Public-Private Partnerships Aren’t Free
Roads, bridges, and trains jump-started by investor dollars always come looking for public ones, eventually.
Public-Private Partnerships (P3s) promote crony capitalism, whereby profits are privatized and losses are socialized on the backs of taxpayers – Dan Titus
3-22-2017 , Laura Bliss
Everyone wants sparkling new roads, bridges, airports, and transit systems. But most Americans aren’t willing to crank up tax rates to pay for those projects, and many politicians aren’t eager to try and convince them. That’s why a growing chorus of elected officials, both liberal and conservative, are singing the praises of public-private partnerships.
There are many ways to define this term, but the most common understanding is an arrangement where a private investor—think Morgan Stanley or TIAA-CREF—plunks down a big chunk of a project’s upfront cost. Theoretically, with all that upfront private capital on hand, a highway, water system, or transit line can be built much more quickly than it would be if it were relying on a slow trickle of public funds or government bond sales. The project may also cost less, since, theoretically, companies have a bigger incentive to build efficiently. A local government can also build price/quality assurance check-points into the contracts they write. If the project fails, the Monopoly men are theoretically the ones who’ve taken on most of the risk, rather than the public.
To politicians sensitive to shrinking budgets and hoping for a short-term ratings boost, it all sounds awesome. But the promises can be pretty misleading. “In theory, [public-private partnerships] can be effective—but they provide no free lunches,” writes Hunter Blair, a budget analyst at the Economic Policy Institute, a left-leaning think-tank, in a new report on the pitfalls of these strategies.
The thing about investment firms, see, is that they make investments; they expect to see their money back. Indeed, they want even more money. One way or another, the bucks are going to come out of the public’s pockets, whether through local or state taxes, a toll on the new road, or rates paid on that upgraded water or power grid… read more