Infrastructure Plan Is Dominated by Profits for Wall Street

Private equity tail wagging the public infrastructure dog?

By Leonard Hyman and Bill Tilles:

About two years, we came across an article discussing infrastructure in a relatively obscure engineering journal. The authors of the piece were Wilbur Ross, now Commerce Secretary in the Trump cabinet, and Peter Navarro, a Trump economic advisor.

What struck us about the piece, supposedly elaborating their infrastructure plan, was that there was really nothing in particular that they wanted to build – nothing that would excite the imagination: no space race, or federal highway initiative, and heaven forbid certainly no new deal.

Thinking about it in accounting terms, the asset side of their infrastructure balance sheet was a compete blank. But the liability side of the ledger was the real focus of the Ross/Navarro exercise. They provided an answer to a question that almost no one was asking: How much leverage can one get away with and still control a federal infrastructure project? Their answer was 6-to-1.

On Monday, the White House released its long awaited “Legislative Outline for Rebuilding Infrastructure in America.” It boils down to this: The federal government claims it can facilitate a $1.5-trillion program with only $200 billion of federal money. That’s a leverage ratio of 7.5-to-1. That’s it.

And they still can’t be bothered in the text to name even one actual project they care about.

But the leverage – the debt, that is – is supposed to come from state and local sources, which are not exactly flush with cash. The states could have financed many of these projects if they had wanted to by charging tolls. The document released by the White House is anything but clear on how private investors would horn in on the goodies so to speak.

But it looks as if private investors could collect incentives for their own projects and do all sorts of lease deals with the governments that financed the projects. We would expect investment firms of every stripe to be interested. Terms this generous are seldom on offer.

So what do we think will actually get built? The “Outline” lists various evaluative criteria for potential infrastructure funding. However, answering “Yes” to the question “Can you fund capital and operating expenses without federal support” is 70% of the project’s score. New technologies and provision of economic and social benefits to the community are each accorded a 5% weighting. To put it simply, the criterion is: Will you charge tolls and high tariffs to generate hefty revenues for the project?

Is the private equity tail wagging the public infrastructure dog? Not clear at all from the text. But seems likely given the people in charge. It would be bad enough if vital public services are privatized with reduced restraints or oversight on the new owners.

But this is profoundly different. With so much depending on collecting revenues to pay off the debt, the builders will build what is economically attractive. Toll roads have much better economics than municipal water systems. We doubt the people of Flint will see much benefit.

Sigh. Almost as an aside to its infrastructure plan, the White House also floated an initiative to sell federally-owned assets so as to “optimize taxpayer value.” Included in this list for “optimization” were both Washington airports, Reagan and Dulles, and interestingly all federally owned power transmission assets. This list included the TVA, BPA, and the other federal transmission organizations (WAPA, SWAPA and SEPA).

Selling existing assets, of course, does not create new infrastructure or create jobs. But it does make work for bankers and create opportunities for private equity firms. Making the Federal agencies pay private sector returns, incidentally, means raising prices to consumers.

Let’s see how lawmakers react to having their constituents pay more. We wouldn’t bet on the sale of any electricity assets.

So will the Trump plan produce the touted $1.5 trillion of investment? Hard to say. But it will subsidize private investments that fit into various privileged categories. Private investors we expect will find this plan relatively generous.

It is hard to believe that a spread of small subsidies here and there, none even big enough to finance even a major highway, will do much more than fund what local governments might have spent anyway. But now public and private priorities are being reversed. What would matter the most under the plan are projects that might produce cash flow for investors rather than benefits for the public.

As for selling the federal government’s electric power and transmission companies, which could easily net tens of billions of dollars, as they say in President Trump’s New York, “fuggedaboutit.” When we hear Mitch McConnell say he’s on board with the idea then we will consider revising our view. By Leonard Hyman and Bill Tilles.

A utility in Texas takes first steps. Incumbents are not amused. Read… Wholesale Power Generators to Get Hurt by Grid Batteries

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  54 comments for “Infrastructure Plan Is Dominated by Profits for Wall Street

  1. Joan of Arc says:

    All of the bridges look good here and the pot holes are filled by the local governments. Since there is nothing to do, just fork the money over to CAT and leave the ground undisturbed. Keep things going on my watch and let the next generation pay the bill.

