Feds dole out taxpayer money, TIFIA loans, for private toll road


Link to article here.

Also worthy of noting are the projects rejected, among them, tolled managed lanes added to Loop 1604 in San Antonio!

Toll projects get four of five short list places for TIFIA credit assistance

By Peter Samuel, Toll Road News
April 27, 2012
 
Four out of five projects advancing for USDOT TIFIA loan assistance are toll projects. The toll projects invited to apply are (1) the VA/I-95 HOT Lanes (2) North Tarrant Express 3a & 3b (3) CA91 Express Lanes Improvement Riverside Co and (4) the CO/US36 Phase 2. The only untolled project invited to make the formal application is the Gerald Desmond Bridge at the Port of Long Beach CA.

The statement today: "The projects invited to apply are well aligned with the TIFIA statutory selection criteria. The invitation to apply does not guarantee that the project will receive assistance. The Department will evaluate each project to determine its creditworthiness and negotiate acceptable terms for providing credit support."

Biggest surprise is Gerald Desmond Bridge - no tolls

The most surprising recipient is the Gerald Desmond Bridge which has no identifiable revenue stream to support $500m of loans being taken out to support it. And nothing but the dubious financial condition of the state of California to back it!

The Gerald Desmond Bridge is a $950m 6-lane cable stayed bridge at the port of Long Beach that is designed to replace a 1968 4-lane thru-arch truss bridge. As in the case of the Bayonne Bridge NY the old bridge deck is 160ft, 48m over the water - too low to accommodate the largest new container ships, so the replacement span deck will be over 200ft, 63m high. The Desmond bridge carries an average 68k vehicles/day (18m/yr) which 6 lanes will accommodate more comfortably. The bridge has a main span of 415ft, 120m.

Located at the end of I-710 it is a link in a 4-mile, 7km east-west expressway standard route between Long Beach through Terminal Island, heart of the ports of Los Angeles and Long Beach - and San Pedro at the southern end of I-110. The Vincent Thomas Bridge carries the route over the western channel to the ports.

Together the ports of Los Angeles and Long Beach are by far the largest container port in the United States and generate major freight rail and truck traffic north up I-110 and I-710.

Of interest are the projects the Feds are declining to grant TIFIA credit assistance at this time:

- Loop1604 San Antonio

- TX550 Cameron Co TX

- MoPac Austin TX

- Dominion Blvd, Chesapeake VA

- Streetcars, Kansas City MO

- DART orange rail Dallas TX

- DE/US301

- FL/I-75 HOT Lanes Broward Co

- Gold Line metro LA, CA

- Ohio River Bridges Louisville KY/IN

- Knik Arm Bridge, Alaska

- Dulles Rail, northern VA

-Tappan Zee Bridge, NY State Thruway

- Garden Parkway Gaston Connector, Charlottte NC

- Mid Currituck Bridge, Outer Banks NC

- TX/I-35E HOT lanes Dallas TX

- Pod Train,  San Diego CA

- Otay Mesa interchange San Diego CA

- CA85 HOT lanes Santa Clara Co CA

- Columbia River Bridges WA

The 26 letters of interest sought over $13b in federal credit assistance under TIFIA for projects costing $36b.

The five selected in a kind of short-listing involve projects costing $4,872m and request credit assistance of $1,625m.

TIFIA assistance includes direct loans on better terms than available in the market, conditions of the loans that carry heavy risk and relieve other investors of risk, and various kinds of assurance of backing.

Because demand for the TIFIA loans exceeds money available the USDOT is doing sequential solicitations. Projects not invited in one round to go forward can reapply in future solicitations.

VA/I-95 HOTL:

http://www.dot.gov/affairs/2012/dot4412d.html

N Tarrant Dallas TX:

http://www.dot.gov/affairs/2012/dot4412e.html

Gerald Desmond Bridge Long Beach CA:

http://www.dot.gov/affairs/2012/dot4412a.html

CA91XLs extension:

http://www.dot.gov/affairs/2012/dot4412b.html

CO36 toll lanes/BRT:

http://www.dot.gov/affairs/2012/dot4412c.html

news release

http://www.fhwa.dot.gov/ipd/tifia/news/#five%22

http://www.fhwa.dot.gov/ipd/tifia/letters_interest_applications/letters_...

COMMENT: something rotten is going on with the short-listing of the Gerald Desmond Bridge ahead of a bunch of toll projects. That bridge has no identified income stream to support its debt. Over half its debt will be funded by "state highway and transportation bonds." And this is a project that absolutely could have been financed with tolls. Traffic on its four lanes averages 68k/day - Detroit DRIC enthusiasts note that number - and at $950m the cost of the 6-lane replacement is reasonable. The failure to toll such a project is a reminder of California as Lala Land.

TOLLROADSnews 2012-04-26

The NAFTA Superhighway yet to be built

Link to article here.

The NAFTA Superhighway yet to be built
By Terri Hall - Examiner.com
April 27, 2012


With the appointment of House and Senate conferees for the Federal Highway Bill this week, there’s renewed hope that Congress may be able to pass a bill this year.  The House passed an extension of the current federal highway program known as SAFETEA-LU April 18; however, the Senate previously passed a two year bill called MAP-21, or S. 1813, paving the way for the one remaining interstate highway yet to be built in America to be completed. That interstate is I-69, also known as high priority corridors 18 & 20.

However, it won’t be built as a freeway, the Senate has ensured it will built as a foreign-owned tollway using a public private partnership (P3) due to the structural shortfall in traditional road funding encompassed within the bill as well as the reliance on tolling to make-up the shortfall. The House lacked the votes to pass its long-term federal highway bill, HR 7, and opted to pass a straight extension of SAFETEA-LU in order to set-up a conference committee to hash out the differences on a short-term fix.

Does it have ta be NAFTA?
There’s been much ado about NAFTA superhighways ever since Texas Governor Rick Perry made them the central plank of his transportation platform when he stepped into the Governor’s mansion after George W. Bush became President.

In 2001, Perry already had a pivotal Constitutional Amendment on the ballot in Texas that ended the State’s pay-as-you-go system and opened the door to debt financing. It also paved the way for the Texas leg of the NAFTA superhighways, the Trans Texas Corridor, to be built.

By 2003, the foundation was in place for passage of a loaded omnibus highway bill (the sort no lawmaker actually reads), HB 3588, that created the Trans Texas Corridor (TTC) in statute along with quick take eminent domain and a shift to tolling everything that moves, using massive public debt. The 2006 federal highway bill, SAFTEA-LU, created the blueprint for the national push of controversial new ‘innovative’ financing tools and the sale of America’s transportation infrastructure to private entities. SAFTEA-LU also relied on public debt (through the TIFIA loan program) to build roads, most of which would benefit private special interests through P3s.

Congress has until June 30 to work out the differences between the Senate’s MAP-21 and the House extension bill, HR 4348. The House and Senate are worlds apart except for one thing -- the reliance on tolling through ‘innovative financing‘ tools -- the TIFIA loan program and P3s. In MAP-21, Texas scored big by securing an increase in its rate of return of federal gas taxes from 92 percent to 95 percent. But that won’t be near enough to bridge the gap in road needs versus the available funds to build them.

MAP-21 is also chalk full of big daddy government, Agenda 21-style provisions like mandating black boxes be installed in ALL vehicles from 2015 forward (found in Section 31406), opening the floodgates to government tracking of private citizens, as well as mandating vehicle-to-vehicle and vehicle-to-infrastructure communications -- a blueprint for connecting vehicles and infrastructure together using wireless technology that could eventually be used to dictate actual travel patterns and to charge motorists road taxes by the mile. The Senate bill also grants the IRS the ability to revoke passports (hence inhibit the freedom of travel) of anyone it deems a tax cheat.

Killing the beast they say is already dead
The public backlash to debt financing, foreign-owned toll roads, and these NAFTA superhighway trade corridors has been swift and sure. But most politicians refuse to get the message. When 28,000 Texans put their opposition on the record against Trans Texas Corridor TTC-69/I-69 in 2008, politicians swung into action to try to convince Texans the TTC was DEAD. But it was dead in name only.

Lawmakers failed to repeal it during the 80th session of the Texas Legislature in 2009, and even tried to grandfather the TTC under a different name in a bill that eventually died (due to a fight over a local option gas tax). Though grassroots Texans managed to achieve a total repeal of the Trans Texas Corridor from state statute in 2011, the TTC lives on as the ‘innovative connectivity plan’ through P3s in Texas.

One standout against P3s, is Georgia Governor Nathan Deal, who learned the hard way over the I-85 toll HOT lane snafu, that the public will not go along quietly. He pulled the plug on Georgia’s P3 program earlier this year calling P3s an “ill-conceived sell-out of state sovereignty.” He’s exactly right. P3s virtually ensure that the international trade corridors or NAFTA Superhighways will be completed.

MAP-21‘s TIFIA expansion from $122 million/yr to $1 billion/yr will give states the ability to fund the NAFTA Superhighways beyond I-69. It's no surprise Texas leads the nation in TIFIA awards since there are seven (7) NAFTA trade corridors from Mexico into Texas:

1) Camino Real
2) Spirit
3) La Entrada
4) Ports-to-Plains
5) TTC-35
6) Gulf Crescent
7) TTC-69

The trade corridors ultimately are to connect the United States with Canada and Mexico -- to fulfill the purpose and vision of NAFTA. Though the many special interests who will benefit from these trade corridors have found an easy ‘in’ with Texas politicians, the push certainly isn’t limited to Texas. There’s a battle raging in Michigan over whether a competing bridge at an international border crossing into Canada will be built.

Currently, a private toll bridge, the Ambassdor Bridge, enjoys a monopoly over commercial truck traffic in the area and its owner, Manuel Moroun, is fighting off competition by the Michigan and Canadian governments who are contemplating building a public toll bridge nearby. Dubbed the Detroit International Trade Crossing, the public toll bridge would require $1 billion in public financing to get it built. It would no doubt receive a TIFIA loan, considering a similar project is on the short list to receive a TIFIA loan to replace the Gerald Desmond Bridge at the Port of Long Beach in California, which also boasts a pricetag of nearly $1 billion.

A bill like MAP-21 signed into law would assure the completion of the NAFTA Superhighway trade corridors over the coming decade. Killing these anti-sovereignty, anti-freedom, and anti-taxpayer provisions in MAP-21 is a must if we’re to preserve what’s left of our sovereignty and freedom to travel.

Why public-private toll roads won’t work

Link to article here.


Why public private toll roads won't work
By Terri Hall
April 17, 2012
Examiner.com

It's hard to disagree with much of what a recent Wall Street Journal (WSJ) editorial advocates, like making the highway fund solvent, returning gas tax money sent to Washington back to the states, and loosening the federal strings attached to road money. However, where they're missing the boat is this notion that private money will be the silver bullet to fix road revenue shortfalls and provide what’s often called ‘gap funding.’

There's a hefty price that comes with seeking private money to build public roads using public private partnerships (P3s), as well as loss of sovereignty and control over the surrounding free routes (through non-competes clauses that prohibit or penalize expansion of free roads). Not only are toll rates on these privatized roads punitively higher than public toll roads (75 cents a mile versus 12-15 cents per mile on a public toll road), heaps of taxpayer money subsidize these government-sanctioned monopolies (so having to pay a toll, too, is DOUBLE TAXATION).

Also, these sweetheart P3s deals are structured to GUARANTEE private profits at the public's expense. On the North Tarrant Express project (I-820) in DFW, taxpayers brought three-quarters of the money to the table, the Spanish firm, Cintra, only one-quarter, yet Cintra gets the exclusive right to set and collect tolls (at a rate of 75 cents per mile in peak hours) for the next half century in return for their paltry investment.


The WSJ’s subhead says ‘Americans don’t want to live in LaHood’s car-free utopia,’ knocking Secretary of Transportation Ray LaHood’s livability agenda, which is actually a more sanitized name for the United Nations’ Agenda 21 anti-car policies that seek to herd people into high density housing in the inner cities and force motorists out of their cars and into mass transit.

Yet, the very policies the WSJ advocates, P3 toll roads, have the same net effect. It makes driving unaffordable and forces the majority of the traveling public out of their cars or stuck in unbearable congestion on unimproved free routes -- so those who cannot afford to pay 75 cents a mile to get to work will be treated as second class citizens without mobility, even though they continue to pay gas taxes for roads.

The average worker has no control over when he reports to work. Many cannot afford to live close to their jobs, others plain don’t want to. Yet the WSJ and many libertarian and so-called conservative think tanks advocate congestion pricing that gouges commuters during peak hours in an attempt by government, or its private surrogates, to ‘manage’ traffic flow and purposely discourage peak hour travel.

‘Managed lanes’ utilize congestion pricing which is a variable toll rate that changes depending on time of day and level of traffic on the toll lanes. The more cars, the higher the price, creating road scarcity through pricing. Economists love it since their textbook free market theories get put into practice by governments.

However, government-sanctioned monopolies cannot be considered a free market solution to congestion. When there’s only one way to get where you need to go and the state puts that road in the hands of a private corporation who controls the toll rates and dictates how much you’ll have to pay to get to work at your appointed time, that’s not free choice nor free market -- it’s tyranny.

Changing the tide
Georgia Governor Nathan Deal had his own awakening to the threat to state sovereignty by handing control of public roads to private, even foreign, corporations and he pulled the plug on Georgia’s P3 program, calling them “ill-conceived sell-outs” of state sovereignty. Recently, a Cato Institute scholar, Timothy Lee, also reconsidered his support for P3s reasoning that it threatens our freedom to travel. So the tide is turning as the political and financial realities of these failed policies come to light.

So while we need to get a fiscally responsible federal highway bill passed and while we need to give the states back the money they send to Washington and stop diverting road funds to non-road purposes, advocating P3s as part of the solution to make-up structural road funding shortfalls is fiscally irresponsible and a taxpayer rip-off, putting the cost of transportation so far out of reach for the average person that these toll roads will go bankrupt from lack of use, necessitating more taxpayer bailouts and malfeasance.

