Thursday, August 10, 2017

Yves Smith — Wall Street Journal Deigns to Notice Costly Indiana Toll Road Failure, Depicts It as Isolated When Toll Roads “Consistently” Go Bust

To restate the obvious, the US has a huge amount of infrastructure catch-up it needs to do. Infrastructure spending provides an estimated $3 of economic growth for every $1 of spending. That means debt worry-warts need not fear, since deficit spending on infrastructure would lower the Federal debt to GDP ratio would fall.

But since the balanced budget types can’t get out of their own way and embrace MMT, budget hawks and ideologues who prefer private sector profiteering to government provision of services both tout the idea of “public private partnerships” as a scheme for what amounts to privatization of public services. These schemes are a transfer from local citizens, who wind up paying users’ fees, to financiers, design and construction firms, and investors, the overwhelming majority of which are not part of the community. So they are net transfers out….once you ignore political donations.
So as opposed to adding to local growth, these privatizations amount to new taxes in the form of users’ fees, but paid to private owners. Even worse, the deals are very one sided, with “gotcha” clauses like requiring payments if the public amenity is taken out of service for pressing reasons, like an emergency.

These infrastructure deals are also a lousy way to stimulate growth, since where the promoters want to do their projects is routinely not where the real economy payoff is greatest. And the process for selecting the consortium to handle the project, negotiating the deal, and for the promoters to get the funding is much more time consuming than having the government do it itself, making a mockery of the claim that the private sector is more nimble.

But on top of these issues is that certain types of projects, most notably toll roads, have a record of consistent failure that the press chooses to ignore.…
Naked Capitalism
Wall Street Journal Deigns to Notice Costly Indiana Toll Road Failure, Depicts It as Isolated When Toll Roads “Consistently” Go Bust
Yves Smith 

20 comments:

MRW said...

She's right.

Matt Franko said...

No she's not...

Noah Way said...

The private sector is only efficient in generating profit.

Government has no intrinsic need or requirement to generate profit or even balance the budget. Except of course to assist in the generation of private profit that is used to reward the political class.

Matt Franko said...

Theyre efficient in maintaining roads too...

Six said...

"I'm gonna do infrastructure. It's gonna be the best infrastructure. You're gonna love my infrastructure."

Matt Franko said...

"These schemes are a transfer from local citizens, who wind up paying users’ fees, to financiers, design and construction firms, and investors, the overwhelming majority of which are not part of the community. "

This doesn't even make sense as all the revenues stay in the PPP which only exists to operate and maintain the local infrastructure...

Tom Hickey said...

The issue is really whether the roads should be entirely supported by user fees or public investment. The rationale behind privatization is that a firm can run a toll road for a profit by taking depreciation and using the deduction to keep the road in repair. The firm would cost everything out and raise tolls to maintain its desired profit margin. The alternative is to fund the road including maintenance through public funding, generally a mix of state and federal funding in the US.

Matt Franko said...

This kills me too:

""These schemes are a transfer from local citizens, who wind up paying users’ fees, to.... design and construction firms..."

Wtf? Who the hell does she think is going to do it? Gender Studies majors?

MRW said...

"Local citizens" didn't pay for the Interstate highway system under Eisenhower, even though government funds were used to build them in each state by hiring local builders, pavers, construction firms, signage companies, electricians, etc. And the government sold real estate alongside the roads to gas stations and motels. The state might have subsequently slapped tolls on their roads some years later as they did in NJ to earn revenue.

But what she’s talking about is the privatization of toll revenues like they have in California, where people and in some instances companies own sections of the highway, and are expected to use their revenues to maintain the roads.

Matt Franko said...

Chris Christie's "Bridgegate" couldn't have happened if the GW Bridge was under a PPP...

MRW said...

How do you it wasn’t? Did you bother to check?

Everything else was and is. The Port Authority runs George Washington Bridge and its construction, Matt. It’s a PPP and has long been. Every longtime NYCer knows that.

http://www.newsmax.com/US/Chris-Christie-Bridge-gate-David-Samson-Port-Authority/2014/02/11/id/552147/

http://www.panynj.gov/press-room/press-item.cfm?headLine_id=2722

”UPDATED: Timeline of Port Authority's George Washington Bridge controversy”
http://www.nj.com/politics/index.ssf/2014/03/timeline_of_the_port_authoritys_george_washington_bridge_lane_closure_controversy.html

MRW said...

