Going private to fix roads and bridges
Cambridge, Mass. — Can private enterprise ride to the rescue of the nation's battered roads and bridges? Franklin J. Agardy thinks so. He sees user fees and ''privatization'' of public facilities as keys to resolving the nation's much-publicized infrastructure crisis.
Dr. Agardy, president of URS Engineers, of San Mateo, Calif., argues that the problems of closed bridges, potholed highways, and overfull sewers could be solved, if only people would learn to see outlays for these essentials as investments that would generate a return, rather than just expenses. Infrastructure must be seen as part of an area's productivity.
Already, private enterprise has turned some of the nation's city halls and other public facilities into tax shelters.
Now Dr. Agardy argues that repairing America's roads and bridges is not a financial burden with no bankable payoff. Getting goods to market quickly and efficiently can be the difference between profitablity and bankruptcy for a firm.
''Suppose,'' he says, ''you've got a truck that takes high-tech goods from a factory along Route 128 (metropolitan Boston's technology belt) to Logan Airport , and because of the condition of the roads and bridges along the way, the truck can make only five trips a day.''
''But then suppose you improve the roads, and that truck can make 10 trips a day instead of five. That increases your productivity - and so you can either cut your prices or raise your profit margins.''
Dr. Agardy, whose firm designs billions of dollars' worth of construction annually, presented this message to a recent graduate seminar at the Massachusetts Institute of Technology.
Too often, he says, decaying infrastructure has been seen as a consumer problem: Potholes make the drive to work longer and bouncier, and have people in a cranky mood by the time they get to the office. ''People forget that we built those roads in the first place for economic development, for getting goods to market,'' he said.
A lot of residential infrastructure is now being built privately, particularly in the Sunbelt. Developers put roads and sewers into their subdivisions and then deed the systems to local government; the builders recover their costs by tacking them onto the price of the houses. In some states, businesses are paying for highway offramps near their plants or stores. And in some places, private investors are considering building new roads and recovering their costs by charging tolls.
Few people thinking about the infrastructure are smiling. But some observers of the problem are backing away from calling it a crisis. The US Advisory Commission on Intergovernmental Relations is releasing a study this week whose findings are summarized thus by assistant director John Shannon: ''The problem is manageable, and it can be handled with user fees and other charges.''
Barbara Dyer, associate director of the Council of State Planning Agencies in Washington, endorses Dr. Agardy's view of infrastructure as investment, not burden. ''That's an idea we've been trying to promote for some time.
''The estimates for how much it will cost to repair our infrastructure range from $50 billion up to the hundreds of billions. That the range is so great says to me we don't really have any idea how much this will all cost. The lower end of the scale seems more likely to me.''
What's needed first is thorough fieldwork to determine where the needs are, she says. Then state and local governments must look for ways to hold the line on capital expenditures, involving private investors when possible.
''User fees are absolutely crucial'' to the new infrastructure equation, as the federal government pulls back from funding public works, Ms. Dyer says.
She is leery, however, of another infrastructure financing device, the so-called lease-back deal. Recent federal tax code provisions have made it attractive for private investors to buy public facilities as a tax shelter and then lease them back to a local government.
''There are many reasons for private investors to want to get involved in (infrastructure), but the latest fads in the tax code ought to be at the bottom of the list,'' Ms. Dyer says.
In fact, some of the fiscal sticklers in Congress have introduced legislation intended to close this window before any more tax revenue blows out through it.
John Kamensky, an analyst at the General Accounting Office in Washington, notes that lease-backs enable the local and state governments to get the tax advantages of private-sector investors (deductions for interest payments and accelerated depreciation), even as private developers, through the issue of industrial revenue bonds, get the advantages of the public sector - notably tax-exempt financing. The result is an enormous drain on the federal treasury.
Patrick O'Leary, tax partner with Arthur Andersen & Co. in New York, explains that investing in public facilities can, under present law, be a good tax shelter, but only certain kinds of public facilities lend themselves to such arrangements. Lease-back deals can be used as a tax shelter only if the private investors are the actual economic owners of the facility. This is virtually never going to be the case for roads or bridges - or potholes. On the other hand , lease-backs may work for buildings: city halls, convention centers, power stations, or sewage treatment plants.
But a good tax shelter should also allow investors to realize a profit, Mr. O'Leary says, and it's not always clear that treatment plants will do that. He also notes that most tax specialists ''feel a change in the law will come'' limiting lease-backs.