Take the Public-Private Road to Efficiency

February 22, 2013

During his State of the Union address, President Obama proposed many new spending projects, including a $50 billion plan to invest in America's highways, bridges and other projects. While the president stated that he wants to attract private capital for the investment, he still wishes that capital allocations remain under federal planners' control. In order to rebuild our infrastructure, policymakers should consider privatization instead of central planning, says Chris Edwards, director of tax policy studies at the Cato Institute.

  • U.S. infrastructure, such as toll roads, railways and urban rail and bus services, were built by the private sector in the 19th century.
  • In the 20th century, the federal government started taking over private infrastructure, which pushed up costs and reduced innovation.
  • The United States lags behind the global trend of partly or fully privatizing infrastructure, which has been particularly popular in Europe and Latin America.

Privatization attracts private capital, which ensures money is spent on high-return projects instead of "bridges to nowhere."

  • The public-private partnerships common to Canada and Australia improve on traditional government contracting by shifting elements of funding, management, maintenance, operations and financial risks to private businesses.
  • Private infrastructure projects are more likely to be chosen without political influence and are more likely to be completed on time and on budget.

The Publics Works Financing newsletter reports that only 1 out of 38 transportation privatization companies is based in the United States and only 28 out of 726 public-private projects worldwide are in the United States. Four Virginia projects, however, are leading the way for private infrastructure in the United States.

  • The Capital Beltway is operated by private companies, which built the 14 miles of Interstate 495 on time and on budget in 2012.
  • Private companies are building a three-mile tolled tunnel under the Elizabeth River between Norfolk and Portsmouth.
  • Built in the 1990s, the Dulles Greenway is another toll way in Northern Virginia that is privately financed and owned.
  • Built with $142 million in private equity, the Jordan Bridge spans the Elizabeth River between Chesapeake and Portsmouth and will be paid for with toll revenues.

Source: Chris Edwards, "Take the Public-Private Road to Efficiency," Wall Street Journal, February 19, 2013.

 

Browse more articles on Tax and Spending Issues