Bacon's Rebellion

Democracy Thrives in Sunlight

Pennsylvania Goes Over to the Dark Side in Transportation Deal

—

by

James A. Bacon
in

The movement to privatize large sections of state-owned highways is gaining momentum. Citigroup Inc. and Abertis Infraestructuras SA have won an auction — paying $12.8 billion — to lease the Pennsylvania Turnpike from the state of Pennsylvania for 75 years. Money from a turnpike lease would help the state close a $1.7 billion gap in transportation funding.

Terms of the lease agreement, if it gets final approval, would allow the operator of the turnpike to raise tolls by 25 percent Jan. 1. Tolls then would increase 2.5 percent annually or match the rise in the consumer price index if it is higher, according to Bloomberg.com.

The Bloomberg article makes no mention of improvements to the turnpike or the use of congestion pricing to maximize throughput. Based on the details published in the article — I reserve the right to retract my analysis if the reporting is incomplete — this looks like the wrong way to go about privatizing a state highway. Basically, the privatization here is a back-door way to jack up rates on one set of drivers (those who use the Pennsylvania Turnpike) in order to underwrite transportation improvements to other parts of the state. In this instance, privatization is a tool used to perpetuate Business As Usual transportation policies.

This deal does not take Pennsylvania toward a user-pays system. It looks like an old-fashioned money grab by the political elites in Pennsylvania. There are no discernible signs of added value for turnpike drivers. There are no indications that the tolls would be fine-tuned to encourage drivers to seek transportation alternatives during periods of peak demand. Tolls are hiked willy nilly to meet the needs of investors and the state of Pennsylvania.

By comparison, the deals that the Kaine administration has struck with private sector entities to build HOT lanes on Interstates 495 and 95/395 look vastly superior. In those deals, congestion pricing will maximize throughput and incentivize drivers to find alternatives during periods of peak demand. Money raised from tolls will be plowed back into major upgrades of the Interstates, including Bus Rapid Transit, thus expanding the alternatives to one-man-one-car. People paying the tolls in Virginia will receive tangible benefits for their money. History will show the HOT lane deals to be the signature transportation achievement of the Kaine administration.

(Hat tip to Neil Haner.)

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  1. Larry Gross Avatar
    Larry Gross

    more states are starting to take the Maryland – Statewide Toll Authority – approach.

    The ICC in the Washington DC area cannot stand on it’s own as a toll road so it’s cost will be supplemented from other Maryland TOLL Roads.

    Virginia has alluded to this same concept for US 460. Toll the road but supplement it – though at this point they haven’t said whether the supplement will be gas tax or other toll revenues.

    North Carolina and Florida and New Jersey and others are on the same track.

    Pennsylvania’s “logic” is that the turnpike has a heavy out of state use – that Pennsylvania residents are subsidizing.

    and they rationalize it by saying that I-80 will remain untolled such that PA residents do have a toll-free east-west alternative.

    the argument in Pa is somewhat similar to the argument against tolling I-81 in Va in that the folks who actually live along I-81 say that tolls will drive away/depress companies from location in the I-81 Va corridor.

    So.. the Va GA got into the act and took that decision away from VDOT.

    We’ll see what Pennsylvania does.. there is quite a bit of ongoing controversy.

    and this is why the arrangement with the Dulles Toll Road, and for that matter the HOT lanes as well as US-460 and I-81 need some rules.

    right now.. it is literally the wild wild west in terms of what roads can be tolled by what entities and how the revenues will be used.

    and yes.. without said rules – the outcome could be the evil twin of the current road funding process.

    but I’m like Groveton.. expecting those guys in Richmond to do something helpful is problematical… right now .. as far as I am concerned .. the elephant CLAN is AWOL in terms of vision and policy.. this kind of issue is a quantum leap in difficulty over what they apparently can’t or won’t deal with right now…

    How come not a single legislator in all of Virginia has not expressed concern about cloning the Dulles Toll road way of doing business and/or said they will submit legislation to prevent abuses?

  2. Anonymous Avatar
    Anonymous

    If we can grant a 75 year lease on a highway, and leave the capitalists free to rape the ratepayer for a 25 percent return on equity, why not do the same with the universities and let them charge what the market will bear?

    Wait a minute. This same crowd in the legislature did that already. And they didn’t get any billions of dollars up front. Tuitions are rising 10 percent a year anyway and the universities are all but automous.

    The fact that nobody is blaming the legislators for those tuition increases, or for the upcoming massive Dominion rate hikes, fascinates me. They are just as responsible for those as they would be if they raised the fuels tax a dime. But that idea has them…terrified.

    Do anybody in the world think the tolls will ever come off the Richmond Metropolitian Authority? Does anybody in Pennsylvania doubt that they will be paying a bundle to ride that highway between now and 2093 and today’s sale price will eventually be seen as a giveaway?

    The concession model has its positive attributes, but I still prefer the pay-as-you-go toll model that eventually disappears when the asset is paid off. You can still do the congestion pricing, or use the money for related alternative modes within the same transit corridor.

