by John Lawrence
Trump Promises a Trillion Dollar Investment in Infrastructure
It will be an investment by private equity and hedge funds which grants them huge tax breaks. Those will have to be made up for by the middle class American taxpayer. In addition freeways will be replaced by toll roads so that not only will Americans pay more taxes while Wall Street benefits, they will pay tolls as well. So while $1 trillion may or may not be invested (over 10 years), most of the investment will be made by corporations that will then have the right to impose tolls on the American public. There will be tolls for everything from roads and bridges to water and electrical. Americans will probably even pay tolls for toilet flushes eventually. Got to pay for those rebuilt sewage systems somehow! Public Private Partnerships (PPPs) will boil down to private ownership of US infrastructure.
Meanwhile, private investment in infrastructure in poorer areas (think Flint, Michigan) will not take place at all because it's not profitable. Infrastructure investment in rural areas will also languish for the same reasons. Workers who build the new infrastructure will work for lower wages since they won't benefit from the same wage levels as Federal workers. Profits will come from reduced wages and benefits for construction workers and the workers who operate and maintain the assets after construction is finished. If the Federal government funded the projects, Davis-Bacon or prevailing wage requirements would be in effect, but the Trump-Ryan-McConnell legislative package could include a repeal of that 1931 law. The permanent workers could become private-sector workers with lower wages and reduced health and pension benefits.
The American Society of Civil Engineers gave the US a D+ rating recently in its infrastructure report which comes out every four years. They say poor infrastructure is costing the economy $3.9 trillion in GDP. They grade infrastructure in 16 different categories. The only category that passes muster is the freight rail system. Everything else - roads, bridges, ports, airports, drinking water, waste water, energy, dams, levees etc - is sub-par. Infrastructure-wise, the US is a third rate nation.
Four in ten of the country's 614,387 bridges are more than 50 years old and near the end of their designed life span. Nearly 59,000 are structurally deficient. There are 240,000 water main breaks each year which waste 2 trillion gallons of water. Traffic backups cost $160 billion in wasted time and fuel in 2014 and 20% of highway pavements are in poor condition.
Trump's plan to privatize infrastructure would also, Republicans might claim, help the environment. As tolls on highways and bridges rise, more people won't be able to afford them and so there will be fewer cars on the road - fewer poor people's cars, that is. The poor and carless will be forced onto public transportation to get where they're going. Or they may take Uber or Lyft which are cheaper than taxis and provide an alternative which many people are using today. Only the rich will be able to afford private automobiles. That's one way to forestall climate change. However, public transportation, having been sold off to private investors might become exorbitantly expensive as well.
The Federal gas tax hasn't been raised since 1993. 19 states have increased the gas tax though to pay for infrastructure. GA governor Nathan Deal wanted to do something about gridlock in Atlanta. In 2015 the gas tax was raised 6 cents a gal. This gave rise to a $10 billion transportation bill over 10 years. Some governors are doing it right. A gas tax may be the best way not to sell off public assets. Now Governor Jerry Brown is proposing raising the gas tax in California.
So how will we fund the necessary improvements in infrastructure? It comes down to a gas tax or a toll road. It's as simple as that.
Are Toll Roads a Bad Idea?
From the beginning, there were plenty of reasons to suspect that Texas 130 — a private toll road between San Antonio and Austin — was a bad idea.
For one thing, the state of Texas looked into extending the highway in 2006 and concluded it wouldn’t generate nearly enough toll revenue to pay for construction.
Nevertheless, when two private firms, Cintra and Zachry Corp., decided to take the project on in 2008, the state of Texas and federal officials were happy to help. Cintra and Zachry put together a deal to build the $1.35 billion freeway. They lined up $430 million in federally-backed TIFIA (Transportation Infrastructure Finance and Innovation Act) loans, and promised to share toll revenues with the state of Texas and pay $25 million upfront.
After shoddy construction the companies involved went bankrupt. Texas 130 is the third private toll road that received TIFIA funding to have declared bankruptcy or been restructured. It remains to be seen how much of the $430 million in TIFIA loans can be recovered.
In another case, Virginia received a $150 million TIFIA loan for the “Pocahontas Parkway”. The full balance of the federal loan was transferred to the new owner, DBi Services, in May 2014, after original owner Transurban surrendered the road in a “defacto bankruptcy” in 2013.
In San Diego, the South Bay Expressway borrowed $172 million backed by TIFIA. The balance of that loan was written down in bankruptcy to $93 million. In return, the federal government was given a 32 ownership stake.
Cities and states are strapped for cash. They are selling off city assets to make ends meet. In southern Virginia a tunnel was privatized. The tolls started low but have risen to $11. The state of Virginia now subsidizes some low income drivers. A toll road in Denver didn't used to cost taxpayers a dime but now costs drivers as much as $18 one way. Americans don't want an increased gas tax, but the alternative is to pay tolls through the nose to private corporations.
