Injecting the “Public” Back into Public-Private Partnerships

P3sWe haven’t heard much about Public-Private Partnerships since the days of the McDonnell administration, which touted P3s as a tool for leveraging limited state transportation funding into more road and rail construction. The problem with the McDonnell team’s reliance on P3s wasn’t the grand strategy but the execution. The tolling of the Downtown-Midtown Tunnel in Norfolk proved so controversial that the state felt compelled to cough up money to buy down the cost of the tolls. Also, the U.S. 460 Connector turned into a fiasco potentially costing the state $300 million, including $250 million in payments to the concessionaire to do nothing even though the U.S. Army Corps of Engineers had balked at issuing wetland permits for the proposed route.

Trip Pollard, staff attorney with the Southern Environmental Law Center, has been one of the most outspoken critics of Virginia’s P3s. But in a recent post on the Brookings Institution blog, he says he sees them as a potentially valuable tool to supplement public funds with private capital. Rather than throw out the P3 option, he argues, we need to build more transparency, public input and government oversight into the P3 approval process. He offers several concrete suggestions.

Speaking of public engagement with P3s, here are the new  “P3 Public Engagement Guidelines” released by the Office for Virginia Public-Private Partnerships. I’m not sure it’s possible to fully reconcile the private sector’s desire to negotiate in secrecy, not in the press, and the public’s right to know. But the McAuliffe administration is making a yeoman’s effort of trying to thread that needle.

Meanwhile, occasional Bacon’s Rebellion contributor Randy Salzman is still doggedly pursuing P3s. He asks a simple question: How is it possible that so many P3s have proven to be financial disasters, and why, knowing their abominable track record, do private-sector players continue to invest in them? Do the private participants engage in behind-the-curtain financial engineering that makes P3s profitable even if revenues fall short and the projects tank? He has come up with some tantalizing leads but no definitive answers. My suspicion: Follow the TIFIA loans, federally backed loan guarantees that absorb much of the risk inherent in P3 projects. What are the underwriting standards for those loans? How many have gone bad? How much in losses has the federal government sustained?

— JAB

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17 responses to “Injecting the “Public” Back into Public-Private Partnerships

  1. Mt. Pollard is probably correct. As it is with many other things, entitlements, education, health care – too many of us are more than willing to throw out the baby with the bath water with no real alternative rather than focus on what needs to be fixed –

    “fixing”is good. “fixing” is harder than throwing everything away and walking away with no real alternative.

    the frustration we have – is that we can’t have the perfect govt we want to have. W’re intolerant of it’s flaws and mistakes – often considering them “proof” the govt can’t be competent and should not be doing what is is doing in the first place.

    think of PPTA as the transportation version of school vouchers or medicaid expansion.

    there’s a phrase called DBO – design, build, operate…

    how is that different than PPTA?

    also TIFIA is a LOAN and unlike higher ed school loans – it has to be repaid – and where does the money come from to repay it.

    If you lower tolls that would be used to repay the loan – how does that work?

  2. Again….I’d like to give the McAuliffe Admin some praise….at least they’re trying to make P3s a little more realistic/transparent…just like they’re trying to improve transportation funding decisions….just like they’re trying to diversify economic development efforts…just like they’re trying to reform ABC…..all of these are important policy (as opposed to politics) reforms that are at least getting some serious attention.

    To be honest, the 2013 vote was one of the hardest choices I’ve had. I knew I wasn’t going to vote for Cuccilunatic. But I had a lot of misgivings about McAuliffe. I figured we’d get a lot of politics and little to no serious policy reforms. It was a tough call between McAuliffe and a protest vote for Sarvis. While I’m not pleased with everything, I’ve got to say that this administration has been much better than I could have ever expected.

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  4. I agree with your assessment. It’s refreshing to have a gov who seems focused on fixing things – at least more than partisanship…and I bet dollars to donuts he’s not telling the Mansion chef to steal food and sell it to pay for catering personal events and blaming bribers and spouses for your own lack of integrity to refuse bribes.. snark.

  5. Perhaps the flaw is with engaging the ‘private’ into what is the public’s business. Government is NOT like a business. The goals are totally different, as are the obligations.

