President Donald Trump has dubbed this week "infrastructure week" and promised to roll out plans to revamp how the federal government funds the building and maintenance of roads, railways, ports, and more. His first concrete proposal is to shift the nation's air traffic control system from the Federal Aviation Administration (FAA) to an independent, nonprofit corporation that will be funded by the airline industry.
Although this is the model that has been used successfully in Canada, the United Kingdom, Germany, and elsewhere, it has long been sunk by a bipartisan coalition of congressional lawmakers who insist on maintaining an antiquated system in which flights are still kept track of the same way they were 50 years ago.
"It's an excellent idea," says Robert W. Poole, director of transportation policy at Reason Foundation, the nonprofit that publishes this website. "The government-managed air-traffic system in the United States is lagging behind all the rest of the developed countries. Over the last 30 years, almost all of them have created government corporations mostly or a private nonprofit in Canada, which is really the best model, because a government bureaucracy has a really difficult time running a high-tech service business like air-traffic control. We have intermittent funding, we have sequestration of funding budget for the FAA, we have lousy managers of major procurements who can't seem to get them done on time or on budget. Meanwhile our competitors, so to speak, overseas in the U.K., in Australia, in Canada, [and] Germany have better technology that are all paid for by fees and charges, just like a utility." (Watch "Your Flight Has Been Delayed…and it's Washington's Fault!")
Poole is the author of the 2013 study "Funding Important Infrastructure Spending in a Fiscally Constrained Environment," which analyzes public-private partnerships that have successfuly upgrade and operate roads, bridges, and more with little or no tax dollars being spent. In a conversation with Reason's Nick Gillespie, Poole points to projects such as the Indiana Toll Road, which was leased to a private company for 75 years for an upfront payment of around $4 billion under Gov. Mitch Daniels. In addition to the payment, the company committed to updating and improving the road itself and its service plazas while allowing the state oversight on any rate increases for users.
Poole is cautiously optimistic about Trump's infrastructure spending plan because the president is opening the process up to firms that have the capital necessary to modernize American infrastructure without governments at all levels borrowing huge amounts of money. These companies not only have expertise in building and operating large-scale projects, they "hundreds of billions" of dollars they're ready to invest, says Poole. It's just that there haven't been many projects available due to pork-barrel politics that tend to view infrastructure spending as a source of patronage jobs and influence-peddling.
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Nick Gillespie: Hi. I'm Nick Gillespie, and this is the Reason Podcast. Please subscribe to us at itunes and rate and review us while you're there. Today, during what President Donald Trump has called infrastructure week, we're talking to Robert W. Poole Jr., he is the Director of Transportation Policy at Reason Foundation the nonprofit that publishes this podcast. Bob thanks for joining us.
Robert Poole: Glad to be here Nick.
Nick Gillespie: Okay so, Donald Trump, President Trump has declared this to be infrastructure week a concerted effort to address a variety of issues related to the nation's roads, ports bridges and more. At the top of his list is transferring the air traffic control system to an independent nonprofit corporation that would be managed and funded by the airlines and user fees. Is that a good idea? Why or why not?
Robert Poole: Well, it's an excellent idea. The government managed air traffic system in the United States is lagging behind all the rest of the developed countries. Just about over the last 30 years almost all of them have created government corporations mostly or a private nonprofit in Canada, which is really the best model, because a government bureaucracy has a really difficult time running a high-tech service business like air traffic control. We have intermittent funding, we have sequestration of funding budget for the FAA, we have lousy managers of major procurements who can't seem to get them done on time or on budget and meanwhile our competitors, so to speak, overseas in the U.K., in Australia, in Canada, Germany have better technology they are all paid for by fees and charges just like a utility.
Nick Gillespie: Which is pretty much how it should be, right?
Robert Poole: It's pretty much how it should be. This is a business and it is basically a utility and utilities don't fund large scale capital modernization programs out of operating cash flow they use your revenue bonds and yet FAA is not allowed under federal law to do anything like that. It would be probably screwed up if they did.