  3. Bob Avatar
    Bob

    “the deals that the Kaine administration has struck with private sector entities to build HOT lanes on Interstates 495 and 95/395 look vastly superior…. People paying the tolls in Virginia will receive tangible benefits for their money.”

    What benefits? Admittedly, the 495 project includes extra lanes, but the 95/395 deal does not. One extra lane in one direction for only part of the way is hardly recompense for the billions that NOVA motorists will pay over the project’s life, nor does it relieve the extra congestion the project will create in the general purpose lanes. Currently, HOV lanes are opened to general purpose use in off-peak hours (after 9am and after 6:30pm) — often when there’s a lot of congestion. Eliminating that source of relief will make things much worse. In fact, it removes a key incentive for drivers to travel in off-peak hours.

    Clogging the road with a bunch of empty buses is not a benefit. Vague promises that “maybe people will begin taking the bus now” is not tangible. It’s wishful thinking. This project, like so many transportation projects, is grounded in ideology and not in reality.

    Rendell is of course motivated by old-fashioned greed. Pennsylvania is borrowing against its future to have a multi-billion dollar spending spree today. I believe VDOT also gets a big old “signing bonus” from the Aussies for the 95/395/495 lucre-fest.

  4. Anonymous Avatar
    Anonymous

    Why not just hike the rate 25% and then follow inflation, and keep the money instead of hiring private enterprise to loan it to you, up front?

    Oh, that’s right, can’t wait to spend it. Even if it is our grandchildren’s money.

    Dumb beyond belief.

    Copycat Crimes to follow.

    RH

  5. Larry Gross Avatar
    Larry Gross

    I’m sure that’s what the folks on the Eastern Shore feel about the CBBT.

    What a bunch of crooks.. putting in that infrastructure and screwing over the people who use it with tolls…

    Bob – can you show just how bad the CBBT is with their “overhead” to “prove” just how awful that toll road is also?

    Ray.. can you show just how much debt will be passed on to the kids of Eastern Shore folks because of that toll road?

    tsk tsk

  6. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    Back when I was making frequent trips to Ohio, I started going through WV rather than using the Pa. turnpike. I found that I was paying good money to Pa. for the privilege of traveling 35 mph through endless single lane miles of orange cones with troopers just waiting to write another “construction zone” ticket. Not once did I see any construction, just cones and cops. I hate that state so much that when I vacationed in Niagra Falls I drove all the way around to Cleveland in order to avoid everything but Erie.

  7. charlie Avatar
    charlie

    The PA turnpike is undertolled. I don’t understand why the state doesn’t raise the rates 25% of their own. This is also after years of reconstruction.

    RE: HOV on the beltway. Yeah, this will be Kaine’s pearl. Right up there with abuser fees and screwing virginia drivers. How many man-years will be lost in the congestion created by the construction? And what are the benefits?

    As someone else said, the problem on the interestates here is OFF-HOUR congestion.

  8. Anonymous Avatar
    Anonymous

    Larry, it’s a different deal.

    Virginia isn’t selling the CBBT so they can blow the money on things now, and then pass the costs on through a 25% + annual hike toll increases.

    RH

  9. Anonymous Avatar
    Anonymous

    “But because the fuel taxes used for highway development and maintenance are not indexed for inflation or automobile fuel economy, today’s Federal-plus-State gas tax, in real (inflation-adjusted) terms, produces between 2 and 3 cents per mile driven (in light vehicles). That is about half of what the gas taxes of the 1960s and 1970s produced, when much of the interstate system and many core urban freeways were built.”

    Federal Highway Administration

    emphasis mine.

    For the past thirty years we have refused to pay our fair share. now we are going to sell off the (aging) assets, go on a spending spree and send the bill to future generations – twice over.

    It isn’t a sustainable plan.

    RH

  10. Anonymous Avatar
    Anonymous

    “From 1980 to 2000, while VMT grew by 82 percent, highway miles increased by just 4 percent. One symptom of rapidly growing VMT is that urban freeway systems are now choked with traffic. The 2005 edition of the annual Urban Mobility Report produced by the Texas Transportation Institute (TTI) estimates that it costs motorists $63 billion per year in lost time and wasted fuel sitting in traffic congestion. Although some may argue that adding capacity is not the answer, each year TTI’s data show that those few urban areas that added capacity to nearly keep pace with VMT growth have the least increase in congestion, while those that add little or no capacity suffer the most from congestion. “

    FHWA

  11. Anonymous Avatar
    Anonymous

    “…several factors prevented the full-fledged development of a private toll road industry in the automobile era. The highly publicized scandals surrounding the New York Bridge Company and the frauds committed during construction of the Brooklyn Bridge in the 1870s gave toll bridge charters a bad reputation. Second was the invention of highway trust funds supported by dedicated motor fuel taxes. This form of highway funding proved highly effective and inexpensive to collect. “

    FHWA

  12. Anonymous Avatar
    Anonymous

    “Similarly, the toll lanes currently being negotiated for use on the Washington (DC) Beltway (I-495) in northern Virginia rescued a traditional Virginia Department of Transportation (VDOT) widening project that was collapsing under a barrage of local opposition. Under the Virginia Public-Private Transportation Act, a private company proposed a widening scheme that would almost eliminate the need to acquire extra right-of-way (and thereby remove hundreds of homes), which reduced the project cost from about $3 billion to about $1 billion. This alternative approach transformed the political situation.

