Public Infrastructure, Private Investment? Whose Hands Are in Whose Pockets?

Read the US Department of the Treasury’s new report “Expanding our Nation’s Infrastructure through Innovative Financing,” and you would think that flipping a coin to decide whether our roads, water and other basic infrastructure should be public or private is as rational as any other way to operate. Or as the Treasury report puts it, “The line separating public from private infrastructure is not always clear” because schools, roads and other infrastructure can be financed through either the private or public sector.

While Treasury observes that public money to finance big infrastructure projects has dried up, it fails to ask why that money has disappeared. Treasury could have found answers had it asked why the post-World War II generations had enough money to build our national interstate highway system, while today Americans’ pockets are so empty their only alternative is the private sector.

Taxing Problems

Had Treasury been interested in finding a solution to today’s budget woes, it would have asked how the World War II generation financed and built neighborhood schools and national infrastructure projects, to say nothing of financing science research that supported vaccinations and public health.

Had today’s Treasury impartially examined the facts and history, it would have learned that the magic in their market was a highly progressive federal income tax with the top tax brackets at more than 90 percent. But that would mean following the adage: “From those to whom much is given, much is expected.” (Luke 12:48).

Today’s Treasury edits that text as, “To those to whom much is given, much more is expected.” Rather than fairly examining the effects of high versus low tax rates on financing public infrastructure, Treasury advocates keeping tax rates low for the wealthiest as the path to prosperity.

One of Treasury’s and the privatizers’ most recent schemes is monetizing risk.

When the private sector takes on risks that it can manage more cost-effectively, a PPP [Public – Private Partnership] may be able to save money for taxpayers and deliver higher quality or more reliable service over a shorter time frame. Just as there is a range of roles that a private firm or firms can take on in a PPP, the nature of risk-sharing and compensation arrangements for bearing and managing risk can vary substantially from project to project and is governed by contract.

Risk has been the buzzword used by the PPP advocates for several years now. However, there is scant evidence of risk taken on by the private investors, and, more recently, the evidence is that it is the public who bears the risk.

Belief Versus Facts

The Treasury report on infrastructure privatization lists the usual claimed benefits of infrastructure privatization. It is supposed to provide a “choose your own adventure” à la carte menu of contracted-out responsibility. Instead, what it provides is a magician’s sleight of hand diversion of the audiences’ focus.

Randy Salzman’s in-depth analysis of privatization financing in transportation found that the financing model was for the private “partner” to invest as little as possible; to finance the project through state, county or federal government funding; and to declare bankruptcy by the 15th year of the contract and then walk away leaving the public with crumbling infrastructure and out of pocket. Salzman lays out the scenario which the privatizers are using as they laugh all the way to the bank with our money.

It is ironic how the Treasury report overlooks the most obvious issues. For example, it holds up as a model the Denver multi-modal project. At the March 5 Congressional Hearing, Congresswoman Eleanor Holmes Norton’s questions about financing for the Denver project showed the actual funding components of the project and found that only 3 percent of the money invested in the project came from the private sector. Meanwhile, Treasury skips over its fuzzy privatization math, as it comes to praise Caesar, not to bury him.

In Union We Are Strong

Treasury’s PPP report fails even to mention how union power, supported by the National Labor Relations Act, created broad prosperity beginning in the post-World War II era. Those who built – and who are still building – the post-WWII infrastructure had union power that was about far more than strikes.

Public infrastructure projects, which, until the recent privatization craze were owned by the public, also have an important mixture of private and public participation. That private participation has taken many forms. It includes hiring construction workers to build the projects, paying those workers well and providing high-quality fringe benefits, such as pensions, sick pay and vacations, and employees paying their income, property and other taxes. The result of these and other taxes has been to create broadly shared wealth and well-being.

The Loss of Union Jobs

That good pay has meant more than just tax receipts for the United States and state treasuries. Today, worker pay and working conditions have been undermined by unscrupulous employers, governments’ failure to enforce the law, and ungrounded ideology instead of fact as the basis for action.

In the construction trades – the jobs that build infrastructure – union power continues to provide a structure that provides construction apprentices free on-the-job training, benefits and industrial due process. However, a recent multi-state investigation into construction practices by a team of McClatchy reporters found gross violations of labor and employment laws in the private sector, all of which have led to fewer state and federal taxes collected.

The McClatchy investigations show how degraded the process of building infrastructure can become when employees lack bargaining power and when states look the other way.

As a result, we have become an impoverished people for whom “wink-wink, nudge-nudge” as the way of doing business puts us all at risk, including that of losing our status as citizens of a democracy.

And what analysis and solutions does the Treasury report offer?

“Access to low cost, tax-exempt bond financing for projects exclusively owned and operated by state and local governments has discouraged those governments from seeking private equity financing.” In other words, if the public wants new infrastructure, the public must be willing to have less tax revenue from private investors.