Rohatyn not sold on public-private partnerships

Felix Rohatyn, a former managing director at the investment banking firm Lazard Freres and Co. LLC, speaks at the Reuters Infrastructure Summit in New York, May 6, 2009.

NEW YORK (Reuters) - Public-private partnerships to finance U.S. infrastructure projects provide few advantages that publicly funded construction cannot accomplish on their own, former ambassador and financier Felix Rohatyn told the Reuters Infrastructure Summit on Wednesday.

Rohatyn instead advocates the creation of a National Infrastructure Bank as a way to coordinate and finance projects such as repairing public schools or creating high-speed rail corridors between major urban centers, while weeding out wasteful spending.

"I've never been sold on this idea of public-private partnerships, because I don't see anything here that is unique to the project, so all of the things you're looking at, you can get out of the private sector or out of the public sector," Rohatyn told the Summit.

"One shouldn't have the illusion that you can get miracles by these things," he said.

Public-private partnerships (PPPs) typically involve long-term leases of public assets run by private companies that collect tolls or other fees in return for an upfront payment.

Critics charge that the economics of these deals are such that upfront concession payments are unlikely to match the long-term value of the higher tolls that will be paid by future generations and not collected for public uses.

Such partnerships could sometimes win financing that might not be available to a purely public entity, Rohatyn said, but in many cases the ultimate cost proves higher once private players are involved.

FUNDING INFRASTRUCTURE

Rohatyn recently published a book advocating greater government involvement in public works, "Bold Endeavors: How Our Government Built America and Why It Must Rebuild Now."

The book details 10 huge public projects, ranging from the Erie Canal to the transcontinental railroad and the U.S. highway system, whose high costs were justified by the benefits to the U.S. economy and America's enhanced role in the world.

Rohatyn argues for creating a national infrastructure bank that would issue bonds backed by steady revenue like taxes on gasoline, cigarettes or stock transfers. The stock transfer tax helped avoid a bankruptcy for New York City in the 1970s, a feat Rohatyn engineered at the time.

"We sold some bonds where the revenue stream was stock transfer taxes, which is maybe an esoteric type of revenue," Rohatyn said. "With the amount of trading today, you could have generated a lot of revenue, huge amounts of money."

He added that a gasoline tax of as little as 1 cent per gallon could make a big difference.

"If we were really serious about doing something with infrastructure we have to figure out a way pay for it," he said. "The best way to do that is with a gas tax."

U.S. President Barack Obama is expected to detail his vision for a national infrastructure bank when he releases his budget on Thursday. His proposed budget set aside funds for creating an entity to drive direct investment.

Rohatyn said there were at least 15 urgent infrastructure needs in the United States, from bridges that need rebuilding to airports with outdated air traffic control.

Before one can talk about what projects should become priorities, the first challenge is to find ways to boost financing, which has been in short supply for half a century.

Then, one of the first national projects demanding attention would be to fix schools.

"If I had to start somewhere, it would be the public schools," Rohatyn said.

He added he was disappointed by the size of infrastructure spending in the Obama Administration's stimulus package, preferring a package of $500 billion or so rather than the $120 billion ultimately dedicated to infrastructure.