Minnesota’s state government should take the lead on infrastructure

Our new report, “Twin Cities Traffic Congestion: It’s No Accident”, thoroughly examines the scale, causes, and consequences of the Metropolitan Council and MnDOT’s misguided policies. It also sets out a number of possible solutions. One of these is more road building. The argument is likely to be made that the federal government should take a lead. That argument is wrong.

“States should lead on infrastructure”

There are several reasons to think that federal funding would be a bad idea, as Chris Edwards of the Cato Institute has written recently. Instead, he argues, states should lead on infrastructure. According to Edwards, there are three ways Minnesota’s government could fund this.

The first is via gas taxes. States can raise these whenever they like. As Edwards writes, “about half the states have raised their gas taxes or other transportation revenues over the past five years.” However, the reports author Randall O’Toole explains why this is undesirable policy.

The second way would be to introduce road pricing, as I wrote on Tuesday. Motorists might feel ‘double taxed’, having to pay to use a road they paid to build. To avoid this, road pricing ought to replace gas taxes.

The third way is what is known as ‘public-private partnerships’ (P3s). These are “a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance”.

P3s bring in private capital and put it at stake. As a result, “funding is more likely to be allocated to high-return projects and completed in an efficient manner”. They also unite construction and future management of facilities. This incentivizes contractors to minimize long-term costs.

While rare, there are already some examples in the US. Virginia offers three. First, toll lanes along 14 miles of the Capital Beltway, I-495, were built and operated under a P3. “The partnership used debt and equity to finance most of the project’s $2 billion cost. The lanes were completed on time and on budget in 2012.” Second, “the Dulles Greenway is a privately owned toll highway completed in the mid-1990s with $350 million of private debt and equity.” Finally, “the FIGG Engineering Group financed and constructed the $142 million Jordan highway bridge over the Elizabeth River. The bridge opened in 2012, and investors are being paid back over time from toll revenues.”

What Congress should do

The best thing the federal government could do is remove obstacles to this process. The tax exemption on municipal bond interest should be eliminated. This would enable private borrowers to compete with states a localities. Federal subsidies should be ended and regulations restricting state and local privatization should be repealed.

The infrastructure challenges facing our state are grave. But with innovative thinking, we can overcome them. This will give Minnesotans the infrastructure they deserve.

John Phelan is an economist at Center of the American Experiment.