Reason Foundation comes unhinged at populist revolt against tolls
By Terri Hall
August 27, 2014
Bob Poole of the Reason Foundation has decided to pick a fight he can’t win.
He just published an article personally attacking anti-toll group leaders across the nation, and he had a extra special below-the-belt attack saved just for yours truly. He’s responding to the populist anti-toll revolt taking place in America, and he can’t help but go on the attack because these grassroots efforts are finally making progress. He’s lashing out in response to a 5-page cover story in the Weekly Standard that slammed the new rage among transportation think tanks like Reason, called HOT lanes. It stands for High Occupancy Toll (HOT) lanes. Sometimes they convert existing HOV lanes into toll lanes, other times they’re new lanes but only open to carpoolers and those who pay tolls.
The author, Jonathan Last, used many of the same terms to describe this wrong-headed policy as the anti-toll groups do - government picking winners and losers, crony capitalism, privatized profits, socialized losses, Lexus lanes, etc. If the shoes fits, and it does, it’s not hard for liberty-minded people to come to the same conclusions all by themselves. They can spot a scam when they see one. But Poole asks, ‘Where do these ideas come from?’ Or more to his point, who is promoting ideas in opposition to his libertarian ivory tower theory-world of road pricing?
His answer is a nasty attack on grassroots advocates attempting to save the middle class from the biggest, most expensive tax grab in our lifetimes. This isn’t the first time I’ve encountered Poole or the Reason Foundation. I ran into Poole in the halls of the Texas Capitol when our anti-toll group, Texans Uniting for Reform and Freedom (TURF), was asking legislators to sign onto a public private partnership (P3) moratorium in 2007. I’d enter a legislator’s office and there he was lobbying lawmakers to support P3s and disregard the public outcry. The original moratorium passed with a vote of 169-5. It’s been a rough road for P3s in Texas ever since, and it’s about to get rougher.
The problem, according to Poole, is the ‘bogus arguments’ anti-toll leaders are making. Poole even calls them ‘malicious’ arguments. Not only are the anti-toll arguments not ‘bogus,’ Poole offers no evidence that the arguments are false and instead launched ad hominem attacks, denigrating activists for being housewives, specifically ‘crusading housewives.’
He asks where did journalist, Mr. Last, gets his ideas?
“My research has found a growing network of grass-roots, right-wing populist groups opposing tolling and public-private partnership (P3) concessions. One of the originators of many bogus arguments on these subjects is a San Antonio housewife, Terri Hall, founder of the group TURF. Her efforts helped bring about a two-year moratorium on concessions in Texas in 2007. This year she led a successful effort to change the platform of the Texas GOP from pro-tolls to anti-tolls. And her anti-tolls, anti-P3 agitation appears to have swayed GOP gubernatorial candidate Greg Abbott (the likely successor to pro-tolls Rick Perry) to adopt anti-toll positions.
“But Terri Hall’s grass-roots activism has consequences far beyond Texas. Similar right-wing populist groups are actively opposing P3s and tolling in Florida, Georgia, and North Carolina. Each is also led by a crusading housewife, and their websites use many of the same terms (toll-tax, crony capitalism), arguments (abridging state sovereignty, most of the funding is from taxpayers, etc.) and materials (such as the video “Truth Be Tolled”).”
First, Poole gives these ‘populists,’ journalists like Last, and Texas Attorney General and gubernatorial candidate Greg Abbott no credit for coming to the same conclusions independently. Anyone who analyzes the contracts and the data can see the same rip-off and draw the same conclusions - housewife or not. P3s are anti-taxpayer and a colossal transfer of wealth from taxpayers to a handful of private toll concessionaires and their buddies who finance them.
Anti-toll leaders have used the terms ‘crony capitalism’ and ‘boondoggle’ because P3s and the way toll roads are being done today are exactly that. Our arguments are based on statutes, Texas Department of Transportation (TxDOT) commission meetings, TxDOT documents, and the P3 contracts themselves.
The fuss over P3s
What’s the big deal about P3s? They sell-off our public infrastructure to private, even foreign, corporations in very long-term sweetheart deals (50-99 years) designed to extract the highest possible tolls from the traveling public. How high? How about 95 cents a mile, $24/day, or nearly $6,000/year in new taxes on driving (that’s per commuter, not per household).
These contracts contain non-competition clauses that penalize or prohibit the expansion of surrounding free routes, artificially lower speed limits on free routes and increase speed limits on the tollways, force taxpayers to pay the private toll operator for losses in revenue (due to carpoolers, uncollectable tolls, natural disasters), use heaps of taxpayer subsidies and loan guarantees, and guarantee handsome profits.
