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'Public-Private Partnerships' Sound Great, But Private Investment Requires Public Accountability

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As America sought a path out of the shadow of the Great Depression, we quickly realized that austerity was not the answer. Rather than shove our hands in our pockets and mutter something about "the new normal," we opted to dream big. And when we dreamed big, we built big. In the 1930s, we built The Golden Gate Bridge, the Lincoln Tunnel, the Hoover Dam and brought electricity to the South with the Tennessee Valley Authority. Nearly a century later, those public works projects still capture our imaginations. Much of the infrastructure we rely on today - the roads, bridges, water systems and transit networks that move America - dates back to the New Deal-era.

Sadly that willingness to dream big has fallen by the wayside during the last few decades. Make no mistake: if America is a house, our frame is in shambles. Last year, the American Society of Civil Engineers (ASCE) gave our infrastructure a grade of "D+." One in nine bridges in America is structurally deficient. Nearly half of all Americans have no access to transit, and millions more deal with irregular and undependable service far from their homes and places of work. The ASCE estimates that America must invest $3.6 trillion in the next seven years to recover from decades of neglect and divestment.

Public funding of infrastructure is the least expensive way to finance major infrastructure projects -- especially now at near zero interest rates. Government debt needed to finance multi-million and billion dollars infrastructure projects is far less than 15 or 20 percent returns the private investors say they need for their shareholders. .

However, in an era of austerity, even the most necessary investment is often seen as too costly or too politically difficult when they require new taxes or fees to pay the public debt. As a result, many state and local governments are looking at new financing arrangements -- Public-Private Partnerships (or P3s) that seek to use private capital to finance public projects.

In the wake of a number of high-profile P3 disasters like Mayor Richard Daley's 75-year lease of Chicago's 36,000 parking meeters to a Morgan Stanley-led consortium, governments are learning that they need to fully consider the long-term policy implications and the economic and fiscal impacts of these long-term deals.

Most importantly, many governments have overlooked the opportunity to use these arrangements to alleviate income inequality. To help state and local officials make sure that private investment in our public infrastructure protects and advances our public needs and remains solidly in public control,, In the Public Interest has assembled a new backgrounder, entitled "Infrastructure Justice: Building Equity into Infrastructure Financing."

Specifically, for P3s to be successful, they must be structured as what ITPI calls "win-win-win propositions:"

  • A win for the public in the form of a rebuilt infrastructure essential for efficient development, production, and distribution of goods and services
  • A win for job creation that lifts families out of poverty and reinvigorates a thriving middle class
  • A win that generates an adequate rate of return for double-bottom line investors

Realizing the goals of "win-win-win" requires that governments be guided by several principles. First, the public must maintain democratic control of infrastructure as well as the ability to make public policy decisions in the future. Some P3 contracts allow private developers to set and raise usage fees, or even place restrictions on the maintenance and new construction of fully public infrastructure. Bad arrangements like this are made worse when contracts last for several decades. This is a raw deal for communities, and must be prevented. For example, toll express lanes on Washington, D.C.'s, Capital Beltway require the state of Virginia to reimburse Transurban, the Australian company behind the P3 project, if carpoolers compose more than 24 percent of traffic. For the 40-year duration of the contract, Virginia taxpayers are penalized for reducing traffic congestion and air pollution.

Second, communities must be included in decision-making processes. When a P3 project comes to a community, it is vital that the public participates in determining how the proposal should benefit that community's employment and economic needs. Once those decisions are made, it is essential that projects are fully transparent and accountable to public institutions. Public goods deserve public scrutiny, even if they are built using private capital.

Most importantly, infrastructure projects are the perfect opportunity to strengthen the middle class, advance public goals, and lift disadvantage populations out of poverty with good paying jobs and career enhancing skills. When P3 infrastructure projects provide a living wage and good benefits, communities benefit two fold by providing economic opportunity for the current generation and leaving the highways, schools and utilities necessary for future development.

The recovery from the 2008 recession has been long and hard for many middle class families. As markets reach new highs, many Americans remain out of work or in jobs that don't quite make ends meet. In an environment like this, we should not forget our Depression-era foregoers. They built the grand, iconic infrastructure projects that launched the golden age of American economic expansion and the largest, most successful middle class in the history of civilization. With strong safeguards that ensure transparency, accountability, and democratic control, we can rebuild our country, raise communities out of poverty and reinvigorate the American middle class.