Privatizing resources seen as "solution": Global Research.ca

Roads, airports on the block as budgets tighten

Fri Aug 1, 2008 12:37pm EDT

By Jonathan Stempel

NEW YORK (Reuters) - Cash-strapped U.S. state and city governments are likely to sell or lease more highways, bridges, airports and other assets to investors desperate for stable returns after being frazzled by the credit crisis.

The trend is set to pick up speed given worsening budget deficits in state capitals and city halls nationwide.

It will also be welcomed by Wall Street bankers hoping to help create and market so-called "infrastructure" transactions at a time many debt markets remain paralyzed, and after major U.S. stock indexes fell into bear market territory.

"When you are nervous about everything else, you put your money in a toll road,"

said John Schmidt, a partner at the law firm Mayer Brown LLP in Chicago.

"That's the logic of infrastructure. Returns are stable and predictable. You won't get fabulously rich, but you'll get stable cash flow."

The latest enthusiasm for at least partially privatizing infrastructure assets came on July 30 from New York Gov. David Paterson, who is trying to plug a budget deficit caused in part by lower tax revenue as Wall Street retrenches.

"We're just looking at ways to be more efficient and that's why I used the term public-private partnerships -- trying to find some creative solutions,"

Paterson said.

"The reason I'm avoiding taxes is because I think taxes are addictive."

Bankers and others in the industry say there is pent-up demand from dedicated infrastructure funds and public pension funds to invest in hard assets -- perhaps $75 billion to $150 billion of equity capital -- but not enough supply.

"Economic conditions are tough, and are going to be very harsh on the performance of state budgets in 2008 and 2009," said Greg Carey, co-head of infrastructure banking at Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz). "States are looking for long-term solutions in running businesses. A public-private partnership is a tool in their toolboxes."

A high-water mark came in May, when a group led by Spain's Abertis Infraestructuras SA (ABE.MC: Quote, Profile, Research, Stock Buzz) and Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) agreed to pay $12.8 billion to lease the Pennsylvania Turnpike for 75 years. The total could reach $18.3 billion, including promised improvements. Legislators must approve the lease.

Other transactions have included the $1.8 billion lease of the Chicago Skyway toll road bridge in 2005, and a $3.8 billion lease of the Indiana Toll Road the next year. Chicago Mayor Richard Daley is preparing to lease Midway Airport this year.

For Wall Street, infrastructure can be a bright spot at a time of deep job cuts and expected declines in bonuses.

"We've seen an unprecedented number of headhunters recruiting for positions on the buy and sell sides," said Rob Collins, head of Americas infrastructure banking at Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz). "Infrastructure investing can be counter-cyclical to economic trends."

John Ma, the other Goldman infrastructure chief, added: "We're very committed to this space. Our business activity has increased dramatically, even this year."

ALTERNATIVE TO TAX HIKES

According to the nonprofit Center on Budget and Policy Priorities, 29 U.S. states plus the District of Columbia may face a combined $48 billion of budget deficits in fiscal 2009.

But politicians might be loathe to cut spending or raise taxes at a time mortgage debt, $4-a-gallon gas and rising food prices leave consumers -- of whom many vote -- dispirited. Tapping public debt markets might also be too costly.

Meanwhile the American Society of Civil Engineers estimates $1.6 trillion is needed over five years to raise the often aged U.S. infrastructure to "good" condition.

Pennsylvania Gov. Ed Rendell in July called for the United States to establish a capital budget to pay for such repairs. It was a year ago August 1 that the Interstate 35W bridge in Minneapolis plunged into the Mississippi River, killing 13.

Critics say some infrastructure transactions are short-term budget fixes that deprive governments of steady cash streams from taxpayer-funded assets. There is also the risk that private operators won't do their jobs well.

Advocates of privatization say entities might do better managing assets than a government answering to voters.

Politicians could also get a boost if they can take credit for reinvesting sale or lease proceeds in needed projects.

"The argument for a public-private partnership is the private sector is a lot smarter about paying attention to costs, and because it has skin in the game will be more attentive to maintaining an asset over its life," said Joseph Giglio, a privatization expert and professor at Northeastern University's College of Business Administration in Boston.

"Elected officials often shortchange funding of maintenance because they don't want to increase user fees or taxes to pay for it," Giglio added. "Their election cycle is four years. They can pass it on to someone else's watch."

Collins, who also advised Pennsylvania on the turnpike, said infrastructure can also go beyond roads and airports. He said Morgan Stanley is advising Akron, Ohio, on exploring the leasing of its wastewater system, and Indiana on the possibility of private management for its state lottery.

"Lotteries have infrastructure characteristics in that they have stable cash flows and high barriers to entry," he said. "They could even attract private equity investment because they are self-financeable and require minimal capital expenses."

BIG NAMES

At Goldman, Carey and Ma replaced Mark Florian, who is moving to First Reserve Corp, a private equity firm specializing in energy, a person close to the matter said.

Goldman itself raised a $6.5 billion infrastructure fund in 2006, and is reportedly trying to raise a $7.5 billion fund.

