Looking at privatization to fund cross-Hudson projects


Who will pay for the proposed Gateway Tunnel? Some politicians are beginning to eye private investment.

By now, it’s hardly a debate that the New York City region needs more cross-Hudson crossings for all sorts of transportation modalities. Rail access into Midtown from New Jersey is woefully inadequate, and further upstate, the Tappan Zee Bridge is sagging under the weight of age and auto traffic. New York and New Jersey have various plans to replace and expand this infrastructure, but who will pay for it?

Most famous of the recent attempts at bridging the waters is the ARC Tunnel. Canceled by New Jersey Gov. Chris Christie over a mixture of purely partisan politics and legitimate concerns that could have been addressed, the tunnel would have increased capacity across the Hudson River for New Jersey commuters. Instead, New Jersey may get an Amtrak-sponsored tunnel ten years down the road if the stars align right.

Today, New Jersey politicians are united in keeping federal money that should have gone to the project. They argue that returning the funds would jeopardize a future project. “While some of us may differ on whether or not the ARC project should have been cancelled,” a letter sent by the state’s Congressional delegation reads, “we are united in our effort to protect New Jersey taxpayers from harm. We are deeply concerned that forcing New Jersey to pay these funds will undermine efforts for a new Trans-Hudson tunnel, and require the State to postpone or cancel other essential, job-creating transit projects throughout the State. This will only exacerbate the State’s transportation and economic challenges, and impose an unfair burden on taxpayers in New Jersey.”

Of course, the ultimate fate of $270 million won’t determine the future of the Gateway Tunnel or any cross-Hudson improvements. Rather, as lawmakers attempt to struggle with the demand for better infrastructure and the inability to pay for any of it, they are turning to the idea of privatization. As an opening salvo, take this story about the Gateway Tunnel. In it, local businesses around the current Penn Station area talk about how thrilled they would be for a new tunnel and a bigger train station to arrive. “It would be tremendous for our business,” one bar owner said.

That’s the argument for privatization simplified and placed in a nutshell. Cities build great public works because the residents benefit, but at the same time, private interests often derive just as much, if not, in economic value from these projects. Second Ave. businesses are suffering today, but in six or seven years, the area will be booming with better access.

North of the city, lawmakers are even more intrigued by privatization. As the state looks to replace the Tappan Zee Bridge, it simply doesn’t have the money. The project will cost just $8.3 billion without rail and bus lanes and over $16 billion with them. “Unless things change very favorably rather quickly, it’s unlikely that either the federal or state government will be able to finance the changes they’re talking about,” New York State Senator Andrea Stewart-Cousins said to the Journal. “I’m not uncomfortable with finding private partners.”

Andrew Grossman talked more about these efforts last week:

More cities and states are turning to private companies to help fund their infrastructure or plug budget gaps. It’s a practice common in Europe and Asia, but one that has been slower to catch on in the U.S. Now, though, the firms that have done those projects are circling American state and local governments.

But private investors ultimately need to make money and want some control over the ability to set tolls. New York officials say some of those deals make them wary. Chicago’s sale of its parking-meter revenue—and the rate increases that resulted—have sparked a political backlash there.

“You don’t want to give the government authority away totally,” said Robert Gottheim, an aide to Rep. Jerry Nadler, a Manhattan Democrat who’s active on transportation issues. “While we are certainly interested in it, the devil’s in the details.”

Those details include a range of possible deals, from the unlikely option of entirely privatizing the bridge to simply contracting with a company to manage the entire construction process. Currently, different pieces of state projects are bid out to different contractors.

If lawmakers can throw a proper carrot to private investors — in the form of toll oversight or worse — private money will flow toward infrastructure. Of course, the state must retain some modicum of control over its infrastructure, and as funds are tight, it’s the right to ask about how these private deals will take shape. Can they lead to better rail access and new bridges without exacting too high a cost on taxpayers? If history is any guide, it’s tough to see just how this will play out across a region straining at its infrastructure seams.

