12:02 a.m. ET June 8, 2017
Washington — President Donald Trump said Wednesday that his administration’s efforts to create a more business-friendly regulatory environment in the U.S. will encourage private companies to invest in construction of public assets such as airports, bridges and highways.
Trump is calling for federal spending of $200 billion over 10 years that administration officials say can be used to “incentivize” up to $800 billion in private, state and local spending on infrastructure. At the plan’s core is the assumption that private companies would enter into “public-private” partnerships with local and state governments.
The president said during a speech on Wednesday in Cincinnati that businesses “are ready to invest in creating jobs, but we’ve been waiting for a responsible partner in the federal government,” although he did not identify specific projects that will receive private money.
“We will work directly with state and local governments to give them the freedom and flexibility they need to revitalize our nation’s infrastructure,” Trump said. “Working with states, local governments and private industry, we will ensure that these new federal funds are matched by significant additional dollars for maximum efficiency and accountability.”
Critics say Trump’s privatization of public assets could lead to increased use of tolls and other mechanisms that will allow private companies to generate profits in exchange for financing projects. They cite examples of companies that have entered into agreements with state and local governments and later gone bankrupt or charged higher than expected tolls for the use of roads and bridges.
And it could lead to increased use of tolls and other mechanisms that will allow private companies to generate profits in exchange for financing projects.
U.S. Rep. Brenda Lawrence, D-Southfield, is skeptical of such privatization plans.
“There is a difference between government and private industry,” she said in an interview with The Detroit News. “One exists to make a profit and one exists to ensure the quality of life for its citizens. We had a glaring example of looking at just profit when we looked at Flint.”
Trump advisers have said private companies may be able to operate infrastructure more efficiency than federal, state and local governments can. They said that to entice state and local governments to sell some of their assets, the administration is considering paying them a bonus. Proceeds of the sales would then go to other infrastructure projects.
Infrastructure was expected to be one area where Trump could work with Democrats in Congress to achieve a bipartisan legislative victory, but the idea of privatizing public assets is anathema to many members of the minority party.
“We’ve invested millions of dollars in our infrastructure. Are we just going to give it away?” Lawrence asked, adding that private investment could come at a steep price. “If a private company comes in and says ‘We’re going to invest in your port,’ they’re going to want a return on their investment. That’s the business way.”
The traditional source for U.S. transportation funding has been revenue collected by the federal gas tax, which is currently 18.4 cents per gallon. The federal government usually spends about $50 billion per year on roads, but the gas tax only brings in $34 billion. The gas tax has not been raised since 1993, and there is little appetite in Washington for taking a vote to do so now. Congress has turned to other areas of the federal budget in recent years to close the infrastructure funding gap, most recently transferring $70 billion to help cover five years worth of transportation spending that will run out in 2020.
Critics say the Trump administration’s plan relies too heavily on the idea that private companies will be willing to finance the nation’s construction projects.
“The idea that the private sector is going to provide a charitable donation to states to build roads is not how it works,” said Beth Osborne, senior policy adviser at the Washington, D.C.-based nonprofit organization Smart Growth America, which advocates for “responsible transportation and community development practices” in U.S. cities. “Policymakers are trying to find easy solutions for problems were there are none.”
In southeast Michigan, Detroit’s half of the Detroit-Windsor Tunnel was sold in 2013 to Syncora Guarantee, a Bermuda-based insurance company, during the city’s bankruptcy. Windsor still owns its half of the tunnel, which forced Detroit officials to include their Canadian counterparts in negotiations over the sale. More recently, the new QLine streetcar was built in part with federal money, but it is owned and operated by a nonprofit organization known as M-1 Rail that is separate from the city. Then there is the contentious private ownership of Ambassador Bridge over the Detroit River that has prompted plans for a publicly owned span between Detroit and Windsor.
The success in other states of most so-called “public-private partnerships,” or P3s, is up for debate.
In 2006, Indiana signed a 75-year lease of the Indiana Toll Road to a Spanish-Australian consortium for $3.8 billion. Eight years later, the private company filed for bankruptcy. Supporters have said it was better for taxpayers that a private company absorbed the losses that led to the bankruptcy, while others questioned whether lower-than-estimated usage of the toll road showed the investment that sparked the deal was unsound to begin with.
“In Indiana, they called it successful that the P3 went bankrupt because it didn’t fall on the state,” Osborne said. “But maybe it was not a wise investment to begin with.”
Robert Puentes, president and CEO of the independent Washington-based Eno Center for Transportation think tank, said Indiana ended up being very well protected. “They got the improvements to the road,” he said. “They got that up front and they got the road back when the company went bankrupt and they can bid that thing back out.”
The toll road was then purchased by an Australian company. Tolls went up this year after a state subsidy that was paid by the Indiana government to prevent toll hikes ended.
Virginia has been touted as model of the potential for public-private partnership since its successful launch of high-occupancy toll lanes on Interstates 95 and 495 in the Washington, D.C., suburbs in northern Virginia, which cost $925 million and $2 billion to build respectively. Drivers there have complained about high “on-demand” rush-hour toll rates are set by another private op private operator based on traffic conditions. Tolls at peak times have occasionally reached as high as $20.
Private partnership ‘supplemental’
Ed Mortimer, executive director of Transportation Infrastructure at the U.S. Chamber of Commerce, said public-private partnerships are likely to always to part of the transportation funding solution, but he said only a small number of projects in densely populated areas can work as public-private partnerships. “There are only about 10 percent of transportation projects that would be even be amenable to P3s,” he said.
Mortimer said the Trump administration has looked into the possibility of selling the value of current assets to private firms to allow them to capture any return on investment through a process called “asset recycling.”
“It’s not something that we have done in the U.S., but it’s something the administration and members of Congress are looking very closely at,” he said.
He said the U.S. business community sees public-private partnerships as “supplemental, not a replacement for increased federal investment.”
“We think the best thing we can do is sure up the Highway Trust Fund to gives states and local governments some predictability,” Mortimer said.