    • BTilles says:

      “All the bridges look good here and the potholes are filled.”

      Sounds like a mash up of the latest Highway Dept Report and the Prairie Home Companion.

      • Dan Romig says:

        As a Minnesotan, I can’t wait for spring to arrive. However, that time of year brings out pothole season, and this year will undoubtably be dangerous to drive with the potholes soon to be lurking. Moisture, freeze and thaw do the damage to poorly built and worn out roads.

        In the Twin Cities we could use infrastructure spending to fix and build roadways, but to be on the safe side, I leave my snow tires (narrower and taller sidewalls than summer performance tires, eh?) on long enough until the DOT has patched up the alignment-wreckers.

  2. Marty says:

    I’m shocked, shocked to find gambling going on in here.

  3. RomYumGoong says:

    Seems the Mafia has morphed.

    • Robert says:

      Like Willie Sutton said, “it’s where the money is.” The criminal element has legitimized itself by infiltrating the government.

  4. Paulo says:

    Our last Provincial Govt. here in BC ‘sold off’ surplus properties a few years ago; for that good old budget balancing bottom line. Now, there is an investigation sparked by a local news organization, CKNW. Surprise surprise, there was no real bid process, no reserved prices, and often buyers were large campaign contributors to same Party, (BC Liberals, a right wing coalition). It is/was a given the prices were well below market value and huge flipping profits were made in short order.

    Look at Greece and the ‘selling’ of assets.

    Don’t go there. Privatization is a corrupt masquerade. If a private interest wants to propose a new service or structure and it makes economic sense, they will build it provided zoning and public interests are addressed. An example of this is another passenger ferry service is being introduced this summer to run between Vancouver and Nanaimo. (I think this will be the third one tried.) However, the meme of Privatization Efficiency is just a ruse to clear the books and funnel payoffs. As they say, “There is just one taxpayer”. The little guy will pay, one way or the other.

    Let a Govt. book a project, finance it and all materials including build-out labour costs using the lower interest rates a Govt will receive to lower the final bill for citizens. Build it privately as needed. If required, and it looks like it will be as no one wants to really pay for anything these days, then use tolls or user fees, until the project is paid for. At that time, lower the tolls and user fees to cover repairs and replacement, only, and not as a cash cow for general revenues. Each project has to stand on its own merits.

    When a Govt undertakes directed projects they can also ensure a fair wage structure is paid to employees so that there is no advantage for disreputable companies who rip off their workers/contractors by paying sub-standard wages and benefits. Those liveable wages are also recycled back into the economy in purchasing and taxation. Here is one example:

    Or, you could always go to lowest insider bid and get something like this:

  5. IdahoPotato says:

    They are talking about privatizing air traffic control, backed by airline lobbyists. The fee structure for air tickets will change, the security and safety oversight will be controlled by the airlines. Let that sink in.

    British Rail is a sordid example of what happens to public infrastructure after it is privatized.

    This has always been the right-wing agenda. Cut government funding, privatize everything that works, make it untenable to operate, then claim that government is the problem. Yet, they trip over each other to be part of government and live off tax-payer funded salaries and benefits for as long as they can. (John McCain is an example. He has been on tax-payer funded health insurance since the moment he was conceived, but has a problem extending the same benefit to others.)

    • BTilles says:

      Hi IdahoPotato,
      I don’t think it’s an accident that the Sydney (Australia) airport, owned until recently by investment bank Macquarie Group, is considered the most expensive in the world for both airlines and passengers. In addition, the airport parking concessions are notoriously overpriced.

    • walter map says:

      “John McCain is an example. He has been on tax-payer funded health insurance since the moment he was conceived, but has a problem extending the same benefit to others.”


      All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.

      Wealth of Nations

      • Javert Chip says:

        For those who might not be totally familiar with history:

        John McCains’s father was an USN admiral with significant service in WWII (Guadalcanal & other island invasions), Admiral McCain was one of the few saviors of the cactus airfare.