The contracts do not have to go to the lowest bidder either. Texas lawmakers have replaced competitive low-bid contracting with ‘best value’ bidding that allows the contracts to be steered to the well-connected from an already tiny pool of global companies. The first three Texas P3s went to the same Spain-based company, Cintra, with direct ties to Governor Rick Perry’s office. Lobbyist Dan Shelley worked for Cintra, became the chief legislative liaison for Perry in 2005 when he landed the development rights to a massive network of P3s toll roads known as the Trans Texas Corridor for his former employer, then went back to work for Cintra. How is that anything but cronyism? Shelley and his daughter still lobby for transportation clients in the Texas Capitol.
But perhaps the worst aspects of P3s are the fact they use eminent domain for private gain and surrender control - in essence, state sovereignty - over our public infrastructure to private corporations. In 2012, Georgia Governor Nathan Deal cited this as his reason to pull the plug on P3 concessions calling them ‘ill-conceived sell-outs.’ Those are tough words that didn’t come from a housewife.
Let’s breakdown some of the other the so-called ‘malicious’ arguments of anti-tollers.
1) P3s use massive sums of taxpayer subsidies.
This is absolutely a fact. In examining just Cintra’s three P3s in Texas, the vast majority of the project funding comes from the taxpayers. On State Highway 130 (SH 130) that runs parallel to Interstate 35 between San Antonio and south Austin, a $430 million federal TIFIA loan was secured for the $1.3 billion project. TIFIA loans are backed by the U.S. federal taxpayer. If the traffic doesn’t show up to pay the toll revenues necessary to retire that debt, it’s you and I on the hook for it.
On the Interstate 635 contract in Dallas, the total project cost was $2.6 billion with $2 billion of that price tag coming from the taxpayers. Cintra landed an $850 million TIFIA loan, $615 million in Private Activity Bonds (also a federal program, special tax-exempt bonds just for these toll road deals), and $490 million in gas taxes from Texas taxpayers.
On the project dubbed the North Tarrant Express in Ft. Worth, Cintra snagged 7 different stretches of highway in one bid. They finagled the development rights which gave Cintra the right of first refusal on all of them under two ‘best value’ bidding procurements (here and here). What a deal!
So Interstate 820, Interstate 35W, and segments of State Highway 121 and State Highway 183 are all part of the sweetheart deal wrapped up in one big package with a bright green money-colored bow, courtesy of the taxpayers. Out of a total cost of $3.7 billion for the projects, $2.8 billion came from the taxpayer: $1.2 billion in TIFIA loans, $673 million in PABs, and nearly $1 billion in other unspecified ‘public funds.’ Segment 3B was 100% funded by taxpayers. All told, $1 billion in just gasoline taxes alone went into the I-635 and North Tarrant Express projects, yet Texans will still be charged a toll to use it. This is clearly double taxation.
Cintra’s SH 130 is already in technical default according to Moody’s investor service, experiencing less than half the projected traffic. When it goes bankrupt, the taxpayers go bankrupt with it. Poole claims the private operator takes on the risk for the debt service on this money, but that hardly qualifies as a true transfer of risk from the public to the private sector. We’re on the hook for it, therefore it’s the taxpayer at risk. End of story.
This same funding scam is repeated on virtually every P3 across the country. Only tiny bits of the private toll concessionaire’s own money, known as private equity, is put into the deal. Some funding is private toll revenue bond investors’ capital (which is still not Cintra's own skin in the game). If the traffic doesn’t show up, those bond investors take the hit for that, but there’s no penalty to Cintra for that loss. So Cintra is risking precious little of its own capital, leaving taxpayers and other investors (including public pension funds) vulnerable for its projects.
But revenue bonds are getting harder to come by since toll managed lanes (toll lanes down the middle of an existing freeway) are not financially feasible. With free lanes alongside the toll lanes and congestion generally only bad enough to make people pay tolls just a few hours a day, the tolls collected on managed lanes are inadequate to repay the cost of construction and retiring the debt. Hence, the massive injection of taxpayer subsidies. Even Fitch ratings warns "toll roads with meaningful untolled competition, especially those designed to relieve congestion, could be vulnerable because their value would diminish with lower traffic growth” in its report last year. The private guys won’t risk their own capital for such loser projects, but the government is only too willing to risk our money.
So Poole can in no way honestly claim that the private operators are taking on the risk.
2) P3s are boondoggles.
