Public-Private Partnerships: A Solution for Infrastructure

January 30, 2013

The private sector is best suited to finance, design, build and manage America's next generation of public infrastructure, says Chris Edwards, the director of tax policy studies at the Cato Institute.

  • The private sector -- factories, warehouses, freight rail, pipelines, refineries and others -- outspends the government four to one.
  • In 2011, private investment accounted for $1.818 trillion in infrastructure spending compared with the government's expenditure of $480 billion.

Pundits and special interest groups often remark that America's infrastructure is crumbling but statistics suggest that over the last 30 years America's system has become more reliable and spending has increased.

  • Since 1992, the share of the 117,000 bridges considered "structurally deficient" or "functionally obsolete" by the National Highway Administration has fallen from 8.7 percent to 4.6 percent and 18.6 percent to 14.4 percent, respectively.
  • As a percent of gross domestic product, federal spending on infrastructure has remained steady since the Interstate Highway System was built in 1965.
  • Many projects funded through federal infrastructure spending suffer from large cost overruns and create more long-term problems than they fix.

The Obama administration has called for an increasing federal role in infrastructure but the federal government is in no position to add to its huge deficits. Edwards writes that taxes, bonds, user fees, public-private partnerships (PPP) and privatization are all options that would allow state and local municipalities to fund infrastructure projects without relying on the federal government.

  • The United States is lagging behind Australia and Europe in partially or fully privatizing infrastructure.
  • PPPs shift various elements of financing, management, maintenance, operation and project risks to the private sector while still maintaining some degree of government oversight or involvement.
  • The private sector is more adept at choosing high-return investments, which makes PPP infrastructure projects more likely to be finished on time and on budget.

A top-notch infrastructure is a vital component of America's global competitiveness. Privatization will allow America to develop its infrastructure in the most cost-efficient and innovative manner. Removing barriers to business investment, government subsidies and overzealous labor regulations will be instrumental in encouraging private sector interest in building America's next generation infrastructure.

Source: Chris Edwards, "Infrastructure Investment: A State, Local, and Private Responsibility," Cato Institute, January 2013.

 

Browse more articles on Tax and Spending Issues