Chapter 7: Infrastructure (Steve Steckler and Lavinia Payson)

This chapter illustrates the benefits of privatization as it relates to the infrastructure of local areas. Our nation has a history of privatization in infrastructure, particularly during the colonial period and the first 150 years of independence. As Eastern cities grew governments thought infrastructure should be a subsidized government responsibility due to their tax-exempt status, leaving electric power, gas, and water utilities to private interests for the most part. During the 1950s, 60s, and early 70s, federal infrastructure grant programs further killed any chance of privatization because almost no private firms were awarded these grants. Today, a tax-exempt status of government property, income, and debt gives New York State and local government a subsidy of over 40% compared to a private firm. Users pay less, but taxpayers pay more. Currently, much of New York's infrastructure is in much needed repair and rehabilitation, for example New York needs $856 million more a year just to maintain state highways and bridges.

The authors, Steve Steckler and Lauinia Payson who work for Price Waterhouse's Privatization Infrastructure Finance Group, contend that privatization holds a number of positive possibilities; Privatization will provide new private capita; Facilities will be built more quickly, more efficiently and operated more cost-effectively. New sources of tax revenue are created, and greater customer satisfaction is likely due to the financial interest of the private operator.

Steckler and Payson propose the government sell or lease existing infrastructure to private interests for the purpose of repairing, expanding, or otherwise enhancing the value of the facility. This will work best when: The facility is already financed with direct user fees. When the facility has relatively little outstanding debt compared to market value of the facility. When there is relatively little obligation to repay state and federal grants, and when substantial opportunity for a new owner to expand the revenues of the facility and otherwise increase its commercial value through changes in type, quality, and quantity of services. The idea is for these private sector developers to finance and operate facilities, collecting revenue from users. They also propose the government contract with and pay private firms to operate the facilities.

This appears to be the right time to take such action. In addition to the Federal Transportation Bill (Dec. 1991), there are many other opportunities to take advantage of. Of the 17,350 bridges that are in need of repair many should be turned over to private interests. The Thruway could be sold (for $1 billion) or operations and maintenance could be contracted out with reduced tolls. Private interests should also develop land along the canal system, develop a high-tech. MAGLEV rail system, and build wastewater treatment plants and correctional facilities. The authors also propose the selling of state buildings as well as the selling or contracting of street lighting to unbundled ownership, and provide better maintenance and electric power.

To achieve these goals NY legislation will have to take some steps. First they should promote private sector involvement in many areas. Legislation should require reports on surpluses and reserves in state-chartered infrastructure authorities. There should be tax exemptions of the interest on project debts by private firms, and there should be conditional state infrastructure grants to private projects where the profits and user chargers are strictly regulated.