by Randy Salzman
With recent reporting about Norfolk’s ERC (Elizabeth River Crossings) public private partnership (P3) on top of extensive coverage of the 460 Toll Road debacle, Virginians should begin questioning “privatization” of public infrastructure.
The data is clear. The privatization of highways has not been “capitalists’ gifts to taxpayers,” as press releases have implied. Instead, the privates — or “privateers” as some call them — have negotiated contracts with, at best, clueless public officials and lawyers content to increase private profits to the tune of millions, and perhaps billions, in lost taxpayer dollars. In general, the privates have accepted little risk and tacked on consulting, advising and debt-service charges to the point that even CPAs can’t decipher complex financing arrangements in 700+ page P3 contracts.
Around the world, citizens are grasping the prospect that, as the Royal Scottish Accountants put it in 2008, P3 toll concessions are “financial black holes” or as an Australian law professor put it last month, “legalized corruption.” Here, our present state administration, backed by new reforms, is trying to restrain future P3s with the secretary of transportation reporting the likely benefit of Virginia building and operating an I-66 toll road west of D.C. is $1 billion over leasing that concession.
That’s “billion” with a “B.” And that’s on a total project cost of under $3 billion. Secretary Aubrey Layne’s analysis indicates, in short, if I-66 becomes a P3 toll concession it will cost taxpayers one-third more.
Meanwhile, Virginia taxpayers are already out some $400 million from the 460 and ERC projects. That’s a lot of pavement or transit we will never see.
As a transportation writer, I’ve been trying to understand P3 toll concessions for three years, ever since discovering the private money – and there is relatively little of it – is primarily foreign. Why, I’ve wondered, are Ferrovial and Cintra, from Spain, and Transurban and Macquarie, from Australia, behind so many American P3 concessions?
In general, I’ve learned that in any American toll concession, the private money is rarely as much as 15 percent of total project costs, but that tiny up-front percentage hooks the public sector before the ink is dry on contracts, which, most likely, no state official has ever even read. The mass of the so-called private money is in the form of TIFIA (Transportation Infrastructure Finance and Innovation Act) loans from Uncle Sam and private activity bonds backed by the state. When – and “when” is the rule; “if” the exception – the concessionaire goes bankrupt after collecting a few years of toll income, the multinationals rarely pay back the loans or bonds.
As a Canadian auditor-general’s analysis finds private financing cost taxpayers 14 times public financing and the White House is projecting that four in 10 P3 transportation concessions will eventually go belly-up, Organization of Economic Co-operation and Development studies illustrate “procuring infrastructure services through PPP is generally far more expensive than public finance.”
Canadian taxpayers, for example, shelled out $8 billion more than if they’d have built 74 projects themselves and three University of Manchester business professors studied British P3s to conclude:
“At best, partnerships have turned out to be very expensive with the inevitable consequences for future service provision, taxes, and user charges. Not just for today but for a long time to come. These projects may burden government with hidden subsidies, diversion of income streams and revenue guarantees whose impact on public finance may not become apparent for many years and may all be triggered at the same time, precipitating a major fiscal crisis.”
Bloomberg reports that only one in five completed American P3 tollways has even begun paying interest on its TIFIA loan as most payback schemes start 10-plus years after highway completion. However, from Virginia’s Pocahontas Parkway to San Diego’s South Bay Expressway, Detroit’s Windsor Tunnel and South Carolina’s Connector 2000, as well as The Indiana Toll Road and Texas SH 130, at least a dozen American toll roads have already arrived in bankruptcy court or announced “restructuring” of their debt – including Capital Beltway Express.
In the end, American taxpayers likely will be left with virtually worthless notes, and facing bills for lucrative bonds which were sold to pension funds and retirement plans. For the private toll-road concessionaire, Donald Trump’s concept of “taking a Chapter 11” is not in desperation; it’s in the blueprint.
Privates have taken little real risk in past P3s, in short, although Secretary Layne promises that will change if Virginia’s next mega-project, I-66, accepts private money.
Layne promises he’ll ride herd on any negotiations to ensure that unlike, for example, the Capital Beltway Express or 95 Express Lanes, transit and carpooling won’t cost taxpayers additional dollars or that, unlike Tidewater P3s, if the tollway is ever used for emergency evacuation, taxpayers won’t pick up the tolls.
Mostly, Layne promises – and commonwealth law now demands – he will certify that whatever terms the P3 contract holds will not cost taxpayers more than if the state financed, built and ran the toll road itself.
In the past, Virginia let private attorneys, motivated towards signing any P3 contract by “success fees,” negotiate for us. In at least the 460 case, those attorneys proudly announced on their web page that private investors named them “law firm of the year” twice.
Our former transportation secretary, Sean Connaughton, under what the privates happily called “Virginia’s model P3 program,” didn’t seem to wonder why a firm allegedly bargaining for taxpayers was being honored by folks from the other side of the table. He didn’t recognize that it’s to the public’s benefit to get drivers off the road and the toll concessionaire’s benefit to get drivers on it. He didn’t notice that outsourcing virtually everything cost taxpayers more than in-house VDOT operations or that purchasing construction oversight from firms that hired each other might be incestuous.
Though a state investigation found Connaughton did nothing criminal, it did find mountains of questionable thinking by the “public servant” and his handpicked P3 staff.
There’s an old, sad adage that taxpayers should remember: “With friends like that, who needs enemies?”
Randy Salzman is a Charlottesville-based writer who specializes in transportation issues.
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