Selling off our assets – a good thing?

New York state is between the proverbial rock and a hard place these days. The state did not get control of its finances in the good times and is now faced with failing infrastructure that simply cannot be put off for another day. Meanwhile, Tom Di Napoli, state comptroller, has said that there is no money to fix the Tappan Zee Bridge, a link to the mainland of the U.S. that is crucial to the survival of the metro region, a region that produces a significant slice of the state tax revenue. Before we examine the solutions on the table we should briefly look at how the Empire State got itself into such a tangle.

Albany gridlock is always trotted out as the answer but there are more hard core explanations. The state”™s monster debt has a lot to do with how the approximately 640 public authorities, otherwise known as the shadow government, are allowed to operate ”“ in virtual secrecy. Even the actual number of authorities in existence seems fuzzy. These so-called public benefit corporations can bypass legal limits on debt in the state and issue bonds seemingly at will. Currently, the accumulated debt of the public authorities represents 90 percent of the state”™s debt. In spite of numerous investigations they remain out of control and out of the public eye.

New York state’s revenue picture is not much brighter. The state and local municipalities have come to rely on the regressive sales tax since raising taxes on the wealthy (where the money is) remains a political no-no. It is a stealth tax, you never quite know how much it is costing you during any given year and so public outcry is at a minimum. The big problem in this solution is that when the economy turns south, as it is now, the revenue that supports the public services also goes south just at the point it is needed most.

Funding sources
The Tappan Zee Bridge is clearly in trouble. A more than 2-foot square hole developed at the beginning of rush hour March 27 on the south-bound side. Policymakers are being forced to consider solutions unthinkable even last year. The Westchester County Association has suggested the bridge be put up for sale. Involving the private sector in building infrastructure for the public good has been getting a lot of publicity lately with the proposed creation of a tunnel from Rye to Long Island. The whole idea was greeted with either horror or intense interest until it was learned that one of the financiers for this enterprise was Bear Stearns.

Nonetheless, selling off U.S. infrastructure is becoming the hot topic these days even though some have said it”™s just outsourcing political will. A seminar on how public-private-partnerships (3P) work, hosted by the Rudin Center at New York University, was instructive. Selling public assets is apparently far more common in Europe but there are still plenty of skeptics in the U.S. It goes without saying that the key to a successful sale is in the details of the contract as well as how the sale money is used.

Many of the benefits of this strategy have not been discussed. For instance, it could change the tax status of a property from tax exempt to taxable. The possibility of foreign companies exhibiting interest in purchasing U.S. properties is complex as we saw in the uproar over Dubai buying a U.S. port complex. Generally, if the purchasing entity is not a verifiable enemy of the U.S., the benefits of an infusion of cash into the U.S. economy can be considerable. This is actually in-sourcing, not outsourcing. In upgrading or replacing infrastructure jobs are created in this country. It is distinctly different, say, from the spectacle of the so-called stimulus package promoted by the Bush administration which will involve borrowing from China (likely) to give to members of the public in the hopes that they will turn around and spend it on (probably) goods from China. It”™s the old story of giving a man a fish or a fishline. You know how it goes.

Conditions of sale
As a real world example of the intricacies of selling public infrastructure let”™s again look at the Tappan Zee Bridge. Owned by the state Thruway Authority, the bridge collects tolls that go into the general revenue of the thruway. At the moment the Tappan Zee Bridge is involved with the I-287 corridor study on solutions for congestion. Anyone interested in buying the bridge would want to have absolute control over the traffic coming across in order to insure a revenue stream. This assurance is just a basic economic necessity in order for a sale to go through. However, from the public”™s point of view this requirement would absolutely preclude any mass-transit solution for the corridor because it would eat into revenues for a new owner. In fact, the current state study has been dogged by this conflict from the get-go. A rail facility would want to attract riders while the thruway is committed to keeping people in their cars at a time when gas prices are headed for the unaffordable. At the moment thruway traffic is flat, reflecting the downturn in the economy. The steady rise in the price of gas may continue to put a damper on thruway traffic even after the economy picks up.

There is a solution for this conflict that is not on the table. That is, to link a rail and bridge facility so that their goals are complementary rather than continually in conflict. Admittedly, this would be an original solution but the complexity of joining a new bridge with a new rail requires an innovative solution. The future viability of the metro region depends on a reliable connection to the mainland of the United States. An entity that operates the bridge and the rail link as one facility is the only reliable answer.