The Highwayman: DeFazio to Take on Privatization
When I met with Peter DeFazio in his office last summer, the Oregon democrat was, to put it mildly, a bit exercised. Having flown in from Oregon the night before after participating in a charity bike ride, he was going on basically no sleep. And, when I asked him about the nascent trend of leasing the nation's highways to the private sector, he was particularly blunt: "It's a scam, basically," he told me. He was even more candid in his comments about Indiana Governor Mitch Daniels, the former Bush administration official who pushed to privatize his state's 157-mile toll road, ultimately leasing it for $3.8 billion to a foreign consortium.
Daniels had appeared before the House Subcommittee on Highways and Transit that May to talk up so-called public-private partnerships and DeFazio, then the ranking democrat on the committee, questioned him pointedly on the logic of such deals during the hearing. "Are we outsourcing political will to a private entity here?" he asked at one point, referring to the fact that Indiana had chosen to lease its road rather than increase its profitability by raising tolls. When we spoke later that summer, DeFazio, questioning how good these deals are for the public, said Daniels had "just screwed the state of Indiana and the people of the state of Indiana." (By one estimate, the Indiana Toll Road, in state hands, could have earned as much as $11.38 billion over the next 75 years. If so, then Indiana taxpayers will lose out on more than $7 billion in revenue.) "The point is these are very, very tricky things," he said. "You're making a 75 year commitment of vital public infrastructure and you're not getting a very good deal."
As Jim Ridgeway and I report in the current issue of the magazine, there are other problems with these public-private transactions. One of them is the keen interest investment banks, Goldman Sachs in particular, have taken in opening the toll road market to private investment. In doing so, Goldman has played the role of lobbyist, municipal finance advisor, and, controversially, would-be principal investor. In this new market, the potential for conflicts of interest abounds.
Last summer, when I asked DeFazio where he saw this trend going, he said, "if the Republicans retain control of everything, the Bush administration will push this hard I'm sure." But, he added, "this is nowhere near a done deal." At the time, he was particularly concerned by a blue ribbon panel, known as the National Surface Transportation Policy and Revenue Study Commission, which had been tasked, after the passage of the last highway bill in 2005, with the lofty mission of looking at ways to "preserve and enhance the surface transportation system to meet the needs of the United States for the 21st century." "My understanding is it's turning more and more and more toward a sole focus of how to justify the privatization of infrastructure just like Bush's Social Security commission," DeFazio told me. With several privatization advocates appointed to the committee, including transportation secretary Mary Peters, DeFazio certainly had reason to be concerned. "If we take control, we'll drag those people in here and remind them of their charge," DeFazio said.
Well, the Democrats have retaken control of Congress and DeFazio, who now serves as the chairman of the Highways committee, has kept his pledge. Yesterday, he gaveled to order the committee's first hearing of the new Congress, dubbed the "Surface Transportation System: Challenges of the Future." Among the witnesses, were two members of the transportation policy committee. "You should expect this subcommittee to be very active over the next two years as we conduct oversight on the implementation of the last highway and transit reauthorization, SAFETEA-LU, and prepare to meet the many challenges we will face in crafting the next reauthorization," he said yesterday. Then, he addressed the transportation policy committee directly, perhaps offering a subtle warning. "Congress created the Commission in hopes of getting a thorough and objective analysis of what our surface transportation system needs to become to support our economy in the future, as well as short and long term funding solutions to increase revenue into the Highway Trust Fund." But yesterday's hearing was just the precursor for what's to come. Expect the real fireworks to arrive when the committee holds a hearing specifically on the topic of private-partnerships, which is expected to take place sometime next month.
Even though DeFazio has now ascended to the key post on the Highways committee, it remains to be seen whether or not his efforts will slow the privatization trend, which has the enthusiastic backing of the Bush administration. To this end, the president recently nominated D.J. Gribbin to be general counsel to the Department of Transportation. Who is Gribbin you might wonder? A former general counsel to the Federal Highway Administration, he has most recently been working on behalf of Macquarie Holdings, Inc., a branch of the very same company that has been so avidly buying up the nation's highways.