Chicago's Privatized Parking Meter Fiasco
Privatization has its bleak underside. Consider Chicago which privatized its parking meters back in 2008. The cost of parking has more than doubled since then and the lease is for 75 years. Former Mayor Richard M. Daley quietly negotiated the meter selloff behind closed doors for $1.15 billion. It was either that, he said, or lay off hundreds of employees. The City Council rubber stamped the Mayor's deal. And then there are the hidden clauses. For instance, if the city blocks off the streets for a street fair or a parade the contract calls for the City to make up what the private company lost in parking revenues.
Chicago Parking Meters' (CPM) income stream last year included $6.5 million in direct payments from the City as penalties for taking meters out of commission. That means taxpayers still have to compensate CPM every time the city needs to shut down a meter for street repairs, festivals, summits, traffic flow, or any other reason. Better hope President Trump doesn't make any appearances there. That will shut down a lot of streets and cost the citizens of Chicago a lot of money.
CPM is a consortium led by Wall Street behemoth Morgan Stanley. Since the deal went through, rates have skyrocketed (downtown areas more than doubled in cost to $6.50 an hour by 2013) and the company has netted $778.6 million in revenue. By 2020, the company will have made back its initial $1.15 billion investment and will continue to profit for 60 years. They have also added new parking meters in outlying areas subject to the same exorbitant rates. The deal also includes revenue from underground parking garages. Morgan Stanley soon offloaded ownership of Chicago's parking meters to Alliance Capital Partners and the Abu Dhabi Investment Authority. Chicago’s parking-meter system took in $121.7 million last year, while four underground city-owned garages reaped another $34.7 million — with not a penny of that money going to the cash-strapped city government.
The public is outraged. Not only do they pay through the nose to a foreign corporation for parking, but their taxes go up to make up the shortfall to the City government caused by lost parking meter and garage revenue. Within two months of selling its parking meters to a coalition of U.S. and Western investors led by Morgan Stanley, Chicago's parking meters came under new, foreign ownership.
Mat Taibbi reported:
[The investment] process involved [Morgan Stanley]'s Infrastructure group going on a road tour to ask people with lots of cash to pony up. It was these guys from Morgan's Infrastructure desk who took their presentation to the Middle East and pitched Chicago's parking meters to a room full of bankers and analysts in Abu Dhabi, the Abu Dhabi Investment Authority, who ultimately agreed to purchase a large stake.
Trump said he wants to finance it with both public and private capital creating millions of new jobs. Billions in tax credits will go to private investors willing to finance public infrastructure projects. The project has to generate revenue for the private investors regardless of what the public has to pay in tolls.
Trump's Infrastructure Plan a Huge Giveaway to Wall Street
Trump's plan to privatize infrastructure development would cede control over public assets to private interests who would have to borrow the money from Wall Street. They would then recoup that money with tax credits. So basically Trump's infrastructure plan is a huge giveaway to Wall Street. Wall Street can borrow money from the Fed at zero interest. Then it would lend it out to private developers at say 5%. Essentially government would be lowering its tax revenues by a huge amount because it doesn't control the Fed which is under private bank ownership. So the US does not own its own central bank. If it did, it could borrow money from the Fed at zero interest instead of having to have the money funneled through Wall Street, which controls the Fed. What it comes down to is that the American public has to pay taxes to support Wall Street.
Paul Krugman says:
First, why involve private investors at all? It’s not as if the federal government is having any trouble raising money — in fact, a large part of the justification for infrastructure investment is precisely that the government can borrow so cheaply. Why do we need private equity at all?
One answer might be that this way you avoid incurring additional public debt. But that’s just accounting confusion. Imagine that you’re building a toll road. If the government builds it, it ends up paying interest but gets the future revenue from the tolls. If it turns the project over to private investors, it avoids the interest cost — but also loses the future toll revenue. The government’s future cash flow is no better than it would have been if it borrowed directly, and worse if it strikes a bad deal, say because the investors have political connections.
But Paul doesn't get it. There is no need for the government to pay interest at all as Paul claims if it owned its central bank instead of it being owned by Wall Street. Governments built toll free highways for years. They're called freeways. If government didn't have to pay interest, it could do so again. Trump's plan would not only make automobile travel a thing of the past for poor people, it would privatize public assets and turn over control to private interests whose sole consideration is the profit motive. That's why it's necessary to create public banks at the Federal, state and municipality level so the nation does not proceed down the road of turning the American public into debtors beholden to Wall Street. They are already in enough debt to Wall Street from student loans, credit cards, car loans and mortgages.
So everything the private equity or hedge fund investors would invest in would have a toll associated with it. Roads and bridges, of course, but also you would be paying higher rates for the water coming into your home if private equity fixed your water mains. You would pay higher rates for your electricity if private hedge funds improved the electrical grid. You could even pay higher rates for sewage disposal. Perhaps a modern toilet would have a meter that exacted a toll every time you flushed.
