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BusinessWeek: Roads To Riches

This article reminded me of Agnes à Paris's Watch your back, America : PPPs gaining ground diary.

In the past year, banks and private investment firms have fallen in love with public infrastructure. They're smitten by the rich cash flows that roads, bridges, airports, parking garages, and shipping ports generate--and the monopolistic advantages that keep those cash flows as steady as a beating heart. Firms are so enamored, in fact, that they're beginning to consider infrastructure a brand new asset class in itself. <...>

For workers, the privatization wave has wrought many changes. Skyway toll takers used to be full-time city employees with rich benefits. Now most are part-time independent contractors without benefits. <...>

Pushback against private investors is now playing out in different ways elsewhere. In Pennsylvania, the state turnpike commission is going head-to-head with private bidders for the right to operate the state's 537-mile toll road. Pennsylvania desperately needs cash to repair its nearly 6,000 structurally deficient bridges. Some pundits expected Pennsylvania Governor Edward G. Rendell to propose hikes in gas taxes and other fees to fund the projects. But in December, Rendell unexpectedly announced plans to privatize the turnpike. Timothy J. Carson, vice-chairman of the commission, scrambled to submit an expression of interest for the turnpike to continue to run itself. <...>

Carson says the state doesn't need to hand over the turnpike to private owners. Historically, he says, the state wanted the turnpike to collect only enough money to break even. But it could just as easily adopt its own toll-hike schedule. The state could also charge tolls on more roads. In other words, the public could remain in control simply by changing the turnpike's mission. That would ensure that the benefits of the toll hikes were spread throughout the populace, says Carson.

Truth unfolds in time through a communal process.
by marco on Tue May 1st, 2007 at 05:26:41 AM EST
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Graphics from "Roads To Riches":

Truth unfolds in time through a communal process.
by marco on Tue May 1st, 2007 at 05:30:56 AM EST
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Government - taxation with represenation.

PPP - taxation for profit without representation.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 1st, 2007 at 05:50:41 AM EST
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There is another way of doing it.

A non toxic PPP.

Why sell the asset when you can sell the revenues from the asset?

All US local government needs do is set up an LLC and bring in a consortium of investors (along with a "Managing/Operating" partner also receiving a revenue share) as "Capital Partner" investors in proportional "Equity Shares" in the flow of tolls. ie millionths or billionths.

Such a "Capital Partnership" is almost identical to Canadian Income Trusts, except those use units in complex and costly trust wrappers (which also suffer from management problems).

If traffic levels are constant, and tolls rise with inflation, then the initial rate of return ("Capital Rental") would be inflation linked. But the likelihood is that traffic would be variable, and therefore revenues variable - hence a quasi-equity element is there.

Why is it we think that the only alternatives open to the Public Sector are borrowing or privatisation?

There are forms of "asset-based" finance other than the Company legal wrapper to wit Trusts and US LLC's/ UK LLP's. I know of at least one > £1bn Capital Partnership using a UK LLP.

The - quite demonstrable - outcome is to show that the privatisation Emperor has no clothes.

Why on earth would a local government privatise when it can do this?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue May 1st, 2007 at 06:51:43 AM EST
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The honest answer is because ministers and councillors are either gullible and stupid, or corrupt, or both.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 1st, 2007 at 07:15:59 AM EST
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Politicians are looking for "what works". This model demonstrably works better, which is why it is emerging: I merely observe it doing so.

All they need is the language to describe it - and off we go....

As discussed elsewhere, we have to change the Rhetoric.

Language such as "Asset-based Finance": "Profit with Purpose" and so on, maybe even "Open Corporate" and "Open Capital" - I live in hope...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue May 1st, 2007 at 07:33:22 AM EST
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Who will buy this?

by das monde on Tue May 1st, 2007 at 07:09:13 AM EST
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