As the United States continues to spend $1 billion a day in Iraq and Afghanistan, cities are selling off roads, bridges, zoos, and everything short of citizens to pay for their budgets. There are 44 states in dire financial shape — yet we continue to pour money into the occupation of Iraq where journalists show shoes at the President and the majority of people want us out.
Minnesota is selling us core properties to pay for a $5 billion deficit — the equivalent to five days of occupation costs for an oil rich nation. The state may hand over the state lottery and airport to private businesses.
Ohio has told Obama that it needs a $5 billion infusion over it will have to turn off the lights.
It would seem impossible for the federal government to bailout every major company and now every state. Who will bailout the federal government? Usually when there is no money, you stop spending money on discretionary things like occupations.
What is particularly galling is that this fire sale is going to once again enrich investors, including some who are beneficiaries of the prior bailouts. Valuable assets will now be handed over to private parties as a fraction of their value so politicians do not have to balance their budgets or make tough choices. This country quickly de-evolving into the type of third world country that continues to operate on debt until the World Bank forces internal reforms and the market ranks them with junk bonds. The difference is that these countries are not funding occupations while their governmental structure goes into anaerobic breakdown.
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teknikAL,
According to Bart Gellman, dick cheney planned to privatize as many sectors of our society as possible. I would say he’s nearly succeeded on that front. Paul Krugman has a good op-ed that somewhat relates to what you are saying and completely relates to the original post. These are scary times.
Saw this coming years ago.
The Anti-American School of economic philosophy.
Hamilton is spinning in his grave. Hamilton supported government intervention in favor of business, yet I don’t think he meant international corporations and foreign owned entities.
These free trade idiots have been selling off the US little by little. Now comes the fire sale of our collective infrastructure that levels the economic playing field.
Republicans would do well to step back to their roots.
wake up people, infrastructure jihad, just following Muhammad’s example, Obama & Ellison on the case: National Infrastructure Bank Act, sure to work out great for people like Global Infrastructure Partners; but hey, nothing to worry about, we’ve got LaHood overseeing our airports & roads, let’s move along
I have written Senator Barbara Boxer, Chairman of the Senate Committee on Environment and Public Works, asking where she and the committee stand on this issue of privatizing U.S. infrastructure, still no response. I don’t think it’s a good idea to allow the folks who drove our economy into a ditch to control something as important as our infrastructure:
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http://www.globalresearch.ca/index.php?context=va&aid=9736
Wall Street to privatize US infrastructure
Roads, airports on the block as budgets tighten
Fri Aug 1, 2008 12:37pm EDT
By Jonathan Stempel
NEW YORK (Reuters) – Cash-strapped U.S. state and city governments are likely to sell or lease more highways, bridges, airports and other assets to investors desperate for stable returns after being frazzled by the credit crisis.
The trend is set to pick up speed given worsening budget deficits in state capitals and city halls nationwide.
It will also be welcomed by Wall Street bankers hoping to help create and market so-called “infrastructure” transactions at a time many debt markets remain paralyzed, and after major U.S. stock indexes fell into bear market territory.
“When you are nervous about everything else, you put your money in a toll road,” said John Schmidt, a partner at the law firm Mayer Brown LLP in Chicago. “That’s the logic of infrastructure. Returns are stable and predictable. You won’t get fabulously rich, but you’ll get stable cash flow.”
The latest enthusiasm for at least partially privatizing infrastructure assets came on July 30 from New York Gov. David Paterson, who is trying to plug a budget deficit caused in part by lower tax revenue as Wall Street retrenches.
“We’re just looking at ways to be more efficient and that’s why I used the term public-private partnerships — trying to find some creative solutions,” Paterson said. “The reason I’m avoiding taxes is because I think taxes are addictive.”
Bankers and others in the industry say there is pent-up demand from dedicated infrastructure funds and public pension funds to invest in hard assets — perhaps $75 billion to $150 billion of equity capital — but not enough supply.
“Economic conditions are tough, and are going to be very harsh on the performance of state budgets in 2008 and 2009,” said Greg Carey, co-head of infrastructure banking at Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz). “States are looking for long-term solutions in running businesses. A public-private partnership is a tool in their toolboxes.”
A high-water mark came in May, when a group led by Spain’s Abertis Infraestructuras SA (ABE.MC: Quote, Profile, Research, Stock Buzz) and Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) agreed to pay $12.8 billion to lease the Pennsylvania Turnpike for 75 years. The total could reach $18.3 billion, including promised improvements. Legislators must approve the lease.
