The $10 trillion national debt and a worldwide credit crisis limit Barack Obama’s options, but the most “progressive” president since Franklin D. Roosevelt will likely expand public/private partnerships (PPPs) as he launches his version of FDR’s largest New Deal program: the Work Projects Administration (aka “We Poke Along”) to create jobs and rebuild the nation’s infrastructure.
But don’t expect any new efforts to ease traffic congestion. The Obama administration will leverage private investment for mass transit, not to fund needed new highway capacity.
Meanwhile, billions of dollars are sitting in private equity funds because investors haven’t been able to find enough local or state governments willing to sell and/or lease major roads, airports, water treatment plants, or other big-ticket items, according to Steve Steckler, chairman of Bethesda-based Infrastructure Management Group.
Pundits predict the death of capitalism, but Steckler forsees even more PPPs – such as the HOT lanes now under construction on the Capital Beltway in Virginia- under Obama by cash-strapped states and local governments that might not have considered them before for political reasons. However, PPPs will remain a “very small percentage” overall, he cautions.
Private, profit-driven companies can still build things quicker, cheaper and better than government, Steckler added, because they have incentives to innovate and maximize their return on investment. Meanwhile, the spread between Treasury notes and municipal bonds has almost doubled to150 percent (munis have to yield 150 percent more than Treasury bills to attract investors) just when state and local governments are least able to afford the higher rates.
Obama’s team of economic advisors are comfortable with PPPs, and big cities like Chicago – which just announced it is too broke to clear snow off residential streets after regular business hours this winter – are enthusiastically embracing them. The Windy City
got a $9 billion check for leasing the Chicago Skyway to Cintra-Macquarie, an Australian consortium. The city also signed a $1.1 billion, 75-year lease with Morgan Stanley to take over its 36,000 parking meters and okayed another $2.5 billion PPP deal to run Midway Airport. Neighboring Indiana is one of the few states that doesn’t have a major budget problem, thanks to its lease of the Indiana Tollroad.
One thing the Obama administration will definitely not do, Steckler added, is farm out the operations of federally-assisted transit systems like Metro to private companies because of the president-elect’s close ties to the Transit Workers union. No matter how bad the recession gets, Metrobus drivers will still take home their six-figure paychecks.
PPPs are sort of a bailout for overextended governments, and definitely not your grandpa’s WPA.
