Officials are crafting Trump’s initiative, and he has yet to decide which ideas will make the final cut. But two driving themes are clear: Government practices are stalling the nation’s progress; and private companies should fund, build and run more of the basic infrastructure of American life.
Privatization often turns into yet another form of lemon socialism. The government sells property to a private party, which tries to recover that money from users of the land. If the private party succeeds, they keep the profit. If the private party fails, they abandon the project and throw whatever mess they made back at the taxpayer.
There’s an insider development scam that’s not uncommon at the state level – a politically connected developer is giving advance notice that a government agency is soon going to lease a building, and is told the specifications of the desired property. The developer then either builds or remodels a property to that exact specification. When the agency publicly announces the plan and seeks bids, the developer provides the best match to the agency’s specifications, perhaps even being able to eke out a higher rent per square foot based upon the exactness of the match.
There are plenty of other opportunities for corruption, or for short-sighted deals meant to cover a short-term budget shortfall while harming the government’s future revenue:
Chicago’s inspector general cited the 75-year lease of city parking meters to a private firm for $1.16 billion in 2008. Under the same terms, the city would have earned at least $974 million more by keeping the meters, the IG said.
The most favorable interpretation of that deal is that the city was incompetent in its negotiations.
The idea of selling off a property, such as an office building, then leasing it back is rather common in for-profit enterprises, as it can free up cash while also providing tax advantages. Such transactions usually involve long-term leases with specified periods of renewal, such that the company has the option of walking away from older properties that may need to be replaced or significantly remodeled if the company remained in place. Those advantages are largely absent for government offices.
If a unit of government sells a building and leases it back, that’s not much different from borrowing money – the government can immediately spend the amount paid to purchase the property, but in future years that money is gone and all that remains is liability under the lease. Issues are similar for public infrastructure – the purchase price is spent when it is received, future revenues from the infrastructure go to a private company, and taxpayers pay fees to use the infrastructure. Private toll roads are a common example – and while some toll roads operate well and are well-maintained, others are not as well-maintained, or become costly to use (especially for people of limited means).
In such arrangements, a private firm might bring together investors and low-cost federal loans to expand a highway, for example, then collect tolls from motorists to recoup costs and earn a profit.
If private industry is going to bring such efficiency to the table, why do they need to be subsidized?
Still, there are bipartisan concerns that important projects have been stymied by politics and bureaucracy, and that Washington has been unwilling to allocate the money for needed improvements. A civil-engineering group in March tallied a “$2 trillion, 10-year investment gap” in the nation’s roads, transit systems, bridges, water systems, power grids, parks, ports and schools.
Privatization is not an answer to political cowardice. It is not a superior alternative to impose potentially high fees on people to use infrastructure that could be funded at a more reasonable cost, and in a more equitable manner, through taxes or through a government-managed system of user fees. Privatization in this context is not cheaper to the taxpayer – it may change individual winners and losers but, on the whole, it ends up costing more because the private developer will need to make a profit.
Billionaire developer Richard LeFrak, a Trump friend… who co-chairs the advisory committee with another Trump friend, Vornado Realty Trust Chairman Steven Roth, said they have also been wrestling with another challenge,the controversy over high-speed rail, “which is one of the things people dream about.”
But he has seen studies showing a much lower per-mile cost for using driverless cars instead. So should the government invest in rail, which takes passengers station to station, or in “some kind of road network which is going to allow these cars to travel at relatively high speeds” and take a passenger door to door? he asked.
It’s not that high speed rail does not have its own set of issues and limitations, and certainly one can find or produce studies that illustrate how future, theoretical transportation models might be an improvement over those that actually exist, but you can’t build public policy around science fiction and wishful thinking.
The mad scramble to develop driverless passenger vehicles, and the efficiency that could result from having the streets go mostly to entirely driverless, are real – but the process of developing that technology to the point that it is safe and widely implemented is still in its earliest stages. The most difficult aspect of driverless technology is the pick-up and drop-off in high-traffic and urban areas, so it’s absurd to make that your excuse for not developing mass transportation projects that are needed right now and will work under existing technology.
Privatization exists in public infrastructure – the government relies upon private contractors and a bidding process for the creation of the infrastructure, and in most cases for any major maintenance of the infrastructure. That’s consistent with the original conception of privatization – that the government should not try to replicate services that are already available in a competitive marketplace. Where the Republicans have gone wrong – or gone right, from the perspective of the profiteers – is by making “private companies do it better” a mantra, and using that mantra to justify privatization where there is no competitive market, usually with the result of lowering quality or increasing costs in other ways – because the private company has to make a profit, while the government does not.