AP Photo by David Kolpack
Constructing the Red River Diversion, a $3 billion public private partnership in Fargo, North Dakota
If you believe that the Senate bipartisan infrastructure proposal is just part of a whole—that some of President Biden’s spending can pass in there under regular order, and the rest in a larger reconciliation package—then you might see it as a benign way to boost Biden’s bipartisan deal-making capabilities without sacrificing anything. As I’ve written, there’s not yet enough trust among the Democratic caucus for Biden to make that sale.
But if you see the bill as not wholly additive but subtractive, you might reject it on its own terms. We haven’t heard this critique much from progressive opponents of the proposal; mostly they talk about the lack of climate mitigation or other policies, and how passage of a second bill later is not guaranteed. But there’s an extremely valid concern about the substance of the bipartisan package.
We don’t have many details (perhaps by design) about the effort, save for a “fact sheet” that reportedly was only written by one of the 21 Senators involved. But we know that Republicans have rejected offsetting any of the $579 billion in new spending in the bill with tax increases, Biden’s preferred method for his entire American Jobs and Families Plans. Instead, the fact sheet lists 11 alternatives. It does vow to “reduce the IRS tax gap,” earmarking more money for tax enforcement to increase revenue from existing law. But the Gang of 21 agrees with the Congressional Budget Office’s picayune scoring of that provision ($40 billion in investment only yielding $63 billion in revenue), forcing them to dig deeper.
Democrats in Congress, who strongly condemned this very concept four years ago when Trump proposed it, have been mostly silent on it now.
Many have focused on the electric vehicle surcharge and gas tax indexing to inflation; the latter has popped in and out of the package, as the Biden administration has rejected user fees of this type as a violation of his campaign pledge to not raise taxes on anyone making under $400,000 a year. The list also absurdly includes “paying” for infrastructure investments with direct-pay municipal bonds and an “infrastructure financing authority,” which are just other modes of borrowing.
But the really scary piece is labeled “Public private partnerships, private activity bonds, and asset recycling.” In the name of building world-class infrastructure, these lawmakers would sell it off in fire sales to private financiers. We have lots of experience with infrastructure privatization that strongly suggests it should be avoided.
There was a time when Democrats did oppose such schemes; it was during the Trump administration. To the extent that Trump had an infrastructure vision, it was rooted in privatization. Wilbur Ross and Peter Navarro, who would each take high-level jobs in the Trump administration, wrote a paper before the 2016 election outlining their vision: $1 trillion in investment provided by private bond buyers, who would be guaranteed a tax credit to buy the bonds, interest on the debt, and an equity stake with dividends (with up to a 10 percent profit margin). It adds the usual song and dance about how private enterprise is so much more efficient than the public sector, therefore saving money overall.
It takes about two seconds to recognize how ridiculous this is. The government doesn’t require a 10 percent margin on equity, tax credits, and interest payments. That’s a layer of profit that gets built into the expenditure. Governments usually contract out design and construction to private contractors, but there are only two ways for these companies to reduce ownership and operation costs below what the public sector would spend, while still being profitable. They can cut back, either on safety or labor or maintenance; or they can extract a lot of profit from users of the infrastructure (think toll roads). If the infrastructure isn’t inherently profitable, like a bridge in New York City or a toll road in southern California might be, the upgrade probably won’t get built.
Democrats rightly and loudly objected to giving up public assets to private investors at the time. The biggest money-makers would be favored, they said, and less lucrative projects in rural or impoverished areas shunned. Governments would not only lose ownership but democratic control over roads, water systems, electrical grids, and who knows what else. As companies manage costs, it could lead to less resilient, more dangerous infrastructure. And the public would have a high likelihood of being gouged.
So why would Democrats entertain going down the exact same road under Biden that they rebuffed under Trump?
The private activity bonds referenced in the bipartisan proposal are a soft version of the Trump scheme of tax-exempt bonds to entice investors into infrastructure projects. A substantial amount of the private activity bonds issued by the Department of Transportation in recent years are for high-occupancy toll lanes. Public private partnerships are a euphemism for privatization, with companies controlling a natural monopoly like an expressway or a water line.
But let’s call attention to the third item on that list, “asset recycling.” This is an idea imported from Australia, which is really just an enormous shell game. It involves selling off public infrastructure to acquire the resources to build new infrastructure. It’s literally robbing Peter to pay Paul. Naturally the Trump administration was enthusiastic about it, though they never passed legislation on it. That’s fallen to this bipartisan group.
Asset recycling didn’t work in Australia, mind you. States and territories were offered a 15 percent subsidy to rapidly sell off their existing assets. Some of the resulting deals included the Northern Territory in Australia selling the Darwin Port to a Chinese firm for 99 years, without even having another infrastructure project ready to spend the money on. These fire sales underpriced the assets, and the proceeds were rushed into unsound new projects largely based on what powerful politicians wanted rather than what the public needed. States with assets to sell won more capital for their infrastructure than states that might have had more needs. By 2016, the Australian program shut down, but it lives on in this U.S. proposal.
Our experience with privatization has drawn similar criticism, as it’s a triumph of short-term thinking and long-term pain. The city of Chicago sold off 36,000 parking meters to a Wall Street-led investor group in 2009, taking back $1.15 billion to plug budget holes. Chicago drivers will pay $11.6 billion over the 75-year life of the deal to park, and fees are scheduled to rise as much as 800 percent. When the city shuts down a street for a festival or parade, it has to pay the private company for the parking revenue it loses. And the city cannot make improvements like bike lanes or sidewalk widening on metered streets, again because the privatizers might lose revenue. Indianapolis gave a similar 50-year lease on its downtown parking meters to a subsidiary of Xerox, using the money to build a giant downtown parking garage, a form of asset recycling. The garage on average is 5.5 percent full during the year.
We’ve also seen what skimping on costs to preserve profits does. A public-private partnership toll road between Austin and San Antonio was improperly built for drainage, and now whenever it rains, the nearby city of Lockhart floods. “Non-compete” clauses in other privatized road projects ban improvements within the vicinity, protecting private profits at the expense of local benefits.
“Communities across the country have been ripped off by public-private schemes that enrich corporations and Wall Street investors,” said Food & Water Watch’s Mary Grant in a statement. “It is nothing more than an outrageously expensive way to borrow funds, with the ultimate bill paid back by households and local businesses in the form of higher rates.”
The politicians who make these deals are usually out of office when the public’s bill comes due. They can hold a ribbon-cutting ceremony and boast about what they’ve done for the community, without being held accountable for the off-balance-sheet loan they’ve burdened their citizens with.
But Democrats in Congress, who strongly condemned this very concept four years ago when Trump proposed it, have been mostly silent on it now. Indeed, ten Senate Democrats signed off on the privatization scheme. Sen. Bernie Sanders (I-VT), chair of the Senate Budget Committee, did reference “the privatization of infrastructure” on Meet the Press over the weekend as a reason to not support the bipartisan proposal. But, he added, “we don’t have the details right now.”
We have enough details to say that the plan, far from just getting a portion of Biden’s infrastructure agenda done, would actively undermine it. It would fleece the country’s public works, the common institutions we all paid to build, and allow private companies to control them. It was unacceptable under a kleptocratic Republican president, and there’s nothing different about it that would make it suddenly acceptable to the same opponents today.
