Sunday, 29 January 2017

How to Cut Infrastructure Costs in Half - Ellen Brown


Americans could save $1 trillion over 10 years by financing infrastructure through publicly-owned banks like the one that has long been operating in North Dakota.

President Donald Trump has promised to rebuild America’s airports, bridges, tunnels, roads and other infrastructure, something both Democrats and Republicans agree should be done. The country needs a full $3 trillion in infrastructure over the next decade. The $1 trillion plan revealed by Trump’s economic advisers relies heavily on public-private partnerships, and private equity firms are lining up for these plumbing investments. In the typical private equity water deal, for example, higher user rates help the firms earn annual returns of anywhere from 8 to 18 percent – more even than a regular for-profit water company might expect. But the price tag can come as a rude surprise for local ratepayers.

Private equity investment now generates an average return of about 11.8% annually on a 10-year basis. For infrastructure investment, those profits are made on tolls and fees paid by the public. Even at simple interest, that puts the cost to the public of financing $1 trillion in infrastructure projects at $1.18 trillion, more than doubling the cost. Cities often make these desperate deals because they are heavily in debt and the arrangement can give them cash up front. But as a 2008 Government Accountability Office report warned, “there is no ‘free’ money in public-private partnerships.” Local residents wind up picking up the tab.

There is a more cost-effective alternative. The conservative state of North Dakota is funding infrastructure through the state-owned Bank of North Dakota (BND) at 2% annually. In 2015, the North Dakota legislature established a BND Infrastructure Loan Fund program that made $50 million in funds available to communities with a population of less than 2,000, and $100 million available to communities with a population greater than 2,000. These loans have a 2% fixed interest rate and a term of up to 30 years. The proceeds can be used for the new construction of water and treatment plants, sewer and water lines, transportation infrastructure and other infrastructure needs to support new growth in a community.

If the Trump $1 trillion infrastructure plan were funded at 2% over 10 years, the interest tab would come to only $200 billion, nearly $1 trillion less than the $1.18 trillion expected by private equity investors. Not only could residents save $1 trillion over 10 years on tolls and fees, but they could save on taxes, since the interest would return to the government, which owned the bank. In effect, the loans would be nearly interest-free to the government.
https://ellenbrown.com/2017/01/26/how-to-cut-infrastructure-costs-in-half/

[Posted at the SpookyWeather blog, January 29th, 2017.]

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