As if the public subsides aren’t bad enough, the private entities find other ways to soak the taxpayers to avoid losses or potential bankruptcy. With Cintra’s SH 130 tollway attracting less than half the forecasted traffic, Moody’s downgraded the bonds to junk status last year. With SH 130 near bankruptcy, Cintra managed to get TxDOT to pony-up another $30 million to buy down the truck toll rates in hopes of enticing more trucks to use the road, thereby making autos pay to subsidize trucks. This is the second year TxDOT subsidized truck toll rates, which falsely inflates the traffic on the private tollway.
This would be a good time to mention that Cintra’s P3 offered financial incentives to TxDOT for posting a high speed limit on the tollway. TxDOT chose to go for the maximum pay-off and set the speed limit at the highest in the country (requiring a change in state law), 85 MPH, for which Cintra paid them $100 million. Some of that money was then funneled back to Cintra as a subsidy to buy down the truck toll rates that year. In the same Commission hearing, TxDOT lowered the speed limit on the adjacent freeway from 65 MPH to 55 MPH.
In addition to a non-compete clause covering two Texas counties, Cintra also included provisions to make Texas taxpayers responsible for any uncollectable tolls (particularly international drivers from Mexico). This is why P3s are kept secret from the public until after they’re signed. Indeed, many are permitted and some even guaranteed to earn 12-18% profit. In Texas, traffic and revenue studies are also kept secret from the public until after a toll road is under construction, when it’s too late to pull the plug on a project that doesn’t have a prayer of being financially solvent. Even after the P3 moratorium fight in 2007, only scant details are made public (only 30 days before) prior to the contracts being finalized, and non-competes are still permissible, though now limited to 30 years.
In an expose’ for Salon Magazine, Reporter Dave Johnson writes:
“In 2007 Colorado leased its Northwest Highway to a Portuguese/Brazilian company for 99 years. The company raised tolls 50% and taxpayers have to pay the company if too many carpoolers use the high-occupancy lanes. The contract includes a ‘non-compete’ clause that ‘requires payments to the foreign corporation if certain roads or facilities are built in the area that would compete with the toll road.’ In other words, if traffic gets really bad Colorado is not allowed to do anything to solve the problem for its citizens – mass transit, congestion-relief arteries, etc. — instead forcing citizens to use that highway and pay whatever the toll is. For 99 years.”
The devil is always in the details, and clearly the taxpayers are getting fleeced while those entrusted with protecting the public interest look the other way. Every public official that allows a non-compete in one of these toll road deals is guilty of malfeasance.
Australian toll giant, Macquarie, was busted for committing fraud on its traffic and revenue forecasts knowingly, falsely inflating the projected toll traffic on several tollways. At least eleven P3s have struggled financially since 1995 when P3s started to come on the scene, with several going into bankruptcy.
Bankruptcies include: the Greenville Southern Connector in South Carolina, South Bay Expressway in San Diego (in less than 3 years), Pocahontas Parkway in Virginia (went bankrupt twice, recently handed over to its creditors), and the Detroit Windsor Tunnel. Then there are those in financial trouble. Aside from SH 130 outside Austin, Cintra’s Indiana Toll Road is also near bankruptcy despite doubling the tolls, TransUrban’s Capital Beltway in Virginia among others.
Around the globe, it’s even worse - Spain is undergoing a taxpayer bailout of its private tollways with at least nine P3s going bankrupt. Eighty-percent of P3s in Bosnia have gone bankrupt. Australia has had four P3 bankruptcies. Despite the bankruptcies, BrisConnections paid out massive bonuses to its executives. In India, P3s are experiencing 21% cost overruns and taxpayers are being tapped for a variety of subsidies.
Randy Salzman’s recent research published in Thinking Highways issues this decree, “…we cannot find an operating American P3 project that is making the toll income it projected prior to construction.”
According to Salzman’s research as well as our own, these private shysters know how to ‘mine the tax code,’ and put multiple provisions in these contracts to force taxpayers to compensate them for any potential losses, truly socializing the losses and privatizing the profits.
A P3 deal on Route 460 in Virginia underwent a scathing review by the Office of the State Inspector General. The parent company for Cintra, named Ferrovial, and the Virginia Department of Transportation inked a deal just weeks before the legislature went into session and could review the terms. By the time the dust settled on the review, it showed the Virginia taxpayers are stuck with all the liability for a project that will likely never get built due to it traversing wetlands. Ferrovial and the McDonnell administration knew that permits would likely never be issued before the contract was signed, but they still sweetened the deal so that Ferrovial walked away with a guaranteed payout of $300 million.
