Paul Crespo
Tuesday, July 24, 2007

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Cities and states across the country are selling off billions of dollars worth of strategic infrastructure – and often they are peddling these vital American assets to foreigners.

Local governments increasingly see the selling or leasing of infrastructure such as roads, bridges, ports, and airports as a quick and easy solution to their voracious budgetary appetites.

"Roads and bridges built by U.S. taxpayers are starting to be sold off, and so far foreign-owned companies are doing the buying," USA Today reported on July 15, 2006.

Homeland Security admits that 80 percent of our 3,200 port terminals nationwide are now operated by foreign companies and countries.

In fact, it took the controversial Dubai Ports deal in 2006 to bring this worrisome issue dramatically into the public eye. The ensuing public furor over Arab control of several major U.S. ports in the aftermath of 9/11 ultimately doomed that deal.

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Yet the foreign purchase of U.S. infrastructure has been proceeding at a rapid pace and foreign companies already own many of these assets, especially in the maritime and aviation industries.

"Policy-makers are asking themselves, ‘What assets can we lease?'"

Arturo Pérez, a fiscal expert at the National Conference of State Legislatures, told Stateline.org. "A lot of creative minds are out there working on that."

Robert Poole, founder of the libertarian Reason Foundation, estimates that there are currently $25 billion worth of public-private highway deals being planned. More than 20 states have passed legislation allowing public-private partnerships to run highways. Indiana's House narrowly approved a proposal to lease the 157-mile Indiana Toll Road for $3.85 billion to a joint venture of Cintra – a Spanish company – and Australia's Macquarie Bank.

On the left, Daniel Schulman and James Ridgeway explain in Mother Jones magazine how "you could soon be paying Wall Street investors, Australian bankers, and Spanish builders for the privilege of driving on American roads."

Among the thoroughfares being discussed for possible privatization are the New York Thruway and the Ohio, New Jersey, and Pennsylvania turnpikes, they add.

The privatization wave goes back more than a decade. The U.S. government first blessed this fire sale of American infrastructure on April 30, 1992, when the senior President Bush signed Executive Order 12803, called "Infrastructure Privatization."

The order directed federal departments and agencies to encourage state and local governments to "privatize infrastructure assets." These assets ran the full gamut from "roads, tunnels, bridges, electricity supply facilities, mass transit, rail transportation, airports, ports, waterways, water supply facilities, recycling and wastewater treatment facilities, solid waste disposal facilities, housing, schools, prisons, and hospitals."

The current President Bush is continuing the process begun by his father. As part of the 2005 transportation bill, he persuaded Congress to make it easier for states to issue tax-exempt bonds for public-private road and bridge projects, and he is acquiescing to European demands to open U.S. airlines to foreign ownership.

So what is the federal government's mechanism to control this infrastructure privatization? A little-known government agency known as the Committee on Foreign Investment in the United States (CFIUS) is supposed to be responsible for protecting our national security interests when foreigners seek to buy U.S. assets.

But one major problem with Executive Order 12803, notes Phyllis Shlafly in the newspaper Human Events, is that it didn't put any specific restrictions on who could purchase our assets, and since CFIUS operates in secret, few understand its procedures.

Frank Gaffney, President of the Center for Security Policy, discovered that "out of more than 1,500 cases of foreign acquisitions reviewed since 1988, CFIUS has only formally rejected one."

Gaffney, a critic of CFIUS' secrecy, said in National Review Online that the Dubai Ports fiasco obscured the even greater threat of these same foreigners buying parts of our defense industrial base.

One significant example Gaffney pointed to is Dubai International Capital's $1.2 billion acquisition of Doncasters Group. Doncasters' U.S. subsidiaries produce precision components used in, among other things, engines for military aircraft and tanks.

Other experts are less concerned. James K. Glassman, a resident fellow at the American Enterprise Institute (AEI), believes the foreign control danger is overblown. According to Glassman, at the heart of the "feverish reaction" to the Dubai Ports deal is the fear of terrorist attack, including the frightening specter of a dirty radioactive bomb or a full-fledged nuclear device shipped into a major U.S. city.

But Glassman argues that while such an attack is a real concern, "the notion that a sale of assets to a Dubai company will increase the threat of such an attack is, emphatically, not."

Veronique DeRugy, another expert at AEI, concurs: "Foreign operation of American ports is nothing new. At least 30 percent of terminals at major U.S. ports are operated by foreign governments and businesses… Ownership does not affect in any substantive way the dynamics of terrorist infiltration."

There are other concerns, however. While the easy upfront cash offered by these privatizations appears particularly appealing to local governments, the short-term financial gains could outweigh the long-term burdens to the taxpayer.

By privatizing these assets, state and local entities enjoy the short-term political rewards of increased spending for new projects. Yet they seem to ignore the fact that U.S. citizens may be paying tolls to these corporate landlords for generations to come.

Pamela M. Prah of Stateline.org observes: "Critics argue that private firms are apt to jack up tolls and fees because they have to keep investors, not voters, happy. Others worry that states will fritter away the upfront money."

There are other pitfalls as well. In California, Orange County's contract with a French company that bought part of state Route 91 for $130 million instead ended up costing the taxpayers more than $75 million. Orange County found out that the contract prohibited it from building more roads and it had to buy back the lease for $207.5 million.

"I'm mistrustful of something-for-nothing schemes, and conceptually, these plans have a whiff of that," Nick Johnson, a state budget expert for the Center for Budget and Policy Priorities, said on Stateline.org. What's more, there is little public accountability regarding these privatizations. Elected officials abdicated their responsibility and the appointed officials are bound by contract.

These contracts cover everything from maintenance to prices charged for services, and users of these assets have little recourse if they are dissatisfied with the contractor's performance.

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Foreign Ownership or Lease of U.S. Infrastructure Assets

Many of the critical infrastructure assets that Americans rely on daily — from airports, seaports and highways to water systems — are managed by private foreign companies, according to a 2006 report by the Reason Foundation.