Why are the Feds Bailing Out the Highway Privatization Industry?
The credit crisis has undermined the financial players who had been leading the charge on privatization, so they are looking for a bailout under the federal recovery plan. As reported by Reuters, Morgan Stanley, Merril Lynch, and a number of other firms pushing "public private partnerships" -- the industry's preferred euphemism for privatization -- wants part of the stimulus package to flow to them. Their wish list includes federal rules to push privatization of airports and highways, along with a national infrastructure bank to subsidize loans for private sector deals.
And the privatization industry appears to have already won one item on their wish list in the federal bill -- an obscure but profitable loophole exempting profits from "private activity bonds" issued by local governments used for infrastructure from the federal alternative minimum tax.
As Tom Frank, the lone progressive on the Wall Street Journal editorial page argued this past week, subsidizing private toll roads is just part of the root ideological problems that got us into the current economic mess in the first place:
One of the reasons our roads and bridges are falling apart is public hostility to tax increases -- gasoline taxes in particular. This attitude, in turn, is largely the product of the generalized distrust of government that conservatives have stoked for decades. So we've starved the beast for years, and now the utterly predictable consequences have come to pass.
Instead of giving more tax breaks to the financial sector, it would be far better for the feds to increase direct support to the states to fund new transit projects. And state leaders themselves need to stop looking for political tricks like privatization deals and honestly make the case for the revenue and toll increases in the short-term that can pay for the long-term economic benefits that flow from infrastructure investments.
PPPs are just a friendly euphomism for Corporatism, which is just a friendly euphomism for Fascism. What were those frightening works Ronnie Raygun spake? Something like: "I'm from MegaConglomo Corp, and I'm here to help!"
They'll be PPP'n on our heads if we let 'em.
January 29, 2009 6:13 PM | Reply | Permalink
What percentage of the financing for a toll-road privatization comes from "private activity bonds"?
I thought it was very small. Most of the debt raised is regular corporate bonds or loans.
Privatization may have some legitimate concerns, but states have massive budget deficits right now and getting billions now sure would help some of these states.
Most of the concessions have limits on how much they can raise tolls every year and minimum capex requirements.
January 29, 2009 8:02 PM | Reply | Permalink
. . . it would be far better for the feds to increase direct support to the states . . . .
Folks are finally starting to come around.
Government spending should be undertaken by the government closest to the people -- that government over which the people have the greatest control and can exercise the greatest discipline.
This rule is doubly to be honored when the alternative is government spending out of a budget generated by fiat currency "printing." Such a government will be irresponsible and cannot be disciplined. It is understandable that when commanding the power to create money out of nothing ---
"All that is solid melts into air."
Yes; the states are better placed to spend the money, but they should get it not from the federal government but from the people who if they are to remain free and adult, must make the tough choices.
January 29, 2009 10:39 PM | Reply | Permalink
Note: According to the CBO the difference in GDP multiplier between "payments to persons" and "purchases by the federal government" is statistically insignificant (0.8 to 2.2 v. 1.0 to 2.5).
So ---
Which would you rather? Geithner bailing out his buddies on Wall Street (he'll be gone within the year and will need a job) or the people who are going to have to pay the costs of reliquification getting the money directly?
January 30, 2009 4:47 AM | Reply | Permalink
Both. Unfortunately to get the banking system to function again, we can't just give every penny of the stimulus to the people. We need to recapitalize some banks and also nationalize some while dissolving others.
But I'm not sure what this has directly to do with the original post.
The post is that the states are running huge deficits. I'm all in favor of private $ coming in to privatize their roads or lotteries so the money can help an immediate budget problem.
January 30, 2009 6:45 AM | Reply | Permalink
States need "money"; we agree. What we disagree about is where they should be getting that money.
As I said above, "the states . . . should get [the money] . . . from the people." It's called taxes.
Everyone(?) agrees that "money" is being destroyed in incredible amounts and at incredible rates (David A. Rosenberg of Merrill Lynch thinks it will be $6 trillion eventually).
To replace that "money" (reliquify) the Fed is expanding its balance sheet (that is, "printing" money); the Treasury by way of TARP and the "stimulus bill" is shoving money out the door to friends and lobbied-up hat-in-handers.
I say put the money in the hands of the citizens -- $1.2 trillion now, another $1.2 trillion or more later -- and let them decide where to spend or save it. It's called democracy.
January 30, 2009 8:56 AM | Reply | Permalink
So you are proposing that we raise taxes during this recession?
January 30, 2009 9:03 AM | Reply | Permalink
Not too bright, MiddleClassBill!
Under my proposal increased taxes at the state level -- if the people agree* -- are merely the method by which the fiscal stimulus provided initially by the federal government's deficit spending is transmitted to the states.
* Of course the people might decide not to raise their taxes with the result that the private rather than the public sector would see the greatest benefit. Personally, I would hope they'd see the value of public services and public investment and increase their taxes, but there are no guarantees in a democracy.
January 30, 2009 2:04 PM | Reply | Permalink
Ellen, I think your idea has great merit. I think you should write it up as a full essay and post it.
January 30, 2009 12:19 PM | Reply | Permalink
Rules & honor & responsibility & discipline. High standards just for the Feds, or are we gonna raise the bar for everyone? And, re: the melting. Do we act the same if the floodwaters are already rising & have reached our goolies?
