There have been quite a few large sale-leasebacks in the news lately, including oil rigs, aircraft, and vessels. None quite compare in size, however, to those mentioned in a recent article in USA Today, which explored a recent trend in the US of states cashing in their assets to the tune of billions of dollars.
As budgetary pressures continue to grow, some states and cities are selling, securitizing, or leasing back their revenue generating assets. Assets include lotteries, airports, and, of course, highways, one of which, the sale and leaseback of Chicago’s Skyway toll road to Macquarie, I discussed in a previous post. Indiana entered into a $3.8 billion sale-leaseback of its Toll Road in April and the state of Illinois is contemplating doing the same thing with its toll way. All the big projects currently in play are being funded by foreign investors.
Although various reasons, such as the more efficient operations of private companies, are given, the most obvious and primary motivation for these transactions is the huge bundle of cash these deals create for the governmental entity. Now, I am all for increased funding being made available for public purposes (especially if it is for education), but it makes me wonder how much thought is being given to the future. Indiana, for instance, has foregone the future revenues on its toll road, which means that, unless they invest the sales proceeds very wisely, they will face potential revenue shortfalls in the future. You have to wonder how that will work out for them, given the track records of public agencies in the past. A bit like funding the deficit with Social Security, don’t you think?
The other aspect of these deals, and one that continues to keep me riled up, is that these deals are being funded by foreign investors, who find the stability of the economy and cash flows here in the US to be very attractive. I have nothing against foreign investors, especially in a world that is becoming more economically flat, but these deals are being done at the expense of the US big ticket industry, which is in a world of hurt (thank you very much, Chuck Grassley). The US currently has the liquidity and investor appetite to fund deals such as these, but is hamstrung by tax policy shenanigans. Wake up, Washington! As the CEO of a major chip manufacturer recently pointed out, the current tax structure is hurting US economic development. Maybe we should consider the fact that it isn’t just cheap labor that is causing our investment to go overseas.
American investors going overseas and foreign ones coming to US… It seems that the economic world is moving faster than we want to, but on whose expenses?
Posted by: Brenda | August 30, 2006 10:19 AM | Permalink to Comment