    The original VDOT proposal was more standard, featuring barriers separating the toll lanes, four sets of breakdown shoulder lanes, and high-speed ramps at all the interchanges. The private company proposed the same widening scheme—from 8 travel lanes to 12—but eliminated a pair of breakdown lanes. The company also proposed deferring some interchange improvements. “

    FHWA

    So what private enterprise did was save $2 billion by postponing necessary changes until such time as they will cost $4 billion.

    RH

  13. Anonymous Avatar
    Anonymous

    “When Chicago leased the Skyway for 99 years for $1.8 billion, the city earned a substantial return on the arrangement. …….

    By contrast, in 2002, the city earned a profit of approximately $8.4 million from Skyway tolls, which is a return of a mere 0.4 percent on the capital value of $1.8 billion as revealed by the successful concession bid. Therefore, one way to determine if taxpayers would be better off holding onto a toll road or selling it is to compare the relative rates of return.”

    FHWA

    Notice what happened here. The decision was based solely on the relative raes of return (to the city) of two options, and this was the sole criteria to determine if taxpayers were better off. This is common, because (usually) by law government is only allowed to consider government budgets in making decisions.

    In fact, to determine if “taxpayers” were better off you would have to use an entirely different analysis, including their total costs and returns before and after the sale. Whether the government is better off and whether the taxpayers are better off are two entirely different things in this case, because you have introduced a third party in the process. You are not comparing the entire system before and after the change.

    RH

  14. Larry Gross Avatar
    Larry Gross

    I’d be happy to debate on the merits of ROI provided when we use extracted info that we provide the links for the other to see for themselves – the context and conclusions.

    I do not trust.. words attributed to the FHWA with selective quoting and then no provided link.

    Call me Ronald Regan suspicious – trust but verify.

    but when having a debate on the merits – if I cannot trust what you are doing with data to start with, what does that mean?

    Bob does the opposite. He provides a link to dozens/hundred of pages of info to claim that somewhere in the middle of it is “proof” of his point.. without extracting the relevant portion..

    if you want to debate on the merits – be scrupulous about the use on referenced info – please.

    otherwise I get grumpy.

  15. Anonymous Avatar
    Anonymous

    http://www.tfhrc.gov/pubrds/06mar/06.htm

    Sorry about that.

    The article describes the reasons for the return of privately funded toll roads.

    “…Europe had neither highway trust funds nor tax-exempt bonds. So as the need for limited-access motorway networks became obvious after World War II, first France and then Italy, Spain, and Portugal rediscovered the toll-funded, long-term concession model.”

    It makes the point that the model is workable for megaprojects.

    “The long-term concession model appears to work well with large-scale highway, bridge, and tunnel projects for several reasons. First, these are precisely the kinds of projects that are the most difficult to develop using traditional highway funding. Amassing a large sum of money like $2 billion for a single project in one location is both financially and politically challenging.”

    But the real truth is in this quote

    “”Sooner or later, more and more transportation officials will embrace congestion pricing,” says Cofiroute USA’s Hausdorfer. “Why? To encourage fewer cars on the road. Whether it is higher tolls at peak hours or general road charging, the commuting public will come face to face with a very different form of public policy. [Because] no one wants to propose additional taxes of any kind, road charging and public-private partnerships become the alternative.”“

    In other words this is the (bad) alternative because gov’t leadership has no spine. And we are now in the business of building megaprojects (with public help) to enrich private enterprise and hide (or avoid responsibility for) the additional “tax” required to make it work. It is justified using a flim flam ROI analysis which is correct only so far as government coffers are concerned. If you consider the total public welfare, it is far less attractive, unless you also consider the (considerable) benefit to the contractors. Even Then, it is still less attractive.

    Since when do we build megaproject roads to encourage less travel? does that seem totally crazy to anyone but me? If youwant to encourage less travel, put up a forest.

    RH

  16. Larry Gross Avatar
    Larry Gross

    thanks for the link

    the article you referenced is basically a pro-toll road article.

    correct?

    re: And we are now in the business of building megaprojects (with public help) to enrich private enterprise “

    got a question for you.

    right now, we contract out the building of roads to private industry who… hold on to your undies….makes a profit…

    do you seriously think that if Government used government employees to actually build those roads that it would be cheaper?

    VDOT has 9000 employees. Would you like to see that number be 25,000?

    then why do you think that same government can operated roads cheaper than private industry?

    My local county put out it’s referenda-approved projects for bid and they all easily beat VDOT’s price.

    why is that if they are making a profit and VDOT is non-profit?

    do you think there is something going on with the way that “non-profit” government does business ???

