A Bridge to Somewhere: The New Tappan Zee Bridge Makes a Case Against Public-Private Partnerships

According to Bloomberg, New York Governor Andrew Cuomo is “seeking legislation that would allow private-equity firms to help finance construction of public-works projects, including a new $5.2 billion Tappan Zee Bridge.” The legislation would permit the state to lease – but not sell – state assets. The state has applied for a $2b federal loan to replace the bridge and is also planning to sell toll-backed bonds.

Private equity firms have expressed interest in the project for several reasons. First, several funds have secured capital for infrastructure investments. Second, assessing increased tolls on the Tappan Zee Bridge, such as to the $12 level of the George Washington Bridge, is considered relatively politically manageable because the bridge already requires a $5 toll.

Frank Mauro, executive director of the Fiscal Policy Institute, has criticized the proposed legislation as lacking any real logic. Mauro notes in a telephone interview with Bloomberg that, “[i]f there’s a stream of revenue that makes a project desirable to a private investor, then the same stream could be used for public borrowing at tax- exempt rates.”

Mauro’s 2006 report, A New York Perspective on Public-Private Partnerships, provides further arguments against such projects. One such argument is that such projects are taxpayer-subsidies for private corporations since private entities invested in public-works projects could use depreciation expenses to shield taxable income in a way unavailable to state governments. The report also notes certain cosmetic advantages in permitting a private corporation, backed by the state, to limit the salaries of project workers or to raise tolls without direct state involvement. The report also points out that these public-private borrowing projects are essentially “off the books” government obligations, which also has cosmetic advantages.

Mauro’s 2006 report does, however, identify one advantage of privatizing projects. The report notes that publicly funded project contracts are often subject to much less competition than private projects. The report notes, though, that this negative attribute could be remedied without resort to privatization.

As Maruo’s 2006 report argues, the logic underlying public-private partnerships is questionable. Moreover, some of the advantages of privatization can be achieved simply through private sector reform. Nevertheless, the passage of the proposed legislation may signal that New York’s state legislature is more concerned with cosmetics than with optimal fiscal policy.

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