Morgan Stanley raised a $4 billion fund in May. Global Infrastructure Partners, a joint venture between Credit Suisse Group AG (CSGN.VX: Quote, Profile, Research, Stock Buzz) and General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz), raised a $5.6 billion fund the same month. Private equity firm Carlyle Group CYL.UL last year raised a $1.15 billion fund.

And Kohlberg Kravis Roberts & Co KKR.UL, which is preparing to go public, in May lured George Bilicic from Lazard Ltd (LAZ.N: Quote, Profile, Research, Stock Buzz), where he led power, energy and infrastructure efforts worldwide, to run its own infrastructure investments.

Two of the largest specialists in the area are Australian: Macquarie Group Ltd (MQG.AX: Quote, Profile, Research, Stock Buzz) and Babcock & Brown Ltd (BNB.AX: Quote, Profile, Research, Stock Buzz).

Schmidt, the Mayer Brown partner, said if the Midway transaction succeeds, other airports could also go private, perhaps leading to "lower and more predictable landing fees and terminal rentals for airlines, which certainly aren't flush."

That, he said, could bring the value of roads, bridges and airports that could be privatized to half a trillion dollars.

(Additional reporting by Joan Gralla in New York and Elizabeth Flood Morrow in Albany, New York, editing by Dave Zimmerman)

The genesis of Government cyber war games

9:43AM Tuesday March 11, 2008

There'll be some nervous IT managers in Government departments in Wellington and in the offices of our big infrastructure providers around the country as their networks are poked and prodded by US officials posing as cyber criminals.

It's all part of Cyber Storm II, electronic war games the US is conducting with its military allies, the United Kingdom, Australia, Canada and New Zealand, who are also its partner in the ECHELON electronic surveillance network.

If you want a good insight into the motivations for setting up the Cyber Storm war games, read this excellent
>New Yorker profile of Michael McConnell, the US Government's director of national intelligence.

As the man coordinating the bodies that make up the US "intelligence community", McConnell was tasked by President Bush with formulating a cyber security strategy after he related the threat to the president in terms he could really relate to.

As the New Yorker puts it: "According to someone who was in the Oval Office, McConnell then said, "If the 9/11 perpetrators had focussed on a single US bank through cyber-attack and it had been successful, it would have an order-of-magnitude greater impact on the US economy."

The President blanched and turned to the Secretary of the Treasury, Henry Paulson.

"Is that true, Hank?" he said. Paulson said that it was. The President then charged McConnell to come up with a security strategy, not only for government systems but also for American industry and private individuals.

If the threat to infrastructure from hackers targeting increasingly centralised systems running telecoms and electricity networks as well as the mechanics of government, there's also the threat of electronic information theft.

According to the US Department of Defence, it receives three million unauthorised probes of its networks every day.

Only a tiny sliver of these approaches are successful - at least we only hear about the really bad exploits, like when the Pentagon last year had to shut down hundreds of computers to contain a hack attack. Here's an interesting if dubious YouTube video on that subject.

What's come hand in hand with the post-September 11 attempts to shake up the intelligence community is the use of some very Web 2.0 tools to make spies more efficient.

Again, from the New Yorker:

"In 2006, the community adopted Intellipedia, a secure version of Wikipedia. Blogging is now permitted on internal servers, giving contrarian opinion a voice. There is a new "A-Space"-based on sites such as MySpace and Facebook-in which analysts post their current projects as a way of creating social networks. The Library of National Intelligence is an online digest of official reports that will soon provide analysts who use it with tips, much the way Amazon and iTunes offer recommendations to their customers."

Imagine if someone figured out how to hack Intellipedia. The threats here are most likely of a different sort - attacks on critical infrastructure such as telephone and electricity are more likely than attempts to steal sensitive information, though the GCSB is taking the threat of this seriously.

Barring a major slip-up in which a simulated attack runs wild we're unlikely to hear too much about the results of Cyber Storm II until the US Government releases a progress report, as it did after the last war games exercise which New Zealand was involved in to a lesser extent.

That report pointed out many holes in security, in particular the deficiencies in communications strategies when a major cyber attack is identified.

Finance: The increasing economic toll on the masses

The Increasing Economic Toll On The Masses

by Jan Baughman

(Swans - March 10, 2008) In a January 28, 2008, article I criticized the upcoming $1 toll increase (to $6) for crossing the San Francisco Golden Gate Bridge, which is being proposed to counter the Transit District's $91 million budget shortfall, as it is yet another tax on the backs of the poor and the middle class to repair the city's -- and the country's -- crumbling infrastructure. What I learned next was a lesson in how we the People are being shut out of the political process as our finances are being chipped away.

As stated on the bridge Web site, "A final decision on the proposed toll increase will not be made until after receiving public input at three scheduled public open houses (February 28, March 13 and March 19) and following the formal Public Hearing on June 11, 2008. We encourage you to attend one of these meetings." [emphasis added] I added the emphasis because I decided to attend one such meeting, having never attended a public hearing and wanting to voice my objection, which I also did on their Web site -- I'll come back to that matter later.