  17. Anonymous Avatar
    Anonymous

    What has any of this to do with VDOT building roads?

    Selling an existing road so government can make money now without appearing to raise taxes is a fraud. Government can run toll roads for a profit, but they are greedy; they want to kill the golden goose and get all the gold now.

    Let’s face it. It’s an open question whether these contractors figure they are going to make money on the financing, by discounting what the government gets up front, or whether they can actually run the thing better.

    The lease runs for 99 years. Want to make any bets on how much maintenance gets done for the last 20?

    If CBBT buids a road across the middle of nowhere, where there was none before, and they don’t need eminent domain, loan guarantees, non-compete agreements, or any other government help, well, that’s a whole different deal, isn’t it?

    The private company proposed the same widening scheme—from 8 travel lanes to 12—but eliminated a pair of breakdown lanes. The company also proposed deferring some interchange improvements. “

    FHWA

    So what private enterprise did was save $2 billion by postponing necessary changes until such time as they will cost $4 billion.

    Who ever heard of 12 travel lanes and no breakdown lanes? they are not building us two new lanes, they are stealing the breakdown lanes and converting them.

    RH

  18. Larry Gross Avatar
    Larry Gross

    did you see this…”the toll increases on the Turnpike are contractually capped “

    the point about VDOT contracting out construction is .. do you think the government has the ability to write a contract such as to protect the public from abuses?

    The government writes contracts all the time…to private industry that will make a profit…

    the question is do you think the government is capable of writing a contract to protect it’s interests?

    do you think it would be cheaper to contract out stuff to profit-making private industry or for VDOT to do the work themselves?

    do you think that the Governors in a dozen other states are all equally incompetent at drawing up contracts that protect the public from being abused by private concessions?

    If I believe you – we can trust no one.

    We can’t trust the government not to screw up and we can’t trust private industry to not abuse customers.

    Where do you go from here?

    oh.. I forget.. the same government that you don’t trust to protect citizens interests in a toll road contract or concession.. you do trust them to be careful with spending the gas tax they collect..

    some folks think the Government is terrible at cost effectiveness and that private industry is quite a bit better at it – and you know we must feel that way about contracting out the building of new roads because VDOT does exactly that – they put the roads out for bid rather than build them themselves.

    and that’s the same process they use for existing road concessions

    so if you trust the DOT to contract out the construction of roads why do you not trust the same DOT to contract out the operation of the same roads?

  19. Anonymous Avatar
    Anonymous

    If VDOT contracts out construction there are standards. If the pavement mix is too dry VDOT can make them tear it up and do it over, or give back money, etc.

    If VDOT contracted out construction of the road to one contractor with a 99 year term, then I’d be highly suspicious.

    You think tolls are the greatest thing since the Hallelujah Chorus, the answer to all our road construction prayers, the resurrection of portions of rural America presently consigned to commuter hell, and nobody will notice that tithing is the same as a tax.

    I think they are dumb, backwards and counterproductive. Even the “pro toll-road” article starts off with a litany of failed tollroads, and explains that foreign nations developed toll roads because they didn’t have an easy to collect gas tax.

    Let’s leave it at that.

    RH

  20. Groveton Avatar
    Groveton

    “The government writes contracts all the time…to private industry that will make a profit…”.

    There is a big difference between contracting for a project and selling a public asset.

    Revenues – costs = profit. If you cap revenues companies will cut costs. Unless there are clear service level agreements with substantial penalties the company will cut costs to the detriment of quality and efficiency for the end customer. The check against this is competition and substitution. When companies try to achieve supernormal profits through the production of a cheap, low quality product their customers switch to another product. Competition and substitution are the absolute core of Adam Smith’s “invisible hand” philosophy. However, when there is a lack of competition and substitution the “invisible hand” fails. Teddy Roosevelt understood this when he busted the trusts. Tim Kaine understands this too but he is a tool of Virginia’s self-proclaimed aristiocracy so he just doesn’t care. His allegiance is to the first families of Virginia (you know – the ones descended from Pocohontas). As always in Virginia, the 99.99% of the people not included in the “first families” and not descended from Pocohontas can “eat cake”.

    “Rendell is of course motivated by old-fashioned greed. Pennsylvania is borrowing against its future to have a multi-billion dollar spending spree today.”.

    Bingo!

  21. Larry Gross Avatar
    Larry Gross

    …”Unless there are clear service level agreements with substantial penalties”

    there are. and Virginia – from what I hear is one of the more careful, better run states.

    and why would you be careful about writing such provisions for bidding ordinary highway construction and not insure more due diligence for a concession?

    I have major concerns about the states creating toll authorities to co-mingle money although apparently Florida and Maryland are doing this.

    one more point – if a company like Fluor/Transurban or Cintra or Macquarie would operate more than one toll road for a state and their tolls were capped and they had strict level of service agreements – would we care/should we care if their internal books showed one toll road “carrying” the other for a few years?

