Policy Study

Mining the Government Balance Sheet

What Cities and States Have to Sell

Executive Summary

President Bush’s Executive Order (No. 12803) on Infrastructure Privatization of April 30, 1992 cleared away federal barriers to cities and states selling or leasing existing public works infrastructure to private investors. This report reviews the potential for state and local governments to make use of the new option granted them by the Executive Order.

Selling infrastructure enterprises can provide financial benefits to all three levels of government. For hard-pressed state and local governments that sell these assets, the immediate gain is the one-time retrieval of their capital, for use on other pressing needs. Local governments will thenceforth benefit from ongoing property tax payments, as formerly exempt highways, bridges, airports, water systems, and waste disposal facilities are added to the tax base. Each enterprise that is privatized also represents a new stream of state and federal corporate tax revenues. And the federal government will receive the depreciated value of its previous grant investment, at the time of sale.

Privatization of infrastructure is a worldwide phenomenon. Airports have been privatized in Britain; seaports in Britain and several Asian nations; water supply in Argentina, Britain, and France; electric and gas utilities in a number of countries; and highways in many parts of Europe, Asia, and Latin America.

Based largely on this international experience, estimations of the market value of privatized infrastructure are derived in this report. Applied to the numbers of commercial infrastructure enterprises owned by cities and states, valuation rules of thumb yield estimates of the potential sales value which cities and states could realize via privatization. This preliminary estimate is $227 billion.

In light of the easing of federal policy and the sizable potential benefits, state and local governments should consider the transfer of public assets to the private sector.