        John McCain jr (current AZ senator) is an Annapolis graduate and was a USN fighter pilot in Viet Nam, where he was a POW for 5 1/2 years. The Vietnamese offered him an early release, which McCain refused because he knew the consequences of early release for the son of an admiral. He retired after 20 years as a USN Captain.

        So yea, John McCain got “free ” health care for life. Of course, that didn’t help with the fact his broken shoulder & arm were never treated medically by the Vietnamese during the 5 1/2 years of POW.

    • Javert Chip says:

      Yea. TSA does a much better job of it.

      One of the differences between government & private companies performing a service (example: airport security). is if a private company screws up (eg: won’t let a nursing mother take breast milk aboard) is they can be sued; if the government TSA does the same stupid thing, travelers basically have absolutely zero recourse.


  6. Anon1970 says:

    If you want to get an idea of how expensive a toll road can become for drivers, Google Highway 407 in Ontario, Canada. The Province of Ontario leased the original portion for 99 years to a private investment consortium for some quick cash C$3.1 billion. The more recently built portion is still owned by the province. A car trip from one end of the highway to the other, bypassing the congested Toronto area is about 86 miles in length and costs about $47 US during peak weekday hours. It even makes the NY State Thruway look cheap.

    • Frederick says:

      When I take my wife up North here on the Aegean coast of Turkey I take a newly built toll highway for most of the 600 km and the cost is around 6 dollars US It’s great as it saves us a couple hours from the old road and is a lot safer

      • Tom T says:

        Hello Frederick,
        A similar distance driven on the Pennsylvania Turnpike is $36 and easily saves 4+ hours. I have read that diesel cars are quite popular now in Turkey. 1978 to 1985 Mercedes diesel cars 5 cylinder D’s, SD’s sell very cheap here in US. Any business prospects come to mind? . Can supply, can you sell?

        Hope this comment finds you healthy and happy.

    • BTilles says:

      Hi Anon1970,

      You’re quite right those prices to travel 86 Canadian miles are high. But as you point out, and I would emphasize, they were also attempting some congestion pricing schemes here so as to mitigate traffic problems. I believe they were copying to a degree London’s congestion pricing scheme which charges motorists about $25 just to drive into downtown.

      • Anon2017 says:

        More likely, Ontario was copying the San Joaquin Corridor toll road in Orange County, CA built a few years earlier. Both projects reflect costly inefficient financing which is being borne by users. The San Joaquin Corridor bonds have had to be refinanced at least twice because toll revenue projections were not realized. The high tolls on Highway 407 have made made Highway 401 (a few miles to the south and closer to central Toronto) more congested than ever.

  7. walter map says:

    “Infrastructure Plan Is Dominated by Profits for Wall Street”

    The plan is to enable another channel for Wall St. to bleed the country. ‘Infrastructure’ is merely the latest mechanism for accomplishing that. The buccaneers robbing the country have no intention of actually ‘improving US infrastructure’, because that would represent an investment in the country, and you don’t invest in something that you’re actively liquidating.

    The military is another such mechanism. The US spends over a trillion a year on it, looking past the accounting deceptions. How much of that do you suppose actually goes for ‘national defense’ – and how much ends up in offshore accounts as useless collections of ones and zeroes? Even the Pentagon admits it can’t account for trillions, and the MIC doesn’t allow itself to be audited. A truly excellent extraction mechanism, obviously, but only one of many.

    And more are coming. Clearly the goal is to bleed the corpse until there is nothing left worth stealing. Tax gifts and corporate welfare for ruthless pirates? Are you shitting me?

    All this makes it easy to predict food riots and old people dying in the alleys. Those who plan to retire on Social Security are in for one right nasty surprise, because that’s next up in the Pillage Plan. I recommend they find themselves a reasonably clean and quiet alley before they’re all taken. And maybe stop voting for, and blindly supporting, their own destitution, assuming it’s not already too late.

  8. There is no choice but to transfer government functions to the private sector, government is indebted to the point of no longer being able to function. Although state governments cannot run deficits they sell bonds and manage to accomplish the level of indebtedness. This seems like a bevy (50 to be precise) of unfunded mandates. Well Goldman Sachs was front running CalPers, now they front run the whole state.