WSJ: Why your highway has potholes

Link to article here.

It's hard to disagree with much of what this Wall Street Journal editorial advocates, however, where they're missing the boat is this notion that private money will be the silver bullet to fix road funding issues. There's a hefty price that comes with seeking private money to build public roads using public private partnerships (P3s), as well as loss of sovereignty and control over the surrounding free routes. Not only are toll rates on these privatized roads punitively higher than public toll roads (75 cents a mile versus 12-15 cents per mile on a public toll road), heaps of taxpayer money subsidize these government-sanctioned monopolies (so having to pay a toll, too, is DOUBLE TAXATION) and the sweetheart deals are structured to GUARANTEE private profits at the public's expense. On the North Tarrant Express project (I-820) in DFW, taxpayers brought three-quarters of the money to the table, the Spanish firm, Cintra, only one-quarter, yet Cintra gets the exclusive right to set and collect tolls for the next half century in return for their paltry investment.

So while we need to get a fiscally responsible federal highway bill passed and while we need to give the states back the money they send to Washington, advocating P3s as part of the solution to make-up structural shortfalls is fiscally irresponsible and a taxpayer rip-off, putting the cost of transportation so far out of reach for the average person that these toll roads will go bankrupt from lack of use, necessitating more taxpayer bailouts.

Why Your Highway Has Potholes

Americans don't want to live in Ray LaHood's car-free utopia.

Wall Street Journal - Editorial

April 16, 2012

Nothing shows off the worst of Congress like a highway bill. And this year's scramble for cash is worse than ever because the 18.4 cent a gallon gasoline tax will raise $70 billion less than the $263 billion Congress wants to spend over the next five years. Let the mayhem ensue.

The Senate has passed a two-year $109 billion bill sponsored by Barbara Boxer of California that bails out the highway trust fund with general revenues, including some $12 billion for such non-essentials as the National Endowment for the Oceans and the Land and Water Conservation Fund. The bill requires little or no reform. The prevailing Senate view is the more concrete that gets poured, the more jobs back home. So more "shovel-ready" nonstimulus.

House Republicans oppose the Senate version amid a $1.3 trillion deficit and have their own bill to give states more flexibility—though still not enough—on how to spend transportation dollars. Congress had to pass a temporary 90-day extension of highway funding through June 30 because the two sides can't agree.

What's missing is any new thinking. Clear evidence of inefficient transportation spending comes from a new Treasury study estimating that traffic gridlock costs motorists more than $100 billion a year in delays and wasted gas. In cities like Los Angeles, commuters waste the equivalent of two extra weeks every year in traffic jams. This congestion could be alleviated by building more highway lanes where they are most needed and using market-based pricing—such as tolls—for using roads during peak travel times.

That makes too much sense for Washington. In a typical year only about 65 cents of every gas tax dollar is spent on roads and highways. The rest is intercepted by the public transit lobby and Congressional earmarkers. Then there are the union wages that pad the cost of all federal projects. The New York Times reported in 2010 that 8,074 Metropolitan Transportation Authority employees made $100,000 or more in 2009 even as the system loses money.

Transit is the biggest drain. Only in New York, San Francisco and Washington, D.C. does public transit account for more than 5% of commuter trips. Even with a recent 2.3% gain in bus and rail use due to high gas prices, public transit still accounts for a mere 2% of all inner-city trips and closer to 1% outside of New York.

Since 1982 government mass-transit subsidies have totaled $750 billion (in today's dollars), yet the share of travelers using transit has fallen by nearly one-third, according to Heritage Foundation transportation expert Wendell Cox. Federal data indicate that in 2010 in most major cities more people walked to work or telecommuted than used public transit.

Brookings Institution economist Cliff Winston finds that "the cost of building rail systems is notorious for exceeding expectations, while ridership levels tend to be much lower than anticipated." He calculates that the only major U.S. rail system in which the benefits outweigh the government subsidies is San Francisco's BART, and no others are close to break-even.

One reason roads are shortchanged is that liberals believe too many Americans drive cars. Transportation Secretary Ray LaHood has been pushing a strange "livability" agenda, which he defines as "being able to take your kids to school, go to work, see a doctor, drop by the grocery or post office, go out to dinner and a movie, and play with your kids in a park, all without having to get in your car." This is the mind of the central planner at work, imagining that Americans all want to live in his little utopia.

The current scheme also creates giant inequities. Politically powerful cities get a big chunk of the money, while many Western and Southern states get less back than they pay in. But why should people in Akron, Ohio or Casper, Wyoming have to pay gas taxes to finance the New York subway or light rail in Denver? One reason there is so much overspending on inefficient urban transit is that federal matching dollars require residents in other states to foot up to half the bill.

The best solution would be to return all the gas tax money to the states, roughly in proportion to the money each pays in. This would allow states and localities to determine which roads and transit projects they really need—and are willing to pay for. California could decide for itself if it wants more roads, whether it can afford high-speed rail, and whether it wants to use congestion-pricing on crowded roads. The House Transportation Committee has found that getting a permit for a new road costs twice as much, and takes three times as long, when federal money is included than when financed with private or local dollars.

Less federal control would also allow states to lure billions of dollars of private financing for new roads, which experts like Mr. Winston believe is the next big thing in transportation financing but is now generally prohibited. One of the worst features of Ms. Boxer's Senate bill is that she would exacerbate the funding shortage by adding new penalties if states leverage private dollars to build new toll roads and bridges.

The Senate's highway-fund bailout will only perpetuate the spending misallocation that has contributed to traffic nightmares. It will also run up the deficit. If Congress really wants to enhance the livability of cities and suburbs, it will pass a highway bill that builds more roads.

A version of this article appeared April 16, 2012, on page A14 in some U.S. editions of The Wall Street Journal, with the headline: Why Your Highway Has Potholes.

Increased speed limits more about profits than safety

TxDOT increases speed limits to 80 MPH, why may surprise you

By Terri Hall

Examiner.com

April 13, 2012

The Texas Transportation Commission recently passed a Minute Order allowing the posted speed limits on Texas highways to go up to 80 MPH, if traffic studies show its safe.

At a time when motorists are more concerned than ever about ways to conserve fuel and stretch every gallon of gas, this move by the Commission seems ill-timed, and some would even say, reckless (regarding safety).

However, the most disturbing reason for this change in speed limits is what we warned the Texas Legislature of in 2011 -- this is about maximizing toll revenues for a private, foreign corporation, Cintra, as well as for the State of Texas. Both our lawmakers and TxDOT are making transportation decisions based on profit potential, not public safety.

It's no secret that the traffic levels on SH 130 have been abysmal, and TxDOT has been searching for ways to boost the number of cars that take the toll road, even lowering toll rates 67%. But this move to increase speed limits is based solely on the prospect of a higher share of toll revenues TxDOT will split with Cintra when its two segments of SH 130 open later this year.

Details are in the public private partnership contract inked in 2007. TxDOT gets a greater share of the toll revenue for every 5 MPH increase in the speed limit up to 85 MPH (See Exhibit 7). Also, once the contract was signed, TxDOT had to either raise the speed limits on Cintra’s tollway, or reduce speed limits on ‘competing’ I-35 (read here and here) or face having to compensate Cintra for any loss in toll revenue absent the changes in speed limits. It’s part of the contract called a non-compete clause that penalizes or restricts what the government can do on ‘competing’ free routes, including imposing restrictions on expansion or the usability of free alternatives.

If any doubt looms that this speed limit hike isn’t connected to Cintra or the ill-fated Trans Texas Corridor (Cintra company once dreamed of building), look no further than the bill to repeal the Trans Texas Corridor (TTC) that passed last session. Two key provisions of the TTC lived on in HB 1201 -- Cintra lobbied hard to make sure of it. Embedded within the bill is a provision to allow the state to increase speed limits up to 85 MPH. Less than a year later, TxDOT delivered for Cintra -- at least to 80 MPH, 10 MPH over the &) 70 MPH maximum on stretches of I-35.

The second is a provision to allow overweight trucks to use the tollway. Cintra’s tollway is specifically built to attract overweight trucks loaded-up with massive cargo imported from China and transported into the U.S. via Mexico’s deepwater port, Lazaro Cardenas, and eventually onto Cintra’s SH 130 bypass around Austin’s congested I-35.

The statute reads: “The commission may authorize the operation of a vehicle that exceeds the weight limitations of Subchapter B, Chapter 621, or the size limitations of Subchapter C, Chapter 621, on a lane designated as an exclusive lane under this section if supported by an engineering and traffic study...”

Usually trucks have weight limits, but that flies out the window under this scenario. SH 130 is considered the only part of Trans Texas Corridor TTC-35 that will ever be built in Central Texas (NOTE: two projects in North Texas -  Southwest Parkway/Chishom Trail and a loop around Rockwall County are also regarded as part of the TTC). The message this sends to private corporations is that laws can be suspended if you pay the State enough money for the right to set your own rules.

In addition, it's abundantly obvious that TxDOT is making transportation decisions based on profits and private interests when you factor in the fact that the Commission also recently passed a Minute Order last year implementing a dual designation of existing potential feeder roads into SH 130. The scheme there is to add an additional designation on parts of free interstates I-410 and I-10 from San Antonio to Seguin as SH 130, leaving drivers who wish to continue on a free road stranded. Once drivers get to Seguin, they'll realize there is no way north unless you take the foreign-owned tollway, SH 130.

Case closed, TxDOT is sold out to special interests.

One thing is certain, you can count on Austin and Seguin’s finest to be out en force to issue plenty of speeding tickets along I-35 once Cintra’s segments of the SH 130 tollway open. Anything the state can do to dissuade motorists from using free routes and onto the foreign-owned tollway, they’ll do.

TexPIRG: Hidden Costs of road privatization

The hidden costs of road privatization
By Melissa Cubria, Advocate, Texas Public Interest Research Group
 
“When infrastructure is privatized (or corporatized), the decisions about its size, shape and placement are driven by market demand. The private partners are interested in elements of infrastructure that can yield the longest and strongest streams of privately capturable revenue not the ones that yield the largest public benefits.”[1]
 
A WORRISOME TREND

It is easy to see why many states are turning to infrastructure privatization in order to repair, build, modernize, and operate highways and other infrastructure. Cash-strapped states and cities are drawn by up-front payments or other ways to move costs “off budget,” such as shifting to private user fees rather than taxes to address their budget deficits. They may also see privatization as a way to shift future financial risks to private contractors.

In Texas, proposals for private toll roads have come under much criticism, prompting heated debates with most public attention paid to soaring toll rates, seizures of ranch land through eminent domain, and concerns about foreign corporations owning vital Texas roads. Largely neglected from these debates has been a discussion about the long-term effects of standard provisions of privatization contracts. The common terms of road privatization deals restrict the public’s ability to act on its own behalf, force the state to pay privatization companies when those companies claim they would have reaped more revenue if not for state actions, and reduce the public’s right to know information about how public functions are performed and how public dollars are spent.

NON-COMPETE CLAUSES

Eliminating competition would seem to undermine a basic argument for privatized roads that ongoing choice between competing products in the free market will spur better performance and reduce costs. However, investors in a particular privatization project are looking for profit, not competition. They seek to avoid competition, especially if the project will last for many years, because the threat of competition makes their future revenues less certain. For that reason, investors often demand “non-compete clauses” which, for instance, can restrict the public’s ability to build or upgrade transportation infrastructure near existing private roadways if the state’s structure will compete with the toll revenue on the existing private toll road.

The fact that in Texas private toll road contracts last as long as 52 years means that they create a state-sanctioned monopoly rather than competition among private companies. Private investors additionally seek to use non-compete clauses to eliminate potential competition from the public sector. For example, the contract for SH 130 Segments 5 & 6 in Central Texas includes a non-compete provision that requires that the Texas Department of Transportation (TxDOT) pay Cintra-Zachry for lost profits if state projects reduce toll traffic, such as from the widening or construction of competing roads.

As a result of concerns about these provisions, Texas lawmakers prompted state officials to hold hearings and convene legislative study groups to study private participation in toll roads. In 2008, a report by the Texas Legislative Study Committee on Private Participation in Toll Contracts subsequently explained that non-compete clauses help ensure that private toll road developers will generate a profit on their investments. If such a provision were not included, it explains, the state could easily build a free, competing roadway that would divert traffic from the private toll road and thus decrease the amount of toll revenue collected by the private entity.[2]
Texas lawmakers in 2007 revoked the state’s ability to enter into private toll road deals though several projects already in the works were exempt from what is known as the “moratorium bill” (SB 792). A partial ban on non-compete clauses was also included in the moratorium legislation, along with several other provisions governing the terms of the deals.[3] Unfortunately, the partial ban on non-compete provisions did not adequately protect the public since Texas lawmakers allowed compensation clauses to remain in road privatization contracts.
 
COMPENSATION PROVISIONS & ADVERSE ACTIONS

Rather than outright forbidding the public from promoting competition, road privatization contracts in Texas can instead stipulate that the public must pay steep compensation for the company’s loss of profits. According to contractual provisions in the CDA for the North Tarrant Express, competing transportation facilities may be built at any time by anyone including TxDOT. However, TxDOT must compensate NTE Mobility Partners if the state builds additional lanes within the right of way of the project that reduce the private partner’s revenues or increase their costs.[4] This compensation would add significantly to the cost of construction, limiting funds for other public projects. As an added cost, the exact level of these future payments may be subject to dispute and lawsuits.

