Schwarzenegger's P3 schemes rapped by California treasurer

The question of capital raises an issue glossed over by proponents of the new public-private partnerships. Listen to them and you get the impression that backhoe-loads of free cash are there for the taking. But however California decides to finance its infrastructure, we have to find a way to pay for it. The private sector isn't going to give us money for free. It will provide that capital only if it receives a profitable return, generally 15 percent to 25 percent. The state typically pays 5 percent or less on municipal bonds, so you have to wonder how the public benefits from privateequity infrastructure.

The point is: If we want to attract capital for projects, we have to raise new revenues to ensure profits for the private companies in infrastructure joint ventures. That means taxes or user fees, such as tolls. But a revenue source that pays private firms could be used just as easily to pay investors who buy municipal bonds. The same goes for the touted benefits of public-private partnerships.

User fees or tolls can help stabilize budgets by reducing expenditures on debt payments. But we can gain that benefit by selling fee-backed municipal bonds – without paying extra to a private-sector middleman.

The municipal bond system saves California taxpayers millions of dollars yearly by giving them access to low-cost, tax-exempt financing. That benefit is prohibited by the Internal Revenue Service when private-sector profit comes into the mix. Municipal bond financing also taps a huge pool of capital. Nationwide, investors hold more than $2.5 trillion of tax-exempt bonds. Private investors own $46 billion of voter-approved California infrastructure bonds.

Advocates of the new public-private partnerships have the burden of showing why the current version somehow has become insufficient. They have the burden of demonstrating how their brand will deliver projects better and more efficiently. That's the return our taxpayers deserve in exchange for increasing private profit from public works. In California, the jury's still out on whether the new public-private partnerships can deliver that return.