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

The Financial Crisis on ALL Streets

One of the biggest worries about the current financial crisis on Wall Street is that it will spill over and affect “Main Street”. Yet Main Street is not the only street we should be worrying about, ALL streets could be affected. In other words, this economic emergency will surely impact the next transportation bill in a variety of ways.

To begin with, the large increase in transportation spending that many in Congress are calling for may not be possible given the massive amounts of debt the government will soon take on if it finances a bailout. The current transportation revenue mechanism, the Highway Trust Fund, is already faltering, unable to raise enough money to keep up with authorized spending. Forget about increased spending, even spending at our present level in the future is impossible unless either new transportation fees are levied or money from the general fund is appropriated. Given that the general fund is already maxed out, something has got to give: either more national debt or higher transportation charges for users.

It is highly unlikely, but conceivable, that spending on transportation would decrease, but that would be a huge mistake. An efficient transportation system is fundamental to economic growth, and while underinvestment in infrastructure may not cause pain today, it surely will down the road. But, as we have mentioned in various other places, there are at least two things that can be done to improve transportation without increasing spending: more effectively invest what we already have, and better price the existing system to increase its efficiency.

We cannot expect to improve the transportation system simply by throwing more money at it; that was tried with the last transportation bill and it has failed. What is needed is smarter investment, investment that is prioritized on national goals and on performance outcomes. As obvious as that sounds, it would be a sea-change in how things are done today.

In addition to performance based investment, better pricing of the current system would improve efficiency overnight. For example, a free, bumper-to-bumper lane on the highway carries many fewer cars per hour than a priced lane that has free flowing cars.

These are simple ideas, but recent transportation bills have not addressed them directly. Perhaps the financial crisis will necessitate a back to basics approach in the next go-around, which would help the transportation system without costing a dime.

-Daniel Lewis