Privatization Is Changing America’s Relationship With Its Physical Stuff

By Brian Alexander

Last month, paddlers in New York state floated their kayaks and canoes in the Erie Canal to celebrate the waterway’s 200th birthday. Workers first dug their shovels into the ground to start the construction of the ditch in 1817. Eight years later, over 300 miles opened for business, making it one of America’s first big gifts to itself.

There was no apparent connection between the anniversary and the promotion, days earlier, by the White House of “Infrastructure Week,” but the timing does invite some meditation. The spotlight event of the weeklong initiative took place on the banks of the Ohio River in Cincinnati, where President Trump gave a speech that left locals underwhelmed and infrastructure experts wondering if there really was a plan to rejuvenate America’s sorely lagging works.

As vague as Trump’s pronouncements have been on the matter, it is clear that the general thrust behind the promised building-and-repair push involves using federal dollars as up-front investment to entice private enterprises to provide most of the financing. While Democrats announced their opposition, the general idea of increased privatization of infrastructure has had a bipartisan cast. President Obama supported a plan to create an “infrastructure bank” that would help finance so-called public-private partnerships (known, for their alliteration, as P3s), but that idea fizzled under the glare of Republican opposition. He also floated the idea of selling off the Tennessee Valley Authority.

Trump’s rhetoric may also lead nowhere. But the focus on the immediate political question of whether it does or doesn’t masks how profoundly the philosophy about how to build and maintain America’s stuff has shifted. The amount of money private equity and other finance outfits have amassed in preparation for an anticipated infrastructure boom testifies to it. Preqin, which collects data on the industry, now counts 84 infrastructure-oriented funds around the world that have each raised at least $1 billion in capital. Not all of this dry powder is designated for use in the U.S., of course, but the most highly publicized recent fund announcement, a deal between Blackstone and the government of Saudi Arabia, shows the hoped-for scale. The Saudis agreed to invest a reported $20 billion into a $40-billion Blackstone U.S. infrastructure fund. In all, Blackstone has plans to invest a total of $100 billion into U.S. works.

Even armed with such a cash payload, private-equity financiers, just as they do when they buy a company, do not typically buy a bridge, or road, or waterworks outright. They often create a separate entity for each project. Then they take a small amount out of their pool of cash, and have the project-specific entity borrow the rest from banks, or they sell bonds that will pay interest to investors in return for using their money. Money to pay those investors, so goes the idea, comes from revenue generated later on by the project.

For example, Spain’s Grupo Isolux Corsán Finance created Isolux Infrastructure Netherlands B.V., which in turn formed I-69 Development Partners to build a …read more

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