STAFF NEWS & ANALYSIS
US Infrastructure's Disastrous Solution
By Staff News & Analysis - March 22, 2013

Infrastructure, a time for renewal … Rahm Emanuel, mayor of Chicago, Illinois, lifts up a decayed wooden tube and waves it for emphasis. Many of the city's water pipes are over 100 years old, he says. Some, it turned out when the Water Department got round to replacing them, are made of wood. No wonder the network sprang 3,800 leaks in 2011 alone. Yet at the pace of investment that prevailed until last year it would have taken the local water company until 2059 to refurbish all the mains, the mayor points out. – Economist

Dominant Social Theme: The state is behind regarding infrastructure but surely it can catch up by organizing private industry.

Free-Market Analysis: It is a US scandal that the country's infrastructure is not just degrading but seriously degraded. While this is not a regular topic for mainstream reporting, every now and then it rises to the surface.

Of course, the real issue is seldom dealt with, which is how the combined US government can spend trillions and more trillions while the country's infrastructure continues to collapse. There are accidents big and small as the result of this evolving condition, often never reported unless they rise to the level of serious injury or even death.

This Economist article, excerpted above, provides us with considerable information about the US's sinking infrastructure. It suggests a solution as well, which is the public/private partnership. Here's more:

Cities like Chicago, with meagre investment budgets, generally rely on grants from the state and federal governments, along with municipal bonds, to pay for such improvements. However, the federal government's fiscal woes and the political impasse in Washington have been putting the squeeze on infrastructure funding. Take the highway fund, which Congress created to pay for its share (usually about a third) of improvements to roads and public transport around the country. It is supposed to be fed by receipts from the gas (petrol) tax of 18.4 cents per gallon, but this is not linked to inflation and has not been raised since 1993 …

With the city, state and federal governments all strapped for cash, Mr Emmanuel has had to turn to other sources of revenue. One obvious step is to increase the charges to users of the city's infrastructure. At his urging, the city council raised water rates by 25% last year; by 2015 they will almost double. That has allowed the city to start replacing leaking water mains at two-and-a-half times the previous rate. Similarly, fares on the L are rising, which should help cover the costs of refurbishing decrepit stations. Mr Emanuel also wants to encourage more private investment in the city's infrastructure, but its left-leaning voters are touchy about anything that smacks of privatisation. They noted that a consortium to which his predecessor sold a 75-year lease on the city's parking meters immediately quadrupled the fees.

Mr Emanuel's solution is called the Chicago Infrastructure Trust (CIT). This will help pair investors with projects that will generate a revenue stream to be hypothecated to cover the cost of the original investment, plus a return. First on its list are some $100m-worth of energy-saving measures in city buildings …

Mr Emanuel is not the only local leader coming up with inventive ways to pay for infrastructure improvements despite the fiscal squeeze. The number of "public-private partnership" (PPP) projects under way around the country, although still low by European standards, has jumped in recent years. They include a tunnel under construction in Florida, a commuter rail scheme in Colorado and road improvements in Texas and Virginia. The Centre for American Progress, not normally a cheerleader for red-blooded capitalism, reckons it should be possible to mobilise at least $60 billion a year in private infrastructure investment. That would be a huge step up from the paltry total of $10 billion raised through such schemes between 1990 and 2006.

For many, the public/private partnership-solution sounds reasonable, but is it really so? In fact, those worried about the endless, growing reach of government throughout the West should be concerned at any further encroachment on the private sector.

When one looks at US industry, the amount of state involvement is already quite dismaying. From the auto industry, to utilities, to the military-industrial complex, US governmental entities are interwoven throughout the economy. Add infrastructure to the mix and the US economy will resemble nothing so much as a vast interlocking complex of private and public interests.

Of course, all this is presented as a kind of harmless evolution of what is already underway. But when one looks at what IS, one may reach an inevitable conclusion that such partnerships are nothing but an invitation to corruption.

It is impossible to run such vast enterprises without creating "favorites." In fact, no matter how they are organized, some vendors will eventually be preferred over others. Those in government doing the choosing will accrue more and more power and utilize it less and less wisely.

To advocate increased private/public partnerships for infrastructure purposes will over time only aggravate what is already a disastrous situation. On the other hand, if the solutions do become prevalent, they will no doubt prove lucrative for those the largest vendors as well as initial investors and shareholders.

After Thoughts

Nonetheless, the cure is worse than the disease.

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