Is Failed Midway Airport Deal a Blow to Infrastructure Privatization?

Earlier this week the planned sale of Midway airport to private investors by the city of Chicago fell through. Observers such as the Wall Street Journal are calling it a blow to the privatization of infrastructure more broadly. Whether that is true or premature, it highlights an important issue for transportation policy: The private appetite for infrastructure will inevitably ebb and flow with market conditions, experiencing booms and busts over time like other areas. Public policy must take this into account when considering the role that private capital can and should play in infrastructure investment.

In recent years the ability of private capital to invest billions of dollars in infrastructure has been highly touted – leaving the impression that private money can fill a substantial portion of the current investment shortfall. When interest rates are low and credit markets are loose the potential of public-private-partnerships (PPPs) looks much rosier. It becomes easy to imagine that the flow of private money will persist indefinitely, that somehow infrastructure investment is an investment class immune to traditional booms and busts, that it can always and forever provide investment. Under this view, it becomes possible to imagine that the public is best served by abdicating its traditional role as provisor of infrastructure.

Although we have just built up a bit of a strawman to knock down, the outgoing administration had an explicit policy against raising federal fuel taxes and in favor of leveraging private capital as a substitute. It is good public policy to harness private capital when available and appropriate, but similarly it is poor public policy to rely on that private capital for essential infrastructure investments. Public money will always have an important role in infrastructure investment – especially as a consistent provider when the market is not responding. There is also a specific federal role to be played in addressing critical investments of national importance. There is, without a doubt, a beneficial role to be played by PPPs, but the limitations of that approach have become apparent in the current economic crisis. Public policy must take all this into consideration in the upcoming authorization bill when weighing how public and private money can be used to achieve the greatest good.

-Daniel and Joshua