretch of the Indiana highway I-69:

The private sector can harness a different character of innovation to find greater efficiencies, and this project will continue Indiana's strong track record of partnering to deliver quality products on budget and ahead of schedule.

"Few states have been as aggressive as Indiana in embracing public-private partnerships," IBT notes. However, even advocates of P3s have condemned Pence's I-69 deal. Construction on the road has deeply frustrated Indiana residents, and while Pence has moved on to his role at the White House, the Wall Street Journalreports the I-69 project is now "two years behind schedule and only 60 percent built. The state is in the process of taking it over and will have to issue debt to finish it."

"This is one of the worst failures that I've seen in the state-level P3s," Robert Poole, a P3 supporter at the Reason Foundation, told the IndyStar.

Although a spokesperson for Indiana's new governor, Eric Holcomb, told the Journal "it became clear that the only way to ensure completion in a reasonable time frame would be to put [the I-69 project] back under the state's control," they also said the state will continue to sign P3s in the future. Gov. Holcomb even flew to Washington in June to participate in the White House's first infrastructure summit, which was led by Pence, who said: "In my time as Governor of Indiana, I saw firsthand just how important it is to have world-class infrastructure in our states and in our cities."

Beyond Pence's I-69 debacle, the Journaldocuments other notable P3 failures, in Indiana and elsewhere:

Toll-road partnerships in Alabama, Texas, and California declared bankruptcy in recent years after revenue from tolls used to finance these projects fell short of projections. Indiana's first major public-private partnership, a deal with Ferrovial S.A.'s subsidiary Cintra to operate the Indiana Toll Road, fell into bankruptcy after revenue missed targets. It has since been bought by new owners.

Those new owners--the Australia-based IFM Investors--paid billions to take over the road in 2015. Now, as IBT reports, that same "foreign firm Pence approved to run the 155-mile Indiana Toll Road announced it would be hammering economically battered Northwest Indiana with toll increases."

"The move came just a few years after Pence's administration approved that corporation's bid to keep the road under private control--and after Pence's administration rejected local Indiana governments' efforts to reclaim the road for the public," IBT reports, and these "two road deals are precisely the kind that Trump's infrastructure plan aims to expand under the direction of a team with ties to Indiana privatization."

Critics of Trump's infrastructure plan, and P3s in general, worry it will allow "Mike Pence's infrastructure mess" to play out all over again, but this time on a national scale.

When the Indiana Toll Road's private operator went bankrupt, counties in Northwest Indiana tried but ultimately failed to pressure the Pence administration into allowing public entities to reclaim the roadway. With Pence now helping to craft the administration's infrastructure plan, Shaw Friedman, who represented the Indiana counties, told IBT: "It'll be the same thing. He'll want to turn over public roads, public bridges to the private sector."

David Hall, research institute director for Public Services International--a global trade union federation that represents 20 million workers--analyzed P3s around the world from 2000 to 2015. In his report Why Public-Private Partnerships Don't Work (pdf), Hall concludes P3s "are an expensive and inefficient way of financing infrastructure, and divert government spending away from public services." The partnerships, Hall writes, "conceal public borrowing, while providing long-term state guarantees to private companies."

As Robert Reich explains in a MoveOn video, uploaded the day Trump entered office, when rich developers receive tax credits or government funding--as the administration has proposed--to invest in public services through P3s, taxpayers can end up paying more.

"Essentially, we pay twice: Once when we subsidize the developers and investors with our tax dollars, and then secondly when we pay the tolls and user fees that also go into their pockets," says Reich. "Our country's in dire need of massive investments in infrastructure, but what Donald Trump is proposing is nothing more than a huge tax giveaway for the rich."

Watch the full video:

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