Edward Lambert | April 15, 2014 12:26 am



It is happening as I feared. Hilary Russ writes… Private money, public projects: More U.S. states doing deals. The movement has started for private funds to own public infrastructure. This is the entrenchment of inequality, which will be very hard to reverse. So why do I fear private ownership of public infrastructure? From what I saw in Chile…

In Chile, private companies own the highways. There are toll booths along the highways. It is almost impossible to get on or off the highway without paying a toll somewhere.

The title of the picture you see below is translated, “Don’t be caught without cash.” It is a list of the toll charges along certain routes of the highways of Chile. At roughly 500 Chilean pesos to the US dollar, here are the fees in $USD.

Santiago to La Serena in the north is 1126 kilometers/700 miles. The toll charges are $25. This is adding 90 cents to every gallon of gas if your car gets 25 miles/gallon.

Santiago just to the coast (V region) is 300 kilometers/186 miles. The toll charges are $20. This is adding $2.69 to every gallon of gas if your car gets 25 miles/gallon.

a relaxing trip from Santiago to Concepcion in the south is 1176 kilometers/730 miles. The toll charges are $30. This is adding $1.02 to every gallon of gas if your car gets 25 miles/gallon.

You will note some toll booths have special rates that are higher for weekends, all through the night and seasonal peak times, like holidays and summer.

There is more to the story. When a highway in Chile was built, private money was used from politicians, private investors and private investors from Spain. The loan has a term over a number of years upon which it should be paid off, and the tolls should then decrease to just charge the cost of maintenance, not the original cost of construction. Yet, the tolls never decrease, they keep rising as the years pass by. Then even rise more in the summer months when there is more traffic. People have tried to fight this problem in Chile, but to no avail. The private interests own the highways and set the tolls. Case closed.

And Chile has a minimum wage of $2.25/hour.

The article by Hilary Russ shows us that private ownership of public infrastructure is growing in the US.

“Short on funding but big on need, U.S. states and cities are increasingly turning to such deals, known as public-private partnerships, or P3s, hoping to leverage assets that can bring a quick infusion of private dollars to rebuild crumbling infrastructure.”

“The last 12 to 15 months have seen more deals and more opportunities to invest in the sector, said Jim Barry, head of BlackRock’s infrastructure investment group. “After let’s call it a decade of promise, I think we are actually beginning to see that movement,” he said. “Over the next five years, you could have a lot of deal flow.””

“The pacts have been common for decades in the U.K., Australia and Canada but have been slow to catch on in the United States. Now, analysts say, a shift is under way.”

“Now, there are more projects in development and more investor interest than ever in the U.S. P3 market, analysts say. Public agencies are also looking more closely at the pacts because they’re able to add less debt to their books while shifting construction risk to the private sector.”

“You’re actually seeing … a real pipeline of projects” building up since 2012 and continuing through at least this year and possibly next, said John Medina, a global project analyst at Moody’s Investors Service. “The projects include everything from a light rail system in suburban Washington, D.C., to the replacement of hundreds of bridges in Pennsylvania.”

“Investors clearly have an appetite for infrastructure.”

“The needs are huge. The nation should spend $3.6 trillion on infrastructure by 2020 to recover from decades of neglect, the American Society of Civil Engineers said last year.”

“Wall Street and public officials have also expanded their definition of what a public-private partnership is – and thus expanded the number of deals that some people consider P3s – no longer applying it only to big, new transportation infrastructure. Student housing, courthouses, jails, parking garages and community centers are all trying out versions of such pacts.”

“Facing a budget crisis in late 2008, then-Mayor Richard M. Daley leased the city’s meters for 75 years to a private company for about $1.2 billion. Parking rates and citizen complaints soared. Months later the city’s inspector general found that the city undersold the lease by, conservatively, about $1 billion.”

“Chicago is the worst-case scenario, and every mayor in the country knows about it,” said Donald Cohen, executive director of the nonprofit In the Public Interest, which focuses on privatization and contract. “The city got hosed.”

As private money begins to own infrastructure as opposed to paying taxes, so that the public owns it, the American economy we once knew will be gone. Inequality will become so entrenched, that it will be very hard to reverse the process. Once private companies own a greater percentage of infrastructure, we will see laws passed to protect them. We will see subsidies when needed. We will see costs rise for using public infrastructure.

Didn’t the INET conference just discuss shared public risk in order to get shared public benefits, instead of private investors taking on private risk and getting private benefits??? Yes, they did.

This is all happening thanks to the dynamics of inequality, low demand, low taxes on capital and easy monetary liquidity to the rich. I hate to watch America go down the drain like this.