P3 bridge too good to be true?
So-called 'availability payments' are code for off-budget debt that taxpayers will be obligated to repay with interest plus profit to private companies involved in P3s. It's never a good deal for taxpayers stuck holding the bag.
Bridge plan too good to be true?
Lancaster Online
Sunday, February 16, 2014
It sounds too good to be true.
Some 500 crumbling bridges in Pennsylvania, including 33 in Lancaster County, are in line for repairs that might start by 2015 and be finished by 2020.
And it won't cost state government anything up front.
As a Sunday News story last week reported, the Rapid Bridge Replacement program aims to take advantage of a 2012 law authorizing so-called P3 — for public-private partnership — initiatives. Instead of the government financing transportation projects and hiring contractors to do the work, the government grants a concession to a private firm that designs, builds and sometimes operates the project. In return, the private partner gets a quid pro quo from the government, whether that involves collecting tolls from motorists or payments from the state.
What a deal! The state doesn't have to borrow money — the private sector does that. The state doesn't have to design or build the roads or bridges — the private sector does that. The state might not even have to maintain the roads or bridges — the private sector does that.
So what does the private sector get out of the deal?
That's why we can't help but remember the adage: If it sounds too good to be true, it probably is.
Pennsylvania is among 30 states with P3 laws. The benefits of some projects are obvious -— especially major ones like the Capital Beltway HOT Lane. Virginia's highway department estimated that widening Interstate 495 near Washington, D.C., would cost $2.68 billion to $3.25 billion. Not to mention the fact that 300 homes and 32 businesses were in the path of the expansion.
Enter a private partner, which eventually brought in the project at $2.1 billion and developed an innovative road design that minimized the disruption to neighboring property owners.
The private contractor is getting toll revenue from I-495. That's a straightforward quid pro quo.
How are the private firms potentially interested in a bundle of 500 deficient bridges in Pennsylvania going to get a return on investment?
The private partners must be expecting to make money. Otherwise they wouldn't take the risk.
Pennsylvania's Rapid Bridge Replacement initiative doesn't envision tolls on the rebuilt spans, but it offers "availability payments" to private contractors. The U.S. Transportation Department defines that arrangement as annual payments to the private partner, based on how well the project performs. (Think pothole repairs, for instance.)
That means the state would have to cough up cash every year to its private partner.
In traditional financing, governments borrow money through long-term bond issues to pay for roads and bridges. Does the state intend to issue bonds to pay P3 partners over 25 to 35 years — the anticipated length of the Rapid Bridge Replacement concession? If not, where is cash-strapped Harrisburg planning to come up with the money?
P3 partnerships aren't fool-proof. Policy Alternatives, a progressive think tank in Canada, is harshly critical of P3 projects in that nation, pointing out that in several cases private partners have required bailouts to stay financially solvent and that in other cases the projects wound up costing more under the P3 model than they would have with typical public-sector financing.
We'd like a clear explanation to taxpayers of the private sector's revenue stream, and the potential long-term costs to the public sector, before the state enters into a P3 contract.
Yes, the private sector can do some public-benefit jobs more efficiently and effectively than the government itself can. P3 partnerships are intriguing from that perspective.
But we also know that the private sector isn't going to give the public sector a free lunch — or a free bridge. So if it sounds too good to be true … maybe it is.