Don't Drink the Tea. Think With the WE.
Mar
2012
26

Cuomo Threatening to Privatize NY Infrastructure Investment



Andrew Cuomo has become the latest Governor to pursue privatization of infrastructure investment for his stae. According to Bloomberg.com, “Cuomo has proposed a $15 billion infrastructure fund that includes state and federal dollars and $3 billion in private investment.” This represents a less drastic interest in privatization than was displayed by Ohio Governor John Kasich and Indiana Governor Mitch Daniels, the latter of whom lost $209 million dollars in 2010 on one tollway alone, but has nonetheless sparked criticism:

The state could fund projects more cheaply on its own, said Frank Mauro, executive director of the Fiscal Policy Institute, a Latham, New York-based research and education organization backed by organized labor.

“There’s no real logic to public-private partnerships,” Mauro said in a telephone interview. “If there’s a stream of revenue that makes a project desirable to a private investor, then the same stream could be used for public borrowing at tax- exempt rates.”

A transportation bill approved by the U.S. Senate this month includes an amendment meant to discourage states from leasing by excluding privately operated toll roads from the formula that calculates U.S. highway aid.

The hot-button infrastructure project in question is the Tappan Zee Bridge, a bridge originally completed in 1955 that crosses the Hudson River to the North of New York City proper. Cuomo’s argument for privatization hinges, in part, on the fact that it seeks only to lease, not sell, state assets:

Governor Andrew Cuomo is seeking legislation that would allow private-equity firms to help finance construction of public-works projects, including a new $5.2 billion Tappan Zee Bridge.

The bill would authorize the state to lease bridges, roads and state buildings to help pay for construction, maintenance and operations of infrastructure, said Thomas Madison, executive director of the New York State Thruway Authority. Cuomo doesn’t want to sell state assets, said Karen Rae, deputy secretary of transportation.

The Reuters blog MuniLand characterizes Cuomo’s condition as “the privatization flu” and makes a reasoned argument against the shift:

The Debt Reform Act of 2000 limits the amount of money the state can borrow, and New York is right up against that borrowing ceiling. The Debt Reform Act says the state may only borrow 4 percent of the personal income of the state’s residents, which was $37.8 billion for 2011 (the law only counts debt issued since its enactment in 2000). Currently the state has $32 billion outstanding using the law’s counting method, so remaining capacity is around $5 billion.

I think the governor looked over the state’s books with his staff and got a little spooked thinking about where the Tappan Zee Bridge funding would come from. Maybe the governor’s counselors whispered in his ear that they have been getting calls from the helpful people at Carlyle and Macquarie, who would love to finance some infrastructure. What a relief, the governor might have thought. He could fund this mega-project and not have to fight the legislature to change the law. Instead, he could craft a new law that opens up the state’s public assets to Wall Street and other wealthy investors. They’ve been clamoring to get in, and here is a chance.

Now I can understand the governor’s enthusiasm to offload the cost of infrastructure onto private investors, but the funds to construct a new Tappan Zee Bridge would more likely come from the New York State Thruway Authority than the general financing of the state. The Authority is a public corporation of the state but has no taxing powers. Its debt is not a liability of the state (page 41) and would not count against the state’s debt ceiling. Bonds issued by the Thruway Authority are repaid through fuel taxes and other sources. The Thruway Authority has a debt service limit of $16.5 billion. Total debt service (principal and interest) for the Thruway Authority currently equals $10.7 billion. This consists of bonds that come due through 2032; the payments peak in 2015 and then fall dramatically.

The federal government will lend the state about $2 billion to construct the new bridge, leaving the state to issue toll-backed bonds to fund the balance. There is debt capacity in the Thruway Authority and massive demand among the wealthy of the state for tax-exempt municipal bonds. There is no reason for the governor to create legislation privatizing the public assets of New York State.

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