2007's I-35 bridge collapse in Minneapolis raised the awareness of this nation's need to rebuild its important roads, bridges and other infrastructure. We've heard about and read about the many calls for government rebuilding of these assets from both Lansing and Washington DC.

Report cards (http://www.asce.org/reportcard/2005/page.cfm?id=62) grading the health of these structures show many to be in poor condition, so the question is not do we fix or repair, but what method we employ. I support an economically sustainable method to do so, this involves the use of the private marketplace to determine which key assets will be prioritized.

Factors Lining Up

There are several very important factors that have occurred or are occurring that will allow for infrastructure improvement without raising taxes on the general populace.

1. Recently the Michigan Legislature passed, almost unanimously, the creation of a study group to research the viability of "alternatives to fuel taxes" (http://www.michiganvotes.com/2007-SB-59) as a method to raise revenue for improvements. I support this panel creation, but I want to be very clear that I support the idea that these assets are to be delivered and administered by private, incentive-driven companies. Further, I will support the market based infrastructure solution only when it is coupled with reduced taxes and fees (fuel taxes).
2. Mark Weisdorf of JP Morgan Asset Management aptly points out the United States alone will require an estimated 6 trillion dollars of infrastructure improvements in the coming years. Governments, thankfully, simply do not have the ability to raise taxes much further, plus additional bond issuance for such projects will likely lower the credit rating for many municipalities thus increasing their borrowing rate.
3. We may one day view this point in time as a golden age of infrastructure. Managers of extremely large pools of money are seeking infrastructure assets for their consistent rate of return and its affect on the overall risk of their investments.

Private roads and infrastructure in the United States is a foreign practice to many. But there are parts of the world that have excellent knowledge and experience with privately owned infrastructure assets, parts of Europe and Australia in particular. It is important to move forward quickly on this matter as private capital pools are seeking these assets and tend to pay large up-front sums to secure them.

Benefits to Michigan

It needs to be very clear that I am not advocating government controlled roads and infrastructure, rather that they be leased and controlled by private owners who will care for the assets in a way different from that of how government does (or does not). The clear benefits to Michigan are likely to be a large up-front cash payment (which could be employed in the effort to reduce taxes of all kinds) and the assurance that roads and infrastructure are not overused. Further, future upkeep and replacement will be handled by private companies who collect tolls and fees from those that use the good, not from non-using taxpayers. Private companies have great incentive to provide users with a better experience, if they do not they will not be able to collect fees from the users.

Roads as an Example

Economist Walter Block (http://www.walterblock.com/publications/road_socialism.pdf) points out yet another benefit based upon the private ownership of roads. Currently, almost all roads are public goods, no one owns them, only the government is charged with keeping them in usable form funded by the collection of tax payer dollars. Mr. Block argues that free, public goods, because they exact no direct cost on the user will be overused. This overuse creates traffic congestion and cost drivers in the form of lost time. The congestion that results also creates roads that are less safe. Evening news reports often cite excessive speed and the like as the "cause" of accidents, however, evidence points to not speed itself, but the variance in speed that causes accidents. Variance in speed results from traffic congestion which is derived from overuse of free, public goods, such as roads.

Other References

Weisdorf, Mark A., CFA (2007). Infrastructure: A Growing Real Return Asset Class. CFA Institute: Conference Proceedings Quarterly, September 2007, 17-25.