Crumbling Infrastructure, Crumbling Democracy: Infrastructure Privatization Contracts and Their Effects on State and Local Governance

Dannin, Ellen | January 1, 2011

Key arguments for privatizing public infrastructure range from providing money so cash-strapped governments can fix crumbling infrastructure and build much needed new infrastructure to shifting future financial risk from the public to a private contractor. The reality, though, is far different. Provisions commonly found in infrastructure privatization contracts make the public the guarantor of private contractors’ expected revenues. Indeed, were it not for provisions that protect contractors from diminution of their expected returns, the contracts would be far shorter and much less complex. An effect of those contract provisions is to give private contractors a quasi-governmental status with power over new laws, judicial decisions, propositions voted on by the public, and other government actions that a contractor claims will affect toll roads and revenues. Giving private contractors such a role may well violate the non-delegation doctrine that bars private entities from exercising power that is inherently governmental.

This Article examines the operation and effects of three provisions that are commonly found in infrastructure contracts: (1) compensation events; (2) noncompetition provisions; and (3) the contractor’s right to object to and receive compensation for legislative, administrative, and judicial decisions. The operation of these provisions gives private contractors power over decisions that affect the public interest and are normally made by public officials and subject to oversight, disclosure, and accountability–none of which apply to private contractors. The existence and operation of these provisions have gone virtually unexamined and undiscussed. Rather, discussions about infrastructure privatization have been narrowly focused on tolls, reflexive pro- or anti- private or public provisions, and spending or investment decisions on up-front payments.

Finally, this Article places infrastructure privatization in the larger context of funding and building infrastructure for the future. It identifies and critiques substantive and procedural issues that must be resolved if we are to have the high quality infrastructure necessary to meet this nation’s needs and further its goals and if we are to achieve those goals by an open and democratic process.