Why Not Privatize Roads?   Leave a comment

You got to love when President Obama’s teleprompter tells us that he wants to attract “private capital” to an array of new spending proposals including billions for highways, bridges and other projects. Most business folks I know wouldn’t go anywhere near a plan to have federal planners spend their money. That sounds a lot like taxation and they already pay enough of those involuntarily.

It is true that America’s transportation facilities need to be continually repaired and rebuilt, but Washington DC does not need to be involved in decisions about when and where these projects are needed.

NEWS FLASH for the Obama Administration!

There’s a global trend outside the United States to partially or fully privatize infrastructure, which attracts private capital while ensuring it goes toward high-return projects. Infrastructure companies raise private funds, construct new bridges and highway lanes, and charge drivers directly for their use.

What? B-b-but, you said you believe roads should be owned by the people! Yes, I said that and I still believe that, but …

Historically, infrastructure in America was frequently provided by the private sector. In the 19th century, more than 2000 turnpike companies built thousands of miles of toll roads. The great majority of America’s vast railroad system was built without federal subsidies and most urban rail and bus services were originally private.

American highways and bridges need repair, but so does the way government approaches the job.

The 20th-century takeover of private infrastructure by governments in the U.S. and abroad pushed up costs and reduced innovation. Go ahead, look it up. I’m not lying to you! Fortunately, some governments have started to reverse course. Hundreds of billions of dollars of railways, highways, seaports, airports and other assets have been partly or fully privatized in Europe, Latin America and elsewhere, but not in the United States. Partial privatization through public-private partnerships has become a major source of infrastructure investment in Canada and Australia, among other countries. Such partnerships improve on traditional government contracting by shifting elements of funding, management, maintenance, operations and financial risks to private businesses.

With public-private partnerships and full privatization, investment is less likely to flow to uneconomical projects that are chosen for political or ideological reasons. Private infrastructure is also more likely than government projects to be completed on-time and on-budget.

Some U.S. states have moved ahead with private infrastructure. Several projects in Virginia illustrate the possibilities:

  • The Capital Beltway. Private companies built and are now operating toll lanes along 14 miles of Interstate 495. They used debt and equity to finance about $1.5 billion of the project’s $2 billion cost. The lanes opened on-time and on-budget in 2012. Public lanes remain available for those drivers who prefer not to pay a toll and accept the extra commute time involved.
  • The Midtown Tunnel. Private firms are currently building, and will operate, a three-mile tolled tunnel under the Elizabeth River between Norfolk and Portsmouth. Private debt and equity are covering most of the project’s $2.1 billion cost.
  • The Dulles Greenway. This privately owned toll highway in Northern Virginia was completed in the 1990s with $350 million of private debt and equity, and without government aid.
  • The Jordan Bridge. Private firms fully financed and constructed a $142 million highway bridge over the Elizabeth River between Chesapeake and Portsmouth. The cost of this handsome and soaring structure—which opened in 2012—will be paid back (and then some) by toll revenues over time.

Privatization isn’t only for highways and bridges. U.S. airports and seaports are generally owned by governments, but many foreign airports, including London’s Heathrow, and seaports are partly or fully private, including those in Singapore and Hong Kong, which are rated second and third best in the world by the World Economic Forum.

Then there is air-traffic control, which in America has long been poorly managed by the Federal Aviation Administration, with frequent delays and cost overruns on technology-upgrade projects. Canada privatized its air-traffic control system in 1996.

President Obama’s teleprompter is correct that America needs top-notch infrastructure to compete in the global economy. And, I’ve said I think transportation infrastructure needs some public involvement since we all use it.  It would be a mistake to turn roads over solely to private enterprises because freedom of movement is a necessity in a free society. The solution to the cost overruns and inefficiency of the Federal Highways Administration is to devolve federal infrastructure activities to the states, then allow them to unleash entrepreneurs, innovation and market forces.

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