Felix Salmon

The problem with talking about federal infrastructure expenditures as “investments” is that someone like Dick Durbin is likely to take the term literally. He’s now introduced legislation which says that any time a state or city wants to privatize a transportation asset, it has to repay the federal government first. So if the government sunk a few hundred million dollars into a highway project, for instance, and then the state decided it wanted to sell off the right to collect tolls on that highway, then the toll operator or the state would first have to repay all the money that the feds spent.

Durbin explained to HuffPo’s Dave Jamieson what he was worried about:

As states and cities across the country face grim budgets, more and more are looking to stem their shortfalls by leasing existing assets, such as roads, lotteries or government buildings. The City of Harrisburg, Pa., may soon lease its parking meters to a private investors, as Chicago has already done for a 75-year period starting in 2008. Durbin remarked that he’s already watched the cost of parking soar in Chicago since that city’s deal was inked.

“It’s a caution to all of us,” Durbin said. “When we look at privatization, we have to look at the long-term.”

This is all a bit incoherent. For one thing, parking meters in Chicago and Harrisburg are a bad example here, because it’s hard to make a case that the federal government has a huge investment in them. And while Durbin is right that the 75-year contract in Chicago is far too long, he’s wrong to consider the rise in the cost of parking to be a bad thing: in fact, it’s the whole reason that the parking meters were privatized in the first place. Parking in dense urban neighborhoods should be expensive, but politicians are loathe to raise meter rates, so privatization is a way that they tie their hands and get to blame someone else.

The bigger picture here is that when the federal government invests in transportation infrastructure, it’s investing in a public good, and insofar as there’s a return on that investment, it’s seen in marginally higher tax revenues from the entire region. If some kind of private-sector involvement can improve the way that those assets are operated, so much the better. Remember that Durbin doesn’t have a problem with tolling roads, or charging for on-street parking: he only has a problem with the private sector having a contract allowing it to do such things. If local government does it, that’s fine — even if local governments are often hobbled by political constraints.

Somewhere in the Durbin bill is the germ of a good idea: preventing local governments from selling off valuable franchises for multi-decade terms in sweetheart deals at a fraction of their net present value, just to fill a yawning budget gap. Transportation privatization is hard to do well, and there’s precious little indication that most local goverments are any good at it. Wall Street can often make a fortune in such deals.

But that’s an entirely separate issue to the question of whether the project received federal funding in the first place, or how much money the feds spent. That’s a sunk cost: the federal government should in principle be happy if the private sector is now willing to pick up some of the tab.

A much more sensible way of doing things would be to set up the national infrastructure bank which the Obama Administration has been talking about since before it was even elected. The bank could be given oversight of public-private partnerships, could put together a set of best practices with regard to privatization contracts, and could generally professionalize an area which to date has been rather chaotic, politicized, and ad hoc. What’s needed here isn’t new legislation: rather, it’s the passage of old legislation which has been gathering dust for years. The infrastructure bank is a great idea, and someone should resuscitate it.

Ed at Gin and Tacos picked up on a particularly audacious section of the Wisconsin budget-repair bill yesterday: the governor can sell off any state-owned heating, cooling, and power plants he likes, at any price, to anybody he wants, without any kind of auction or bid-solicitation process, and such a sale would be defined as being in the best interest of the state and to comply with criteria for certifying such a transaction.

Ed calls this “a highlight reel of all of the high-flying slam dunks of neo-Gilded Age corporatism: privatization, no-bid contracts, deregulation, and naked cronyism” — but as Yves Smith notes, the sad fact is that all this language is gratuitous: if you’re a state, there are essentially no legal restrictions on how to privatize state-owned industries and franchises if you’re so inclined.

It probably comes as little surprise to note that the most lucrative privatizations have generally been done by parties of the left: I’m thinking in particular of the UK’s auction of 3G licenses, which netted the Exchequer $35.4 billion at the height of the dot-com bubble.

Right-wing parties, by contrast, are more prone to thinking of privatization as something inherently good, and of monies flowing to the government as a kind of taxation which is inherently bad.

And then of course there’s the other spectrum, from clean to corrupt, which is orthogonal to the left-right spectrum — the more beholden the government is to special interests, the more likely those interests are to wind up with sweetheart deals. Sometimes, the special interests in question are public-sector unions, which find themselves able to negotiate the kind of final-salary defined-benefit pensions which are now threatening state solvency and municipal bond markets around the country. At other times, the special interests are large corporations looking to buy up lucrative monopolies on the cheap. In both cases, elected politicians are not the best people to ensure a good deal; non-partisan career civil servants tend to generate much better results.

The advantage of privatization in cases like the Chicago parking meters is that it removes the utility from political meddling — in that case, from local aldermen who would always agitate for parking rates well below the optimal level. (Relatedly, if you haven’t read it yet, go read Ed Glaeser’s Atlantic essay on the massive economic cost of urban zoning regulations.)

But in the case of Wisconsin-owned energy plants, such considerations don’t come into play. There’s no reason to believe that the private sector will run those plants in a way that is better for the public, and every reason to believe that they will run the plants in a way that is worse (ie, more expensive) for the public. If the state wants to cut such a deal in return for a one-time check, that check had better be enormous. And there’s absolutely no reason to believe that it will be.

(Crossposted at CJR)