Why Not Private Infrastructure?

September 8, 2010

In a speech to union supporters in Wisconsin, President Obama announced his intention to take the country $50 billion deeper into debt in order to finance more public infrastructure projects. The president defended his abysmal economic record by claiming that he has had to take on “powerful interests who had been dominating the agenda in Washington for too long.”

The president’s populist rhetoric is at odds with the fact his latest spending proposal would benefit special interests that have dominated his agenda: unions and state governments. The unions want more federally-financed infrastructure projects because federal requirements, such as Davis-Bacon rules, mean higher union wages. 

Federal transportation funds allow state officials to steer economic resources toward headline-grabbing projects without having to ask state taxpayers to foot the bill. Not surprisingly, the American Association of State Highway and Transportation Officials, which recently called for $600 billion in federal transportation funding, promptly issued a laudatory press release.   
Instead of depriving the private sector of another $50 billion plus interest, why not allow it to play a greater role in funding and operating the country’s transportation infrastructure?
For example, most policymakers act as if there is no alternative to government-financed highways. However, as a Cato essay on federal highway funding explains, the U.S. has a rich history when it comes to privately financed and operated roads. More importantly, new technologies not only make private roads more plausible, but ideal: 
Looking ahead, there are no technical or economic reasons why the highways of the 21st century should not be private toll roads once again. Modern GPS-based technology enables mileage-based tolls to be debited to road users, and the revenues credited to road providers, without vehicles having to stop, and without invading the privacy of road users… 
While payment for road use by fuel taxes involves paying into opaque government-controlled funds with no knowledge about how the revenues are spent, mileage-based fees can provide precise and transparent information on the payments being made for each road segment, and thus illuminate the costs and efficiencies of different road providers. Such information, which could be made available without revealing the identities of the road users, would be sure to be publicized, and thus help move the control and financing of roads from nonresponsive government funds to competitive suppliers operating in open markets. 
The biggest obstacle to private provision is that federal funding and associated privileges makes it difficult for private operators to “compete” with government roads: 
By subsidizing the states to provide seemingly “free” highways, federal financing discourages the construction and operation of privately financed highways. A key problem is that users of private highways are forced to pay both the tolls for those private facilities and the fuel taxes that support the government highways. Another problem is that private highway companies have to pay taxes, including property taxes and income taxes, while government agencies do not. Furthermore, private highways face higher borrowing costs because they must issue taxable bonds, whereas public agencies can issue tax-exempt bonds. 
The bottom line is that the private sector can satisfy our transportation needs if given the chance. Unfortunately, myopic policymakers are stuck in the 20th century, which is exactly where the special interests they bemoan would like them to stay. 



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