Nick Gillespie: What are some of the concrete benefits of moving to a corporatized or privatized system, you know would we be able to fly more planes more closely together, would safety improve? Why, beyond the question of funding and all that, what are the benefits to flyers?
Robert Poole: Right right, well for one thing, the system would end up costing less because it would be more efficient. The Canadian system is costing 40% less than it did when it started in 1997, started charging. And it has better technology, their capital budget on a proportional basis is about half of what FAA's spends, considering the size differences. And yet they're getting better technology for it that does permit planes to fly closer together and means we can squeeze more capacity out of the air space thanks to what better technology and what better procedures can do.
Nick Gillespie: Now, one of the things that's interesting is that, I mean, and you've been working on air traffic control reform, you know, your entire career, you know going back to I mean the early days of Reason in the late '60s. The holdup is not really, this is not necessarily a Republican/Democratic issue right?
Robert Poole: No it's not! I mean this was, the first big proposal on this that actually got to the legislative stage was during the Clinton administration as part of their reinventing government initiative. And unfortunately, at that point in time the aviation community was only lukewarm about it and the opposition, meaning the business jet people and private pilots were adamantly opposed and the important, influential members of congress didn't want to lose control over being able to say yes or no or protecting facilities in their districts—that sort of thing—so it just died. It didn't even get out of committee in 1995.
Nick Gillespie: Is is fair to say that part of this is just the government feels like it should maintain, or large numbers of people in the government feel like they should control it because, kind of, that's the way it's always been?
Robert Poole: Well yeah, I mean the inertia of the status quo, as Milton Friedman would say. But also its a matter of turf for very many members of congress. I mean they can micromanage they can say you can and can't do this, we want this program to be in the budget instead of that one and this is a terrible way to try and run a high-tech 24/7 service business that needs to be lean and mean and make decisions and implement things.
And also doesn't really have a customer provider relationship because the customer is mostly airlines but also private planes they pay aviation user taxes but they don't pay them to the FAA they pay them to the U.S. Treasury. And then whatever gets spent on air traffic control is whatever OMB allows the FAA to request in a given year and then congress can muck around what that, and add this and subtract that. And the whole thing is subject to the budget control lack anyway and so you had the sequester in 2013 that threatened to shut down 175 small control towers, furloughed controllers, closed controller training academy for nearly a year. People in other countries who know about aviation look at this and say "my god, how can they tolerate that when we know a much better way to do this?".
Nick Gillespie: Are the big airlines behind reform?
Robert Poole: They are all onboard. The only one that was not favorable was Delta and then when they changed chairmen and CEO's that seems to have stopped, Delta has not said anything against it now in the last year. So it looks like the airline community is pretty unified behind this.
The other big change from previous times, controllers union, NATCA, is solidly in favor of this and part of this is because they have done due diligence with their union counterparts in the U.K. and Canada and they are incredibly envious of the technology that controllers in those countries have that our controllers don't have. We're still kind of in the dark ages.
Nick Gillespie: And air traffic control if famously a gigantically stressful job so you would think you would want more and more up to date technology.
Robert Poole: Absolutely, we want electronic flight strips to control the progress of flight instead of strips of paper mounted on little plastic frames that are handed from one controller across the room to another one. Its insane.
Nick Gillespie: Wow, and that's the system that's been in place, you know, since we're like post World War II or something.
Robert Poole: Oh just about, yes yes.
Nick Gillespie: Yeah, wow.
Robert Poole: The system really is behind the times.
Nick Gillespie: So, the President has also said that he wants to spend about $200 billion over the next decade updating the nation's infrastructure and he wants to attract, and it's not fully clear but I guess we'll get more details this week, but he wants to attract at least a trillion dollars in private state level funding over that same period.
Robert Poole: Well the total they're talking about is $1 trillion.
Nick Gillespie: Oh okay so it would be $800 billion.
Robert Poole: Yeah the feds would only supply $200 billion. No, assuming congress goes along with this which is a big question mark. Yeah it's a good idea to try to attract and incentivize a lot more private capital and this would be under long term public private partnerships something that I and my colleagues at Reason have research and talked about for many many years.