  9. Roger says:

    This is similar to what I heard on RT’s “Boom Bust,” hosted by former CFTC Commissioner Bart Chilton. The public need is not the main objective of the administration’s infrastructure plan. It’s the pursuit of profits. Logically, there should be a nationwide list of priorities, with Puerto Rico included. We’re witnessing the return of the Gilded Age in America, cronyism running amok, with much of the electorate in full support. Tune into C-SPAN’s “Washington Journal” some morning, specifically the call-in segment; it’s truly appalling how antagonistic towards the government some people are.

  10. William Neil says:

    I said it long ago, at the zenith of Neoliberal reign in both parties: the America of the 21st Century lacks a governing philosophy adequate to our times – its problems as well as the rapid pace of Creative Destruction which de-stabilizes previous consensuses.

    If this sounds a bit like Herbert Croly’s 1909 classic, “The Promise of American Life,” which in turn was thought highly of by Michael Lind in his economic history of the United States, “The American Promise” (2012), that’s exactly right. It’s one of the few instances where an old founder of the New Republic, in its early Progressive years, would agree with a later day, contemporary conservative. That’s because Lind is a constructive economic nationalist, and gives the New Deal a fair and decent hearing.

    Not so the rest of the contemporary Right – conservative and Libertarian. That coalition has laid the foundations for a new, hopefully non-shooting Civil War because of the deep attack on the national state – big government. We have plenty of other significant differences in the US – which is not new: race, immigration – gender civil wars is relatively new, and intensifying rapidly.

    But if you believe that we must re-integrate the American working class and poor into our civic and economic life, then, as illustrated by this shameful sham of an infrastructure program – which might have been written by German banks for Greece – we are in deep, deep trouble – 1850’s type trouble, and maybe Weimar type trouble.

    Theoretically, I can see a national emergency fighting the climate-ecological crisis as a creative, constructive tool, to revitalize the country and bring a deeper full employment, one that Croly might grasp were he living today, but probably not Lind. It would be the moral equivalent of war – in William James’ terms, like the mobilization in the US 1939-1942.

    We are living in centrifugal, late “Empire days” – you can take your pick of late Roman and Middle Ages and Fin-de-Siecle Vienna and Europe analogies. But there it is staring us in the face: a great and wealthy nation that cannot maintain its infrastructure will not be able to hold it self together. We lack the intellectual and moral vision to build the missing a constructive national philosophy.

    • walter map says:

      “Theoretically, I can see a national emergency fighting the climate-ecological crisis as a creative, constructive tool”

      Actually, that’s the losing end game, just ahead of the Great Disintegration, so-called. Give it a few years, you’ll see.

    • BTilles says:

      Hi W Neil,

      Herbert Croly, huh? Croly is what you would get if Teddy Roosevelt and Rosa Luxemburg had a love child. Champion of a muscular federal government to oppose the power of private sector trusts but an opponent of “aggressive unionization”. Also with a profound social conscience.

      • William Neil says:

        Thanks for that great opening line on progressive “genetics.” But the Herbert Croly I just read – and that book is on the top ten or 25 great American policy ones – maybe overrated – was in favor of unions and the union shop, but wanted management to have the right to pay workers who went above and beyond the “average effort” – more. He didn’t mean via promotion, the route after the “Treaty of Detroit,” but higher pay above the union contract.

        And if you look at his examples of American reformers, William Lloyd Garrison, Eugene Debs and William Jennings Bryan didn’t quite cut it, as a matter of fact Debs wasn’t even mentioned: TR did cut it.

        Croly didn’t think the anti-trust laws were well written or effective in practice. So Croly was for an organized labor, keeping the achievements and powers of trusts, and for a national government with effective power and citizen-election directed national goals, one of which should be, have been, grappling with the great Gilded Age mal-distribution of income.

        So as for a fling with Red Rosa, I don’t think it would have gotten past the first drink, which she would probably have poured upon his head, with his high minded ideals, lofty character types, matched by a hard to read high Episcopalian style from the late 19th century.