I arrived at the Fort Mason Conference Center, Landmark Building A, promptly at 5:30 on February 28 in order to get a seat. What I encountered was not a "meeting," but a conference room lined with poster boards explaining the need for the toll increase; approximately twelve suited Transit District employees ready and willing to answer questions; and perhaps three other presumed citizens. In one corner were a couple of laptops that citizens could use to submit comments on the Golden Gate Bridge Web site. All that was missing was wine, cheese, and a string quartet. As I walked through the presentation I was approached at different times by three individuals, to whom I expressed repeatedly my opposition to the toll increase. Each listened politely and offered no counterpoint, let alone any recognition of my concern beyond one person's comment, "it's not just San Francisco's infrastructure that is in disrepair; it's the same across the whole country." I countered that we need a broad solution to the country's failing infrastructure -- for example, decreasing war spending, and increasing taxes on the corporations that are enjoying large profits at the expense of the average citizen -- not nickel and diming the citizens to compensate for budget shortfalls. "Thank you for coming, and feel free to submit a comment if you like," they all smiled.

Two of the justifications for the toll increase are that "There has been no toll increase since 2002. During that same period, the Consumer Price Index increased 15.86%, or an average of 2.64% per year," and that inflation has reduced the value of the toll since then. Never mind that "The peak income year for the bottom 90 percent of Americans was way back in 1973 -- when the average income per taxpayer (adjusted for inflation) was $33,001. That is nearly $4,000 higher than the average in 2005," as written by Bob Herbert of the New York Times and quoted by Gilles d'Aymery in an excellent exposé of the income inequality scandal.

I left after fifteen minutes, disgusted and unsatisfied. That night the local news covered the non-meeting from far outside the conference room, not exposing it for the non-event it was, and indicating that the increase was essentially a "done deal."

Back to the public comment. The week of the public non-meeting, I submitted a message on the Golden Gate Bridge Web site opposing the toll increase. Returning to the site on March 7, I learned that, Due to a technical glitch, online comments submitted between February 19 and February 29 regarding the proposed Golden Gate Bridge toll increase did not get captured into the database correctly. If you submitted a comment during that period, we ask that you take a few moments and resubmit your comments at
http://goldengate.org/feedback/tollcontactform.php.

If you are not certain when you submitted your comment, please do so again and we will verify that your comment is not duplicated. We apologize for any inconvenience and thank you for your understanding. Inconvenience, coincidence, or did the public comments fall into the political black hole that stores Dick Cheney's e-mail messages?

Last weekend, the New York Times published editorials from the former presidential candidates on the issues they'd like to see in the campaign ("What I'd Be Talking About if I Were Still Running"). It was a weak collection at best, and only 250 to 350 words from each, particularly considering that they had nothing to lose (but their establishment support, of course...). However, Christopher Dodd acknowledged that

"With every bursting pipe, potholed road and derailed train, the conclusion became inescapable: America's backbone is decaying."

Trickle-up economics is working beautifully. Individuals are going bankrupt; schools are going bankrupt; districts are going bankrupt; towns are going bankrupt; and the wealthy are getting obscenely wealthier. What is frightening to consider is that with the rigged political process and the state of disrepair in a city that is relatively progressive and where the median home price is $744,500, one can only imagine what is happening throughout the country in areas with fewer jobs, less wealth, and less political participation. And we are spending $10 billion per month on the Iraq War. To put it in perspective, at $14 million per hour, just six and a half hours of war funding would make up the Golden Gate Bridge budget shortfall... Something to ponder during the increasingly expensive few minutes it takes to cross that bridge, and the many other costly bridges that lie ahead and are falling apart.

The summary below of the bridge tragedy has its good points, and you should be able to access it by use of the link.

That said, this is TRUE, too.

POINT: IT was NOT the arms race that brought down the USSR; it was CHERNOBYL. The Soviet republics simply could not BEAR the breakdown of their infrastructure that happened as Mother Russia looked the "other way", putting NO resources into maintaining health and safety while obsessed with the goal of breaking down the US.

Now the Dysfunctional Dad, the US is getting its turn to be exposed as the shithead "parent" it is ..

In the Soviet case, the WOMEN ROSE UP -- in ARMS -- and kicked the Soviets OUT. What do you supposed the most probable next scenario is for the US ..?

I am most truly sorry about the tragedy in Minnesota; but I DO KNOW what I would be doing were I in MInnesota TODAY, which is organizing people, women specifically and telling them the whole awful story that lead to that Tipping Point, and encouraging them to ACT OUT!

Virginia

World Socialist Web Site www.wsws.org

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WSWS : News & Analysis : North America

Dozens missing, four confirmed dead in Minnesota bridge collapse

By Joe Kay
2 August 2007

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A major highway bridge in Minneapolis, Minnesota collapsed during the evening rush hour on Wednesday, sending dozens of cars and trucks plunging into the Mississippi River.