    I would invite you and Ray and Bob to read the following report that I think if nothing else will better inform as to the issues surrounding the P Turnpike.

    http://www.reason.org/pb70.pdf

    then this:

    “One of the prevalent myths about long-term toll road concessions is that somehow government would be “losing control” of a roadway as part of the deal. This really involves a fundamental misunderstanding of the nature of concessions–namely, that their entire legal foundation is a strong, performance-based contract that spells out all of the responsibilities and performance expectations that the government partner will require of the concessionaire. And the failure to meet any of thousands of performance standards specified in the contract exposes the concessionaire to financial penalties, and in the worst-case scenario, termination of the contract (with government keeping any upfront payment the concessionaire may have paid).”

    http://www.reason.org/outofcontrol/archives/2008/05/pa_turnpike_con.html

    then I would invite you to read this:

    “COMPARATIVE ANALYSIS OF TOLL FACILITY OPERATIONAL COSTS”

    http://www.wstc.wa.gov/agendasminutes/agendas/2007/March20/Mar20_BP6c_CompCostAnalyFinalUpdate030307.pdf

    my support of toll roads is one of pragmatic realism…

    Pennsylvania will get 12 Billion dollars in addition to relieving itself of the maintenance costs of the Turnpike.

    Think of Virginia – relieving itself of the entire I-81 or I-64 corridor maintenance costs AND what could be done with 12 billion dollars worth of up-front construction funding… for HR/TW, NoVa and RoVa?

    I’m not saying it is free..or nirvana or not without some serious issues that need to be well understood before signing on the dotted line – due diligence..

    but the reality is -that Virginia is not going to get 12 billion dollars worth of construction money from trying to raise the gas tax.

    They’d have to raise the tax 20 cents to raise just one billion and that is just not in the cards no many how many times the “raise the tax” crowd says “pretty please” or blathers on about how our leaders lack the spine to ..do what -commit political suicide?

    what part of p-o-l-i-t-i-c-i-a-n is not understood here?

    there is not a politically viable path to a gas tax increase – sufficient to generate a billion dollars a year increase in funding.

    Are we so sure that we were presented with a similar 12 billion dollar deal that we’d not even consider it?

    How about if JLARC and the Virginia Auditor of Public accounts anointed it?

  22. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    “And the failure to meet any of thousands of performance standards specified in the contract exposes the concessionaire to financial penalties, and in the worst-case scenario, termination of the contract”

    Really? Thousands of standards? You know, the Navy played that game with NMCI. They had a binder full of SLAs and performance standards. Now there are seven. What they found was a requirement for a regiment of people just to memorize each and every standard, and a whole host of others to enforce them. The costs were excessive to both parties, especially in an era of reduced federal manpower. So they redid the contract. Some advocate back in the beginning said that NMCI would be just like ordering cable at home. Boy, did that ever turn out to be true. The rank and file can’t effectively complain, and EDS nickel and dimes them to death.

    So what makes you think something simple like running a toll road will turn out any different?

  23. Larry Gross Avatar
    Larry Gross

    Darrell – you actually picked something I know something about.

    It was what I worked on for a number of years and NMCI makes a toll road concession look like child’s play although I tend to agree with your point but there are 5 or 10 major contractual items that cover 95% of the most important issues.

    You’d want to cap the tolls at inflation or some reasonable index.

    you’d want all construction to adhere to AASHTO standards.

    you’d want a level-of-service agreement

    NMCI was not the problem by the way. The problem was/is that every government worker above a GS-9 expected a custom PC and unlimited tech services for whatever combination of incompatible hardware/software he/she chose to bubble-gum together.

    These are folks who get Office 2007..and save their files in 2007 and send to a 30 person distro list where have the folks don’t have the 2007 software to read it.

    These are folks who will plug in a USB flash drive on a secure machine and then wonder what all the fuss is about…

    classified/unclassified networks?

    no problem – just get a router…and put it in the wiring closet…

    NMCI was a nightmare… there were times when I thought even EDS would not tame the beast.. and perhaps they have not… but in NMCI’s case, the contractor could be perfect trouble would abound….

  24. Larry Gross Avatar
    Larry Gross

    and I’m sort of surprised with Groveton.. a businessman..who I am sure can do or die with contractual “paper”.

    and yes.. for every contract provision, a really clever and really slimy type can evade it.. but there’s a little thing in business called “reputation” and word gets around…about folks who don’t honor contracts…

    VDOT and other Virginia Govt often require pre-certification of bidders and they reserve the right to exclude ..with cause.. those that have sketchy reputations..

    but Darrell .. imagine a concession offering 5 billion dollars for your tunnels…

    you could actually start building more bridge/tunnels right away and if they were tolled.. generate more funds for the rest of the infrastructure

    all without a gas, property or sales tax increase… and – all while you are still alive… ;-).