        His basic starting point for reform was that our great AnteBellum Jeffersonian tradition of economic individualism could no longer guide the country in the age of the huge industrial and financial trusts, including the railroads. He leaned, not simplistically, towards Hamiltonian over Jeffersonian ideals, which is why he gets introduced on the first pages of Michael Lind’s Land of Promise, which is a fine book. I’ll save my serious dissents from Lind in certain areas for another time, but I was thinking as I read him that here was a conservative which social democrats might be able to find some important grounds for agreement with. More “promising” that the 1850 type current ideologues in the Right-Libertarian Republican coalition. Remind of South Carolinian “Fireaters.”

        Lind tries to draw upon history for insights, not bury or erase it. Perhaps my greatest common ground with him is the Karl Polanyi-ish recognition that the creative destruction and disturbances of market forces makes reigning governmental ideological roadmaps obsolete. That’s where we are now. Just so you know where I am coming from, feel free to Google “Major Miscalculations: Globalization, Economic Pain, Social Dislocation and the Rise of Trump.”

    • Cynic says:

      No civilization has ever been built on an intellectual and moral vision.

      Those with such vision have occasionally succeeded in modifying and humanising what has been built, but it has never lain at the foundation.

      What is the foundation of civilization?

      A clue: put a bowl full of food in front of a dog.

      Watch what happens.

      Any other interpretation is delusion. Mother Nature will soon be placing an empty bowl before us. That is the issue of our times.

    • Anon1970 says:

      In recent years, many Republicans have successfully run for office on a God, guns and gay platform. We get the kind of government we deserve.

    • george mcduffee says:


  11. BTilles says:

    Hi Roger,

    Re “It’s truly appalling how antagonistic towards the government some people are.”

    About 100 years ago, President Wilson commented that the electoral strategy he saw most Congressman employ was to tell their constituents how terrible Washington was but only they could fix it.

    After three generations of this can you be surprised by protest signs that read, “Obama, keep the government’s hands off my Medicare”.

  12. JB says:

    Insightful article, If the US government wanted to sell assets it should start with the hugely inefficient VA hospital system . Cash out federal employees pension benefits . Service members can be better served in the private sector with vouchers or medicare card.

    • James Levy says:

      What part of our medical private sector do you deem “efficient”? How do you calculate the vouchers–based on what level of coverage? What do you do with the aged Vets who are in VA hospitals? What about those parts of the country where hospitals are rare on the ground? Why is it fine for insurance companies, elected by no one and answerable only for maximizing their profits, to set prices, but not the elected representatives of the people?

      Lastly, are you, making these suggestions, a Vet yourself?

    • MD says:

      …you mean the USA’s vastly inefficient private health care system, dominated by an insurance cartel that rigs prices and hoovers up money to fund armies of intermediary administrators and stockholder dividends..?

      Yeah – do that. Definitely. That’s the way to save money – spend it in the most expensive, inefficient healthcare system on planet Earth.

      Boy – I guess you can’t argue that decades of neoliberal propaganda hasn’t worked. People have been trained like Pavlov’s dog to unthinkingly associate civil service with waste, and private enterprise with efficiency – without even asking for empirical proof (note: there is none. That’s the nature of dogma, it doesn’t require truth).

    • Roger says:

      When you make a comment like that, you’re just playing along with the Trumpists and the Wall Street interests that want to privatize everything for their own benefit. The federal employees that have been hired since 1987 have been under a new, less generous retirement system called “FERS.” The main part of FERS is the Thrift Savings Plan, which is a typical 401(k). What would you do? Cut out matching? Do you want competent people in government? You would in effect cut off the legs of another segment of the middle class.

    • walter map says:

      “If the US government wanted to sell assets it should start with the hugely inefficient VA hospital system”

      Another aspiring billionaire. How quaint. And I think you mean ‘unprofitable’, not ‘inefficient’.

      Fatter fish have already have plans to add the VA system to their bottom lines. It’s too much for you anyway. Why not start by profiteering off something small, like the Atlanta public schools? I hear it’s still available in exchange for some rather modest campaign contributions. If you like scenery, national parks should also be in your price range.