  6. and what obligations people are willing to pay for – which is one of the motivations for PPTA – as well as using tax dollars to buy down tolls.

    my dividing line for what should be govt – is if it provides something – is there boundless demand for it – and if there is – how do we cap or limit it to live within the means of what people are willing to pay for?

    people want all you can eat for one-low price and that only seems to work at food buffets.. primarily because there is a built-in “governor” – your tummy.

    the worst thing that ever happened to Medicare was Medicare Advantage because original Medicare only paid 80% – and people made choices since they also had financial skin in the game.

    Once we got Advantage – and “everything is included” – things went to hell in a handbasket.

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  8. I am concerned about the use of PPP so broadly. They have been used by colleges and universities across the country to finance construction which could not be done through normal bonding. For example, I know one university, not in Virginia, which had maxed out it bonding and could not get approval for new bonds to build a new recreational facility. So two local university connected businessmen went out and formed a corporation which leased land from the university. In turn the university signed an agreement to lease purchase a new rec center (about $80 million). The new corp took the lease and the lease purchase agreement and got an economic development bond through the local city. They built the facility and the university leased it over 30 years. The lease required the university to agree that the lease was put ahead of all other expenses except normal bonds.
    Universities have built more than $200 billion in facilities using this approach to build buildings that they could not fund by issuing normal bonds. They have built posh new dorms while older less expensive dorms sit empty. And they have built hotels and stadia that they could never have financed through normal bonding approaches.
    Now that student debt is approaching $1.3 trillion institutional debt is approaching over $500 billion or half a trillion dollars.
    These PPPs are a means of borrowing money that one is not qualified to borrow under normal financial standards. It is a lot like the “statement of income” used in the financing of homes in the previous decade where the bank took a hand written statement of earnings by the borrower without any verification.
    Regardless of education or roads this is a way of going around the barn to borrow money that would be impossible under normal financial standards.
    So there is reason to worry.
    Lots of new types of credit cards out there and students use them and so do government officials to the concern of all.

  9. Well the State could fix this PDQ if they wanted to.

    Down our way Mary Washington College recently acquired an existing shopping center across from the College. They built some upscale dorm/apartments and on the first floor rented out to various restaurants and other businesses.

    this could be a clever and successful use of PPTA or it might be an unmitigated disaster financially – but we don’t know and I suspect we never will unless it goes belly up.

    I have no idea how a Higher ED PPTA goes bankrupt but I bet it’s ugly and ultimately involves taxpayers.

  10. “Do the private participants engage in behind-the-curtain financial engineering that makes P3s profitable even if revenues fall short and the projects tank?”
    the downtown/midtown tunnel tolls (thievery) are guaranteed profit. every year. at a certain percentage.
    1) no one in their right mind would sign that contract, unless of course it wasn’t their money to lose
    2) lowering the tolls for the citizens didn’t help the state, we just all covered the bill collectively in taxes as opposed to citizens paying on their own.
    3) private businesses looking to loot tax base coffers are not very receptive to transparency? shocker
    4) the new gov may not be as blatant as mctolls but he certainly is no saint/god send that many see him as. he’s already shot down transparency and data retention regulations as he is just another puppet of big industry.

    transparency and civic engagement are the best weapons in the citizens tool box for combating these forces. get involved.

  11. re: ” …the downtown/midtown tunnel tolls (thievery) are guaranteed profit. every year. at a certain percentage.”

    so is Dominion, right?

    the other question is – if the State does not have the credit capacity to build things like tunnels – then how would you do the tunnels (or other new roads) without tolling them?

    is the argument more anti-toll than anti-PPTA?

    the basic issue is that if the state solicits proposals and bids – and there are competitors – they don’t want their competitors to have access to information and that in turn works against transparency for the public.

    I support PPTA – done right… and I support tolling – but they are separate issues.. for me.

    I simply do not think that tunnels would have been built without tolls… If the tolls are not the issue but the ownership – i.e. let VDOT run them – “non-profit” – they still have to borrow the money and pay it back.