As for the shout-out to the States & all that democracy, I coulda sworn there was just a National election, with at least a bit of economic talk, or is there no honor in recognizing those votes & that democracy? I'm a big fan of decentralization, earmarking/hypothecation, referenda, all of that. But there are national projects like Grids, Health Care, etc. that I see no reason to drop to state level. And what of those democratically-elected state govts saying, we're bleeding. Tell them - and their employees - to wait 6-12 months while we set up & vote on new state tax proposals?
Tough love for those who run these scams (in DC or Wall St) & who are fat enough to take the hit, yeah. But tough love for the bottom 40%?
January 30, 2009 3:15 PM | Reply | Permalink
P.S. And thanks for the Merrill link the other day. I just slapped it up on Des' post. Thought it was from you, wasn't sure. Thanks & here's where I plunked it.
And perhaps relevant to your Depression/FDR/WW2 debates. Who knew about the bungee-jumping?
January 30, 2009 3:31 PM | Reply | Permalink
I'm not suggesting we shut down the federal government.
Appropriate "national projects" -- the electric and/or smart grid; high speed internet; computerizing medical information; et cetera; et cetera; et cetera -- should be funded no matter what the state of the economy. But they're long term projects costing peanuts.
When it comes to generating the amounts of money which will be necessary to reliquify the monetary system and stimulate the economy, whether or not these "national projects" are funded is not particularly significant.
January 30, 2009 8:27 PM | Reply | Permalink
Sorry for being dense Ellen, but can you explain this to a 3rd grader? But who would ever agree to higher taxes in today's environment. The fed gives me money but then I give it to my state because my state taxes have been raised??
January 30, 2009 2:11 PM | Reply | Permalink
Depends on what you* value ---
Education and services for the frail and foolish or a manicure at Nails Are Us and a latte at Starbucks.
That's why we call it a democracy.
* Actually, what the majority values.
January 30, 2009 2:44 PM | Reply | Permalink
I still don't get it. Federal govt gives me money but my state taxes go up so it's a zero sum game. I don't have any extra cash to pay for nails or coffee. I can't increase my spending budget. So the nail place nor the coffee place will see an improvement in their business
January 30, 2009 2:57 PM | Reply | Permalink
Hardly a "zero sum game" unless, of course, you think citizens would vote to more than double* the state and local taxes they pay. Do you?
* Individuals paid $732.1 billion in state and local taxes in 2007. Per "Ernst & Young -- p.23, Table A-1
January 30, 2009 8:00 PM | Reply | Permalink
Sorry then I am still confused. Could you please spell out exactly what your proposal is. I am very interested. If citizens don't vote to increase their state taxes then the states won't increase their tax revenues. Then there's no new revenues to pay to fix the bridges and highways. So how does that help the current situation?
January 30, 2009 10:23 PM | Reply | Permalink
Gee, I hate to be on-topic here, but: There is no need for ideology here. A company privatizes a stretch of toll-road because (they claim) they can operate it more economically than the state can. Then the toll-road needs a bailout. So obviously the privatization didn't work out. The business model ran into reality, and failed. That is what is factually true, not a matter of opinion or interpretation. If ever there is an example of "moral hazard", this is it!
Privatization was, in this example, perhaps a worthwhile experiment, but it obviously did not work out, so de-privatize it.
From another angle: Here we have a bankrupt toll road, and we have a willing buyer (the state dept. of transportation, DOT). The DOT takes over the toll road and assumes responsibility for the bonded indebtedness. It is easily, fairly, and economically done.
January 31, 2009 3:22 AM | Reply | Permalink
The DOT buying the toll road? Don't they already own it?
BC - what examples do you have of toll roads that have been privatized and then subsequently needed a bailout?
There's been very few done in the US so I don't understand how you're concluding that the business model failed?
January 31, 2009 8:14 AM | Reply | Permalink
The states, like New Jersey and Indiana, for example have used the excuse that these private companies, one of which is a multinational from Spain, will pay for the maintenance/repair needed to the highways, and recoup losses as well as make a profit by collecting the tolls for 75 or more years. The stimulus language would allow these private companies to get away with not paying for any maintenance/repair, as the taxpayers would end up paying for it, while these private companies would be getting to own/lease our interstate highways, toll roads without spending a penny. They would also be eligible for tax breaks among other things.
Frankly, if we're giving these states money to rebuild, improve their highways and roads, they don't need to sell/lease them to private companies.
February 2, 2009 1:02 AM | Reply | Permalink
The Goo-Goo Left Has No Other Options
What else is the goo-goo left going to do? It consists of lawyers and other self-styled advocates, plus "human relations" or "community relations" managers, and a few other huffers and puffers, not civil/military engineers with any relevant experience or responsibility in or out of government.
What state or local government or, for that matter, NPA/PPP promoter has much expertise at anything but grant-mongery, paper-shuffling, and pencil-whipping?
What has not already been privatized since the left and right agreed to "opt out" of the Vietnam War by ending their exposure to the draft without actually ending that war, leaving it to suckers in uniform and BMK.
Vietnam was our first privatized war and a great success for the Anglo-American overclass of left and right advocrats and chickenhawks.
February 2, 2009 9:10 AM | Reply | Permalink