Foreign Ownership of American Roads – A Mistake and a Backlash
By Paul M. Weyrich (11/07/07)
Infrastructure ought to be an easy sell. After all, we are talking about the roads upon which we drive every day. Now even mass transit systems are up for consideration. But the Administration is reluctant to fund infrastructure projects. The last major push for such projects came in 1982. Secretary of Transportation Drew Lewis persuaded President Ronald Reagan, still relatively new on the job, to agree to a tax increase for infrastructure purposes. Congress was supposed to make budget cuts accordingly. Reagan raised taxes but the Congress failed to come through. Reagan was angry. He felt he had been had. Still, money was raised for roads and bridges and that was the last major federal push for infrastructure projects.
A quarter century is a long time. States are restless. Many find themselves at odds with voters as major bond issues for roads, bridges and now mass transit projects are proposed. What to do? A couple of years ago Indiana Governor Mitch Daniels signed a 75-year lease for 157 miles of the Indiana Toll Road for $3.8 billion, thus supposedly funding the State’s transportation needs for ten years. Daniels figured voters would be grateful for a deal which provided the money upfront and without a tax increase. When other states heard of the deal they rushed to see what they could sell or lease. The problem for Daniels is there was an enormous backlash on the part of Indiana voters. They saw Daniels’ move as giving away the State’s birthright. They had paid for that Toll Road and they especially did not want a foreign consortium in charge of it. Daniels, who won his election in 2004 with a mandate for change, suddenly turned unpopular. In fact, his unpopularity has continued to the point that his re-election in 2008 is not assured.
The Department of Transportation under Secretary Mary Peters is all for such leasing projects. But the public has second thoughts. When the leases are to foreign organizations the backlash is particularly harsh. For example, in Texas Governor Rick Perry, who has privatized some Texas highways, was presented with a two-year moratorium upon new projects by the relatively conservative State Legislature. That throws a wrench in Perry’s plans for the Trans-Texas Highway, which is supposed to be a multi-lane facility, with high-speed trains in the middle, to carry especially trucks from Mexico all the way to Kansas City. The public is angry. They see Perry as giving away Texas sovereignty.
That has not stopped other locations from considering the privatizing of their roads. TIME magazine reports that there are 71 projects worth $104 billion on the docket for consideration. Some Governors, such as Jon Corzine, of New Jersey, simply have said no to investors.
Congress is not impressed by the Bush Administration’s enthusiastic support for privatization. Congressmen James Oberstar (D-MN) and Peter DeFazio (D-OR), both serving on the House Transportation Committee, sent a letter to the Governors of all 50 States. They threatened to undo any deal which they felt put private concern ahead of public interest.
Nonetheless, there are projects from one end of the country to the other. Interestingly, one of the most enthusiastic supporters of leasing roads is Democratic Governor Edward Rendell. He has a number of deals on the docket but the most important is a 359-mile lease of the Pennsylvania Turnpike. That project alone should bring Pennsylvania coffers a cool $12 to 18 billion upfront. That is only one of many projects Rendell is proposing. However, Rendell faces a Republican Legislature. Supposedly Republicans should be enthusiastic about such leases. But the Legislature is reacting to public concerns about sovereignty. The Legislature stopped such projects once before and may do so again.
But cash is attractive to cities and states. Chicago received $1.8 billion for its treasury by selling a 99-year lease of the Chicago Skyway. The buyers? The Spanish consortium Cintra and the Australian bank Macquarie. Surprisingly that deal did not cause the backlash that others did. Perhaps Chicago voters trusted foreign interests more than they did their often crooked local politicians. Cintra came up with $1.2 billion for the first part of the Trans-Texas Corridor and would be able to collect tolls on it for 50 years. Thus began the backlash.
One of the problems is behind-the-scenes clauses in the leases which permit foreign ownership to raise tolls at will. If the state owned the highway it would be subjected to the legislative process in order to raise tolls. Of course, legislators prefer that the foreign owners raise the tolls. They can blame them and thus steer clear of such transactions. The clauses which cause local problems, for example, prevent the state from putting in a new exit in order to spur development.
Administration officials say if all of this becomes a real problem the Federal Government can always nationalize these projects and revert back to the states. But it is not that simple. Nationalization would cause enormous problems with United States allies. In all probability it would never be achieved.
It is remarkable that the Bush Administration and Secretary Peters see only cash as they push for privatization. They don’t understand the sovereignty issue at all. However, their public does. The idea of foreign entities owning parts of our infrastructure is anathema to voters of both political parties. True, promoting solely US investors is a bit more palatable to the voters. Still, the idea is most likely a bad one. Voters approve bond issues to build an infrastructure, which includes mass-transit rail lines. They feel that they own the facilities and that sooner or later the bonds will be paid off, at which time the legislature can determine if they simply should eliminate tolls or continue them for another state-owned facility. The public is correct about its instinct concerning these projects. Foreign investment ought to be prohibited. Perhaps United States investment is tolerable but these days, just as with the construction of automobiles, it is almost impossible to determine if US investment really comes from this country. It would be better to leave well enough alone.
Paul M. Weyrich
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