For sale: U.S. infrastructure?
Greece is having a fire sale of its publicly-owned transportation system, with planes, trains and roads all being sold off as the country attempts to dig out of its debt crisis. Americans should watch and learn: We could well be privatizing large segments of our own transportation system soon because of the U.S. debt crisis.
Last week, Rep. John L. Mica (R-Fla.,), chairman of the House Transportation and Infrastructure Committee, introduced a bill that would slash transportation spending, limiting it to the amount brought in by federal gas tax revenues and other existing highway fees. That roughly translates into federal spending of $215 billion to $230 billion over six years for highway and transit projects — about half of what the Obama administration sought last year.
The draconian spending proposal, dubbed “the Republican road to ruin” by critics, comes at a time when groups such as the American Society of Civil Engineers are saying that the U.S. needs to invest an additional $1 trillion beyond current levels over the next decade just to maintain and repair existing infrastructure.
We are facing a road infrastructure crisis, and it is of our own making. The federal gas tax has been unchanged, at 18 cents, since 1993, even as vehicles have gotten more fuel efficient. Adjusted for inflation, it amounts to a measly 12 cents today. But Americans, according to surveys, don’t want to raise the tax.
For politicians like Mica, this opens doors to privatization projects. Last month, he introduced a bill that would put private companies in charge of Amtrak’s operations in the Northeast Corridor. Taking that step, he contended, would be the fastest way to get high-speed rail up and running in the U.S. because it’s clear that President Obama’s federally sponsored rail plan has little support in Congress.
Maybe Mica is right. But rushing to privatize state-owned assets can lead to terrible infrastructure deals that let private companies walk away with prime assets and leave taxpayers with no guarantee of better services or lower fees.
Unlike the Greeks, who must sell to receive bailout funds, we still have a say in our infrastructure future. But the time for planning ahead and striking strong deals is dwindling, along with our infrastructure funds.
Many European countries and cities have privatized infrastructure and city services. You want to use the highway — you pay. You want to stroll through a “public” garden — you pay. You can avoid higher taxes, but if you want the services, you pay the private company that holds the franchise. It is a system that works fine for those with cash to spend.
Scaling down public ownership of transportation networks also means carefully selecting which parts of the system to sell or lease out. Private companies usually desire assets associated with the most demand for services, such as the Northeast Corridor. But if we sell off or lease these assets to get private companies to build a high-speed rail system there, we may also be giving up the only part of a high-speed rail network likely to generate enough cash in the long term to keep a national system running without taxpayer help.
So far, privately run transportation projects show mixed outcomes. For every successful privatization story of service improvement and mounting profits — Britain’s airport privatization, say — there’s a disaster story of poor service and taxpayers left holding the bailout bag: think the Chunnel or Chicago’s privatized parking woes. Privatized transportation projects carry risks for both sides.
So long as Americans refuse to even index gas taxes to inflation, let alone raise the tax outright, we won’t be spending enough to maintain our transportation infrastructure, which means that its value will continue to fall. That will make it difficult to attract private investment or get a fair price for state-owned assets if the government opts to privatize its transportation assets. Too many more years of disinvestment and we will have to make gun-to-the-head decisions like Greece’s, shock ourselves with big tax increases later, or both.
Without new revenue sources, the long-term problems for U.S. infrastructure finance are going to continue even if Congress manages a debt-ceiling deal. By contrast, if the U.S. defaults on its debt, our bond ratings will tumble. The higher costs of bond financing would then raise infrastructure costs through the roof. And those financing costs would put government negotiators at even more of a disadvantage in privatization deals.
Averting default would give U.S. leaders wiggle room to find public-private partnerships that really do serve the public interest. To do so, they must choose to maintain both America’s credibility and its existing assets.
Lisa Schweitzer is an associate professor in the School of Policy, Planning and Development at USC; she blogs about transport policy at https://www.lisaschweitzer.com
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