    • the tolls are thievery because of their implementation, not because they are tolls.
      i agree with most of what you say, and hrva definitely needs tolls to build/expand our bridges/tunnels.
      the tolls don’t offer a cash option, you have to opt-in to ez-pass. that is ridiculous in its own right, moreover a horribly run organization, even more horrendously run in virginia than other states.
      you must keep x amount of dollars in the bank in order to maintain this account- regressive tax on poor people.
      the account charges you monthly in virginia (not other states)…..for what?
      if you don’t have ez-pass you are automatically schwacked with a higher fee.
      elizabeth river crossings charges ridiculous late fees, again regressive tax, moreover they are more incompetent than ez-pass. a quick look at the anti-toll group (i agree, poor name) on facebook and you can see all the accounts of how inaccessible customer service is there. its only set up to take your money.
      ez-pass cannot even differentiate between capital O and 0 (zero) when they read your tags – people are getting tickets when they haven’t crossed the tolls.

      its entirely set up to profit off the people.

      they are guaranteed profits each year – if the tolls don’t make it, virginia’s taxes will cover it. literally no one could cross them all year, and they’d still profit.

      they are tolling before the work is done? name one project that has ever done that.

      there is a clause in their contract forbidding any new crossings on the elizabeth river…..wanna build light rail? too bad

      the contract is a joke. a travesty placed on the shoulders of some seriously bad economic times in portsmouth and the rest of hrva, as well as the state.

      you can look on trip advisor and other tourist sites and the word is already getting around, avoid southside 264.

      it seems like every step taken in the whole thing was to defraud and steal from us. they don’t even have clear visible signage in regards to the tolls, they’re actually quite confusing. and to benefit erc, not far from the tolls, so if you’re confused, you’ll drive right into them.

      mctolls shoved this down our throats like the 460 deal.

      to be clear, yes to tolls, when they are transparent and ethical. government is not a business. it should not be run like one, and should not be in bed with it.

      • Take the Greenway: now that the profit has been made they are in ‘bankruptcy’. And the state has to pick up the tab! And the financial geniuses who came up with it are still in public office … doing well too as ‘fiscal conservatives’!

      • A few accuracy issues here. For example, you say, “the account charges you monthly in virginia (not other states)…..for what?” I don’t think so. Or, “if you don’t have ez-pass you are automatically schwacked with a higher fee.” Not necessarily, but they did pass along some of the labor cost-savings just to EZPass users when EZPass did away with many toll booth attendants and I’m fine with that.

        • i’m really happy you don’t think so, but your opinion doesn’t matter. they do charge monthly and other states don’t. they also have a set up fee and other states don’t, that’s why so many people opt to purchase theirs from delaware.
          the tolls are higher if you don’t use ez-pass, not to mention the fees for “processing and handling”. i’m not sure what you are referring to about removing toll booth attendants, but there never were any in midtown/downtown tunnels, so that’s not a valid point either.

  12. not sure cash is viable anymore – now that electronic works – it would add costs and require people to move off to the side on entry because they’d not put in traditional physical toll booths.

    in terms of “bankruptcy” – I’m pretty sure the state is now thinking about hyprid tolling – where the tolls won’t cover all costs and the state will have to kick in additional money – which would still be cheaper than no tolls at all.

    I think given the funding situation tolling for some kinds of roads is here to stay but in addition they’re going to use variable tolling to shape congestion.

    thought the term – “transparent and ethical” was interesting and probably would listen to more specificity on what it is and is not.

    • electronic doesn’t work – again, they can’t even scan the plates correctly.

      moreover, cash will always be more viable, its on hand (time value of money). but more importantly, credit is simply not an option for a large swath of the population, especially when its compounded by the cracked infrastructure that i already pointed out.

      transparent and ethical – lets break it down
      transparent – do everything in the public view. not only allowing us to read everything (down to the last detail) but permitting feedback. i’m not trying to be rude, but this is really common sense. if your using public funds to do something, it should all be laid out in black and white.
      we don’t even know where the money for 460 went. vdot and the company hired are quite hush hush about it. follow the money. foia them to death. a quarter billion…..for nothing. for what? for nothing.

      ethical – the terms involved should always be for the public benefit, and nothing else. a 70 year, non-compete, guaranteed profit contract benefits everyone involved except the citizens.
      charging $25 service fee because you don’t have an ez-pass is unethical for a public institution. private, still unethical, but they can do what they want.
      requiring $2 service fee on accounts that aren’t serviced and rely entirely on automation for credit/debit is unethical for a public institution. i could go on and on. again, not trying to be rude, but this is clear and common sense.

      i’m not going to point a finger at either party, or rather, i point them at both; they’re all in it for profit and could careless about common folk.

      transparency is the key. ethics will follow, either driven by belief or fear, from public outrage once we see where our money is going and what it is being used for.
      “sunlight is said to be the best of disinfectants”

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