As President Donald Trump unveils elements of his infrastructure plan this week, Democrats are attacking it as a betrayal of basic government responsibilities. This “privatization,” as they call it, would sell out rural America and allow companies to exploit public assets like roads and bridges.
But a close look at Trump’s proposal—at least what we know of it so far—reveals a plan that rests not on privatization but on public-private partnerships. The two ideas sound similar but are actually very different, and understanding the differences is critical to accomplishing Trump’s goal of modernizing and upgrading America’s infrastructure.
The Trump administration has proposed using $200 billion in federal monies to leverage an additional $800 billion from the private sector. It’s an ambitious proposal, one that, if successful, could permanently change the landscape of America. The government can reap huge benefits from public-private partnerships—but only if they are structured correctly. All too often, though, government officials lack the knowledge and experience necessary to negotiate good deals, ultimately costing taxpayers millions, if not billions, of dollars. In their attacks, Democrats may be misusing the word “privatization” when describing Trump’s infrastructure plan but the risks they describe are very real.
Traditionally, the term “privatization” means the outright sale of a public asset or service to a private company. It’s a permanent transfer of infrastructure, with no term limits or expectations of management oversight. The government accepts payment and walks away with its only roles being enforcement of rules and regulations.
Well-structured privatization can be beneficial in some situations where there is no public interest (say, a parking garage) but officials should ask themselves hard questions about why it’s getting out of delivering a particular good or service, and whether there truly is no public interest in the asset. The history of privatizations is littered with failures. Take the privatization of British Rail in the 1990s. The operation of British Rail, after privatization, had many pieces franchised and outsourced to a range of vendors with no single systems integrator. This failure to integrate infrastructure and operations created a major breakdown in coordination and singular accountability oriented toward safety, reliability and affordability and caused many safety problems—including two fatal accidents.
The biggest cases of true privatization in the U.S. have never come to fruition—including the privatization of Amtrak, the U.S. Postal Service and Social Security—because the public and private sectors could never agree on the terms of sale without compromising important public interests around access, quality and affordability. For instance, the U.S. government is responsible for delivering transportation and mail delivery services to the entire country, even in geographically remote and sparsely populated areas. But since most services are uneconomical, the private sector would agree only to a sale that included major concessions on fees and frequency of delivery—terms to which elected officials would be loath to agree to because of public protest.
In fact, what most people in the United States really mean when they use the word “privatization” is deeper private-sector involvement in the production and delivery of traditionally government-provided goods and services.
Privatization and PPPs are not the same thing. The former is an outright asset sale while the latter is a market-based arrangement that is limited in term—on average about 25 years—and relies on government and its private partners to accurately evaluate, negotiate and come to terms on ownership, structure and risk issues. With well-structured PPPs, the relationship begins at the point of transaction, and the parties are mutually dependent on each other for success. With privatization, the relationship ends at the point of transaction and both parties go their separate ways for the most part, aside from government regulation.
If a PPP is a marriage, then privatization is a divorce.
To support $1 trillion in infrastructure investment, the Trump administration is proposing to reward state and local governments who enter PPPs and other private-sector deals with up to $200 billion in federal funding. Transportation Secretary Elaine Chao announced last month that St. Louis Lambert International Airport would become part of a test program “designed to allow airports to generate access to sources of private capital for airport improvement and development.” The city has preliminary approval to negotiate a PPP in which private firms will lease and operate the airport for a term of up to 40 years. If executed well, the city stands to gain not just millions for the initial lease but also a share in any profits, including potential new profit sources identified by private sector partners with deep expertise in this area.
Public-private partnerships allow government to leverage private sector expertise to cut infrastructure costs and speed up construction. It works toward a win-win outcome based on a mutual understanding that comes from a relationship built on aligned goals, clear rules and appropriate governance mechanisms. Private sector innovation and expertise can then be integrated with government’s desire to serve the public interest while improving cost, performance and accountability.
But government is often at a disadvantage in negotiating these agreements. Most government agencies, and especially nearly all municipal governments, lack the analytical capacity and market-based pricing expertise to accurately estimate the value of their existing infrastructure assets, attract enough competition and bring the concession to closure. Meanwhile, the private sector is very astute at discerning which infrastructure assets are worth buying, at what price, for what duration, and with what potential return on their investment over a fixed period of time.
Take, for example, the infamous case of Chicago Parking Meters LLC. The city of Chicago entered a 75-year deal with a private corporation for control of its 36,000 parking meters in exchange for $1.15 billion. After the rushed and poorly conceived deal, which aldermen had just one day to review and approve, the city’s inspector general estimated that government underpriced the value by about $1 billion. Further, the private company enacted profit-driven changes with direct implications on public access and affordability such as reducing the number of handicapped spaces, creating smaller overall spaces, instituting congestion pricing, and raising hourly costs—leading to public outrage, boycotts and vandalized meters. Consider also the indirect public harm to economic development that parking issues can have on a community.
It’s a prime example of short-term thinking that believes we can offload public assets, many at the municipal level, and gain cash in the short term, without considerations for the longer-term implications of the important economic development role that high-quality, public infrastructure plays in communities and states all around the country and the impact of poorer service quality and potentially higher costs on the public.
The best way for government officials to ensure that a public-private partnership benefits their constituents is to take the necessary time to understand the proposed deal, run the numbers and perform the due diligence. It’s easy to rush into a desire to engage a PPP without considering the importance of public involvement. In the trade-off between the speed of decision-making and the necessity of citizen and stakeholder engagement, speed wins way more often than it should.
And that could get a lot worse under Trump. Speaking to a Senate committee recently, Chao was asked about the administration’s delays in releasing its infrastructure plan. She responded, “Obviously, the president is very impatient.” In the world of public-private partnerships, though, impatience will lead only to bad deals for both the public and private partners with citizens potentially losing the most in terms of access, quality and affordability.
David M. Van Slyke is the dean of the Maxwell School of Citizenship and Public Affairs at Syracuse University, and the Louis A. Bantle Chair in Business-Government Policy.