Private infrastructure firms protect their profits and limit their exposure to risk by designating a wide range of state actions as potential “adverse actions,” for which they can claim to deserve compensation from the state. The contract for the now bankrupt[5] San Diego South Bay Expressway, gives the private contractor the right to compensation if the state legislature, CalTrans, any administrative body, or voters create a law in any form that leads to acquiring part of the road, negatively affects the private contractor’s rights, or regulates or interferes with its ability to collect tolls. It is also entitled to compensation if any of those results are caused by a court order, decree, or judgment.[6]

These clauses are particularly attractive for investors when long periods of time are needed to recoup costs and become commercially viable. It is understandable why an investor entering into a multi-decade contract with a government would want to limit the state’s power to alter the terms of the agreement or existing opportunities for making a profit by using its powers to legislate or adjudicate. However, these provisions effectively grant private firms governmental powers without adequate levels of public scrutiny or accountability to voters. They elevate private contractors to a quasi-governmental status, giving them power over new laws, judicial decisions, propositions voted on by the public, and other government actions that a contractor claims will affect toll roads and revenues through the life of the contract.[7]

Many compensation events would otherwise be normal governmental functions intended to advance the public’s interests through upkeep of infrastructure or public safety needs. Examples include, inspecting the quality of the roadbed or responding to emergencies. Compensation clauses force officials to view decisions related to these types of situations, which have a direct impact on the public interest, through the lens of what might impair a private operator’s profits. Public officials must consider the contractual constraints much the way an injured person should check their provider health care contract before seeking medical action. Even basic maintenance can create situations under which a government entity owes compensation to private contractors.

The complex legal analysis required to interpret compensation clauses produces an additional burden on state and local governments. Contracts can run more than a thousand pages largely because companies stipulate so many ways to insulate themselves against the risks of other public actions. The contract for SH 130 Segments 5 and 6 is more than 1100 pages long.[8] The contract for just the first 3 segments of the North Tarrant Express, a 13-mile project in the Dallas-Fort Worth metroplex, is more than 600 pages long.[9] Many of the terms have special meanings that require referring to the contract’s lengthy definition section. Such is the prevailing practice, and as “legal terms of art they are also highly subjective concepts. Thus, contract terms that are included to provide the contractor with certainty that it will receive its anticipated revenue create new uncertainties for the government and the public."[10]

As an added complication, the exact level of these future payments might be subject to dispute and lawsuits. To avoid being completely at the private operator’s mercy, the state must hire additional accountants and lawyers to defend the public purse from these claims.
An odd variant of the compensation clause provides incentives to the government, but in ways which are not necessarily good for the public. For example, some privatization deals include monetary incentives for the state to divert traffic to toll roads or decrease safety standards in an effort to boost profits. The Texas contract with a consortium led by Cintra for SH-130 Segments 5 and 6 contains “revenue-sharing provisions” that provide incentives for officials to raise the speed limit on the private road. For example, TxDOT would get an extra $67 million if the speed limit were 80 mph. If the state raises the speed limit to 85 mph, that premium rises to $100 million.
The logic is that a faster speed limit will draw more toll-paying drivers to the road and thus increase Cintra's revenue.[11]
 
LACK OF TRANSPARENCY
Given the profound implications of road privatization, no deal should be approved if the public lacks meaningful opportunities to review, question and comment upon it. Public transparency helps check that private and political interests do not enrich themselves at public expense and that proper procedures are followed. The public needs to have both raw information and also analysis written in language they can understand about the value of a proposed contract, which depends on forecasts for income, expenses, and other factors. Transparency should continue even after a deal is signed to show how much toll and other revenue a company receives, how much it is investing in future repairs, and how much is being charged for compensation events.
Texas legislation does not require transparency in private toll road projects, such as making proposals available to affected communities in an understandable manner. Despite the fact that private road contracts can last 52 years, there is no way for the public or even most state officials in Texas to verify, review or comment on the revenue predictions in order to ensure the public is getting a good deal. In fact, Texas law stipulates that many important terms of private toll road contracts such as revenue predictions may not be released to the public until after the contract has been finalized and the public has been locked into the deal. The state’s refusal to provide information has typically been justified on the basis that private road builders and operators regard their own analysis and proposals as “proprietary” business secrets The public’s interest in preventing a bad deal and bad implementation of a deal should trump the interest to retain these proprietary secrets.

In 2011, during the 82nd Legislative session, lawmakers pushed through a number of road privatization projects by adding them to a long, complex bill. This process discouraged public debate over traditionally controversial legislation and enabled some lawmakers to pass contentious transportation policies without much scrutiny. Furthermore, key lawmakers misrepresented the deals to their constituents, to the public at large and to their colleagues. Cloaked in the guise of local options for districts and counties facing transportation shortfalls and stagnate revenues, the private toll road projects authorized in bills passed during the 82nd Legislative session were nothing more than the same taxpayer-backed schemes that all Texans will subsidize and many Texans have protest for the past decade. As a result, the taxpayers of Texas will be saddled with billions of dollars of debt, which they will pay off through rising tolls for half a century, tolls that are not collected for public use or future reinvestment into the state's infrastructure needs.

Excluding the public from negotiations makes it easier for the process to become dictated by the interests of private contractors. Public officials representing the citizens of Texas in these negotiations may be more concerned with simply sealing the deal than whether or not the deal is in the best interest of Texas‟ taxpayers. After all, many of the problems that will emerge from a bad deal will not occur for many years, at which point the officials involved in the original negotiations may no longer serve in the public sector and the many long-term consequences the public will find themselves burdened by will never be traced to their failings. Public officials can only effectively demand adequate information and negotiate successfully on the public’s behalf if rules mandate that information must be publicly disclosed and the negotiation process is structured to serve the citizens.
 
CONCLUSION
Transportation policy should be made according to what is best for the public not conditioned by specific corporate interests. Non-compete clauses and adverse action events in privatization agreements give private contractors power over decisions that affect the public interest and are normally made by public officials and subject to oversight, disclosure, and accountability—none of which apply to private contractors.[12] Although public officials approving these agreements may seek to develop new transportation assets that will serve the public, private toll road contracts instead tend to hinder the state’s responsiveness to the needs of the public. These agreements can constrain the state’s options for addressing critical infrastructure problems and public needs for generations.

State and local governments must weigh the numerous long-term risks of bad road privatization deals against the potential upsides. Texas officials must ensure that the needs of the citizens of Texas come before the needs of any other special interest or investment entity. They must insist on the strongest possible public protections to protect public assets, ensure that transportation policy remains in the hands of the public and negotiate all privatization deals with the utmost transparency. Once the public has been given full information and the opportunity to weigh in, state officials must move to engage in truly open and honest dialogue about the long-term effects of privatization deals before leaving the consequences to their grandchildren.
 
 

[1] Elliott D. Sclar, “The Political-Economics of Private Infrastructure Finance: The New Sub Prime,” Paper Prepared for Annual Meeting Association of Collegiate Schools of Planning, Crystal City, VA: 2009.
[2] Report of the Legislative Study Committee on Private Participation in Toll Projects, December 2008, available at http://www.senate.state.tx.us/75r/senate/commit/c820/SB792Report.pdf.
[3] See Senate Bill 792, Sec. 371.103. PROHIBITION AGAINST LIMITING OR PROHIBITING CONSTRUCTION OF TRANSPORTATION PROJECTS.
[4] Maribel P. Chavez, P.E., Public Hearing Presentation by NTE Partners, 17 April 2009, available at ftp://ftp.dot.state.tx.us/pub/txdot-info/ftw/nte_presentation.pdf.
[5] Steve Schmidt, “Toll Road Operator Files for Chapter 11 - South Bay Expressway Use below Forecast,” San Diego Union-Tribune, 23 March 2010.
[6] Fed. Highway Admin., Agreement Review: South Bay Expressway (SR 125), Sept. 2005, available at http://www.fhwa.dot.gov/ipd/p3/agreements/sr125.htm. Quoted in Ellen Dannin, “Crumbling Infrastructure, Crumbling Democracy: Infrastructure Privatization Contracts and Their Effects on State and Local Governance,” Northwestern Journal of Law and Social Policy 6, no. 1 (Winter 2011)(6 Nw. J.L. & Soc. Policy 47): note 98 at 58.
[7] Dannin, supra, at 65.
[8] See Comprehensive Development Agreement for SH 130 Segments 5 & 6, available at http://www.txdot.gov/business/partnerships/sh_130.htm.
[9] Ibid.
[10] Dannin, supra, at 24. Referencing Pennsylvania Turnpike Contract Definition § 6 (2008).
[11] 11 Ben Wear, “Flap over speed limits in Trans Texas Corridor Repeal,” Austin American-Statesman, 17 April 2011.
[12] Dannin, supra, abstract.

Taxpayers to pony-up $7 million Euros to private toll operator

Link to article here.

Think public subsidies on the front end of these toll deals are bad, look what's happening on the public private partnerships (P3s) in Ireland. Not only are the Irish being gouged through property tax and toll hikes to pay for these projects, now they're paying the private operators more subsidies if they don't turn a BIG enough profit. These roads are already turning a profit, but the private interests are guaranteed a handsome profit, and whether the traffic shows up to pay them or not, they forcibly extract the money from unwilling taxpayers through P3s contracts signed by our public officials and bought-off politicians. Public money for private profits.

Taxpayers to stump up €7m to private toll-road operators

Fianna Fáil's ‘minimum payment clause’ means millions to be paid to operators annually for decades to come

Date: 10 April 2012

SEVEN MILLION EURO of taxpayers’ money will be handed over to two private toll road operators by the Fine Gael/Labour Government because there’s not as much traffic as they’d expected and despite the toll roads continuing to operate at a profit.

The two roads in question are the Limerick tunnel and the M3 motorway in Meath.

Sinn Féin Meath-West TD Peadar Toibín grilled Transport Minister Leo Varadkar in the Dáil earlier this year asking him why “County Meath residents are being forced to pay twice for the M3 firstly, through the increased toll on the M3 and secondly through income taxes that help service the subsidy paid to the private owners of the motorway?”. The minister responded saying there was “limited scope” to renegotiate the contracts.

If the contracts between the NRA and the toll companies are not renegotiated then taxpayers could be forced to pay out millions in subsidies each year for decades to come as the contracts do not expire until 2035 in the case of the Limerick Tunnel and 2052 for the M3.

Sinn Féin Transport spokesperson Dessie Ellis TD told An Phoblacht:

“This is an example of the disaster that has been Public Private Partnership.

“It is an outrage that hospitals beds are closing and €7million, an increase on last year, is being spent subsidising a company paid handsomely for a job they continue to charge motorists for daily.”

© 2012 An Phoblacht.

Tolls coming to Hwy 288 in Pearland

Link to article here.

This story also fails to inform the public that a controversial public private partnership (P3s) toll contract is being contemplated for this project. We've spoken to the folks in Brazoria County and they don't want their sovereign public roads being ceded to private corporations whom they cannot hold accountable for toll tax rates. In fact, just last year at a Tea Party meeting where TURF spoke about the 82nd legislative session, a county commissioner tried to allay public opposition to tolls on Hwy 288 by stating it would be a LONG time before tolls would ever be put on Hwy 288, yet a year later, here it is.

Toll lanes may soon be coming to Highway 288

Friday, April 06, 2012
 


Deborah Wrigley

HOUSTON (KTRK) -- There's finally talk about adding toll lanes on Highway 288. It's a proposal that's sure to excite a lot of folks who live in Pearland. We're talking about toll lanes from Highway 59, all the way down to near the Brazoria County line, so down to the Beltway area.

It is three lanes in each direction -- north and south that link Harris and Brazoria counties, carrying tens of thousands of commuters to and from Houston each workday. But during rush hours...

"Scary, it is; have to slam on brakes," said Crystal Meredith, who commutes from Pearland.

Since Pearland began growing, there's been talk about putting in a toll road on Highway 288. Harris County had the option given to it by the legislature, but in recent years, it didn't have the money to build it. Under the plan, the county will forego that option and the state would do the job.

"If you just look at 288, it was designed from the beginning to be able to have the toll lanes down the middle, so I think the state can move fairly quickly," Harris County Judge Ed Emmett said.

And yet, the toll lanes couldn't cross the Brazoria County line just outside the Beltway because that county has first claim on building a toll road, but no toll road authority. It also has property owners tired of tall he traffic on the only freeway in town. It's enough that one homeowner is considering moving.

"Matter of fact, the thought has crossed my mind going a little farther that way," said Dennis Meredith, who commutes from Pearland.

 

(Copyright ©2012 KTRK-TV/DT. All Rights Reserved.)

MoPac toll project to profit off DOUBLE TAXATION


Link to article here.

First MoPac was to become a privatized toll project, fraught with problems like loss of sovereignty over public infrastructure, punitive toll rates in the hands of unaccountable private interests, non-compete agreements, and granting a state-sanctioned monopoly to a corporation without competitive bidding. Now, Austin transportation boards want to take TAX dollars to expand MoPac, but still charge tolls for a road that would already be paid for with TAX money! So it's cede the road to a private corporation or get DOUBLE TAXED, these are not options. Fix MoPac and keep it a FREEway!

MoPac loan deal gets tentative nod

By Ben Wear
Updated: 5:14 a.m. Tuesday, April 10, 2012

Local transportation officials made a preliminary decision Monday night to direct most of a $136.6 million windfall to the MoPac Boulevard express lane project.

But the Capital Area Metropolitan Planning Organization board, anxious to have money for future Interstate 35 projects, conditioned its support for a final June vote on exacting better terms for what amounts to a loan to the local toll agency building the project. The board's executive committee will negotiate final terms of an agreement with the Central Texas Regional Mobility Authority.

Last week the authority suggested that the Texas Department of Transportation money be channeled to the toll agency's pending project to add a lane to each side of MoPac from Lady Bird Lake to Parmer Lane. They suggested that the agency could pay the money back over 22 years at 3 percent interest to the board, which would then use the money for other projects.

But Monday, some planning organization board members suggested that interest rate is too low, and the payoff too slow. Mike Heiligenstein, executive director of the mobility authority, said the agency welcomes discussion of changes. Final terms will be worked out in the coming weeks before a May public hearing and a final vote June 11.

