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.

Attachments

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. Poole, an MIT-trained engineer, has advised the Ronald Reagan, the George H.W. Bush, the Clinton, and the George W. Bush administrations.

Surface Transportation

In the field of surface transportation, Poole has advised the Federal Highway Administration, the Federal Transit Administration, the White House Office of Policy Development, National Economic Council, Government Accountability Office, and state DOTs in numerous states.

Poole's 1988 policy paper proposing privately financed toll lanes to relieve congestion directly inspired California's landmark private tollway law (AB 680), which authorized four pilot toll projects including the successful 91 Express Lanes in Orange County. More than 20 other states and the federal government have since enacted similar public-private partnership legislation. In 1993, Poole oversaw a study that coined the term HOT (high-occupancy toll) Lanes, a term which has become widely accepted since.

California Gov. Pete Wilson appointed Poole to the California's Commission on Transportation Investment and he also served on the Caltrans Privatization Advisory Steering Committee, where he helped oversee the implementation of AB 680.

From 2003 to 2005, he was a member of the Transportation Research Board's special committee on the long-term viability of the fuel tax for highway finance. In 2008 he served as a member of the Texas Study Committee on Private Participation in Toll Roads, appointed by Gov. Rick Perry. In 2009, he was a member of an Expert Review Panel for Washington State DOT, advising on a $1.5 billion toll mega-project. In 2010, he was a member of the transportation transition team for Florida's Governor-elect Rick Scott. He is a member of two TRB standing committees: Congestion Pricing and Managed Lanes.

Aviation

Poole is a member of the Government Accountability Office's National Aviation Studies Advisory Panel and he has testified before the House and Senate's aviation subcommittees on numerous occasions. Following the terrorist attacks of Sept. 11, 2001, Poole consulted the White House Domestic Policy Council and the leadership of the House Transportation & Infrastructure Committee.

He has also advised the Federal Aviation Administration, Office of the Secretary of Transportation, White House Office of Policy Development, National Performance Review, National Economic Council, and the National Civil Aviation Review Commission on aviation issues. Poole is a member of the Critical Infrastructure Council of the Los Angeles Economic Development Corporation and of the Air Traffic Control Association.

Poole was among the first to propose the commercialization of the U.S. air traffic control system, and his work in this field has helped shape proposals for a U.S. air traffic control corporation. A version of his corporation concept was implemented in Canada in 1996 and was more recently endorsed by several former top FAA administrators.

Poole's studies also launched a national debate on airport privatization in the United States. He advised both the FAA and local officials during the 1989-90 controversy over the proposed privatization of Albany (NY) Airport. His policy research on this issue helped inspire Congress' 1996 enactment of the Airport Privatization Pilot Program and the privatization of Indianapolis' airport management under Mayor Steve Goldsmith.

General Background

Robert Poole co-founded the Reason Foundation with Manny Klausner and Tibor Machan in 1978, and served as its president and CEO from then until the end of 2000. He was a member of the Bush-Cheney transition team in 2000. Over the years, he has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy.

Poole is credited as the first person to use the term "privatization" to refer to the contracting-out of public services and is the author of the first-ever book on privatization, Cutting Back City Hall, published by Universe Books in 1980. He is also editor of the books Instead of Regulation: Alternatives to Federal Regulatory Agencies (Lexington Books, 1981), Defending a Free Society (Lexington Books, 1984), and Unnatural Monopolies (Lexington Books, 1985). He also co-edited the book Free Minds & Free Markets: 25 Years of Reason (Pacific Research Institute, 1993).

Poole has written hundreds of articles, papers, and policy studies on privatization and transportation issues. His popular writings have appeared in national newspapers, including The New York Times, The Wall Street Journal, USA Today, Forbes, and numerous other publications. He has also been a guest on network television programs such as Good Morning America, NBC's Nightly News, ABC's World News Tonight, and the CBS Evening News. Poole writes a monthly column on transportation issues for Public Works Financing.

Poole earned his B.S. and M.S. in mechanical engineering at Massachusetts Institute of Technology (MIT) and did graduate work in operations research at New York University.

Lynn Scarlett is Executive Director of Reason Public Policy Institute. She is the author of numerous articles and studies on environmental policy, including New Environmentalism, published by the Dallas-based National Center for Policy Analysis, and "Evolutionary Ecology," in Reason magazine, May 1996. She served as Chair of the National Environmental Policy Institute's "How Clean Is Clean" Working Group and was a member of the Enterprise for Environment Task Force, chaired by William Ruckelshaus. She chairs California's Inspection and Maintenance Review Committee, charged with evaluating California's vehicle Smog Check program.