Other transactions have included the $1.8 billion lease of the Chicago Skyway toll road bridge in 2005, and a $3.8 billion lease of the Indiana Toll Road the next year. Chicago Mayor Richard Daley is preparing to lease Midway Airport this year.
For Wall Street, infrastructure can be a bright spot at a time of deep job cuts and expected declines in bonuses.
“We’ve seen an unprecedented number of headhunters recruiting for positions on the buy and sell sides,” said Rob Collins, head of Americas infrastructure banking at Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz). “Infrastructure investing can be counter-cyclical to economic trends.”
John Ma, the other Goldman infrastructure chief, added: “We’re very committed to this space. Our business activity has increased dramatically, even this year.”
ALTERNATIVE TO TAX HIKES
According to the nonprofit Center on Budget and Policy Priorities, 29 U.S. states plus the District of Columbia may face a combined $48 billion of budget deficits in fiscal 2009.
But politicians might be loathe to cut spending or raise taxes at a time mortgage debt, $4-a-gallon gas and rising food prices leave consumers — of whom many vote — dispirited. Tapping public debt markets might also be too costly.
Meanwhile the American Society of Civil Engineers estimates $1.6 trillion is needed over five years to raise the often aged U.S. infrastructure to “good” condition.
Pennsylvania Gov. Ed Rendell in July called for the United States to establish a capital budget to pay for such repairs. It was a year ago August 1 that the Interstate 35W bridge in Minneapolis plunged into the Mississippi River, killing 13.
Critics say some infrastructure transactions are short-term budget fixes that deprive governments of steady cash streams from taxpayer-funded assets. There is also the risk that private operators won’t do their jobs well.
Advocates of privatization say entities might do better managing assets than a government answering to voters.
Politicians could also get a boost if they can take credit for reinvesting sale or lease proceeds in needed projects.
“The argument for a public-private partnership is the private sector is a lot smarter about paying attention to costs, and because it has skin in the game will be more attentive to maintaining an asset over its life,” said Joseph Giglio, a privatization expert and professor at Northeastern University’s College of Business Administration in Boston.
“Elected officials often shortchange funding of maintenance because they don’t want to increase user fees or taxes to pay for it,” Giglio added. “Their election cycle is four years. They can pass it on to someone else’s watch.”
Collins, who also advised Pennsylvania on the turnpike, said infrastructure can also go beyond roads and airports. He said Morgan Stanley is advising Akron, Ohio, on exploring the leasing of its wastewater system, and Indiana on the possibility of private management for its state lottery.
“Lotteries have infrastructure characteristics in that they have stable cash flows and high barriers to entry,” he said. “They could even attract private equity investment because they are self-financeable and require minimal capital expenses.”
BIG NAMES
At Goldman, Carey and Ma replaced Mark Florian, who is moving to First Reserve Corp, a private equity firm specializing in energy, a person close to the matter said.
Goldman itself raised a $6.5 billion infrastructure fund in 2006, and is reportedly trying to raise a $7.5 billion fund.
Morgan Stanley raised a $4 billion fund in May. Global Infrastructure Partners, a joint venture between Credit Suisse Group AG (CSGN.VX: Quote, Profile, Research, Stock Buzz) and General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz), raised a $5.6 billion fund the same month. Private equity firm Carlyle Group CYL.UL last year raised a $1.15 billion fund.
And Kohlberg Kravis Roberts & Co KKR.UL, which is preparing to go public, in May lured George Bilicic from Lazard Ltd (LAZ.N: Quote, Profile, Research, Stock Buzz), where he led power, energy and infrastructure efforts worldwide, to run its own infrastructure investments.
Two of the largest specialists in the area are Australian: Macquarie Group Ltd (MQG.AX: Quote, Profile, Research, Stock Buzz) and Babcock & Brown Ltd (BNB.AX: Quote, Profile, Research, Stock Buzz).
Schmidt, the Mayer Brown partner, said if the Midway transaction succeeds, other airports could also go private, perhaps leading to “lower and more predictable landing fees and terminal rentals for airlines, which certainly aren’t flush.”
That, he said, could bring the value of roads, bridges and airports that could be privatized to half a trillion dollars.
(Additional reporting by Joan Gralla in New York and Elizabeth Flood Morrow in Albany, New York, editing by Dave Zimmerman)