An editorial in the Daily Press fumed, “It (the state) cannot account for where the money went or who received it. State auditors cannot even access the documents to conduct a thorough review (due to the absence of a ‘right to audit’ provision). This experience is an embarrassment for Virginia.”
Not sure how else to describe them, Mr. Poole, P3s are definitely boondoggles and virtually a universal failure of public policy.
3) Tolls are a tax, not a user fee or ‘free market.’
Toll advocates love to call tolls a ‘user fee.’ It sounds so conservative: those who use the road pay for the road. But given the taxpayer subsidies, tolls are a tax. All taxpayers are being forced to pay for these toll projects whether they can actually afford to drive on them or not. In some cases, we’re being double and triple taxed to use them. Tolls, the way they’re being done today, particularly P3s, are a tax.
California’s toll system is in a sea of red ink. The Pacific Research Institute found that the ‘user fee’ model is nowhere to be found there either. Indeed, $1.7 billion in taxpayer subsidies have propped-up their toll roads as well. In Texas, the subsidies will top $10 billion when examining existing projects and those coming online in the next 10 years.
Poole argues tolls are both a user fee and free market, however, since all taxpayers are either directly paying for it with gas taxes and other public money, or indirectly paying for it through federal loans and bonds (and at the very least on the hook for the losses), tolls are no longer a ‘user fee’ model.
Also, roadways are not free market - they’re government-sanctioned monopolies. There’s only one I-35, I-10, or I-77. Expert testimony from Dennis Enright with Northwest Financial in New Jersey before the Texas Senate Transportation Committee in 2007 called them such. So did the Washington Times Editorial Board and conservative commentator Rachel Alexander.
Bottom line, tolls do not solve congestion. They merely displace it for profit. Tolling is the most expensive way to fund roads. With the average cost of driving a gas tax funded road about 1-2 cents a mile, and the cost of tolls ranging from 12 cents a mile up to 95 cents a mile at a cost of $2,000-$6,000 a year more per commuter depending on whether it’s publicly or privately operated, there’s no way the so-called benefits of this tax increase are worth the cost for anyone other than elitists who are eager to get on these Lexus lanes and leave the riff-raff behind.
According to Tom Jackson in Equipment World:
“Highway funding used to be simple and fair. You paid per gallon. The more you used the roads, the more you paid. But simple, honest, and fair—in today’s government—that just won’t do. To make up for shortfalls in infrastructure funding, politicians at all levels are promoting a complex panoply of ‘creative’ funding schemes including toll roads, bond issues, GPS mileage trackers, congestion pricing and public-private partnerships.
“Toll roads are often cited as the best alternative. Yet as this news report from Houston, Texas, demonstrates, on many toll roads the public continues to plunk down cash long after the construction is paid off. One road was paid for 12 times over without the tolls ever being rescinded.”
Actually, the special interests, like Bob Poole, are selling snake oil to our politicians, and they’re buying it. More accurately, P3s are ripe for corruption, fraud, and abuse. P3s are more like a criminal operation than a method of delivering infrastructure.
If anything, it’s these special interests ‘maliciously’ attacking the middle class and their very financial existence. We, as taxpayers, have a right to not only redress our government for these grievances, but also to organize in opposition to them. We also ought to have a right to vote on it, and toss out any politicians who misuse the taxpayers and abuse eminent domain this way.
Poole concludes his tirade by stating: “It is tempting but foolhardy to dismiss these people’s arguments because, to us, they are so obviously wrong. But to ordinary citizens unfamiliar with either P3s or 21st century all-electronic tolling—let alone legislators and governors—populist terms such as ‘toll-tax’ and ‘crony capitalism’ may very well resonate.”
You bet it resonates, and there’s nothing ‘so obviously wrong’ about these anti-toll arguments. Indeed, given the facts, it’s Poole’s arguments that are so obviously wrong to those of us paying the bill.
Salzman’s revelation of the shell game behind P3s is a must read along with Ian Boselovic’s 4-part series in the Pittsburg Post-Gazette. Salzman also pulls research on the financial scams from another great expert Ellen Dannin, a former professor from Penn State.
Bob Poole is losing influence and that’s what he can’t handle. Just because I’m a housewife, doesn’t mean my arguments are wrong. Anyone willing to dig-into P3s comes to the same conclusion: they’re toll-tax, crony capitalist boondoggles that socialize the losses and privatize the profits, impede our freedom to travel and imperil the financial survival of the middle class. There are too many of these deals going south now to have his libertarian theories remain persuasive against a real-world backdrop. The public backlash is only going to get louder.