After the Katrina hurricane, the federal government gave $234M US to a southern Mississippi county utility authority. According to an AP article, the Authority wasted that money in a shocking manner.

Three wastewater treatment plants nearing completion will begin operations at 11%, 6% and 1% of design capacity. Of course, the operations costs for these plants will be substantial and borne by the county taxpayers. How do these boondoggles keep happening?

The federal officials certainly deserve a large portion of blame. The AP article ended with this info:

Robbie Wilbur, a spokesman for the Department of Environmental Quality, said the site was picked “because there were fewer endangered species issues, less wetlands impacts, better access, and lower construction costs.”

Wilbur said the decision was made by local officials, but members of the utility authority dispute that.

“DEQ rejected all of those alternatives … I want it on the record that we strenuously looked at these alternatives and asked for them and those things were rejected,” Ladner, the Harrison County supervisor, said during a November 2009 board meeting. “They were determined that we put it there and if we don’t … we lose all funding.”

But the local engineering firms that did the population projects and feasibility studies also share the blame. Generally, authorities hire engineering firms to do the feasibility studies that will then go on to design the plants (which is the main fee generator for many consulting engineering firms). So it’s like asking the barber if you need a haircut.

Finally, the local Authority Board members have to make better decisions. The allure of free money so often colors the thinking of rational people. Bad decisions get made, then the terrible consequences spin out for the next 50 years.

America needs a better model for spending public money. Or do you think this boondoggle is the exception to an otherwise efficient system?

Remember that scene in The Graduate when Dustin Hoffman, as a recent college graduate, gets some sage advice? Take 22 seconds to watch it:

httpv://www.youtube.com/watch?v=CsrLHP26zvk

Well I’m going to give you the word for our times. Actually,  let me give you the phrase: Chicago Infrastructure Trust. Imagine Rahm Emanuel whispering it to you at a party.

As most folks in America know, we haven’t been spending enough to repair our infrastructure. Inefficient transportation systems and buildings cost our society $130 billion in 2010, mostly because of higher running costs and travel delays, according to The Economist. The American Society of Civil Engineers calculates (which is something they’re good at) that this under-investment will cost each American family over $10,000 US between 2010 and 2020.

We all also understand that no political will exists to get this money raised through traditional public sources: raising taxes, selling municipal bonds, etc. So, the Chicago Infrastructure Trust (CIT) shows a new way. It’s not an infrastructure bank so much as a project facilitator, matching public infrastructure needs and private investor wants.

The Economist article says it well:

The CIT allows Mr Emanuel to tap the private sector for money, rather than just raising taxes and borrowing. The private sector will invest money in projects and get it back in the shape of tolls, user fees, premium pricing or even tax breaks.

The first project is an investment of $225m to make city buildings more energy-efficient. This is expected to reduce annual energy costs by $20m, and the savings will then be used to pay back the investors. The CIT will provide some capital, bond financing and grants. It will also offer tax-exempt debt to entice investors. Returns on investment could vary from 3% on tax-exempt bonds to 8% for equity partners.

The beauty of the CIT system, to me, is the private investor direction and oversight. Goofy projects that don’t make sense (which so often proceed in the public process), simply won’t find traction among private investors. Also, the private investors will tend to demand better selection, design and construction management. The private investors (think smart financing executives) will push for efficient pricing of public resources like parking and busy roads, allowing the free market to improve our public works.

Certainly many details need to be resolved and safeties need to be in place, but the CIT will be the future model for public investment. If you agree, you may want to think about how you could productively align yourself with the trend. Knowing an important trend early can be a huge advantage.

Now, if you have a few more minutes, why not treat yourself to the amazing conclusion of The Graduate? You know you want to.

httpv://www.youtube.com/watch?v=hSyFNvdp-Rs