Taking on Asset Privatization: Recent Cases and State-Based Responses

Phineas BaxandallSenior Analyst for Tax & Budget PolicyU.S. Public Interest Research Group

phineas@pirg.org

AkPIRG / Arizona PIRG / CALPIRG / CoPIRG / ConnPIRG / Florida PIRG / Georgia PIRG / Illinois PIRG / INPIRG / Iowa PIRG Maryland PIRG / MASSPIRG / PIRGIM (PIRG in Michigan) / MoPIRG / NCPIRG / NHPIRG / NJPIRG / NMPIRG / NYPIRG /

Ohio PIRG / OSPIRG / PennPIRG / RIPIRG / TexPIRG / WashPIRG / WISPIRG

RoadsRail

WaterBuildings

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Privatization By Sector - Cost (in Millions of USD)

Under construction or completed by 1985

Total Planned and Funded Since 1985

Road data excludes 40 design-build projects for $16.6 billion

Privatization by Sector - Number of Projects (since 1985)

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Roads Rail Water Buildings

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Under construction or completed by 1985

Total Planned and Funded Since 1985

Road data excludes 40 design-build projects for $16.6 bn

Strategy =Raise the bar

StateInvestors Public

What do investors want that the public does not?

What do investors want that the public does not?

Lots

What do investors want that the public does not?

Lots

Public understands ‘conflict of interest’

How Does it Work?

•Up-front outlays for 50+ years rising user fees

•“Lease” assets or build new capacity

•Contract protects revenues

•“Proprietary information” blocks full disclosure

In other words, the state outsources borrowing & rate hikes

1. Public must receive full value

2. Public must retain control

3. Full transparency and accountability

Public assets should be operated for the public interest

Basic message:

Investors want high fees, low costs

Public wants to save money

Solution: Benchmark deal against public financing with same user fees

All costs and revenue

Over the entire term, not this budget

Show how public would lose money

Public must receive full value

Investors want certainty about revenue stream and future costs

Public wants to operate for public benefit without hidden costs

Solution: Prevent “non-compete” and “adverse action” clauses in contract.

Show how risks would shift to public.

Public must retain control

Investors want to keep information “proprietary”

Public wants to avoid back-room deals, corruption

Solutions: All bids, contracts, projections and communication promptly disclosed, including between private partners

Time and forums for public feedback

Legislature must approve final terms of major deals

Full transparency and accountability

Publicly Raising the Bar Feeds Political Advantage

Opposite of back-room negotiations

Common-sense protections expose:• Public risks

• Budget gimmicks

• True source of profits

• Conflicts with public interest

Requires investors to internalize risks

The more public the better

PublicStateInvestors