The news from Minneapolis looks grim in the aftermath of the collapse I 35W bridge, which had been undergoing what has been reported to be “routine resurfacing” this summer, according to the state Department of Transportation. The former chairman of the National Transportation Safety Board said in an interview with the Minneapolis Star Tribune early today that investigators looking into the cause of the collapse of the 40-year-old arched bridge are likely to focus on two primary areas —vibration and fatigue cracking.
How worried should we be about the roads and bridges we’re driving on? Very worried.
On April 5th, Bob Hebert wrote a heartfelt op-ed piece (subscription required) for the New York Times about the sorry state of the U.S infrastructure. He cites statistics from the American Society of Civil Engineers that say it would take more than a trillion and a half dollars over a five year period to bring our roads, highways, bridges, railways, tunnels dams and, of course, levees, back to any sort of reasonable condition. He lauds Felix Rohatyn, the NY investment banker, for his efforts to persuade Congress to pay more attention to this pressing issue.
Hebert is right to be worried. The federal highway fund, which is supposed to handle the lion’s share of road and safety projects, will have a negative balance by 2010 (according to the President’s Budget) or perhaps 2011 (according to CBO estimates.)
Hebert rails against ideological influences that have pushed for smaller government and lower taxes – at the expense of our common infrastructure. But what Hebert fails to mention is that private investors, mostly foreign, are quickly taking de facto ownership of many of the taxpayer-financed infrastructures assets all across the U.S. – and bailing out desperate local governments facing budget shortfalls. To mixed results. A partial list:
•Chicago entered into a 99 year lease on the 8 mile Chicago Skyway for $1.83 billion.
•Alabama sold the Foley Beach Expressway Bridge for $95 million.
•Detroit sold the U.S. side of the Detroit-Windsor Tunnel.
•Virginia sold 86.7% of the toll road between Leesburg and Dulles Airport for $533 million.
•Indiana entered into a 75 year lease arrangement for its 157 mile Indiana Toll Road for $3.85 billion. (The article, from the Washington Post, also does an excellent job exploring the infrastructure privatization debate.)
Who owns most of America’s roads and bridges these days – including all those mentioned above? Increasingly it is one player: Australia’s Macquarie Infrastructure Group (or some related subsidiary). And they are aggressively hunting for more deals. No wonder: Analysts say that Macquarie could make $133 billion over the 75 year life of the Indiana Toll Road Lease, for which Indiana got $3.8 billion. (The entire firm is doing extraordinarily well.) As the 800 pound gorilla in infrastructure deals worldwide, they are shoving other investment/private equity players out of the way. Says a source from a competing firm, “they seem to pay any price for what they want. Other firms simply can’t or won’t do that.”
The majority of these deals are considered public/private partnerships, or PPPs, which are long term leases. Local governments get the cash for immediate -and often pressing – needs, the investors take ownership of the asset, and monetize it through tolls which they set. There is little or no regulation of the tolls. (For example, the Skyway toll rose fifty cents to $2.50. It is currently scheduled to double by 2017.) Regulation of key issues like maintenance, vary widely from project to project. (The Minnesota bridge is owned by Hennepin County, and not a private firm.)
At least 20 states have recently changed local laws allowing private investment in infrastructure. At least two dozen major projects are being discussed around the United States, including the 537 mile Pennsylvania Turnpike, designed to plug a nearly $2 billion budget shortfall.
What could go wrong? Plenty. One real world example: Orange County, Ca. was forced to buy back a lease from a private French owner after seven years, because the lease provisions prevented the county from building additional highways that had become necessary due to persistent gridlock issues. The cost to the county was nearly twice what they had been paid.
What could go right? Also plenty. Local governments who are struggling under crushing costs – health care, law enforcement, etc – are getting much needed relief budget relief. But the issue often divides local communities, sparking important debate on the wisdom of placing the public trust in private hands.
So, given the math of the matter – an aging infrastructure and shrinking coffers – the question now reads: How worried should we be about who owns the bridge or road we’re driving on?