    DANG! someone stole my idea:

    “Long-term leases for roads

    May 7, 2008

    With overwhelming citizen opposition to sales or gas tax increases and transportation congestion and gridlock continuing to worsen in Hampton Roads, Virginia must consider a different funding option to address the transportation deadlock. One such option is the concept known as a transportation concession.”

    http://www.dailypress.com/news/opinion/dp-op_hamilton_0507may07,0,7959954.story

  25. Groveton Avatar
    Groveton

    We’ll see, I guess. I’ve seen a lot of outsourcing contracts. However, I’ve never seen one that spanned 75 years or 99 years. Can you imagine how a contract would have been written in 1909 or 1933? We’d just be ending those contracts today of they were 99 years or 75 years long.

    So, what happens? No contract lasts long – especially the first version. As the contract is executed, previously unforseen problems emerge. Usually these problems stem from governance issues. The contract executor thinks they have the right to decide how changes should be done and the contract’s customer (i.e. the state) thinks they should decide hoe changes are done. Soon, the additional cost of lots ot relatively small problems add up. The early economics of the deal don’t look as good as the original contract expected. The contract executor says the customer will have to pay more for all the unforseen activities. The customer says that the contract executor is already in breach on several terms because the terms are so detailed that unforseen conditions put the vendor in breach. So, now there is a standoff. Each side feels they are entitled to something from the other. At this point the real long term contract is negotiated. The original contract is renegotiated or both sides decide that they can’t really come to terms and they wind down the contract. So, I’d look at the renegotited contract 3 or 4 years after the original contract is signed.

    As for this being Gov. Kaine’s shining accomplishment – I agree. I predict it will be the “loud bang in the night” that finally wakes up the electorate in NoVA. I think this will turn out to be less popular than the abuser fees. If the Virginia Republicans had any brains (which they don’t) they would be lying in wait for these tolls to be implemented. They would then get into NoVA and say, “look what the Democrats do … they sell off public assets you have already paid for. Then they charge you again with ridiculously expensive tolls. And what do we get from the companies which “bought” the roads you already paid for? Existing breakdown lanes converted into driving lanes. Was that too hard for the incompetents at VDOT to figure out? And where has the money gone from the up front payment and tolls? To VRE. And what happened when the loans were paid for the Dulles Toll Road – you remember – the promised time when the tolls would be discontinued? The tolls were raised 50% and continued in order to pay for a mythical subway system. And how many places outside of NoVA will the state institute congestion tolling? None. Have you ever driven on Rt 64 in and around Richmond? Did it seem congested? Have yo ever driven on Rt 3 through Fredricksburg? Did it seem congested? Have you ever been on Rt 81? Did it seem congested? How about Rt 29 in Charlottesville? Why do we hear the loudest yelps for congestion tolling from people who live in congested regions that have no intention of implementing congestion tolls in their region? Finally, where were the NoVA state politicians when these decisions were being made? Were they in their usual posture – slack jawed and glassy eyed – watching while NoVA got screwed again? Maybe it’s time we had new representatives in Richmond.”.

    Yep. This is going to go over like a lead balloon.

  26. Anonymous Avatar
    Anonymous

    “This really involves a fundamental misunderstanding of the nature of concessions–namely, that their entire legal foundation is a strong, performance-based contract that spells out all of the responsibilities and performance expectations that the government partner will require of the concessionaire.”

    Ever eaten at any of the (even brand name) concessions on the Jersey Turnpike? They have been squalid, low-quality operations for decades.

  27. Anonymous Avatar
    Anonymous

    “Pennsylvania will get 12 Billion dollars in addition to relieving itself of the maintenance costs of the Turnpike.”

    No.

    The Pennsylvania GOVERNMENT will get 12 Billion Dollars. The Pennsylvanial people will get $12 Billion minus the increase in tolls for the next 99 years.

    It’s pretty easy to show that the pragmtic reality of that is that Revenues – costs = profit. Revenues go to government, costs go to the people, profits go to the concession. The people are out the the amount of profit.

    RH

  28. Anonymous Avatar
    Anonymous

    “but there’s a little thing in business called “reputation” and word gets around”

    What do you care, if you have a 99 year contract?

    RH

  29. Anonymous Avatar
    Anonymous

    “Existing breakdown lanes converted into driving lanes. Was that too hard for the incompetents at VDOT to figure out? “

    For a billion dollars?

    RH

  30. Anonymous Avatar
    Anonymous

    “The tolls were raised 50% and continued in order to pay for a mythical subway system.”

    And now we find that the part that is not mythical is seriously over capacity (in the downtown area), has a half bllion in deferred mintenance, another half billion in unmet operating funds, and another half billion in order to upgrade the system so it can run the eight car trains we don’t have yet.

    Because of contract performance issues.

    RH

  31. Groveton Avatar
    Groveton

    Ever read the HG Wells book, “War of the Worlds”? Or, watch the recent movie of the same name? In the story, the martians are pretty much kicking the Earthlings butts until the Martians start dying suddenly and unexpectedly. Turn out that Earth’s germs are killing them. They could win a war against the humans but not against the germs. Pretty interesting story.

    Here is the story of the “germs of congestion”:

    http://www.businessandmedia.org/articles/2008/20080521145247.aspx

    $12 – $15 / gallon for gas?