Nick Gillespie: Well you have a fantastic study and you know I looked it up before I called you up and I thought it was from lie a year or two ago and it's actually from 2013 but it's about transportation infrastructure improvements in a time of budget constraints.
Robert Poole: Right Right.
Nick Gillespie: You know, governments at every level are totally strapped, certainly the federal government is.
Robert Poole: State governments too.
Nick Gillespie: Yeah so, the money is going to have to come in large part, really, from the private sector. What are some recent success stories over the past 10 or 15 years where government actually allowed private corporations to, you know, come in and run stuff and where it worked out well?
Robert Poole: I'll give you two examples. One, is the Indiana toll road which Governor Mitch Daniels persuaded the legislature to let him lease for 75 years to a private consortium and that has led to major reinvestment in the Indiana toll road. Putting in electronic toll collection to make things much easier for customers, repaving the system, putting in modern service plazas with restaurants and shops and things—the previous ones were terrible. And the proceeds that the state got because, they got basically all the 75 years of lease payments up front, which is not what I advised them to do but what they did, Governor Daniels funded a 10 year highway improvement program statewide. And that was so politically popular that he was overwhelming reelected to a second term when everybody thought he'd signed his 1 term warrant by pushing this through the legislature.
Nick Gillespie: And didn't, I guess it was, Ed Rendell was governor of Pennsylvania at the same time and he was going to do an even bigger project with the Pennsylvania turnpike which like all of these roads rarely it ever even covers its operating costs much less long term capital. He was not able to get it through. Why is it –
Robert Poole: He was not able to get it through because of bipartisan political pork.
Nick Gillespie: Right.
Robert Poole: Pennsylvania turnpike authority was notorious, and whole books have been written about how Republicans and Democrats have had senior officials, political officials, in the turnpike authority that would always make available jobs for their favorite people. Add so there was a huge bloated workforce and it was politically impossible to get that deal through. They were offered something like $9 or $10 billion for it and they turned it down.
Nick Gillespie: And that was right as the economy was crashing too it would've been nice to have that cushion to kind see the recession through.
Robert Poole: It certainly would have. So that one failed. I was going to tell you, the San Juan airport in Puerto Rico, which you may recall from having gone there in like 5 or 6 years ago, it was pretty much like 1950s airport with miserable services, and outdated facilities and dim lighting and it was privatized, Governor Fortuño, got the bill through, and it was privatized about I think about in 2013 finally and in the several years since then it's been transformed by private investment. And there's modern shops and restaurants. The airlines are much happier with it because it's a subtly that many people change planes there to go to the caribbean they fly from somewhere in the United States to San Juan and then they have two or three hours stuck in the airport and there's now things to do there shops, restaurants that are modern, first world and the airport is making money. They fixed stupid problems like the instrument landing system could not work because nobody cut down the trees and nobody could get bureaucratic permission so the new airport operators just simply went in and did it and they didn't ask permission.
Nick Gillespie: So this is you know it's a bizarre kind of artifact for as much Americans and Europeans, you know, like to say that we're completely different. As you mentioned earlier with air traffic control and it's also true with things of infrastructure.
Robert Poole: Its also true of airports.
Nick Gillespie: Yeah, so what is the hold up in America with things like toll roads, things like airports, things like ports, which you know can be successfully managed in a more efficient, more up to date more innovative way while also reducing tax burdens and increasing services. What is the kind of mental switch that has to happen in America?
Robert Poole: Well, I mean there's several things that make the United States different. One, is that we have tax exempt bonds for government projects and that historically has—they don't have that in Europe, they don't have that in Canada, so you don't have a built in advantage for the government doing major projects compared to the private sector and so that's one factor that has held up airport privatization, a larger role for the private sector in toll roads and probably, I haven't studied it regarding ports, but it's probably the same thing with ports.