The new lanes would be open only to those paying tolls, transit buses and emergency vehicles, and would have fluctuating tolls to keep congestion down and speeds reliably up in those lanes.

The authority has said the project would cost about $250 million. But that estimate was based on borrowing the bulk of the money on the bond market and thus included money to cover early debt payments and other bond requirements. Officials said that with the new cash from TxDOT, the project could be built for about $200 million and probably be commenced six months earlier than planned.

The project would fit criteria that top TxDOT officials outlined for distributing $2 billion in cash that the agency recently said was newly available. Primarily, the department requires projects ready for construction, or nearly so, because of a September federal deadline for deciding how to disburse the $2 billion, and that would address traffic tie-ups on the state's 100 most congested highways.

North MoPac is No. 35 on that list, according to planning organization documents. The project should get final environmental clearance by August, and the bidding process for final design and construction could begin later this week, Heiligenstein said.

_________________________________________________________________

Link to article here.

MoPac express toll lane project could get $137 million TxDOT windfall

By Ben Wear

AMERICAN-STATESMAN STAFF

Updated: 9:46 p.m. Monday, April 2, 2012

Published: 8:59 p.m. Monday, April 2, 2012

The MoPac toll lane project could get an additional $136.6 million from the Texas Department of Transportation, money that officials say would accelerate the start of the project by at least six months.

Under the proposal, the Central Texas Regional Mobility Authority would pay back the money at 3 percent interest over the next 22 years to the Capital Area Metropolitan Planning Organization, which would then parcel it out to other area road projects.

The unusual arrangement would secure highway money for the area that TxDOT might otherwise direct elsewhere in the state because of tight federal deadlines. This approach, mobility authority officials said Monday, could save the agency tens of millions of dollars in interest and other costs associated with borrowing money through the bond market.

But it also presents a public relations problem as the CAMPO board, which is made up of local elected officials, would be abetting the mobility authority as it charges tolls on a road that essentially would already be paid for.

Combining the new money with $70 million in taxpayer funds that TxDOT already committed to the project would mean that the added toll lanes on each side of MoPac Boulevard (Loop 1) would be built with cash.

Toll projects typically involve a substantial amount of borrowed money, which is then paid back by the tolls from drivers. Under this scenario, the toll money would all be profit initially, other than the relatively low percentage needed to cover operating costs.

Mobility authority officials said the terms are still in flux. "We've just thrown something very general on the table to open discussion," mobility authority Communications Director Steve Pustelnyk said. But the agency would be incurring debt in the formal of a written agreement with the governing board of CAMPO.

To meet federal and TxDOT deadlines, CAMPO Executive Director Maureen McCoy said, the CAMPO board would have to act on the MoPac proposal or an alternative by mid-June. The federally created agency creates Central Texas' long-range transportation plan and has some direct authority over distributing money.

"It's as if it were a mortgage," said Mike Heiligenstein, executive director of the mobility authority.

He added that the 3 percent suggested interest rate is half or less of what the agency would pay bond investors for an added fourth "express" lane on each side of MoPac from Lady Bird Lake to Parmer Lane.

The tolls on these lanes will have a second purpose. The mobility authority plans to make toll rates fluctuate minute-by-minute, charging more as the lanes begin to see congestion. Higher tolls at those time would, in theory, discourage some potential users and thus ensure that speeds remain at 50 mph or more in the express lanes for cars and Capital Metro buses.

The money became available several weeks ago when TxDOT's executive team determined that it had about $2 billion more for road projects that previously thought. About $750 million of that is federal funding, however, with a deadline of Sept. 30, the last day of Uncle Sam's current fiscal year. By then, TxDOT must decide which projects meet federal readiness criteria.

The TxDOT hierarchy has said it wants the money spent on a few large projects, preferably on the state's 100 most congested roads, McCoy said.

The Austin area is conspicuously short of such projects teed up for development. The exception is the MoPac express lane project, which is nearing the end of a federally required environmental assessment.

Officials expect to get approval of that document as soon as August, and that would trigger a six-month period in which approval may be challenged in court.

If the mobility authority were to borrow the bulk of the money on the bond market, it probably would have to wait until that lawsuit window has closed. But if the project is built purely with TxDOT funds, then the mobility authority might be able to begin construction during or shortly after that six-month period.

Heiligenstein said finding contractors to do the final design and build the project has just begun. He said construction could start as early as summer 2013. Earlier estimates had work beginning in 2014. Construction should take about two years.

If Austin misses the Sept. 30 deadline, officials said, that doesn't mean that the 11-county Austin district of TxDOT would forfeit rights to its share of the $2 billion windfall. The money would in effect be lent to other parts of the state, which would then owe the Austin district like amounts of future funding.

But officials said that the vagaries of TxDOT finances could mean a loss of some of Austin's share, or at least a delay in getting it, once the money leaves the area.

"The (CAMPO) board didn't seem very enthused with that option, and I don't blame them," said Carlos Lopez, TxDOT's Austin district engineer.

Are states making a mistake by privatizing roads?

Link to article here.

Yet again, a state should NEVER give up state sovereignty over public infrastructure as a quick fix to bail out politicians' financial messes and failure to make road funding a priority and failure to keep their mitts off road taxes. Politicians habitually raid road taxes for non-road purposes then come to gridlocked commuters and want to force them to pay more to get out of congestion.

Public private partnerships (P3s) are the most expensive, most anti-taxpayer, sovereignty-destroying way to do toll roads. Gov. McDonnell ought to take a page out of the playbook of Gov. Nathan Deal in Georgia -- it's not worth selling-off state sovereignty to get a road built. Under NO circumstances should the profit margins of private corporations supercede the public interest! P3s put taxation in the hands of corporations whom the public cannot hold accountable for out of control taxation. They also grant state-sanctioned monopolies to private interests who then control public infrastructure for a half century or more!

More states privatizing their infrastructure. Are they making a mistake?

By Brad Plumer, Washington Post

Published: March 31 | Updated: Sunday, April 1, 8:00 AM

Joe Raymond/Associated Press Is this the future of transportation? Say you’re a state politician. Your local roads, bridges, and transit systems are all in dire need of upgrades. But there’s not much money left. Budgets are crunched. No one wants to raise taxes. And Congress is throttling back on transportation funding. So what’s left? Privatization, of course.

Maryland is the latest state looking to join the fray. At the moment, its legislature is mulling a bill that would encourage the government to seek out private companies to build, operate, and maintain the state’s roads, bridges, and public buildings. Virginia adopted this approach nearly a decade ago. And a growing number of states — from California to Florida — have been bringing in private capital to bankroll their transportation needs. But is privatizing infrastructure really such a good idea?

There are two main ways for a state to bring in private money for transportation. The first is to sell off assets that have already been built. This is what Indiana did in 2006, under Governor Mitch Daniels, when it leased its 157-mile Indiana East-West Toll Road to an international consortium of investors for $3.8 billion. The private companies have agreed to operate and maintain the roads for 75 years. In return, they get to hike the road’s tolls each year — by either 2 percent, the inflation rate, or the increase in GDP, whichever is higher.

While advocates claim that the private sector can operate these toll roads more efficiently, the major appeal of these moves is to solve short-term budget crunches. Essentially, state officials are giving up a source of revenue that’s spread out over a number of years — in Indiana’s case, tolls — and receiving a lump of cash upfront. “You might get less money overall, but you get it upfront, so that officials can go build the things they want to build,” explains Joshua Schank, the president of the Eno Center for Transportation. What’s more, the private firms are the ones that take the heat for raising fees and tolls, instead of nervous politicians.

Yet these sales can be controversial. The deals are frequently complicated and it can be difficult to assess how good a bargain the states are actually getting. Daniels has called the Indiana Toll Road transaction “the best deal since Manhattan was sold for beads.” Yet residents are still discovering surprises in the 600-page agreement — as when Indiana had to reimburse the operators for lost revenue after waiving tolls for safety reasons during a 2008 flood.

The other way to privatize infrastructure is to have a private firm take charge of building a road, bridge, or transit system from the start. From a global perspective, this isn’t a radical idea. Countries like France, Spain, and Australia have long harnessed these public-private partnerships to build their highways and rail lines. “Compared to other countries, we’re way behind on this,” says Schank. (Indeed, that’s why the large firms that handle these public-private contracts are often European — foreign companies have all the expertise.)

Here’s how this setup would work. Say a state wants to build or upgrade a highway. Various private companies will bid for the project, and the winning bidder has to raise enough money from outside investors to design, operate, build, and maintain the highway for a fixed number of years. The firm is allowed to recoup its costs through tolls and the like over that span. Because the private company is on the hook for the whole thing, it has an incentive to keep costs as low as possible and finish the road on time.

“The idea here,” says Robert Poole of the Reason Foundation, “is that the government is only commissioning projects where the private sector is willing to put its skin in the game.”

There’s some evidence that privately operated infrastructure projects can get built more quickly — and for less money — than projects wholly overseen by the government. One 2007 study (pdf) from Allen Consulting and the University of Melbourne looked at 54 large infrastructure projects in Australia and found that the privately financed ones had smaller cost overruns and were more likely to be finished on schedule than those financed through traditional public-sector methods.

Virginia, for one, has found that such partnerships can offer a way to get around funding logjams. For years, the Virginia Department of Transportation has wanted to relieve congestion on the I-495 Capital Beltway. But the state’s preferred plan involved adding two carpools in each direction on the most congested portions — at an unpalatable cost of $3 billion. Then, in 2004, the state was approached (pdf) by two companies, Fluor and TransUrban, that offered to raise private funds to add two high-occupancy toll lanes in each direction, and do it in a sleeker way that wouldn’t require as much widening of the Beltway. In the end, Fluor-TransUrban is planning to do it for a mere $1.4 billion, and the electronic toll system is set to begin later this year.

“No bureaucratic provision was a problem for them,” Ron Kirby, transportation director for the Washington Area Council of Governments, noted of Fluor in a recent issue of Public Works Financing. “It was ‘Tell me the issue and I’ll figure out a way to solve it.’”

But before getting too excited about the magical powers of private firms, experts warn that there are potential pitfalls to these arrangements. For one, as Robert Puentes of Brookings noted in a recent paper (pdf), these are complicated multi-decade financial arrangements. And “many states,” he notes, “lack the technical capacity and expertise to consider such deals and fully protect the public interest.” For another, the deals need to be structured wisely — in Maryland, for instance, Republicans have warned that certain provisions in the pending Senate bill could allow the government to circumvent the competitive bidding process. (The bill itself does, however, create several layers of review.)

Moreover, a road that’s privately owned for 75 years has the potential to conflict with other public-policy goals. For instance, as a recent GAO report (pdf) found, four of the five privately-funded toll road projects in the last 15 years included non-compete clauses that prevented the government from building nearby roads. As Tim Lee notes, “real-world privatization schemes are often explicitly protectionist.” So what if a state, say, later decides that it wants to build a rail network that competes with the private road? All sorts of complications could arise.

Plus, privatization can’t work everywhere. “It’s not a universal tool,” says Jonathan Peters, a professor of finance at the College of State Island who has studied these partnerships. There are plenty of roads in states like Montana, for starters, that don’t pay for themselves and would be unappealing to private investors. There are ways around this — Madrid, for one, built its subway system by offering formula-based subsidies to private firms, which still bore the risk of a shortfall in rider demand — but it’s trickier. Few transportation experts think we can fill our multi-trillion-dollar infrastructure shortfall with private money alone.

Still, as many states find themselves scrounging under sofas for cash, privatization may prove increasingly appealing. And drivers, at least, sometimes appear more receptive to paying for roads via tolls, where it’s obvious what the money’s going toward, than via gas taxes. “The lack of revenue,” says Peters, “is really forcing people to consider these options more seriously.”

Toll meltdown in Virginia

Link to article here.

More DOUBLE TAXATION and Robin Hood financing schemes being contemplated by lawmakers against the taxpayers of Virginia. Public private partnerships (P3s) are the most expensive, most anti-taxpayer, sovereignty-destroying way to do toll roads. Gov. McDonnell ought to take a page out of the playbook of Gov. Nathan Deal in Georgia -- it's not worth selling-off state sovereignty to get a road built. Under NO circumstances should the profit margins of private corporations supercede the public interest! P3s put taxation in the hands of corporations whom the public cannot hold accountable for out of control taxation. They also grant state-sanctioned monopolies to private interests who then control public infrastructure for a half century or more! There is no 'softening' a P3 to make it acceptable enough, scrap it and let the State build it!

Midtown Meltdown

Posted on March 30, 2012 by James A. Bacon| 6 Comments


by James A. Bacon

Bacon's Rebellion blog

The controversy over tolls on the $2.1 billion Midtown Tunnel/Downtown Tunnel project in Hampton Roads is spreading statewide as transportation advocates in other parts of Virginia ponder the implications of what it means for them. In a missive distributed yesterday Robert Chase, president of the Northern Virginia Transportation Alliance, warned that one “rumored” scenario under consideration by House-Senate conferees would be to renege on the $2.1 billion public-private partnership agreement with Elizabeth River Crossings (ERC), even if it meant triggering multimillion-dollar penalties.

Hampton Roads legislators are up in arms over the deal, which would slap tolls on users of the two tunnels and the Martin Luther King Expressway later this year in order to finance major improvements that aren’t scheduled to be complete for two years. Two weeks ago, the Virginian-Pilot reported, Del. Chris Jones, R-Suffolk, was researching how the contract could be terminated as an option of “last resort.”

If Chase is correct, Jones’ idea has morphed from a research project into an option under consideration by House and Senate budget conferees in Richmond. Jones, as it happens, is one of the six House conferees, as is Johnny Joannou, D-Portsmouth, whose district is at ground-zero of the controversy. Under the Jones scenario, writes Chase, the state “would legislatively scrap the $2.1 billion Hampton Roads Midtown-Downtown Tunnel PPTA contract and mandate that only a new Midtown Tunnel be built entirely with state funding through over $1 billion in federal GARVEE financing.”

