Let's make a deal on public works projects

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Four decades of government neglect are catching up with California. In November, a bond package to widen crowded highways and prevent overflowing rivers and classrooms will land on the ballot with a kerplunk price tag of $37.3 billion. But California isn't alone. The bill for America's infrastructure is mounting.

From roads to rails, the US requires an estimated $1.6 trillion in infrastructure spending over the next five years, according to the American Society of Civil Engineers. And even though the California bond request is the most concerted effort to invest in asphalt, steel, and mortar since the 1960s, it's only about half what Gov. Arnold Schwarzenegger says the state really needs.

This leaves a person wondering just how the West Coast country-within-a-country, or the rest of the nation for that matter, can come up with the tax revenues for all this.

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One idea that's gaining ground in the US is worth considering: private construction and management of public works projects. Public-private partnerships are a normal way of financing such projects in Europe and elsewhere, but haven't generated much interest in the US until recent years.

In this country, where the political climate is generally inhospitable to tax increases and where repair costs rise faster than inflation and exceed static gas-tax revenues (a main funding source for transport), state and local leaders are now keenly interested in public-private projects.

Take, for instance, the Chicago Skyway. An Australian-Spanish concession company successfully bid $1.83 billion to lease the elevated toll road connecting the city's south side to the Indiana border. The city gets cash up front to pay down Skyway and city debt, to help the poor with heat, and to set up an annuity and a rainy day fund. In return, the company gets steady revenue from tolls over its 99-year lease.

So intriguing is this concept, that Indiana recently agreed to lease the Indiana Toll Road to the same foreign investors for nearly $4 billion. But Republican Gov. Mitch Daniels had a tough time selling the idea. Hoosiers didn't like the thought of foreigners controlling the road.

In an era of globalization, when foreign companies invest in the US and vice versa, the foreign aspect should not alarm - especially since these are lease, not buy, deals. In the meantime, several US finance companies are starting "infrastructure" funds, including Goldman Sachs and the Carlyle Group. And California is also thinking creatively about financing. The treasurer recently proposed that state pension funds invest $15 billion in public projects not covered by the bond package - a way for user fees to come back to the state.

The coincidence of public need and private funding, however, should not make state and local leaders so starry-eyed that they forget their role as protectors of the public trust.

In drawing up contracts that put private companies in charge of public works, governments must ensure that the private sector will provide proper safety, maintenance, and security - and that their performance is subject to oversight. Government must also be alert for graft that can accompany big-ticket bids, and make sure fees which investors will collect for roads or buildings do not overly burden the public. •

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