    I wonder how much political support there will be for the tolls if that happens.

    This could be game, set, match for NoVA’s incumbent state politicians.

  32. Larry Gross Avatar
    Larry Gross

    Here’s one of the more famous comments arising from the hearings about the lease concession and the contract performance items.

    “HELL, we can’t get our own government-run Turnpike Agency to give us that kind of performance”.

    yes… ditto here in Virginia with VDOT and METRO.

    so.. we have Ray using Government ineptitude to argue against the use of performance contract requirements private sector taking over from Government.

    which… by the way.. works all the time…every time that VDOT lets a contract – the contractor must meet the performance specs or suffer dollar losses… very effective.

    so here’s another question for youse guys –

    If one of the major private infrastructure companies offered to take on METRO, VRE and the HOT lanes in one package and they operated all 3 within the provisions of the contract – to not include cost overruns, deferred maintenance and capital improvements, etc…

    would that be a better deal that the current disjointed, turf-war competition between government agencies?

    do we think that actually having the same entity in charge of rail and road might lead to better coordination, true general-purpose multi-modal facilities built/operated by one agency instead of a mish-mash of various government players who invariably are incapable of efficient cooperation without heroic efforts.

    I cannot tell you what a problem it has been to get our local transit agency to agree to run shuttle buses from VDOT carpool lots to VRE.

    not on germane issues – no – because in their opinion – it was not in their mission statement.

    think of this – this is your own locally-funded (by property taxes) agency telling you to go fish…

    I think one of the problems that we have is not only the wretched chronic inefficiencies that come from government agencies but when you have several of them having turf wars and actually working at cross-purposes..

    yes.. private concession contracts do have their issues and there are pitfalls but how can anyone argue realistically that we are currently getting acceptable ‘contract performance” from government-operated road and rail?

    and that’s the big joke when we talk about “reforming” VDOT…

    remember when ..was it Gilmore or Allen that cut VDOT staff and VDOT turned around and outsourced work to their laid-off staffers and asked for more funds to do it?

  33. Larry Gross Avatar
    Larry Gross

    re: $12 gas

    gawd.. all this time. EMR was telling us about Fundamental Change and we were too thick to understand what he was saying.

    question: if coal could produce the equivalent of $1 a gallon “fillups” of plug-in hybrids…

    … if the price of coal doubles or even triples… will that still “trump” $12 a gallon gasoline?

    …if the price of coal – doubles or triples – does that mean that solar/wind becomes a serious competitor?

    and here we were arguing about whether or not a $1 a gallon gas tax would hurt consumers…

    nope.. but I can tell you that $12 a gallon gasoline will be the end of gas-tax funded roads for sure…

    of course at $12 a gallon.. commuter roads like I-95 are going to have a 90-10 mix of multi-passenger verses SOLO vehicles…

    I know..I know.. this is so unfair to those folks trying to find the American Dream of affordable housing…

    somebody has to be responsible for this outrage…

    if we get McBush (McCain) to designate OPEC as state-sponsors ofoil terrorism

    hmm… what …possibilities …

    let’s kidnap the OPEC leaders.. drug them and rendition them them off to secret prisons in “secure” locations…

  34. Groveton Avatar
    Groveton

    In the interest of full disclosure, there are some people who believe that oil prices will decline over the short term:

    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/22/ccoil122.xml

    Yet even in this article there is a sense of long term doom and gloom:

    “The ever-diminishing reserves of oil in the earth’s crust will doubtless drive crude prices to much higher levels over time – provided no new technology such as nuclear fusion abruptly changes the picture – but that will not stop cyclical ups and downs along the way.”.

    Electric cars supposedly have operating costs of 2 cents per mile.

    http://www.teslamotors.com/

    If you follow the asterisk, you’ll see that the 2 cents calculation is calculated using PG&E off peak electricity prices.

    Let’s assume a 40 mpg gasoline car. How muc gas price per mile is this?

    $/Gal………………..cost/mile

    $1.00………………..2.5 cents

    $2.00………………..5 cents

    $5.00………………..12 cents

    $12.00……………….30 cents

    So, at $12.00 per gallon an electric car saves 28 cents per mile over a 40 mpg traditional car.

    Assuming that electric cars and traditional cars have a useful life of 100,000 miles, the total savings would be $28,000. If the car only got 20 mpg, the savings would be $56,000.

    Right now, a Tesla costs $98,000. So, you could spend $70,000 on a 40 mpg car and break even at $12.00 per gallon gas (vs. 2 cents per mile electricity costs). You could buy a 20 mpg for $42,000 and break even.

    I know I’ve done the math “on the back of an envelope” and I’ve ignored the time value of money. However, I think I have this right. Please let me know if I don’t.

  35. Anonymous Avatar
    Anonymous

    With 12 to 15 dollar gas, tolls will be unnecessary.

    Then we will have to bail out the concessionaires at taxpayer expense, and we will kick ourselves into the next century for putting hihgh speed toll gantries instead of livery stables.