Needless to say, that idea won’t play well in Northern Virginia, or anywhere else for that matter. Conferees are weighing the idea of providing an additional $300 million, plus $150 million already agreed upon, to defray the cost of the Rail-to-Dulles METRO rail project in Northern Virginia, but half or more of that project financing still will be paid by commuters on the Dulles Toll Road. It’s an open question how NoVa lawmakers will cotton to an arrangement that extracts $4 tolls from Dulles Toll Road commuters for a rail service they aren’t even using while Norfolk commuters get a new tunnel for free.

Notes Chase:

Scrapping the PPTA deal would mean breaking a legally binding contract with the consortium, incurring financial penalties  and totally circumventing the Commonwealth Transportation Board/state and local planning and approval processes. Not a real private-sector confidence builder for a state with virtually no construction dollars desperate to attract private sector investment. …

Virginia has already committed $400 million to the Downtown/Midtown/MLK Extension project to buy down tolls. To provide the total $1 billion (and allow Hampton Road residents a toll-free trip) the Commonwealth would have to add another $600 million in GARVEE funds or essentially all of the $1.2 billion in authorized GARVEE bond funds for the next 10-12 years to a single Hampton Roads project. (GARVEE bonds are repaid from future federal revenues meaning that about $100 million/year in future federal revenues will go to a single Hampton Roads project as opposed to being leveraged across many throughout the state.)

Transportation officials say that this would most likely kill Northern Virginia’s I-95 Express HOT Lanes project for which GARVEES are targeted and potentially several others including the Route 7/Belmont Ridge Road Interchange and the Leesburg Bypass/Sycolin Road interchange.

In sum, scrapping the ERC contract would derail the McDonnell administration’s entire transportation grand strategy, which is based upon leveraging the borrowed dollars through public private partnerships. Accordingly, the chances of the governor going along with the Jones scenario are just about zero. I would conjecture that Jones doesn’t really want to un-do the ERC deal, he’s just using the prospect of disaster as leverage to extract enough money from the state to offset tolls until the tunnels are built.

Two lines of argument would support such a bid. First, it is entirely unreasonable by any standard to ask people to pay tolls for transportation improvements they are not using. (Admittedly, that argument didn’t work for Dulles Toll Road commuters, so it may not be a strong one.) Second, if the state is forking out up to $450 million for the Rail-to-Dulles to provide toll road relief, it’s hard to argue that it can’t afford a measley $100 million or so for Hampton Roads.

Whatever happens, Virginia has reached a sad state of affairs. Billions of dollars of bond proceeds are sloshing around uncommitted. The monies are not subject to the usual transportation formulas which, though flawed, at least ensure that funds are distributed around the state in a manner roughly approximating population and need. The criteria for allocating bond monies, it appears, will be he who screams the loudest gets the most money. Political considerations will supplant economic considerations, and the results will be sub-par.

Welcome to the New Dominion.

Update: Here’s another reason why the Jones scenario of cutting the cost by building just one tunnel won’t work: The improvements to the Midtown Tunnel, Downtown Tunnel and Martin Luther King Expressway are designed to work as a network. The MLK Expressway will funnel a lot of drivers off the Interstate to the two tunnels, according to my source. The plan is to provide up-to-date info about driving conditions at both tunnels to commuters on the MLK, by signs or other means, to steer them to the least congested facility. Building the  components of the plan one by one won’t deliver the same congestion-mitigation benefits.

________________________________________________________________

Link to article here.

Gov. McDonnell now open to delaying tunnel tolls
By Debbie Messina

Virginian-Pilot

April 3, 2012

Gov. Bob McDonnell is considering delaying toll collections on the Midtown and Downtown tunnels, plus other undisclosed measures to soften the impact of a public-private deal that could otherwise collect tolls as early as July 1.

The administration has agreed to an amendment in a public-private partnership deal that makes postponing tolls possible.

"The amendment was negotiated with our private partner, Elizabeth River Crossings, because the governor wanted the ability to possibly delay the collection of tolls from the public," according to a statement from the governor's office. "This, as well as other initiatives, are currently under evaluation by the administration."

It indicates a shift in position. Last week, the governor's office said: "Altering this binding contract at this point would result in significant financial costs to the Commonwealth and would compound longstanding congestion issues in the region."

Last week, the administration also claimed that a toll delay would violate contract law.

Ultimately, the final decision whether to postpone tolls will be negotiated by the governor and the General Assembly. A delay would cost the state money, which would have to be appropriated by the legislature.

The $2.16 billion deal with ERC - to build a second Midtown tunnel, improve the existing Midtown and Downtown tubes and extend the Martin Luther King Freeway to I-264 - has sparked local outrage and prompted some lawmakers to try to undo the contract altogether.

A provision to postpone tolls until January 2014 was pushed through the Senate version of the budget last week by state Sen. Louise Lucas, D-Portsmouth. It did not make the House version and is now part of budget negotiations.

The amended contract with ERC allows toll postponement up until substantial completion of a second Midtown tube. It states that the Virginia Department of Transportation and ERC "will collaborate with each other to explore strategies for postponing the commencement of the imposition, collection and enforcement of tolls."

It also says the state would have to pay ERC for the lost revenue. Lucas had indicated that would be an estimated $125 million if the tolls were delayed until January 2014. During construction, about $350 million is expected to be collected in tolls through 2016, according to VDOT.

Lucas said of the governor's new position: "I am extremely happy to hear that information for as hard as we fought for the people of Hampton Roads, and Norfolk and Portsmouth particularly."

But not all lawmakers are happy.

"So we'd borrow money to pay a private concern to delay tolls?" questioned Del. Chris Jones, R-Suffolk. "This is not a good deal as it's structured."

Jones wants the scope of the project as well as the profit allowed to ERC dialed back in order to lower tolls.

Del. Kenny Alexander, D-Norfolk, said he appreciates the governor has "softened up a little bit," but added: "Postponing the inevitable is not good enough.... The whole deal is still flawed and needs revisiting."

He said the $1.84 rush-hour toll level and the fact that it can increase by 3.5 percent or more every year is troublesome. He also dislikes that the state may have to pay ERC for lost revenue if a competing water crossing is built.

Alexander and some Portsmouth residents have hired Richmond attorney Patrick McSweeney to wage a legal battle against tolls. Collecting tolls four years in advance of project completion is one of the challenges in the lawsuit, which has yet to be filed.

"The governor and administration probably determined they could not win that one," Alexander said.

Delaying tolls, he said, "will only strengthen our position because they're starting to make concessions on what we're arguing."

Meanwhile, Lucas said the prospect of toll relief doesn't resolve the broader road funding debate. Delaying tolls gives the General Assembly "the opportunity to sit down and have an adult conversation" about how to pay for the upkeep of existing roads and building new ones, she said.

The senator favors increasing Virginia's 5 percent sales tax by 2 cents and tying increases in the state's 17.5 cent per gallon gas tax to inflation. Lucas suggested she'll propose legislation to do that.

"I'm not saying people are going to be happy with it, but I know people aren't happy with tolls," Lucas said.

Pilot writer Julian Walker contributed to this report.

Debbie Messina, 757-446-2588,  This email address is being protected from spambots. You need JavaScript enabled to view it.

Texas increases speed limits to 80 MPH

Link to article here.

The most disturbing reason for this change in speed limits is what we warned the Texas Legislature of in 2011 -- this is about maximizing toll revenues for a private, foreign corporation, Cintra, as well as the State of Texas. Both our lawmakers and TxDOT are making transportation decisions based on profit potential, not public safety. It's no secret that the traffic levels on SH 130 have been abyssmal, and TxDOT has been searching for ways to boost the number of cars that take the toll road, even lowering toll rates 67%! But this move to increase speed limits is based solely on the prospect of a higher share of toll revenues TxDOT will split with Cintra when its two segments of SH 130 open later this year. Details are in the public private partnership contract linked in the story below.

Texas Expands 80 MPH Speed Limit
Texas toll roads to post 80 MPH speed limits.

80 MPHRoads nationwide are getting faster. States around the country have been experiencing record low fatality rates, despite posting speed limits, in some cases 25 MPH faster than the Double Nickel limit imposed in 1975. That has encouraged jurisdictions to continue boosting the legal maximum.

Currently, the top speed crown belongs to Texas and Utah, each of which post 80 MPH on select highways. The Lone Star State adopted the top limit in 2008, but only on rural sections of Interstates 10 and 20. Last week, the Texas Transportation Commission decided that speed studies justified raising the limits on fifty-six miles of the State Highway 45 and State Highway 130 toll roads near Austin.

"The Texas Department of Transportation [TxDOT] has conducted the prescribed engineering and traffic investigations to determine reasonable and safe prima facie maximum speed limits for those segments of the state highway system," the commission order stated.

The new speed takes effect once updated signs are posted. The National Motorist Association has been lobbying lawmakers to boost their limits to better reflect speed at which drivers are traveling. There has been no downside to changing the number on the sign upward.

"The trend by several states to raise selected speed limits recognizes the proven engineering principle that the safest, most efficient patterns are established by letting traffic flow freely at its natural pace," NMA President Gary Biller told TheNewspaper. "Despite drumbeat calls by insurance industry backed groups to lower the speed limits back to 55 MPH, our highways have never been safer. The national highway fatality rate has declined by more than 36 percent, according to NHTSA."

TxDOT's contract with the Spanish and US companies that own the toll routes presumes the higher limit will make the road more attractive and valuable. Had the limit not been raised, TxDOT would have had to lower the speed limit on I-35 near where it runs parallel to SH130 or face an significant financial penalty (view contract excerpt). These non-compete provisions are designed to keep bondholders happy at the expense of other motorists. Following the same principle, the Maryland Transportation Authority is currently conducting studies to raise the speed limit on the Inter County Connector toll road.

A copy of the Texas Transportation Commission's order us available in a 75k PDF file at the source link below.

Source: PDF File Minute Order 113072 (Texas Transportation Commission, 3/29/2012)

Cato scholar re-thinks toll roads in light of restrictions on freedom of travel

Link to article here.

Could it be that the Libertarian think tank, Cato Institute, one of the foremost advocates of privatizing public infrastructure (aside from the Libertarian Reason Foundation) with very anti-taxpayer, anti-property rights deals called public private partnerships, be re-thinking its position in light of reality? I never thought I'd live to see the day...

The Mirage of Free-Market Roads

By Megan McArdle, The Atlantic.com

Timothy B. Lee -- Writer with Ars Technica and the Cato Institute

If you're driving through certain West African countries, you'll be stopped every few miles by armed men--often in police uniforms--who will demand payment in exchange for letting you pass.

I have a somewhat similar experience every time I drive from my home in Philadelphia to Washington, DC. As I'm driving up Interstate 95, I'll periodically be stopped by people in uniforms (thankfully not armed) who will demand money in exchange for letting me through.

Obviously, there are important differences between these cases. In Africa, the roadblocks are mostly illegal and the payments are generally described as "bribes." In the United States, the practice is known as "collecting tolls" and is government-sanctioned. While no single payment in Africa is prohibitively expensive, the accumulation of charges over a long trip sometimes exceeds the value of the cargo being transported, stifling the flow of goods across Africa. In contrast, tolls in the US are mostly low enough to avoid significantly hampering trade.

These two stories illustrate two different ways to think about tolls. One way is as a "user fee" to cover the cost of constructing the road. The other is as a tax on mobility. There's no clear line between the two, but as tolls go up, they begin to look less like a user fee and more like a tax.

The dual character of tolls has important implications for the current debate over road privatization. A variety of metropolitan areas have undertaken ambitious projects to allow private firms to build and/or operate either entire roads or individual lanes, charging motorists tolls to use the land. This trend has been particularly cheered on by libertarians, who see it as a step toward a more general free market in roads.
While I'm generally sympathetic to the idea of privately-managed roads, I've become convinced that the broader vision of "free-market roads" is a conceptual confusion. In the abstract, the idea of competing, privately-owned roads has a lot of appeal. But the more I think about it, the less sense it makes. Roads are deeply intertwined with governments. They always have been and as far as I can see they always will be. This means that they'll never be truly private in the sense that other private companies like restaurants or shoe factors can be.

Assembling the land needed for a long-distance road is prohibitively expensive without government assistance. Unsurprisingly, private roads almost never come into existence without extensive government assistance. And that means that the profitability of a "private" road depends crucially on how many competing roads the government allows to exist.

It's unsurprising, then, that real-world privatization schemes are often explicitly protectionist. A 2004 GAO survey found that four of the five privately-funded toll road projects started or completed in the preceding 15 years included non-compete clauses that restricted the creation of competing freeways nearby. It's much easier to turn a profit when would-be competitors are barred from entering the market.

Supporters of free-market roads point to the experience of the United States and Great Britain in the 18th and 19th centuries as the golden age of private roads, but those roads were only private in a limited sense. This history is detailed in Street Smart, an edited collection published by the libertarian Independent Institute. Daniel Klein and John Majewski write that in the United States, "turnpikes were encouraged by government, sometimes by granting of exisitng trails or public roadbeds to turnpikes, sometimes guarantees against new parallel routes, and typically the granting of eminent domain powers." They write that they "cannot say" whether these privileges were important to the success of these turnpikes.

The basic pattern seems to have been the same for British toll roads. Most toll roads replaced previously-existing public roads; the book doesn't say if the new roads were built with eminent domain or other government privileges. Indeed, after thumbing through the entire 500-page book, I didn't find a single example of a country, now or in the past, where most roads were built using ordinary market transactions. The vast majority of "private" roads, around the world and throughout history, came into existence thanks to direct government assistance.

