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Wall Street Journal

 

How to Do Public Works Right

December 08, 2008

By Nicole Gelinas

PRINTER FRIENDLY

President-elect Barack Obama has announced the "single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s." Getting this once-in-a-generation opportunity right doesn't involve reinventing the wheel, but rather leadership and competence at all levels of government.

Anybody with a car, a mass-transit pass, or a house in a floodplain knows that the nation's crucial infrastructure has been catastrophically deteriorating, crowded out by social spending and political earmarking. In cities and suburbs served by overcrowded freeways and mass-transit systems, economic growth is physically constrained.

It's important that the elected officials view public works investment not as a short-term stimulus for stimulus' stake, or a vehicle for politically driven job creation. The goal should be to create the best and broadest necessary and permanent infrastructure for the most responsible minimal price needed to build it. Being careful here is necessary because this is borrowed, finite money; it could become prohibitively expensive for the feds to borrow as debt levels skyrocket. Spending is not investing.

Putting new but quickly obsolete computers in already well-funded schools, for example, isn't a wise use of borrowed funding. But drastically cutting transit commute times in New York (and similar road commutes elsewhere) would be. Similarly, funding regular maintenance work that states and cities should pay for isn't a wise investment. Federal money should pay for replacing obsolete assets and making well-thought-out improvements.

The states and cities that will be responsible for managing the bulk of the projects, if the federal government gives them enough freedom, will be participating in a vast natural experiment of which project-management approaches work better than others. But getting it wrong is expensive and wasteful. So it's important to understand the biggest potential pitfalls.

Infrastructure is a lot more complicated than the last time we did this on a grand scale. It's not a matter of laying down new roads and tracks, as it often was as recently as the 1950s with the creation of the Interstate Highway System. In urban or crowded suburban areas where service can't be shut down and new assets can get in the way of old ones, construction and repair is like performing open-heart surgery on someone while he's playing tennis, as the planners of Boston's Big Dig—now finished and serving Boston well—used to say.

Private-infrastructure owners, funders and operators offer novel, and often valuable, ways of addressing the risks that these new complexities pose. But while meant to spread out these risks as well as tap into new financing sources, they don't automatically reduce the overall risk to the public. In fact, such structures, if used unwisely, can increase risk for the taxpayer.

Global experience—including London's in privatizing the maintenance and upgrade of its subway system, and Massachusetts's own private-sector "project management" experience on the Big Dig—shows that such partnerships can be dangerous if they lull elected officials into thinking that they've given their ultimate responsibility for building and running an infrastructure project when they really haven't.

The private sector has to be wary here, too: When things go wrong in a contract, the government can use its fearsome power to indict to achieve financial settlement.

In public infrastructure, the word "public" is there for a reason. Private managers, financiers and operators come and go, declaring bankruptcy if necessary. But the government can't. The government always retains risk as the owner and manager of last resort.

So it's vital that a government in charge of a project understand the potential problems and responsibilities involved, from who will pay if a contractor can't raise financing to finish its portion of a road to who's responsible for repairs and lawsuits for stopped service if a historic rainstorm creates massive damage to a rail line.

The government must understand these risks partly to avoid infrastructure disaster, but also so that taxpayers are assured of getting good value for either keeping some risks or transferring them to the private sector.

It's pretty straightforward, for example, for a state or city to transfer to a private-sector firm the key responsibilities for a project that requires capital and labor but that isn't that technically difficult to build or operate and that doesn't involve an irrevocable monopoly. Such projects include building and running a well-defined stretch of road or competitive power-transmission line that goes over an existing right-of-way.

But when it comes to responsibility for cost overruns or timeliness of completion on a project that uses an unproven technology in an intricate urban environment, any government that thinks it can transfer such risks to the private sector is probably fooling itself.

The world offers more options to governments than it did even two decades ago. But despite all the new complexity and the myriad ways to try to reduce that complexity, one fact is immutable: Public-sector leadership and competence matter in choosing which projects are most valuable and managing them to completion, and beyond.

 

 
 
 

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