Categories : Gateway Tunnel

10 Responses to “Looking at privatization to fund cross-Hudson projects”

  1. Alon Levy says:

    First, get construction costs down to the levels of Europe and Asia. Then maybe look for private partners. Who’d want to touch a $16 billion bridge when they could get the same toll revenues out of a $5 billion bridge in another country?

  2. Marc Shepherd says:

    I cannot believe that privitization would work in the United States. Private investors look to earn a profit, whereas railroads, bridges, and tunels are loss-making endeavours. Amtrak, the subway, the commuter railroads, and most roads & bridges — none of them can exist without government subsidies.

    Given the risk, any sane investor would require a hefty income premium in exchange for putting up capital for a project that could be cancelled, or that could take many more years, or many more billions than initially promised.

    If you think tolls and fares are high now, just imagine what they’d be if they contained a profit component for private owners.

    • SEAN says:

      If you think tolls and fares are high now, just imagine what they’d be if they contained a profit component for private owners.

      You don’t know the half of it. There’s been this push to privatise almost everything government related for instent cash flow. Could imagine everything from roads to schools was in private hands? Your taxes would jump just to garentee a steady profit for the lucky few who own those assets. Don’t think it couldn’t happen, if Madeoff could pull off that scam for so long, anything is possible.

    • Nathan says:

      You are right that subways lose money. However, bridges are huge revenue makers. The Port Authority is required as a whole to break even, and its bridges subsidize PATH and some of the ports. For example, Each of the Hudson Tunnels made $25 million profit in 2009 and the G.W. Bridge more than $250 million, according to the Port Authority Annual Report.

  3. Donald says:

    Privatization has been a complete and utter failure in the U.S. (see: CityTime scandal). First, contracts are generally given in a non competitive manner to campaign donors (no bid contracts). Secondly, privatization does not save money. In mnay cases, it ends up costing MORE.

    Lots of states have bene privatizing services for years. And whenever you read an article about how they privatized everything, you will generally see the words “prosecutors allege…”

  4. Larry Littlefield says:

    Whether the state borrows the money, the Thruway borrows the money, or a construction company borrows the money, the problems are the same:

    1) Excessive construction costs, as Alon points out and

    2) The toll revenues from the exiting bridge are going to pay off debts incurred to get through past budget crises. If a new bridge is built, where will the money come from to pay off the existing bonds?

  5. JAzumah says:

    Government drove the private sector out of the subway business. They gushed cash at the beginning and there was a big fight to build them. Private companies operated the first toll roads. There is no question that the private sector can make money under the right conditions.

    The problem with private funding and infrastructure is that there is just as long of a history of the government screwing over the private companies as the other way around. The Goethals Bridge project is right at the edge of what the private sector can finance. If something changes, the people that could get screwed over includes insurance companies and pension funds. So, the deals have to be solid.

    I believe that Chicago did not do the math or lied to the puublic about what was going to happen. The truth is probably a combination of the two.

    • Nathan says:

      Excellent points. The forced 5-cent fare the IRT out of business just as much as the automobile. Also, Benjamin, you ask “Can they lead to better rail access and new bridges without exacting too high a cost on taxpayers?” But if the T-Z Bridge were built entirely by a private company that tolls, the cost would not be on tax-payers since taxes were not used for its construction. (I know the interstate roads that the bridge connects were, but its something to consider.)

  6. Robert C says:

    Has anyone ever considered building a new rail connection to New Jersey by connecting the underutilized West Side Line into Penn Station to the George Washington Bridge, and from there to New Jersey, perhaps connecting to New Jersey Transit’s Pascack Valley and Bergen County lines? Obviously the connection to the George Washington Bridge presents some difficulties, especially in that it would require removing traffic lanes, which plenty of people would be annoyed about, and certainly it would be less useful than an entirely new tunnel running directly to Penn Station. I suppose it would probably not be worth the relatively modest relief it might bring to the current Hudson tunnels, even if it were significantly less than a new tunnel. But has it ever been considered?

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