When a formerly-public road is privatized, the public loses the freedom to travel along a particular route that it previously enjoyed. This is true even when new roads are assembled using eminent domain. The Fifth Amendment specifies that property taken by eminent domain must be put to a "public use." So the public has a greater stake in even most privately-constructed roads than they would for an ordinary private structure. That means that even when they're collected by a nominally private company, tolls are partly a tax on freedom of movement.

To be clear, this isn't to say libertarians should oppose road privatization. To the contrary, private road management can be an excellent way to bring private capital and technical expertise to the provision of a public service. But it is to say that private road operators should be viewed as providing a service to the government, rather than operating an ordinary private business. The public has a right to freedom of movement along public roads, and this right can't be extinguished by transferring physical control of the road to a private firm. And libertarians should demand that private operators of public roads follow the same basic principles--non-discrimination, tolls not greatly exceeding the cost of building an operating the roads--that we'd apply if the government were operating those roads itself.

This article available online at:

http://www.theatlantic.com/business/archive/2012/03/the-mirage-of-free-market-roads/255167/

Copyright © 2012 by The Atlantic Monthly Group. All Rights Reserved.
__________________________________________________________________________

How “Free-Market Roads” Can Restrict Freedom

Joe Carter
posted by Joe Carter on Thursday, March 29, 2012, Acton Institute

In a political climate dominated by debates about individual mandates and restrictions on religious freedoms, an issue like road privatization isn’t likely to be on the top of anyone’s list of major concerns. But the excellent post on “The Mirage of Free-Market Roads” by Timothy B. Lee, a writer with Ars Technica and the Cato Institute, is worth reading even if you don’t care about toll roads. Lee provides an intriguing example of why we need to think clearly about how we apply principles to policy:

While I’m generally sympathetic to the idea of privately-managed roads, I’ve become convinced that the broader vision of “free-market roads” is a conceptual confusion. In the abstract, the idea of competing, privately-owned roads has a lot of appeal. But the more I think about it, the less sense it makes. Roads are deeply intertwined with governments. They always have been and as far as I can see they always will be. This means that they’ll never be truly private in the sense that other private companies like restaurants or shoe factors can be.

Assembling the land needed for a long-distance road is prohibitively expensive without government assistance. Unsurprisingly, private roads almost never come into existence without extensive government assistance. And that means that the profitability of a “private” road depends crucially on how many competing roads the government allows to exist.

It’s unsurprising, then, that real-world privatization schemes are often explicitly protectionist. A 2004 GAO survey found that four of the five privately-funded toll road projects started or completed in the preceding 15 years included non-compete clauses that restricted the creation of competing freeways nearby. It’s much easier to turn a profit when would-be competitors are barred from entering the market.

To be clear, this isn’t to say libertarians should oppose road privatization. To the contrary, private road management can be an excellent way to bring private capital and technical expertise to the provision of a public service. But it is to say that private road operators should be viewed as providing a service to the government, rather than operating an ordinary private business. [emphasis added]

Lee touches on one of the disturbing ironies of modern politics: purportedly “free-market” approaches can sometimes lead to more government involvement and greater restrictions on freedom. Those of us on the right side of the political spectrum have always been wary of government. But it’s refreshing to see that many of us are also becoming more aware of the dangers of rent-seeking behavior by crony capitalists.

Toll road raises civil rights question


Link to article here.

Tolls raising civil rights questions

Updated: Wednesday, 28 Mar 2012, 9:09 PM EDT
Published : Wednesday, 28 Mar 2012, 8:55 PM EDT

By Andy Fox
WAVY.com
Portsmouth, Virginia

PORTSMOUTH, Va. (WAVY) - Budget negotiators spent the day hammering out a compromise that considers an amendment to delay the proposed tolls on the Downtown and Midtown Tunnels .

Monday, Delegate Chris Jones, (R) Suffolk, asked the McDonnell administration to cut back the $2.1 billion road project the tolls would fund. So, WAVY.com went to the neighborhood that would be heavily impacted by Jones' proposed cut.

Jones' plan would remove the Martin Luther King extension from the project, saving $194 million.

"It will be destroyed," resident Paula Boone said. Boone lives near the proposed expansion project which would connect the Midtown Tunnel to I-264 at Frederick Boulevard.

Boone's neighborhood, known as Arcadia Heights, was decimated 50 years ago when I-264 was built, dividing the neighborhood.

With the MLK extension, history would repeat itself.

"The original plan was taking five homes...this is my house, the one I grew up in," Boone said pointing to the homes that would be impacted by the interchange.

After neighbors cried foul, the Downtown-Midtown Tunnel toll plan was changed to take only two of the homes.

Boone was delighted when she heard Jones' request to the Governor's Office.

"I said, 'Great. That's going to be good.' At least I will have my home, and the neighbors will have their homes," Boone said.

Another local leader looking to find another answer for the toll dilemma is Portsmouth Senator Louise Lucas.

Lucas has contacted the ACLU and the NAACP about the impact the tolls would have on the community she serves.

"We may be in violation of the 1964 Civil Rights Act...they seem to think this deserves another look, and that is why they (local members of the ACLU and the NAACP) are going to the national level with it," Lucas explained.

She said the proposed tolls create a wall segregating Portsmouth, whose population is about 59 percent minority.

"Portsmouth is being segregated from Norfolk and Virginia Beach, which is where the jobs are, where medical care takes place, where education takes place at Norfolk State and ODU and places east," said Lucas.

There is also the question of whether acquiring an EZ Pass transponder, which requires credit cards or a checking account, could place an undue burden on Portsmouth's poor and underserved residents.

The Justice Department may also be asked to investigate the VDOT - Elizabeth River Crossings Public Private Partnership.

While how all this will play out is unknown, it is clear the end will not be the easy one Governor Bob McDonnell, Secretary of Transportation Sean Connaughton, VDOT and the Elizabeth River Crossings hoped for.

History of private investment in roads not the same thing as today's hybrid

Link to article here.

To compare a truly private road done in the 1790s with today's public private partnership hybrids that exploit the governmental power of eminent domain, that heist massive sums of public money to subsidize private profits, that put the toll tax rate in the hands of private corporations, that include non-compete provisions that prohibit or penalize the expansion of free routes surrounding the privatized toll roads, and that guarantee profits at taxpayers' expense, just isn't a valid argument in favor of road privatization. The two are NOT the same, the later has already required taxpayer bailouts (South Bay Expressway in San Diego).

_____________________________________________________________________


Friday, 02 March 2012 00:01

Proposed Red Line funding model not a new concept

Written by  Andrew Warfield
Lake Norman Citizen.com

First public infrastructure financed by private investors in the United States began in 1792. The Philadelphia-Lancaster Turnpike lasted more than 100 years.

In a country suffering economic hardship and without the funds to invest in infrastructure, the government turns to the private sector to help pay for road and railroad projects.

Sound familiar? Sure, but the first recorded public-private partnership (or P3, as local commuter rail proponents refer to it) began in 1792, when the nation's first turnpike, the Philadelphia and Lancaster Turnpike, was chartered in Pennsylvania. A new nation had no money to build infrastructure, so the first long-distance broken-stone-and-gravel surface was built, opening the territory northwest of the Ohio River.

The private owner of the road was repaid from tolls. The road literally was blocked by wooden gates, or "pikes," that would be "turned" to open the road after the tolls were paid. Thus the term, "turnpike."

The tollgates were located about every seven miles of the 62-mile road. The turnpike remained in use until the early 1900s.

"Early in the United States, the country didn't have money and relied on the private sector to build infrastructure, including roads and railroads," said Patrick DeCorla-Souza of the Federal Highway Administration's Office of Program Delivery, during an online presentation about P3 projects Feb. 16. The presentation was viewed in the Rotunda at Huntersville Town Center, as well as in other locations, by town planners, elected officials and others studying the Red Line Regional Rail Project proposal.

As discussions about the proposal have continued through the first 90 days of 2012, P3 has emerged as the likely scenario through which the project, if approved by all stakeholders along the Charlotte-to-Mooresville corridor, could be built. A combination of state funding and local transit tax money, along with private investment — repaid by special assessment district fees and tax-increment financing — would fund the estimated $452 million to upfit the track, purchase trains, build passenger stations and complete related road improvements along the 25-mile commuter and freight rail project.

It's a term that will be used more frequently here as well. Studies are currently under way to employ the P3 model for the widening of I-77, and a form of P3 is being used for the completion of I-485. In that project, the contractors are actually financing the project for the state, with the promise of repayment plus interest when the funds were originally scheduled to be available. This allowed the project to move up years on the calendar rather than waiting for the state's funding schedule.

'Infinitely financeable'

Among other meetings — and set against the backdrop of a recent letter from Norfolk Southern Railroad outlining its concerns with the project, which would utilize its rail bed — those discussions continued on Thursday, Feb. 23, with a P3 workshop at Huntersville Town Hall. At that meeting, Mark Briggs of Parsons Brinckerhoff, a consultant to the North Carolina Department of Transportation, produced a list of potential private entities from which he expected proposals to be generated if the project were to move forward. He also introduced executives from international investment firm Guggenheim Securities to explain why the industrial revenue bonds to finance the half of the capital expenses of the project not potentially covered by the state and Charlotte Area Transit System will be an easy sell.

"These companies specialize in public-private partnerships and they are worth many times more than what they would invest in this project," Briggs said by telephone from his California office on the Monday before that workshop. A complete list of these firms follows at the end of this story.

Dan Gangwish of Guggenheim told the group last Thursday that he has overseen some $5 billion worth of P3 investments during his career, and he has "seen a lot."

"It's very clear this financing works well with the state backstop," said Gangwish, adding that private investors — which typically invest in rail infrastructure in chunks of at least $10 million to $20 million — can expect a return of more than four percent. "This is infinitely financeable."

The investment and project delivery firms represent the modern-day cream of a centuries-old P3 crop, a model that has gained favor in the past two decades as some regions of the country began to shift away from only publicly financed infrastructure development.

With not enough money from local transit tax dollars to fund the Blue Line Extension light rail project from downtown Charlotte to University City and the Red Line Commuter Rail — and with the Red Line not qualifying for any federal dollars — NCDOT officials, interested in expanding the state's freight movement capacity, re-tooled and repackaged the Red Line, complete with the new, and yet centuries-old, methodology for paying for it.

Private equity, public rail

Since formally unveiling the proposal in December and scheduling a 180-day time frame for meeting, vetting, refining and completing what must be a unanimously approved business and financing plan among a number of governmental jurisdictions and agencies, there have been a number of issues raised.

Among the most controversial of those issues is whether smaller commercial property owners within the special assessment districts will see a return worthy of the increased taxes they would pay, and whether that district should be expanded to include more revenue-generating properties farther from the tracks. The private investment would be repaid by a combination of special assessments upwards of 75 cents per $100 valuation for commercial properties within the unified benefits district along the corridor, and on tax increment financing on 75 percent of the improved value of developed or redeveloped property.

Meanwhile, the NCDOT continues its vetting process and necessary talks must continue with the owner of the tracks on which the Red Line would run, Norfolk Southern.

Central to all that talk is just what form the construction, operations and maintenance might take. In recent weeks, talk of design/build/finance/operate/maintain (DFBOM) has been prevalent, whereby a single entity or a team would take on the whole project and be responsible for coming in on time and within budget.

"Exactly what form of delivery the project takes is still under development, but I would imagine it would be some sort of hybrid," said Briggs by telephone. "Typically you get a team that represents all four (disciplines) of those who come in with a unified plan. So far, in places we have taken these types of projects, we have had at least three teams of bidders who have come in and looked at these projects."

Those "teams" are typically made up of concessionnaires/contractors, equity fund investment firms, operators and vehicle (train car) manufacturers. They form consortiums to assemble their bid and, if awarded, run the project from start through delivery of the product.

"We want to be in a position if we can structure (the P3 contract) in such a way that they have to build it, buy the rolling stock and get (the rail corridor) tested and certified before they get paid a penny," said Briggs. "How this agreement gets structured is partially what makes best sense in terms of financing, because if the state provides the backstop, we will get very good interest rates."

The P3 approach, DeCorla-Souza said during his prior presentation, is usually faster and more efficient than the traditional public sector process because, while government-run projects must accept the lowest qualifying bid for a project, a P3 approach can secure the "best suited" vendor for its various aspects. An additional benefit, he said, is that all financial risk is borne by the private sector in a P3 project.

But that doesn't mean, he said, that the public sector can wash its hands of the Red Line. "The public sector must make sure the project is performing to standards, but the P3 model reduces the amount of oversight the public sector has to do and has to be involved with," said DeCorla-Souza.

The oft-repeated question regarding cost overruns and who bears that responsibility was asked again last Thursday, this time by Davidson Commissioner Laurie Venzon. "This is a legitimate concern," replied Briggs, adding that liability for extra costs are borne by the P3 team. "It is (their) risk to build it, buy the rolling stock, etc., and only when that happens do you get an availability payment. The main reason for a P3 approach is you have to put that risk on the private sector side instead of the public side because there are too many examples of cost overruns (in government-run infrastructure projects)."

So why would private investors become involved in building government-owned infrastructure? They wouldn't, Briggs and others have stated, unless they knew they could deliver the project on budget and earn a profit.

"Private concessionnaires are looking for a return on investment that is long-term, stable and predictable, and has a moderate risk," said DeCorla-Souza.

But, he added, P3s are not easy. "A lot of groundwork is required before you can secure a P3 partnership," DeCorla-Souza said.

Red Line proponents can certainly attest to that.

P3 players

Global companies that typically become involved in P3 public infrastructure projects.