From the Port Authority of New York and New Jersey website:

Founded in 1921, the Port Authority of New York and New Jersey builds, operates, and maintains many of the most important transportation and trade infrastructure assets in the country. The agency's network of aviation, ground, rail, and seaport facilities is among the busiest in the country, supports more than 550,000 regional jobs, and generates more than $23 billion in annual wages and $80 billion in annual economic activity. The Port Authority also owns and manages the 16-acre World Trade Center site, where the 1,776-foot-tall One World Trade Center is now the tallest skyscraper in the Western Hemisphere. The Port Authority receives no tax revenue from either the State of New York or New Jersey or from the City of New York. The agency raises the necessary funds for the improvement, construction or acquisition of its facilities primarily on its own credit. For more information, please visit http://www.panynj.gov.

And Investopedia can explain how these PPP contracts usually last 25-35 years, but they are much longer when it comes to the Port Authority, as the construction of the World Trade Center ought to tell you.

Matt Franko said...

The instutional form of an Authority is alternative to the institutional form a PPP...

This is the choice at hand...

Webber is advocating for the form of an Authority which imo is more easily corrupted as the heads and boards are politically appointed not selected based on their qualifications.... it's a textbook incubator for cronyism ...

The female in Bridgegate that is going to jail and was the head of the Authority was a Political Science major at Mt Saint Mary's and appointed by Christie....rather than a Civil Engineer or Transportation Engineer or something more appropriate....

So of course she politicized the operation of the bridge that was what she was trained to do....

Would never have happened under a PPP as the managing partner is legally tasked with optimizing the operations and seeks to maximize revenues via the number of individual tolls...

MRW said...

”Would never have happened under a PPP as the managing partner is legally tasked with optimizing the operations and seeks to maximize revenues via the number of individual tolls…”

IF that’s what the contract says. You seen it? It was written a gazillion years ago.

Matt Franko said...

Well you need competent people to create the legal constructs...

You can f up anything .... I'm just saying that the PPP does not as easily lend itself to corruption as the managing partner has legal obligations in the contract to optimize the operations and the public partner can't influence things beyond what they are legally allowed in the partnership agreement...

And all the munnie collected STAYS in the deal and can't be taken and used for other General govt purposes and maintenance deferred like we see happening now in spades under ZIRP as the govt pension funds are sucking the sap out of all sources of revenues to make up for pension shortfalls due to idiot ZIRP...

Matt Franko said...

Look at that Orville Dam fiasco in California, no maintenance on the spillways during the drought years as they siphoned off the funds to pay for social services for all the illegal aliens and now they are in deep shit and asking for a Fed bailout.. and they put 100s of thousands lives in danger...

PPP would prevent that type of corruption...

Matt Franko said...

"I'm gonna do infrastructure."

At least he has a plan ... material systems incompetent Democrats have identity politics...

MRW said...

And all the munnie collected STAYS in the deal and can't be taken and used for other General govt purposes

(Who cares? That’s not what Yves Smith was addressing anyway.) Besides Matt, it all depends on who is taking the risk. If it’s a private company, depending on how the PPP contract was constructed and issues involved, the private contractor can get all profits until a certain level is paid off. Again, depending on how the contract was constructed.

Sometimes, the federal govvie is the risk-taker, sometimes not. No two PPPs are alike, nor their expiration or maturity dates. Sometimes the PPP contract specifies the private contractor gets to dictate and collect user fees, sometimes not. Sometimes the private contractor doesn’t have a penny in the game but gets profits for managing and maintaining the project once certain milestones are reached.

The choices are as varied as types of BBQ. The only consistent thing is using fire/heat.

Six said...

"At least he has a plan."

Good god, you're gullible! His "plan" probably consists of asking the Heritage Foundation or the Cato Institute what their plan is. Or waiting to sign whatever nonsense Congress passes and presents to him. A plan? That's hysterical!

Matt Franko said...

It's detailed:

http://peternavarro.com/sitebuildercontent/sitebuilderfiles/infrastructurereport.pdf