"It's a big mistake for public officials to rush into a fire sale of the public's assets."
January 10, 2007
By Joe Mysak
Before any U.S. state or locality decides to sell the streets, toll roads or airports, it should:
- Disclose any proposed future toll or fee increases or maximum rate frameworks to the public;
- Detail all fee or toll provisions, contract incentives and performance objectives;
- Set minimum environmental standards;
- Establish operating standards, safety requirements, security arrangements, and capital expenditures;
- Disclose who gets the jobs;
- Describe what would happen in the event of default;
- Say how the municipality will replace the money that it now collects from the airport or toll road;
- Disclose any non-compete agreements that might affect the expansion of other transportation infrastructure;
- And reveal how much it's all going to cost, including how much the bankers and lawyers get.
That's just for starters. The state or locality should also hold hearings and town-hall meetings and ask for everyone's opinion and --
Well, you can see how we might have some problems here, if any of us actually expect to make this privatization of public assets thing a reality before, oh, the century is out.
What Elected Officials Do
Don't get me wrong. It's a big mistake for public officials to rush into a fire sale of the public's assets, things like toll roads and airports and whatever else lends itself to privatization these days. Governing magazine estimates in its current issue that investors have $100 billion they want to put to work in U.S. infrastructure.
We aren't really talking about a sale of these assets, but rather what are being termed public-private partnerships, where states or localities lease an asset to a private company for a 50-year or 75-year or 99-year period, in exchange for a pot of cash upfront.
More and more states and municipalities are thinking about leasing assets, reasoning that they can do a lot with the cash, and at the same time get out of businesses that aren't particular areas of expertise.
They should be very careful. At some point, however, let's all realize that we elect our public officials to lead and govern on our behalf. In other words, this privatization business isn't going to be run on democratic lines.
In particular, the leasing of public assets, it seems, isn't going to be run along "liberum veto'' lines, which refers to the veto every member of the Polish parliament had in the 18th century. Predictably, nothing got done.
These thoughts occur after a read through the Regional Plan Association's white paper, released Jan. 8, titled ``Proceed With Caution: Ground Rules for a Public Private Partnership in New Jersey.''
You may have heard that New Jersey is thinking about selling some assets, notably the turnpike and the Garden State Parkway, big roads that run through the state and that are cash cows.
"In fact,'' the white paper notes, "the New Jersey Turnpike has the highest revenue flow of any tolled facility in the U.S,'' collecting $507 million in 2004.
The Chicago Skyway, by comparison, brought in about $40 million in 2004; the city of Chicago leased it for $1.83 billion in 2005. The Indiana Toll Road made about $95 million in 2004 and was leased for $3.85 billion in 2006. New Jersey thinks it could get a lot more for the turnpike, and the figure of $10 billion has been bandied about.
The white paper is a good read. It is also brutally frank. "Toll roads can be worth more to private firms primarily because they can potentially raise tolls more easily, and, in some cases, because they can reap substantial tax benefits,'' the paper says.
Let's put aside the possibility of those tax benefits and focus on just the first part of that sentence. Private firms can raise tolls more easily than governments.
The paper continues: "Private firms are insulated from a political climate that discourages raising tolls, and the ability to schedule and rely on future toll increases, even if such increases are modest, attracts investment into privately operated toll roads.''
It can't be put any clearer. Leasing the roads in exchange for billions of dollars is going to result in toll increases, and lots of them.
This is why we won't see lots of referenda on selling the streets. When it comes to public services, we don't want to pay what things actually cost. We think we already pay enough in taxes to cover the whole bill.
The white paper includes a laundry list of the things New Jersey must make absolutely sure about before selling the turnpike. Many of them are common sense. But something tells me that the list of things people will demand to know with absolute certitude is going to grow, and grow, and grow, and will include things that are unknowable or incalculable. That won't stop the critics of these transactions from demanding them, in essence attempting to torpedo the deals.
New Jersey might sell some stuff -- in Governor Jon Corzine's second term.
(Joe Mysak is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Joe Mysak in New York at firstname.lastname@example.org
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