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. Continue reading