Another is the idea that it's nice to have free federal money, you know, it's a zero sum or negative sum game in that sense that all the ports want federal grants from a harbor tax that all of their customers have to pay to the government. But you know what one port gets another port doesn't get and so they would be much better off without that tax and simply issuing bonds and doing their own financing. But everybody somehow thinks they're going to get something for nothing out of a federal program. We have airport grants program—same thing. We have port grants- same thing. It is a bad problem to have when we have the illusion. Airports in Europe, for example, never had, in most countries did not have, government funding of that sort and they even before the privatization wave, which started with margaret thatcher in 1987, most of those airports were corporations, they were organized under corporate law, even though they were government owned and they ran as business much more so than U.S. airlines traditionally have. And so that has made the transition to privatization a smaller departure from current practice than it is in the United States.
Nick Gillespie: How much of, are we coming also out of, I know with ports with airports especially and even with toll roads because I know that some Conservative Republicans in Indiana were saying that Mitch Daniel was selling, you know, Indiana's turnpike to foreign bidders—like they're going to roll it up and take it over to Canada or Australia.
Robert Poole: Right take it back to australia or something.
Nick Gillespie: But are we getting out of that kind of that, you know, somewhat understandable somewhat hysterical response to 9/11 the idea that, you know, it's not a security risk to turn over infrastructure to private corporations.
Robert Poole: Right right yeah. I think it's slowly changing people's minds. The first time a project like this is done in a given state like North Carolina is underway with its first express toll lanes being built by a Spanish company under a long term PPP deal. There's a lot of populist opposition to that. There was, it got defeated and the project is underway. But once a few projects have been done, most people say "wow this is really good we wouldn't have had this without this kind of deal". These companies, the Spanish and Australian companies, French companies have a long track record of doing these kinds of deals. U.S. companies have a long track record of building things, but they don't operate. And so if you want somebody to be the de facto owner for a limited period of time that has the experience of designing it right in the first place, designing so that it has as many opportunities for people to use it as possible and pay you tolls, you know it produces the highway as a business which there's no U.S. companies with experience—it's highways as a business. That's starting to come because we're seeing more joint ventures between U.S. firms and the overseas firms with the long experience but that's a learning process
Nick Gillespie: And it's important to, I mean, I think a lot of people misunderstand the idea, you know, say in Indiana or in San Juan that there's no public accountability that, you know, people running the toll road can just jack up fees and fire everybody.
Robert Poole: Usually there's more accountability because these long term agreements are typically 200 or 300 pages long and they're like an incredibly complicated marriage contract.
Nick Gillespie: So, it's like the Quran for running a toll.
Robert Poole: Right right! And there are quantitative performance measures like, you know, how many hours before a dead animal has to be removed from the roadway before there's actual penalties. Or, what's the international roughness index that each year of the agreement that has to be maintained or else there's going to be penalties. We don't have that accountability usually with government entities that are doing most of these projects.
Nick Gillespie: Final question, how are the politics of this infrastructure week likely to play out? Donald Trump is the least approved president at this point, you know, in his administration. A lot of people, even people who might be you know be happy about kinda moves towards market based innovation and privatization and selling off or doing public private partnerships they're loath to be associated with Donald Trump. Is that going to be a problem and where do you see—who are the allies in a move towards modernizing the way we pay for infrastructure and who are the enemies there?
Robert Poole: Right well you know what I see going is the biggest problem is going to be in congress. The financial community really thinks this is wonderful and is ready to step up and the companies the international, global investment funds for infrastructure and U.S. and foreign pension funds dearly want to invest in large scale infrastructure in the United States because we have the rule of law, we have stable government, [and more]. The problem is there are hardly any deals. There are deals all over Latin America there are still a lot of deals in Europe there's some in Australia but the United States is just a place where they have hundreds of billions of dollars just sitting there waiting to be invested in infrastructure projects so they are very happy to see a white house and a DOT that's onboard and wants to do more of this but that doesn't translate very well into congressional support and that's the big question mark going forward.
Nick Gillespie: Alright well we'll leave it there. We've been talking with Robert W. Poole Jr., he's director of transportation policy at Reason Foundation, the nonprofit that publishes the Reason Podcast, which you've been listening to. Please subscribe to us at itunes and rate and review us while you're there. I'm Nick Gillespie, thanks for listening.