The California Legislature is starting to look like Congress in its inability to get big things done. A special session to address the billions of dollars of critical infrastructure upgrades needed throughout the state concluded last week without a deal.
The American Society of Civil Engineers gives the state a dismal C- grade. The state’s water infrastructure has not been expanded since the 1970s and is designed for about half the current population. California’s transportation network is crumbling and congested, and its electrical grid is increasingly focused on renewable energy without a clear plan for storage and distribution.
The new Legislature has promised to prioritize the problem. Lawmakers should consider a new report from the California Policy Center detailing how private investment can help solve it.
Private infrastructure investment would help on three counts. First – and most obviously – it would generate the necessary quick cash infusion. Gov. Jerry Brown proposes the state address $57 billion in deferred road maintenance with a one-time $1.7 billion fix, and an additional $36 billion over 10 years – well short of what’s needed.
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Second, private infrastructure spending could provide safe and high-yield investment opportunities for the nearly $800 billion in assets held by CalPERS and CalSTRS. Weak investment returns threaten the solvency of pension funds.
Third, private investment transfers the risk from taxpayers to the private sector. Chronic budget overruns currently fall on the backs of taxpayers, while private investment would provide protection against boondoggles.
Consider California’s high-speed rail fiasco. The original 2008 ballot measure promised the train ride between Los Angeles and San Francisco would take no more than two hours and 40 minutes, and that the project would have a total construction cost of $45 billion. Since then, the expected travel time has risen together with the projected cost, to at least $62 billion. If high-speed rail were funded privately, investors would have been on the hook.
But what about the claim that private investment would limit access to roads or other transportation infrastructure for low-income residents? This is a misnomer because state and local authorities could still subsidize user fees to keep costs low. In fact, public funding that would have gone to expensive fixed infrastructure costs could be used to bolster subsidies, increasing access for all Californians.
Bond financing has been inadequate. State policy has embraced conservation and austerity, but Californians should not have to significantly sacrifice their standard of living.
Governments and taxpayers could get far more value from private investors willing and able to finance total costs than they do from simple bonds with little accountability. The recent auction of the Indiana Toll Road to a consortium of pension funds (including CalPERS) for $5.7 billion demonstrates the value of high-quality infrastructure to institutional investors.
As the new Legislature tries to tackle infrastructure again, it should consider how private-sector investment could help finally getting a deal done. This approach would reflect California’s culture of innovation, as opposed to Washington’s culture of gridlock.
Ed Ring is vice president of policy research at the California Policy Center, a free-market think tank in Tustin. He can be contacted at firstname.lastname@example.org.