    I heard a report this morning that some farmers are already switching back to animals. Now, if you worry that synthetic fuel is using up too mauch of our farm products, just wait till animals get back in the act.

    RH

  36. Anonymous Avatar
    Anonymous

    With 12 to 15 dollar gas, only the wealthy will drive, same as with tolls.

  37. Anonymous Avatar
    Anonymous

    “every time that VDOT lets a contract – “

    I don’t get much mileage out of that when every time they let a contract, the contract is longer than my lifetime.

    Groveton already pointed out that these contrcts are far different than the one for the guy who re-paved several miles of route 55 in front of my house – in one day.

    There is a job done in small batches, with well known, repeatable standards, frequently issued, and with plenty of competition.

    Not at all like a 99 year toll road concession.

    Let’s suppose the state was eilling to accept bids on that same job in front of my house with a 99 year term.

    -The bids would be a lot higher, because now the contractor has to assess 99 years risk of increased cost and maybe increased damage from increased traffic.

    -You wouldn’t expect the contractors to pay the state up front to GET the contract, unless they saw an even Greater revenue stream from some other source (tolls).

    – Therefore, it can’t be as relaible and it can’t be cheaper.

    RH

  38. Anonymous Avatar
    Anonymous

    “…would that be a better deal that the current disjointed, turf-war competition between government agencies?…”

    Now, THAT is an interesting question.

    How about 5-year competitively repeating contracts for operations only? Governemt still sucks up all the captial costs and owns the infrastructure.

    RH

  39. Anonymous Avatar
    Anonymous

    “Electric cars supposedly have operating costs of 2 cents per mile.”

    Plus the costs of depreciation and financing on $80,000 worth of capital.

    0 to 60 in 4.3 seconds. YeeHah.

    RH

  40. Anonymous Avatar
    Anonymous

    How are you going to spend $70,000 on a 40 mpg car? Don’t most cars in that mileage category cost around $22,000? Or less?

    You could easily spend $70 on some beemoth that only gets 15 or 20 mpg, though.

    RH

  41. Larry Gross Avatar
    Larry Gross

    To a certain extent the economics of the cost of gasoline don’t matter a wit if we’re talking about getting some KFC or Thursday and buying a years supply of ketchup at Costco on Friday and deck stain at Home Depot on Sunday.

    the “economics” come in if you are a person who drives a 100 miles a day to and from work.

    The former activities won’t change much. The latter will.

    it all goes back to how much you use.

    the folks who base their lifestyles on consumption will certainly feel the pain quicker and more continuously than the folks who are more frugal.

  42. Anonymous Avatar
    Anonymous

    If you are a person who drives a 100 miles a day to and from work, you are a small part of the economy, as we have shown above.

    The vast majority of driving is the other kind, although Larry refuses to believe it.

    RH

  43. Larry Gross Avatar
    Larry Gross

    “vast majority”

    let’s get to numbers

    how much traffic on I-95 and I-66 is of the 100 mile a day variety?

    how much is more than 50 miles a day which is twice what you say is the average commute?

    a 27 mile a day commute at $4 a gallon verses 3 bucks is on the order of 1 or 2 dollars extra cost.

    Those folks are not going to be substantially affected by $4 or even $5 gasoline.

    Tell me how much the traffic on I-66 and I-95 fit into that category.

    If the majority of the driving is as you say – the 27 mile category than why is $4/5 gasoline such a big deal?

  44. Anonymous Avatar
    Anonymous

    http://www.directionsmag.com/article.php?article_id=390&trv=1

    This is an interesting article on how to locate a store in Montgomery county, using proximity demographics.

    I imagine that EMR would tell you the answeer is simple: silver Spring, Bethesda, and Takoma Park have the most Mobilty/Access.

    The article comes up with a different answer, based on a five mile drive time.

    RH

  45. Anonymous Avatar
    Anonymous

    Here is some commute data for HR

    The average commute time for Peninsula commuters was 26 minutes (morning) and 28 minutes (evening). Southside commuters report traveling an average of 29 minutes (morning) and 31 minutes (evening).

    Ž Average distance traveled was 20 miles for both Peninsula and Southside commuters. Average distance traveled on HOV corridors was 16 miles for Peninsula commuters and 15 miles for Southside commuters.

    http://www.virginiadot.org/info/researchdatabase/uploads/02003/summary-hov%20attitudinal%20research%20among%20hampton%20roads%20commuters.htm

    RH

  46. Larry Gross Avatar
    Larry Gross

    “Commuting in Spotsylvania

    With two-thirds (67.2 %) of respondents working outside of the County.

    the median commute time is 45
    minutes (one way).

    28% report commute times in excess of 60 minutes (one way).

    http://www.spotsylvania.va.us/emplibrary/Board_of_Supervisors/Citizen_Satisfaction_Survey/2005_Survey/Chapter_6.pdf

  47. Anonymous Avatar
    Anonymous

    OK, but Groveton pointed out, 67.2% of Spotsylvania is insignificant.

    Compared to all the travel with inner core destinations.

    RH

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