Why Public Control of Infrastructure Matters
As we look towards improving our nation's infrastructure, we cannot ignore the private sector's dubious track record with public services.
We’ve all heard the statistics about our nation’s crumbling infrastructure and agree it needs to be fixed—the American Society of Civil Engineers estimates we need to invest $4 trillion in our infrastructure across the country. But what’s still up for debate is how improvements will be financed and who will be in control—the public, or corporations and big banks? It’s an important distinction—privatized infrastructure projects have a troubling track record.
While the Trump administration has yet to release a full infrastructure plan, all signs suggest that it will lean heavily on private capital. A policy paper released during the campaign outlined giving corporations tax credits to spur $1 trillion in private investment. Instead of receiving direct spending from the federal government, states and municipalities would see an influx of private equity takeovers of projects. This would occur through outright private ownership or “public-private partnerships,” in which corporations and banks finance, design, build and operate publicly owned infrastructure. The administration has since doubled down on this plan, hiring as a special assistant DJ Gribbin, a well-known figure among the global investors, construction firms and water corporations that make up the burgeoning infrastructure privatization industry.
Public-private partnerships “are a very important part of a new way of financing our roads and bridges,” said Transportation Secretary Elaine Chao in March. “The federal government cannot assume the cost for all of it.”
But such thinking ignores recent experiments across the country. Even when done right, the partnerships are costlier for ratepayers or taxpayers and often introduce new tolls and higher user fees. When done wrong, the public can lose control of a road, water system or building for decades.
Less Public Input, Less Accountability
Chicago learned this the hard way in 2008 when the city signed a 75-year contract with a global consortium run by banking heavyweight Morgan Stanley to oversee 36,000 parking meters. The public had little input in the deal, which was rushed through City Council in a mere four days. Rates quickly soared—the cost to park downtown more than doubled by 2013 to $6.50 an hour. Moreover, those meters were a valuable public asset—surplus revenue from them could have been reinvested in the overall system. Now those profits are siphoned off to Wall Street: The consortium has netted over $778.6 million in revenue from the meters and will continue to profit for decades.
In addition to being expensive and redirecting money that could be used to improve shared resources, private infrastructure projects are frequently mismanaged. In 2006, Texas signed a 50-year contract with a consortium of developers and contractors to operate and maintain a 41-mile stretch of Highway 130 between Austin and San Antonio. Last March, the consortium filed for bankruptcy with $1.6 billion in debt on the books, but the problems started much earlier. Shortly after the highway opened, homes in a nearby town began to flood, and just two years later the road began to show signs of persistent pavement problems.
Privatizing infrastructure is a particularly bad idea when it comes to vital resources like water. In just one of many examples, Bayonne, New Jersey leased its drinking and wastewater systems to the multinational water corporation Suez and the private equity firm KKR in 2012 for $150 million, much of it to be used to pay off city debts. The head of the utility authority claimed that after an initial 8.5 percent rate increase, rates would freeze for four years, followed by an automatic four percent a year increase. Instead, Bayonne’s water rates have gone up by 33 percent since privatizing, making water and sewer service costlier for residents than they’d be if the system had been kept under public control.
To make matters worse, Bayonne is locked into the contract for another 35 years—it strictly forbids the authority from exiting the deal early, except if the company defaults, and if the authority does, it has to pay a steep price—the remaining amount of the $150 million upfront fee—an impossible prospect for an already financially distressed city.
But there are alternatives to privatization. The American public is willing to pay for improvements to make their communities stronger and safer. Last November, voters approved hundreds of local and state bond measures to bolster public schools, transit and water systems. Residents of California’s Alameda County approved $580 million in municipal bonds to provide affordable housing. A large majority of Los Angeles voters approved a permanent sales tax increase to fund a major public transit expansion.
But these investments are a drop in the bucket compared to what’s needed. To fix the infrastructure gap, the federal government must provide substantial support to state and local governments. One way forward is Rep. John Conyers’s Water Affordability Transparency Equity Reliability Act (WATER Act), which would provide up to $35 billion in dedicated, sustainable funding to update community drinking water and sewer systems and replace aging and lead-ridden pipes.
All indications point to President Trump’s plan leading to the privatization of roads, water and other important infrastructure. Resources so vital need to managed as a public good—used and available to all, and most importantly—managed and controlled by the people, not corporations.