New Jersey Governor Jon Corzine has made privatization of the New Jersey Turnpike the centerpiece of his budgetary strategy for the state – greatly raising the stakes in the debate over its wisdom. In his budget address Feb 22 the former investment banker said: “Potentially, asset monetization (the NJ term for privatization via sale or longterm leasing) could reset the state’s finances by dramatically reducing our debt burden, and consequently reducing debt service. Monetization could free up as much as a billion dollars or more in every year’s budget – long into the future… Asset monetization gives us the potential to reduce our crushing debt burden – and meet New Jersey’s long-term capital needs in a way no other alternative provides.” He listed the Turnpike first among various state assets being considered. Corzine said that borrowing or using the proceeds of privatization for covering operating costs is “a terrible idea” and “not under consideration.” The Governor’s whole speech was structured to present a conclusion that the state has no choice but to privatize major state owned assets because all the alternatives are unacceptable.
In my original post on this issue, I tried to rationalize what the Governor was saying:
Let me play a bit of devil’s advocate for a moment. Is it possible the $3.8 billion received by the state of Indiana covers the present value of the foregone toll revenues? We are talking about the lease versus buy issue, which is analogous to switching from traditional IRAs to Roth IRAs (getting a early big bang of tax revenue but sacrificing taxes in the future).
But I still think Max Sawicky got this right:
When a government takes a lump sum in exchange for permitting a private firm to manage a road and levy tolls, it is not only privatizing. It is borrowing, worsening its fiscal position. Most states are looking at growing budget shortfalls in the future, as Medicaid costs in particular continue to grow more rapidly than their revenues. The Gov could just as easily contract out operations and management, but keep the tolls for itself. The fact that the money is earmarked to new projects – investment – is irrelevant. It’s still borrowing. You could just as easily keep the roads and float a bond – also borrowing – for the new projects. The leasing is not necessary. The political onus against explicit borrowing can warp decisions.
Corzine was an investment banker so he should realize what Max said makes a lot more sense than what he said. And as AB readers know (even certain rightwing trolls who refused to get even this simple point), we had lots of subsequent discussions on the privatization of toll roads issue.