Concessionnaires/Contractors

• ACS/Hochtief/Flatiron

• Acciona

• Balfour Beatty

• Bechtel

• Bouygues

• Fluor

• GlovalVia

• Kiewit

• SNC Lavalin

• Skanska

• Vinci

Equity Funds

• InfraRed

• Laing

• Macquarie

• Meridiam

• Uberior (Lloyds Bank)

Operators

• ACI

• Herzog

• National Express

• Serco

• Stagecoach

• Veolia

Vehicle Manufacturers

• Alstom

• Ansaldo/Breda

• Bombardier

• CAF

• Kawasaki

• Siemens

• Rotem/Hyundai

— Source: Parsons Brinckerhoff

Senate punts on long-term fix to federal highway program

Senate punts on long-term fix to federal highway program
By Terri Hall
March 19, 2012

With the next continuing resolution for the federal highway program coming to an end March 31, lawmakers in the nation’s Capitol have been scrambling to address systemic shortfalls in the Federal Highway Trust Fund before they run out of time. Though making some structural changes to consolidate programs, the U.S. Senate chose to kick the can down the road once more, passing a short-term extension bill, S 1813 also referred to as MAP-21, last week.

Meanwhile John Mica (R-FL), Chair of the House Committee on Transportation and Infrastructure has been pushing for a 5 year bill and a more long-term solution, but has struggled to gain the votes necessary for passage. They have until March 31 to either pass the House bill or take up the Senate bill and, in either scenario, they’ll need to work out the differences in conference at lightning speed.

Both versions would increase -- by nearly ten times -- the borrowing of money we don’t have from the Federal Reserve to loan to states through the TIFIA program. TIFIA loans gets doled out almost exclusively to private corporations in contracts called public private partnerships (or P3s) in order to federally subsidize an unaccountable toll road boom across the country. The first TIFIA loan went to a private corporation in a P3, and the project went bankrupt less than three years after the ill-conceived toll road opened, forcing the taxpayers to write-down nearly $80 million.

Most notable in the Senate version are two provisions authored by Senator Jeff Bingaman (D - NM). One limits the tax breaks for the private corporations in these controversial P3s, and the other reduces the amount of federal dollars a state receives if the state chooses to sell-off the public’s highways to private toll operators using P3s.  Bingaman’s goal is to remove incentives for states to turn sovereign public highways into unaccountable cash cows in the hands of private corporations.


Continue reading on Examiner.com Senate punts on long-term fix to federal highway program - San Antonio Transportation Policy | Examiner.com http://www.examiner.com/transportation-policy-in-san-antonio/senate-punts-on-long-term-fix-to-federal-highway-program#ixzz1pbHBgw3Q

British Prime Minister wants to sell-off roads to China

Link to article here.

David Cameron unveils plan to sell off the roads

Sovereign wealth funds to be allowed to lease motorways in England, says prime minister

Nicholas Watt, chief political correspondent
The Guardian, Sunday 18 March 2012


David Cameron: 'We need to look at innovative approaches to the funding of our roads – to increase investment to reduce congestion.' Photograph: Mike Segar/AP
David Cameron will clear the way for a multibillion-pound semi-privatisation of trunk roads and motorways as he announces plans to allow sovereign wealth funds from countries such as China to lease roads in England.

Just 48 hours before the budget, the prime minister will give a speech calling for radical action to improve Britain's infrastructure, which is falling behind those of key competitors in Europe.

In his most eye-catching proposal, Cameron will announce that the Treasury and Department for Transport are to carry out a feasibility study looking at using private-sector funds to improve and maintain trunk roads and motorways.

The prime minister's plan, modelled on the funding of the mains water and sewage network, would see sovereign wealth funds and pension funds given the right to lease roads over a long period. They would be set a series of targets to, for example, reduce congestion and carry out improvements. George Osborne recently travelled to China to persuade the world's largest fiscal-surplus country to invest in Britain's infrastructure.

 
If the road companies met the targets they would receive a proportion of the vehicle excise duty, which currently all goes to the Treasury. This would be seen as a particularly radical step because it would be a form of hypothecation – allowing a stream of revenue to be directed at a particular project. The Treasury normally resists this because it likes to keep control of prioritising spending across government.

But Cameron, who is fully supported by the chancellor, will make clear that the poor state of Britain's infrastructure and its public finances means that bold steps have to be taken.

There will be no tolls on the existing road network. But if the road companies create new capacity – by adding lanes to existing roads or building new roads altogether – then they would be entitled to charge for their use.

The prime minister will say: "We need to look at innovative approaches to the funding of our national roads – to increase investment to reduce congestion. Road tolling is one option, but we are only considering this for new, not existing, capacity. For example, we're looking at how improvements to the A14 could be part-funded through tolling.

"But we now need to be more ambitious. Why is it that other infrastructure – for example water – is funded by private-sector capital through privately owned, independently regulated utilities, but roads in Britain call on the public finances for funding?

"We need to look urgently at the options for getting large-scale private investment into the national roads network – from sovereign wealth funds, pension funds, and other investors. That's why I have asked the Department for Transport and the Treasury to carry out a feasibility study of new ownership and financing models for the national roads system and to report progress to me in the autumn."

The bankers NM Rothschild suggested in a report in 2010 that privatising the road network could raise £100bn. Government sources said the scheme proposed by Cameron would raise far less because he plans to lease out trunk roads and motorways, rather than embarking on a full-scale sell-off, as NM Rothschild suggested.

The Cameron scheme would see a regulator for roads established along the lines of Ofwat, which oversees water and sewerage providers. Government sources were joking that they would have to think of a better name than Ofroad.

The water regulator carries out five-year reviews for companies that provide water and sewerage services.

This has allowed companies to carry out investments that have, according to government sources, vastly improved the water infrastructure. The announcement is designed to show that even in straitened economic times the government is committed to pressing ahead with radical plans to promote economic growth. Osborne has little room for manoeuvre in his budget, though it is expected that the independent Office for Budget Responsibility might signal a modest improvement in its growth targets.

Osborne confirmed on Sunday that the main points of the budget were agreed by the "quad" group of ministers – the chancellor, the prime minister, Nick Clegg and Danny Alexander – last Monday. It is understood that the chancellor will announce the scrapping of the 50p top rate of tax for people earning above £150,000. But he will balance that by saying that he hopes to ease the burden of low-income earners by moving more rapidly to raise the tax allowance to £10,000. This target, which was a key Lib Dem pledge in its manifesto for the last general election, was meant to have been reached by April 2015. It is understood that the chancellor now hopes to achieve this a year early.

The prime minister will make clear that his focus remains in promoting growth as he sweeps aside objections from the National Trust and the Daily Telegraph to press ahead with major infrastructure projects that would require reforms to Britain's planning laws.

Cameron will say: "The truth is, we are falling behind … our competitors. And falling behind the great, world-beating, pioneering tradition set by those who came before us. There is now an urgent need to repair the decades-long degradation of our national infrastructure and to build for the future with as much confidence and ambition as the Victorians once did.

"Infrastructure matters because it is the magic ingredient in so much of modern life. It is not secondary to other, more high profile elements of economic strategy. It affects the competitiveness of every business in the country; it is the invisible thread that ties our prosperity together. It gets power to our lights, water to our taps, workers to their jobs, and food to our shops. It enables factories, offices, warehouses, workshops to function, to trade, to grow.

"But infrastructure isn't just about business. It's not just about big, high-profile projects. It is an all-pervasive force in society too. It's the network that powers smart phones, allows us to log on to Facebook, to travel, to live the lives we choose. It is the platform for active citizenship. And its value lie in its ability to make things possible tomorrow that we cannot even begin to imagine today. If our infrastructure is second-rate, then our country will be too. We used to understand this in Britain."

The shadow transport secretary, Maria Eagle, said: "Motorists already suffering from record fuel prices now face a road charging free-for-all, adding to the cost of living crisis facing households up and down the country.

Instead of easing the burden on drivers and boosting our stalled economy through a temporary cut in VAT, ministers look set to let private companies take over the strategic road network and charge drivers for access.

"These proposals risk simply driving traffic on to local roads, increasing congestion and emissions while yet again setting back efforts to improve safety.

"Ministers seem to be intent on repeating the mistakes of rail privatisation, which was supposed to lead to cheaper fares and lower costs but has instead given powerful vested interests the chance to rip off passengers while increasing the cost to the taxpayer.

"Motorists now seem set to be in the firing line for the next phase of the Tories' ideologically driven rip off culture.

"This budget is increasingly looking like a series of desperate acts to divert attention from the government's failure to set out a coherent plan for jobs and growth."

 
© 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved.

U.S. Senate passes two year, stop-gap highway bill

Link to article here.

March 14, 2012

Senate Passes 2-Year Transportation Bill

By JONATHAN WEISMAN

WASHINGTON — The Senate easily approved a two-year, $109 billion transportation and infrastructure bill on Wednesday, putting pressure on House Republicans to set aside their stalled version and pass the Senate’s before the federal highway trust fund expires at the end of the month.

Senator Harry Reid of Nevada, the majority leader, extolled the measure, passed on a bipartisan vote of 74 to 22, as “a jobs bill in the true sense of the word.”

“I hope the House will take this up and not listen to this shrill voice that makes up so much of the Republican caucus in the House,” he said.

But the nearly three million jobs expected to be “saved or created” by the measure largely come from construction jobs that stand to be lost if federally financed projects grind to a halt on April 1, when money from the highway trust fund could no longer be used.

That deadline appears to be weighing heavily on House Republicans, who initially had wanted to use their measure to change federal transportation policy fundamentally by linking infrastructure spending to the expansion of oil drilling from the Arctic National Wildlife Refuge in Alaska to the outer continental shelf off the East Coast.

The five-year House proposal was stymied by a coalition of opponents in both parties, and Speaker John A. Boehner of Ohio, one of its initial backers, has all but abandoned it.

“As the speaker said, the plan as it stands right now is to let the Senate pass a bill and take up something that looks like it,” said Michael Steel, a spokesman for Mr. Boehner, “unless the House coalesces around a better alternative, which we are actively pursuing.”

The Senate bill, written by one of the chamber’s most liberal Democrats, Senator Barbara Boxer of California, and one of its most conservative Republicans, Senator James Inhofe of Oklahoma, consolidates 196 federal transportation programs to about a dozen, while giving more flexibility to the states to decide transportation priorities. But it largely keeps the scope of federal highway, transit and other surface transportation projects intact. Senators kept the duration of the bill short, to two years, because of the difficulty in paying for its programs as gasoline tax revenues slide.

President Obama, as well as highway and transit advocates, had pressed for a big, upfront increase in infrastructure spending to lift the economy and address the nation’s aging roads and bridges. But considering that House Republicans last year were considering a 35 percent cut to transportation spending, level funding may have been the best that advocates could hope for, said Rob Healy, vice president for government affairs at the American Public Transportation Association.

Rather than raising the gas tax, as many transportation advocates suggest, the Senate jury-rigged the bill with an array of revenue provisions, tapping a trust fund established to clean up leaking underground storage tanks and adjusting the way pension fund contributions and liabilities are calculated.

Taxpayers for Common Sense, a watchdog group, criticized the use of 10 years of revenue from such provisions to pay for a two-year transportation bill.

“That’s kind of how Congress is approaching every problem,” cobbling together short-term fixes without addressing long-term problems, said Jeff Shoaf, head of Congressional relations for the Associated General Contractors of America, which nonetheless strongly supported the bill.

Mr. Shoaf said the legislation would spur hiring in the construction industry, where unemployment hit 17.1 percent in February. With infrastructure spending stable for two years, construction firms should begin buying equipment and hiring permanent workers, he said.

“It’s not as long as we would like, but in aggregate the fact that we’re talking about a transportation bill at all is positive,” said Sean McNally, spokesman for the American Trucking Associations.

The problem with public private partnerships

Link to article here.

Though this article was originally published in 2009, the bulk of his points remain true today. May this be a warning to us...

The Problem with Public-Private Partnerships

Economic crisis exposes the high costs and risks of P3s

by Toby Sanger, Corina Crawley
National Office | The Monitor
April 1, 2009

If there is one thing that the current financial and economic crisis has shown, it is that the neoconservative economic model of deregulation, privatization, tax cuts, free trade and unequal growth is bankrupt. And yet, incredibly, Canadian governments and corporations are using the economic crisis to push more of the same policies: tax cuts, the sale of public assets, and, especially, more privatization through public-private partnerships (P3s).

The shifting rationales of P3s has always been highly dubious.

P3s had been used by politicians as a form of off-book accounting to make it appear as if public spending and deficits were lower than they actually were — but then public auditors forced governments to include these obligations on their books.

P3 proponents then claimed that their projects could be less expensive, more innovative, speedier, and more accountable than public service delivery — but a string of failures, delays, little transparency, and secretive deals proved these claims wrong.

Most recently, P3 advocates have acknowledged that they cost more, but they try to justify these deals by claiming that P3s transfer massive amounts of “risk” from the public sector to the private sector. By using highly questionable “value for money” accounting, they claim that the higher costs of P3s, particularly on the financing side, are offset by transferring colossal amounts of risk to the private sector.


While independent experts have criticized these deceptive rationales and faulty accounting for years, the details can be complicated. The misleading accounting practices remain, but the financial crisis has exposed the false economics of P3s in a number of different ways:

• The economic and financial crisis was caused by the same policies behind the push for public-private partnerships.
• Private financing is more costly and risky than public financing.
• The private sector is worse at managing risk than the public sector.
• Risks can never be completely transferred through P3s.
• Additional and complicated P3 requirements lengthen the process and add to delays.

This economic and financial crisis has a number of deep roots, but what propelled both the later stages of the boom and the consequent crisis was a systemic cover-up of losses, mispricing, and mismanagement of risk in the private sector.

Sub-prime mortgages were only a small part of this. On top of these and other debts, the financial industry built a web of speculation and highly leveraged securitized assets that were sold to unsuspecting buyers as solid investments. This helped to provide easy credit for a number of years, but it was only a matter of time before the financial house of cards came tumbling down.
Despite trillions of dollars provided by the taxpayers in public bailouts (and much more in accommodative actions by central banks), financial institutions around the world, including many of those behind P3 projects, continue to teeter on the brink of insolvency. It was only effective public nationalization of major banks and financial institutions in a number of countries that managed to save the world’s financial system from collapsing around the world.