    • 91B20 1stCav (AUS) says:

      I echo James Levy-are you a Vet yourself? I was fortunate to enter the VA healthcare system after the economic meltdown of ’07-8 destroyed the jobs of my wife and myself (neither of which offered healthcare) and our ability to pay $400 each a month for a $10,000/person deductible plan which was absolutely the best we could come up with. Without reservation, I have had better medical care in the VA (saved my sight from a shingles attack) than I EVER received in a private sector system that has been turned to one where the TOOL (profits derived from the efficiency of a profit-driven endeavor) has become more important than the MISSION (maintenance of a healthy national population). In fairness, VA care does vary widely across the country, but the outstanding level of care I have had, and continue, to receive, from the Bay Area VA shows what can be achieved-in my opinion continuing to work nationwide to improve the system (one that has had this veteran’s back MUCH better than the private sector’s) should be the goal. VA’s funding though, like Social Security, is always subject to the whims of Congress, who at this time appear to be enamored of the drumbeat to privatize all profit and socialize all risk, as presented re: infrastructure in this article. (Rant over, very sorry Wolf, for running tangentially off topic…). May you have a better, and healthier, day.

  13. MD says:

    “Infrastructure Plan Is Dominated by Profits for Wall Street”

    Aaaaand in other news tonight, bear found defecating ruraly.

  14. Laughing Eagle says:

    Claiming the VA healthcare system to be inefficient has not used the system. And in my opinion only comes from those who want privatize it for profits and do not understand the private healthcare system, where prices must reflect the two profit centers, the provider and then the insurance company. How efficient is the present private sector where insurance CEO’s make millions? And they can make more by making healthcare more efficient? Inefficiency -VA has lower drug prices than Medicare Part D.

    • walter map says:

      “How efficient is the present private sector where insurance CEO’s make millions?”

      It is efficient in the extreme – but only for CEOs.

      In corporatist-speak, ‘efficient’ is a euphemism for ‘profitable’. For example, Wonderful Pistaschios are grown using fracking wastewater. Now that’s efficient.

  15. Kiers says:

    Journal just said Private Equity was not interested in the Infrastructure Plan:

    Must be that it doesn’t meet their hurdle rate (surpassing which they can put their own noses into the action)?

    • Wolf Richter says:

      I have a friend who owns a construction company, and he is talking to PE firms (they need construction companies to make this work). He said PE firms are all over this.

      • William Neil says:

        Yes Wolf. My reaction after about ten pages of the report was that it was conceived and written by lobbyists and financial specialists who knew all the nooks and crannies of existing programs and how to tweak them for PP partnerships and to favor the private sector. I cringed at the thought of the average citizen deciphering what was really going on: there was almost no “translation” for them. And a lot “backfield in motion” deception moves.

        The who and why of the Henry George claw-back provision – the only “progressive” feature, has a lot of us scratching our heads. My hunch is that is was put in as a “deflector” to show that the President as “Developer in Chief” was open to coughing up windfall profits from adjacency to new infrastructure. Of course, such a provision couldn’t pass muster in the views of Centrist Democrats either, who are very deferential to private real estate powers – from my ten years in the land-use wars in New Jersey as an environmental advocate. And now in Maryland.

        • kiers says:

          yes true, for the average citizen, it’s almost like everything (democratic governance, capitalism) is “private club members only”. Major dissociation.

  16. charger01 says:

    This subject was covered in Matt Taibbi’s excellent book, “Griftopia”, regarding public-private partnerships. He covered the Pennsylvania Turnpike and Chicago’s parking meter privatization, used as a looting mechanism for Dems and Repubs alike.

    • William Neil says:

      Yes, that’s perhaps the best thing about Taibbi’s reporting: he’s got street smarts. I thought his first hand account of the “rocket-court” for mortgage evictions in Florida was top rate: heart-breaking and anger stewing at the same time. Equal justice under the law certainly wasn’t present in that set-up.

  17. Javert Chip says:

    Interesting to see compliance with Wolf’s “5% of comments” in action…

    • Wolf Richter says:

      It’s self-policed. I’m asking people to stick to it. I’m not sitting here counting comments. When they get way overboard and I catch them and esp if it’s a bunch of unrelated stuff, I step in. And sometimes I step in too late. This was the case with “Walter Map” above. I saw it too late, but then blocked new comments and deleted one or two of the existing comments, just to make a point.

      Counting comments is a huge waste of time for me, so I’m asking commenters to stick to the 5% or so guideline on their own.

Comments are closed.