None of this would apply to rural areas where there is not enough traffic to extract tolls from roads and bridges. Water and sewage disposal are private anyway with wells and septic systems. So rural areas would be left to languish under the Trump infrastructure plan. Instead there would be a lot of Trump tunnels and Trump toll roads, not to mention Trump airports, in urban and suburban parts of the country. You thought he was egotistical when he put his name on all his privately owned properties. You ain't seen nothing yet!
Chicago learned the hard way in the midst of the recession, leasing its parking meters to Wall Street for $1 billion under value. Texas did too when the private investors in a toll road between Austin and San Antonio went bankrupt, leaving taxpayers to clean up the mess.
From The American Prospect:
The need for capital is real and in some cases urgent. It is possible that private capital could meet the need although at lower than their usual rates of return and without shifting operational control for multiple decades. We call this option “P3 without privatization” since the public maintains full control (not just ownership) of the asset.
Unfortunately, investors and infrastructure companies are pushing for the full privatization that relies on private finance, operations, and maintenance to be able to capture decades of stable revenues that come with long-term operation and maintenance of the asset. The promise they offer to policymakers is alluring, at worst false and at best not entirely true—lower costs, faster construction, and new ideas and innovations.
So get prepared to see red light cameras at every intersection with the fines going to a foreign (perhaps) profit making corporation, not to city government. Revenues will skyrocket as the corporation strictly enforces every traffic violation perhaps with its own private police force which will not deal with criminal issues but will deal with any finable infractions. This will increase profits immensely while cities will be cash strapped to deal with hard core criminality. Go a mile over the speed limit and your car will be recorded as such with GPS technology and you will be sent a bill payable to the XXX Corporation.
Privatization of Water System Led to Doubling of Prices
It's already been tried in South America - at least twice! The World Bank foisted water privatization on the people of Bolivia. Poor people ended up with no access to water at all. In 2002 the citizens of El Alto took to the streets to demand that their water system, privatized in 1997, be returned to public hands. Three days later Bolivia's president issued a decree canceling the water concession, led by the French water giant, Suez, and an arm of the World Bank itself. The El Alto water revolt followed, by five years exactly, the now famous revolt against water privatization in Cochabamba, in which a company controlled by the Bechtel Corporation was ousted from the country.
The Nation reported:
Bolivia's experience with bank-forced water privatization is a striking example of the yawning gap between World Bank theory and how things actually work in the real world for the poor families who have to live with the results.
In Cochabamba five years ago, the water contract with Bechtel and the Abengoa Corporation of Spain paved the way for rate increases of double and more for poor water users.Those steep and sudden price hikes, needed in part to finance the 16 percent annual profit demanded by the companies, led to citywide protests and eventually to Bechtel's and Abengoa's ouster.
So now Trump wants to do to Americans what the World Bank, which is controlled by the US and represents US economic orthodoxy, did to Bolivians! The results will likely turn out the same way they did in Bolivia - a revolt against rising prices and shoddy delivery systems. Again only the rich will get a good supply of fresh water. The poor will get the dregs delivered in pipes 100 years old. You think it can't happen here? You didn't think Trump would win either, I bet.
Why Not Start a Public Bank to Pay for Infrastructure
A public bank devoted to infrastructure would solve the problem that governments have of having to borrow money and give Wall Street its cut of everything. The creation of a National Infrastructure Reinvestment Bank was first proposed by Senator Christopher J. Dodd and Senator Chuck Hagel in 2007. Public banks have an excellent track record for helping cities and states finance infrastructure.
This is from the Public Banking Institute:
In the case of nearly every state and town government, it is standard practice to send millions upon millions of dollars a year to banks and investors to pay the interest on bonds that have been issued for state infrastructure. If you add up the money the towns collectively send to banks and investors for the same purposes, it is a lot of money. In the case of California, its long awaited new Bay Bridge span was recently completed at a cost of $6.4 billion - over 400% over its initial projection. What most Californians don't realize is that the total cost of the bridge will eclipse $13 billion when interest payments are considered over their life. 50% savings is not an aberration - it is pretty much a standard calculation for what municipalities can save by issuing their own loans for critical infrastructure from their own bank.
Meanwhile it is also standard practice to cut programs that benefit low income citizens and students to close “budget gaps” that appear on a regular basis. There are also many unmet needs for roads, bridges, public transit, energy, housing, education, water, and telecommunications. If the interest payments on infrastructure, housing, economic development, and student loans were going to the public sector instead, we would have lower taxes and more funds available for needed improvements.
Amen to that, brother. There is no reason why governments at any level should have to pay Wall Street an amount equal to the cost of the infrastructure simply to get financing. Start a publicly owned bank instead like the state of North Dakota did.
California Free Press