Public Infrastructure, Private Investment? Whose Hands Are in Whose Pockets?

10 Oct 2014 3:09 PM | Deleted user

Read the US Department of the Treasury's new report "Expanding our Nation's Infrastructure through Innovative Financing," and you would think that flipping a coin to decide whether our roads, water and other basic infrastructure should be public or private is as rational as any other way to operate. Or as the Treasury report puts it, "The line separating public from private infrastructure is not always clear" because schools, roads and other infrastructure can be financed through either the private or public sector.

While Treasury observes that public money to finance big infrastructure projects has dried up, it fails to ask why that money has disappeared. Treasury could have found answers had it asked why the post-World War II generations had enough money to build our national interstate highway system, while today Americans' pockets are so empty their only alternative is the private sector.

Read the entire article HERE.

Taxing Problems

Had Treasury been interested in finding a solution to today's budget woes, it would have asked how the World War II generation financed and built neighborhood schools and national infrastructure projects, to say nothing of financing science research that supported vaccinations and public health.

Had today's Treasury impartially examined the facts and history, it would have learned that the magic in their market was a highly progressive federal income tax with the top tax brackets at more than 90 percent. But that would mean following the adage: "From those to whom much is given, much is expected." (Luke 12:48).

Today's Treasury edits that text as, "To those to whom much is given, much more is expected." Rather than fairly examining the effects of high versus low tax rates on financing public infrastructure, Treasury advocates keeping tax rates low for the wealthiest as the path to prosperity.

One of Treasury's and the privatizers' most recent schemes is monetizing risk.

When the private sector takes on risks that it can manage more cost-effectively, a PPP [Public - Private Partnership] may be able to save money for taxpayers and deliver higher quality or more reliable service over a shorter time frame. Just as there is a range of roles that a private firm or firms can take on in a PPP, the nature of risk-sharing and compensation arrangements for bearing and managing risk can vary substantially from project to project and is governed by contract.

Risk has been the buzzword used by the PPP advocates for several years now. However, there is scant evidence of risk taken on by the private investors, and, more recently, the evidence is that it is the public who bears the risk.

Belief Versus Facts

The Treasury report on infrastructure privatization lists the usual claimed benefits of infrastructure privatization. It is supposed to provide a "choose your own adventure" à la carte menu of contracted-out responsibility. Instead, what it provides is a magician's sleight of hand diversion of the audiences' focus.

Randy Salzman's in-depth analysis of privatization financing in transportation found that the financing model was for the private "partner" to invest as little as possible; to finance the project through state, county or federal government funding; and to declare bankruptcy by the 15th year of the contract and then walk away leaving the public with crumbling infrastructure and out of pocket. Salzman lays out the scenario which the privatizers are using as they laugh all the way to the bank with our money.

It is ironic how the Treasury report overlooks the most obvious issues. For example, it holds up as a model the Denver multi-modal project. At the March 5 Congressional Hearing, Congresswoman Eleanor Holmes Norton's questions about financing for the Denver project showed the actual funding components of the project and found that only 3 percent of the money invested in the project came from the private sector. Meanwhile, Treasury skips over its fuzzy privatization math, as it comes to praise Caesar, not to bury him.

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