Infrastructure leases....

Today's NYT Business section features an article on the increasing use of private investment in public infrastructure, such as roads and bridges. This method of financing public infrastructure, which often are in a severe state of disrepair, is becoming more prevalent as state and local governments have become the lead agencies of maintaining and improving these assets. These governments are facing declining or stagnating revenues, growing debt burdens, and a significant reduction in federal aide, leaving the option of going to the private market a much more desirable option than in the past. There are tons of questions that come with such a change, the most salient of which should be recognized by those in Indiana as the lack of popular support for such a deal. (My Man Mitch got hammered when he "sold" the toll road.)

I have a number of concerns about this type of leasing of public assets to private companies, but the primary issues are accountability and social equity in fees. The private sector, of course, assures the governemnts through "concession agreements" that tolls will only be raised by X amount and that service will meet a certain level. Despite these agreements, the reality is that once a toll road becomes managed by the private sector there is a very real loss of accountability on its operation. Additionally, once the government ceases to budget for improving that road, it is exceedingly difficult to work it back into already tight public budgets.

I will say that the rise of pension funds investing in these infrastructure assets, is less disturbing than private firms -- but then again, how will these pension funds respond if the project isn't allowing them to meet their target return rate?