In a thoroughly perverse twist, these free market economic policies led to the largest public bailouts in history and what Nobel-Prize winning economist Joseph Stiglitz has described as a "new form of public-private partnership, one in which the public shoulders all the risk, and the private sector gets all the profit."

Public-private partnerships have fundamentally been about giving private investors and financiers high returns with low risks, at the long-term expense of taxpayers and the public. The financial backers of P3s were able to borrow capital at lower rates of interest, thanks in large part to unregulated and often fraudulent activities in financial markets. This narrowed the interest rate spread between private and public sector borrowing rates, allowing P3s to appear more financially attractive than otherwise. They were still a bad deal for taxpayers, but low private sector costs of borrowing meant that faulty accounting didn’t have to cover up as much.

These low borrowing rates for the private sector were not based on economic fundamentals or realistic calculations of risk in the private sector. Private financial institutions engaged in systemic cover-ups, miscalculations, and passing on of undisclosed risks to unsuspecting investors. The unregulated financial markets allowed financial speculation to flourish, siphoning funds away from productive investments in the real economy. As a result, the paper economy grew, but real economy stagnated. Then the whole house of cards came crashing down.

As a result, private financing costs for P3s have increased and will continue to stay relatively high, while costs of public borrowing have tumbled. This will continue to make P3s both more costly and more risky for the public.

The spread (difference between public and private sector interest rates) for short-term borrowing rates in Canada is now about 100 basis points higher than it was during the five years of easy credit. According to a recent industry report, the spreads for P3 financing have doubled, on average, compared to last year. On a typical project, this increased spread of 100 basis points would increase the cost of financing by about 10% to 15%, or by upwards of $20 million for $100 million over 30 years.

There is no foundation to the claim that the private sector is better at managing risk than the public sector. Virtually all P3s in Canada have been justified on the basis that they transfer large amounts of risk to the private sector. But a growing list shows that P3s are both more risky and more costly for the public:

• B.C. Bridges. The financing behind Partnerships B.C.'s flagship Golden Ears Bridge project came close to collapse when its financial backers almost went into default. The German government came to the rescue with a $77 billion bailout of the German-based parent of the Irish Depfa Bank. The other financial partner of this project, Dexia, also received a $9.6 billion injection from taxpayers.

• Alberta Schools. A key player behind Alberta's P3 schools project has also come close to collapse. Last year, Babcock and Brown Ltd. lost 97% of its stock value while its P3 arm, Babcock and Brown Partnerships Ltd, recently laid off 25% of its staff.

In every single project approved so far as a P3 in Ontario, the costs would have been lower through traditional procurement if they had not inflated by these calculations of the value of "risk." The calculations of risk could just as well have been pulled out of thin air – and they are not small amounts. For a number of projects, the estimates of risks transferred inflated the base project costs by over 50%. The total amount of risk supposedly transferred through projects in Ontario has now reached over $1 billion, all based on sketchy calculations. The total cost savings of traditional procurement compared to P3s for Ontario’s projects has now reached well over $500 million if these dubious calculations of risk are excluded.

Some examples of excessive costs include:

• Ontario hospitals: Ontario’s Auditor-General recently revealed that the province’s flagship P3 hospital, Brampton Civic, cost the public $200 million more than if it had been publicly financed and built directly by the province.

• East Coast Toll Roads: An estimated more than $300 million in tolls were produced on the Cobequid Pass for a deal in which private financiers put up $66 million. The Nova Scotia government is paying an effective interest rate of 10% for 30 years, twice its rate of borrowing. High fines for using adjacent roads force truckers to use the toll road.

• Universities: A P3 project at the Université de Québec à Montréal failed, doubling the cost to the public from $200 million to $400 million.

• West Coast Highways: B.C.'s Sea-to-Sky Highway will cost taxpayers $220 million more than if it had been financed and operated publicly.

Risks can never be completely transferred through P3s, because governments will always be ultimately accountable for delivering public services and infrastructure.

This responsibility is not changed by expensive and lengthy P3 agreements. If problems arise, it is the public that always has to pick up the bill at the end of the day.

If P3 operators run into problems or don't achieve expected returns, they can just walk away, leaving the public sector to pick up the tab.

• Recreation: The City of Ottawa was forced to bail out two of three of its flagship P3 recreation arena projects in 2007. Both of the parent companies were still very profitable, but wanted even higher returns.

• Water and wastewater: Hamilton's water and wastewater services had to be taken in-house after a string of owners, including an Enron subsidiary, created a financial mess of the P3, including a raw sewage spill that had to be cleaned up at public expense.

P3 programs in Canada are largely modeled on the U.K.'s "Private Finance Initiative" (PFI), which has its own spectacular failures.

Metronet, the private company that won a £30 billion, 30-year P3 deal to upgrade and maintain London's Tube network, failed and had to be taken over by the City of London's transport authority last year. The Metronet failure has already cost U.K. taxpayers an extra £2 billion (nearly $4 billion Canadian) and left Londoners with 500 subway stations in various states of disrepair for a P3 deal that was forced on their city by the central government under its PFI initiative. And this is just the beginning: costs for the City of London are already expected to grow by an additional £1 billion. Even the normally conservative Economist magazine now admits that these P3 deals now look like "complicated costly mistakes."

Other projects in the U.K., Australia,and New Zealand are in crisis or have been under call for greater oversight.

Governments are under increased pressure to speed up infrastructure investments as an important means of stimulating the economy.

The same factors that make P3s complicated and risky also mean that they usually involve significant delays and high legal and financial costs. This means they are particularly inappropriate for the type of accelerated infrastructure investments that are now required for the economy.

As the U.K. Treasury has advised: “A PFI transaction is one of the most complex commercial and financial arrangements that a procurer is likely to face. It involves negotiations with a range of commercial practitioners and financial institutions, all of whom are likely to have their own legal and financial advisors. Consequently, procurement timetables and transaction costs can be significantly in excess of those normally incurred with other procurement options."

In Vancouver, for instance, the publicly operated and financed Millennium Line rapid transit project started operation three years after the process got under way. In comparison, the P3-financed Canada Line transit project is not expected to be in service until 2009, eight years after B.C. Transit got its process started. Similarly, the Evergreen Line transit line has also been delayed until 2014, at least 10 years after approval.

The recent announcement by the British Columbia government that it has raised the threshold for projects to be considered as a public-private partnership to $50 million in order to accelerate capital investment is a clear acknowledgement that the P3 requirement delays investment, particularly for smaller projects.

* * *

Recent failures, bailouts, and excessive costs show that the risk analyses and value-for-money accounting used to justify P3s are clearly flawed and cover up the true costs and risks for the public. Governments in Canada will be forced to rescue or bail out a growing number of P3 projects in the coming years, particularly with harsh and turbulent economic conditions expecting to persist for a several years.

At the same time, private investors will put increasing pressure on governments to increase the number of P3s, since they provide them with long-run, secure, and relatively high returns. But taxpayers who subsidize these high returns should be very concerned.

The current financial and economic crisis didn't just occur because of a number of isolated failures in the financial industry. The unregulated financial markets allowed financial speculation to flourish, siphoning away funds from productive investments in the real economy. As a result, the paper economy grew, but the real economy stagnated with negative or zero rates of productivity growth during recent years.

Public-private partnerships are not just a highly questionable deal for the taxpayers; they also have a negative impact on the economy. The investment banks and funds that are now heavily promoting P3s would do more good for the economy if they returned to what should be their primary role: financing investments to boost productivity and growth in the languishing private sector economy. Smaller Canadian contractors are squeezed out of access to infrastructure contracts while international firms take public funds sunk into P3 projects out of the country.

Public services and infrastructure are best financed and delivered by the public sector. Private industry has a key part to play in its traditional role of designing and constructing public infrastructure under contract. But expanding these deals to include private financing and operations makes them much more complicated, expensive, and risky. Canadians need more public investment to rebuild our economy – but they can't afford more expensive, unaccountable, and risky public-private partnerships.

As Greg Malone puts it: “P3s ahould be called P12s — Public-Private Partnerships to Plunder the Public Purse to Pursue Policies of Peril to People and the Planet for all Posterity.”

-----

(Toby Sanger is Senior Economist and Corina Crawley is Senior Research Officer at the National Office of the Canadian Union of Public Employees.)


Sources and Resources

- A Matter of Time: Will the Credit Crisis Impact Canadian P3s? Daniel Roth, Managing Director Infrastructure Advisory Practice, Ernst and Young. Canadian Council for Public-Private Partnerships. http://www.pppcouncil.ca/pdf/matteroftime.pdf

- "Reversal of Fortune," Joseph Stiglitz, Vanity Fair, November 2008 http://www.vanityfair.com/politics/features/2008/11/stiglitz200811

- Québec épongera la dette de l'UQAM, Le Devoir, Les Actualités, vendredi 10 octobre 2008, p.a1

- The Real Cost of the Sea-to-Sky P3: A Critical Review of Partnerships BC's Value for Money Assessment, Marvin Shaffer, CCPA-BC, September 2006.

- Infrastructure Ontario, Design, Build Finance, Maintain, Risk Analysis and Risk Matrix. November 2007. http://www.infrastructureontario.ca/en/projects/files/DBFM%20Risk%20Analysis%20for%20Publication%20(26NOV07).pdf

- Assessing Value for Money: A guide to infrastructure Ontario’s methodology. 2007. http://www.infrastructureontario.ca/en/projects/files/VFM%20GUIDE%20WEB.pdf

- Evaluating the operation of PFI in roads and hospitals, Pam Edwards, Jean Shaoul, Anne Stafford and Lorna Arblaster.The Association of Chartered Certified Accountants Research Report # 84. London, 2004

- London’s transport mess: Holes underground, Sep 11th 2008, The Economist Print Edition http://www.economist.com/world/britain/displaystory.cfm?story_id=1220949...

- Paul Gosling, Rise of the Public Services Industry, A report for Unison, September 2008.

- Coming to the crunch, by Paul Gosling. Public Finance Magazine.October 2008. http://www.publicfinance.co.uk/features_details.cfm?News_id=59033

- HM Treasury, Value for Money Assessment Guide, August 2004. p. 30

- Evergreen Line, Translink, Community Update, May 2007. http://www.translink.bc.ca/files/pdf/Evergreen_Line_Project_Update_May_2...

Eminent domain abuse Socialism for the rich

Link to article here.

This is a terrific article on how eminent domain abuse is Socialism for the rich. It's happening all over the country every day. The latest incarnation being public private partnerships (where they sell-off public infrastructure to the highest bidder on Wall Street) and the Keystone pipeline where the Canadian company has gained the power of eminent domain.

Socialism for the rich

By Thomas Sowell

10/3/2006

Although socialism has long claimed to be for the poor, it has probably done more damage, on net balance, to the poor than to the rich. After all, the rich have enough money to leave the country if they think the socialists are going to do them any serious harm.

Some of our own rich have already had their money leave the country, to be sheltered from the higher taxes that limousine liberals say we should all pay. Meanwhile, the liberal media give them kudos for their selfless advocacy of higher taxes on higher income people, forgetting that these are not taxes on wealth.

Most of the people in the upper income brackets are not rich and do not have wealth sheltered offshore. They are typically working people who have finally reached their peak earning years after many years of far more modest incomes -- and now see much of what they have worked for siphoned off by politicians, to the accompaniment of lofty rhetoric.

The rich have learned to adapt socialist policies to their own benefit. For example, the city of Riviera Beach, Florida, is planning to demolish a working class neighborhood under its power of eminent domain, in order to prepare the way for a marina for yachts, luxury condominiums and an upscale shopping district.

What will the city of Riviera Beach get out of all this? More taxes from higher-income people, enabling local politicians to spend more money on programs to attract votes.

Meanwhile the rich get rid of lower-income folks without having to pay them the value of their homes and businesses that will be demolished. As in so many other cases, eminent domain is socialism for the rich.

Theoretically, those whose homes and businesses are demolished will get the "just compensation" to which the Constitution says they are entitled.

In reality, just announcing plans to demolish the homes in an area will immediately demolish part of their market value. Even if homeowners are compensated for whatever value remains when their homes are actually demolished -- which can be years later -- they have still been had.

For businesses, compensating them for the value of their physical assets -- which may or may not include ownership of the place where their businesses are located -- does nothing to compensate them for the often much larger value of the clientele they have built up over the years but who are now scattered to the winds by neighborhood demolition.

This game doesn't work the same way in rich neighborhoods. Not only can the rich hire big-bucks lawyers to fight city hall, why would city hall want to get rid of upscale taxpayers, who are often also big donors to political campaigns?

A very different form of socialism for the rich protects their communities from even the dangers of a free market. A whole array of laws and policies prevents outsiders from buying up property near them, even when these outsiders are ready to pay prices determined by supply and demand, rather than by eminent domain.

For example, the "open space" laws that have spread across the country to protect upscale communities represent one of the biggest collectivizations of land since the days of Josef Stalin.

Upscale residents say that they have a right to protect "our community." But not even the rich own the whole community.

They own what they paid for -- their own individual property. But they get the government to collectivize the often vastly larger surrounding property, in order to keep the unwashed masses from settling near them and spoiling their views.

Moreover, they wrap themselves in the mantle of idealism while doing this and denounce the "selfishness" of those who would stoop to building homes or apartments to house others, just to make money.

"Developer" is a cuss word to those who wax indignant in their righteous zeal to keep other people out. Why can't these money-grubbing developers just inherit money, like so many of the upscale idealists?

Meanwhile, back in the working class neighborhood in Riviera Beach, it is being defended legally by the Institute for Justice, one of the few "public interest" organizations that deserve the name.

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