Getting union buy-in

A battle brewing between the New York’s Governor and a local union bears important lessons for infrastructure investors, argues Cezary Podkul.

It is impossible to turn on the television in New York and not see the same ad running over and over again.

Cezary Podkul

A mother clutches her child, telling Governor Paterson that “closing hospitals is not the answer”, followed by a nurse, an elderly woman and a litany of other sick and infirm asking the same question: “Why are you doing this to my family?”

The sponsors of the ad are the local 1199 Service Employees International Union and the Greater New York Hospital Association. Unhappy about budget reforms that take funding away from them, they have taken the fight to the public, and the Governor’s office has responded with its own “Just the Facts” state-wide tour.

Setting aside the particulars of healthcare reform, the state is an interesting chessboard of stakeholder interests that infrastructure investors should watch closely as they look for ways to crack open the US market.

On the one hand, there’s the state government, faced with falling tax revenues and cash-strapped as ever, trying to do more with less in a difficult economy.

On the other hand, there’s a myriad of labour unions, under-funded pensions and state programmes that each have powerful interests behind them, willing to make commercials like the one above to fight for their slice of the pie.

Both have traditionally opposed large-scale privatisations and leases, fearful that the private sector would cut jobs, salaries and benefits in search of maximising profits.

But given the unprecedented budget shortfalls facing state and local governments – exacerbated by the paralysis of the municipal bond market – politicians of all stripes, from Democratic Mayor Luke Ravenstahl of Pittsburgh to Republicans in the Minnesota legislature, are beginning to get that they can raise cash from asset sales and solve some of their problems if they spend it wisely.

The problem: they can’t sell the proposals past stakeholders dead-set against them and willing to fund like-minded politicians.

Politicians like Ravenstahl don’t need another pitchbook that shows them how the asset price goes up if the lease term is 50 years instead of 40. They need a solution for stakeholder management.

Enter the New York State Asset Maximisation Commission, which is looking into how the state could utilise assets big and small, from the Dewey Thruway to state-owned golf courses and beaches, to make difficult decisions less painful.

The commission’s recommendations aren’t expected until early April, but it’s easy to see what could be done to make this a win-win for the public and the private sector.

On the public sector side, they should recommend a uniform set of guidelines for dealmaking that fast-tracks projects for approval and takes away the risk of death-by-legislature, à la Pennsylvania Turnpike.

The idea is simple: if the buyer of the asset agrees to, say, safeguard jobs, share some of the upside, re-invest some revenues in the asset and allow the state input over user charges, give the deal a green light and then debate the details of who should repave when or how often the toilets should be cleaned – not the other way around.

On the private sector side, there is clearly a need to get more of the unions, pensions and state agencies involved not just as stakeholders but also as shareholders. If investors invited high-profile public sector figures to sit on their boards, attend meetings with governments and explain things in a language that they can understand, the rules of the game could change.

Admittedly, this would be history repeating itself to some extent. Just like private equity managers during the buyout boom of the 1980s, infrastructure investors currently lack a public face, and so it is easy to get caricatured and misrepresented.

But, as the SEIU television ad demonstrates, the public sector has a similar problem these days – and is in desperate need of a solution.