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Why Are the Feds Bailing Out the Highway Privatization Industry?

In past Dispatches, we've highlighted the potential and actual taxpayer ripoffs hidden in the industry siren song of selling off public assets like highways.  States gets what looks like an attractive upfront payment, but lose in the long-term from lost toll revenue and lost democratic control of transit decisions.

The credit crisis has undermined the financial players who had been leading the charge on privatization, so they are looking for a bailout under the federal recovery plan.  As reported by Reuters, Morgan Stanley, Merrill Lynch and a number of other firms pushing "public-private partnerships" -- the industry's preferred euphemism for privatization -- wants part of the stimulus package to flow to them.  Their wish list includes federal rules to push privatization of airports and highways, along with a national infrastructure bank to subsidize loans for private sector deals.  

And the privatization industry appears to have already won one item on their wish list in the federal bill -- an obscure but profitable loophole exempting profits from "private activity bonds" issued by local governments used for infrastructure from the federal alternative minimum tax.  

As Tom Frank, the lone progressive on the Wall Street Journal editorial page argued this past week, subsidizing private toll roads is just part of the root ideological problems that got us into the current economic mess in the first place:

One of the reasons our roads and bridges are falling apart is public hostility to tax increases -- gasoline taxes in particular. This attitude, in turn, is largely the product of the generalized distrust of government that conservatives have stoked for decades.  So we've starved the beast for years, and now the utterly predictable consequences have come to pass.

Instead of giving more tax breaks to the financial sector, it would be far better for the feds to increase direct support to the states to fund new transit projects.  And state leaders themselves need to stop looking for political tricks like privatization deals and honestly make the case for the revenue and toll increases in the short-term that can pay for the long-term economic benefits that flow from infrastructure investments.