prominent organizations, such as Reason and its allies, strongly advocate using privatization to solve the problem. However, this country has a long and continuing history of successfully taking on big infrastructure projects through direct public support and funding – circumventing privatization while getting the job done well. As will be discussed next week in part two, the true cost of privatizing our roads, water and other infrastructure includes lost public control.As this country’s public infrastructure crumbles,
Let’s begin with the example of barn raising, a common event in rural 18th- and 19th-century America, which continues in some communities to this day. A member of the community needs a barn, so neighbors get together, and, at the end of a day or two, that neighbor has a new barn. The shared investment of collectively building that infrastructure can be a joyous event that brings people together to renew their ties and affirm their mutual support of one another.
As time has moved on, the types of Big Things communities need have changed, and the way Big Things are constructed has evolved. Despite these changes, infrastructure construction has continued to be a community enterprise. Sweat equity has been replaced by funds raised to hire construction workers and buy materials to build roads, bridges and water systems. Today, building infrastructure is financed through tax collections, with one-time community tax assessments and by letting bonds.
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The development and funding of transportation has a long history during which the form of transportation evolved. Examples can be found in the Bible, for example, with various sorts of infrastructure and customs that supported trade and transport.
The history of the Puritans’ settlement in the Americas includes the formation of a corporation. At that time, corporations came into existence to fund a specific purpose. And when that purpose was accomplished, the corporation went out of existence.
Ronald E. Savoy’s book An Economic History of the United States From 1607 to the Present discusses the developing roles and structures of bonds and other financial instruments during the past 400 years.
Building Big Things and Taxes
The 1950s were a period when big projects provided an environment in which shared prosperity flourished. The Dwight D. Eisenhower National System of Interstate and Defense Highways was funded through the Highway Trust Fund, which was created in 1956 as “a dedicated funding source for the Interstate System’s continued construction.”
This era laid the groundwork for a long period of widely shared prosperity, thanks to high taxes that made investments in education and infrastructure possible. During the period of Interstate construction, the top tax brackets reached 91 percent.
No one, including the wealthiest Americans, paid that rate on every dollar they earned. Instead, taxes were – and still are – calculated only after deductions are subtracted from income. The remaining income is taxed using a blended rate. (The Center for Budget and Policy Priorities has a helpful resource on marginal tax rates.)
Another form of shared investment, government bonds, also are used to build infrastructure that benefits the public. Government bonds are attractive to investors, even though they tend to pay a lower interest rate than do other sorts of bonds, because the government bonds are low-risk and bondholders owe no taxes on the interest.
Additionally, Some Big Things we value are funded through the regular payment of taxes, rather than special assessments for a project. In the case of road construction or repair, the most important taxes have been state and federal fuel taxes. A nice thing about fuel taxes is that they link the funding source (buying fuel) to the end product (driving and roads), making for an easy-to-understand system.
From Community Funding to Crumbling Infrastructure
How is it that, after decades of building high-quality infrastructure and providing shared prosperity, we now have crumbling, outdated, dangerous infrastructure and no money to repair or build roads? Why is it that, even though we’ve recently seen dilapidated bridges collapse and kill people, we cannot find the will to collect taxes so we can construct safe, updated infrastructure and keep existing infrastructure in good repair?
Why is it that, rather than paying for this maintenance through taxes, state and local governments are eager to turn their infrastructure into piggy banks by leasing it, even though leasing means losing public control for decades?
Fuel taxes are collected still. So why are we unable to pay for new road construction, repairs, and modernization?
Here are some factors that have led to this downward spiral:
(1) The current federal fuel tax was set at 18.4 cents per gallon in 1993 and has not been adjusted for inflation. 1/ [p.52-53] 2/ Federal / State Fuel Taxes 3/ Fuel Tax Details 4/ Transportation Construction Coalition
(2) The trend toward non-gas-powered vehicles allows many drivers to travel without paying fuel taxes.
(3) High-mileage and hybrid vehicles make a gallon of gas go farther, so less tax is collected for each mile driven, while each mile driven still causes wear to the road.
(4) Anti-tax smear campaigns make state and federal legislators afraid to raise taxes.
(5) Not enough people understand what is in the privatization contracts that will govern transportation for the next 30 to 99 years – and this ignorance extends to our elected officials.
As a result, rather than use tax money to pay for building, maintaining and repairing roads, we have opted for a process that is opaque, not under public control, and dangerous to our democracy and well-being.
Have You Read the Fact-Filled Secret Contract?
When it comes to infrastructure privatization agreements, the contracts themselves should be a warning that all is not right. Recall Chico Marx’s reaction to the contract Otis P. Driftwood (aka Groucho Marx) proposed in A Night at the Opera, with its “the first part of the party of the first part” nonsense jargon. Chico’s suspicious response as they read through the contract is a good example of the way most people would respond to reading an infrastructure privatization contract – if, that is, people could get access to the contracts. However, public access has not always been possible.
For example, requests by Truthout to a public “partner” for a copy of its highway privatization contract with Macquarie, one of the major infrastructure privatizers, were blocked. Macquarie’s public “partner” refused to provide the contract, because, it claimed, the contract was confidential. Macquarie itself simply refused to respond. Apparently, infrastructure privatization trumps the Freedom of Information Act. Other contracts that have been made available are largely identical, so it would seem there should be little need for secrecy.
Secrecy about infrastructure privatization contracts extends beyond the United States. Research by University of Toronto professor Matti Siemiatycki has shown that Canadian infrastructure privatization contracts were made public only after they were signed and changes were not possible.
Privatization isn’t the only factor barring public access to information. However, private construction subcontractors create obstacles to providing information, delaying the release until it is too late for that information to be acted upon. According to Professor Siemiatycki, “obtaining data on traditionally procured or publicly operated facilities has been nearly impossible. For example, there is a subway project currently being built in Toronto through a traditional procurement, and there is no way to get access online to any of the contracts with the many firms involved. Nor are any of the technical reports available on performance. This should be much improved so that the public can scrutinize the terms of all spending on infrastructure, whether it is a privatization, PPP or traditional construction project.”
As long as contractors involved in building infrastructure demand confidentiality, part of the price we pay for privatization is losing rights that are fundamental to democratic governance.
In the Night at the Opera scene, Chico senses that all is not right with the contract Groucho tries to sell him but cannot admit that he does not understand it. However, Chico is fortunate that the contract Groucho is pushing him to sign will not last for two to four generations, nor is it full of hidden penalties that kick in when someone attempts to right the contract’s deeply embedded wrongs. City and state governments are not so fortunate – and neither are the people they represent.
More on this subject in Part 2.