Beware who advises you

To add to the disturbing trends, the privatization of America's infrastructure is well under way. Someone emailed me an article, which here I include excerpts from, and which I must caution, is from Project Censored. Project Censored may be considered by some to be conspiratorial by nature, for they follow, what they feel are, the most noteworthy stories censored from the mainstream media.

Nonetheless, the trend is real, and it is disturbing.

Major private equity firms, including The Carlyle Group, among others, are bidding with states and municipalities for control over roads, bridges, even sewer systems. These deals are being brokered by, and encouraged by, some of the biggest investment firms, such as Goldman Sachs, in which they get huge fees for making the deals happen. Cash strapped states are looking at the short term boost to their state budgets, but eliminating the revenue stream for every year thereafter.

The worst part of this trend are the non-compete clauses that are included in the sale contracts. If a private equity firm buys a toll road, the contract almost always includes language that prohibits the state from improving any roads near the toll road. Thus leaving the toll road a few years later in the enviable position of perhaps being the only drivable road in the area.

From the article;

"We will soon be paying Wall Street investors, Australian bankers, and Spanish contractors for the privilege of driving on American roads, as more than twenty states have enacted legislation allowing public-private partnerships to build and run highways. Investment firms including Goldman Sachs, Morgan Stanley, and the Carlyle Group are approaching state politicians with advice to sell off public highway and transportation infrastructure. When advising state officials on the future of this vital public asset, these investment firms fail to mention that their sole purpose is to pick up infrastructure at the lowest price possible in order to maximize returns for their investors. Investors, most often foreign companies, are charging tolls and insisting on “noncompete” clauses that limit governments from expanding or improving nearby roads.'

"...states are selling off our nation’s enormous, and aging, infrastructure to private investors. Proponents are celebrating these transactions as a no-pain, all-gain way to off-load maintenance expenses and increase highway-building funds without raising taxes. Opponents are lambasting these plans as a major turn toward handing the nation’s valuable common asset over to private firms whose fidelity is to stockholders—not to the public transportation system or the people who use it."

More often than not, the insiders to the transactions will benefit far more than the public, who paid for the road, through taxes, in the first place...

"On June 29, 2006, Indiana’s governor Mitch Daniels announced that Indiana had received $3.8 billion from a foreign consortium made up of the Spanish construction firm Cintra and the Macquarie Infrastructure Group (MIG) of Australia. In exchange the state handed over operation of a 157-mile Indiana toll road for the next seventy-five years. With the consortium collecting the tolls, which will eventually rise far higher, the privatized road should generate $11 billion for MIG-Cintra over the course of the contract.'

"In September 2005, Daniels solicited bids for the project, with Goldman Sachs serving as the state’s financial adviser—a role that would net the bank a $20 million advisory fee. When Goldman Sachs, one of the nation’s most active and most profitable investment banks, with deep connections to Washington, began advising Indiana on selling its toll road, it failed to mention the fact that, even as it was advising Indiana on how to get the best return, its Australian subsidiary’s mutual funds were ratcheting up their positions in MIG—becoming de facto investors in the deal. Many are suspicious that governors like Daniels across the nation are taking questionable advice from corporate investment banks—and from Washington."

Because of the recent market turmoil, many states have realized huge losses in their pension funds and other funds which they must pay out of on a regular basis. The sale of infrastructure can help abate some of those losses. The problem is it is a one time sale. Once any state or municipality sells a road, or a sewer system, or a water system, to a private entity, future revenue is gone. What will they do next year to replace that revenue. Raise taxes?

Only the future will tell us if this was a deal for you, or not. Judging by Goldman Sachs behavior over the last 7 years, don't hold your breath.