tollsby 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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40 responses to “P3 Mirage”

  1. Can I take the link to this and ask the same questions of our legislators? I have almost all the emails and I hit them up on issues like this. If they don’t answer, I keep on bugging.

    They vote on issues for ALL Virginians, that affect them all, so whether or not they get elected by a smaller group that isn’t me, you do vote on issues relating to me and I’m saying something.

  2. Salz, I have a couple of questions/comments.

    You write, “I’ve learned that in any American toll concession, the private money is rarely as much as 15 percent of total project costs.” By “private money” do you mean the concessionaire’s private equity or do you mean total private capital, which includes bond financing, and perhaps even TIFIA-backed bond financing.

    Here’s the figure that I found most amazing: “Four in 10 P3 transportation concessions will eventually go belly-up.” That’s an extraordinarily high default rate. TIFIA loans are popular because they help finance projects that might never get built otherwise. But clearly, given the projected default rate, TIFIA is severely warping the cost of capital and encouraging the taking of ill-justified risk.

    The second most amazing fact: TIFIA loans don’t require toll projects to begin paying interest for 10 years. Toll projects do need some time to ramp up revenues, so I’m not surprised that there is a forgiveness period, but ten years sounds extraordinary.

    The impression I get from what you say is that TIFIA is a debacle, and that the biggest problem with private P3 financing is TIFIA. Shut down that federal subsidy, and bond holders will exercise much stricter due diligence — and a lot fewer projects will get funded and built.

    1. While generally my impression is that TIFIA isn’t good for America in the long run, I’m not sure if I’d call it a “debacle” because — maybe — the intent of congress was to get highway projects started in an era when everything seemed stalled? Perhaps paying millions/billions more was/is less of an issue than not building a transportation infrastructure for a possible future (though in my mind it would be the wrong future). People smarter, with more time and some income, should however look deeply into your impression. That’s what I want! Keep in mind, Jim, that Everett Dircksen’s “A billion here and a billion there and pretty soon you’re talking about real money” (maybe he said “million,” that’s up in the air) has been replaced by Dick Cheney’s “Deficits don’t matter.”

      I’m old fashioned and think $18 trillion in debt is a massive, massive problem but, again, there are smart people out there who agree with Cheney…

      Asking one of those very smart people, a lawyer/finance guy (who doesn’t agree with Cheney) about why the big investment bond buyers would provide Indiana Toll Road shell company with $6 billion after it went belly-up with $3.8 billion debt…think about that…he assured me that bond buyers for the big firms damn sure would know how every T was crossed, every I dotted before they’d buy any bonds.

      Since they are putting up this money (at least in Indiana Toll Road case), the only reasonable assumption is that they KNOW someone besides the questionable P3 toll companies are backing the bonds. Remember, please, that the Indiana Toll Road emerged from bankruptcy in a month. Why, if that the P3 was losing actual investor money, would more investors show up so quickly to chance their dollars???

      What folks in North Carolina have discovered by comparing the I-77 federal and state contracts is interesting. According to their readings, I-77 Mobility Partners (a shell company from, I think, Cintra) has promised to pay 3/4 of all toll revenue to NC and promised to begin it’s TIFIA payback in 2025 to the tune of $25 million. That means that short stretch of toll road north of Charlotte will have to generate two and half time the most successful toll road in the nation — in the much larger population center of Los Angeles and Orange Coounty — OR go bankrupt.

      If NC is reading it’s own contract, negotiated by another of the law firms that is proud of how much money it makes for investors, (itself a doubtful idea), it certainly is not reading I-77 Mobility Partners’s contract with Uncle Sam. Probably vice versa. Who is reading the contracts? I submit it is ONLY the privates and if they consider going bankrupt, the contracts actually make little difference to them.

      And, yes, I mean “equity.” The TIFIA loan, and the “private activity bonds,” I submit, are not private dollars until the privates pay the loans back and the bonds off…which the history indicates they will not do.

      Off top of head, excuse typos, etc. Hope I addressed your — legitimate — concerns.

      My prime “message” is that WE, THE PEOPLE need to begin to pay attention. These things might actually be “capitalists’ gifts to taxpayers” but our economic system demands that “the buyer beware.”

      Because our mainstream media doesn’t cover the overall P3 story — in any way shape or form (thank you for allowing me the space to say something) — and parrots press releases from the privates while talking only about a single project, We, the People can’t “beware.”

      1. Virginia P3 Office Avatar
        Virginia P3 Office

        Thank you, Jim, for helping prompt a robust discussion on this piece by Mr. Salzman (“P3 Mirage) about the value of delivering transportation improvements through public-private partnerships. VAP3 answers similar questions every day in our own exploration of how to gain the greatest value for a priority improvement done when traditional tax and bond strategies can’t get it done. So we’d like to put a few things in perspective to further a better understanding of P3s.

        Public-private partnerships are not privatization of public infrastructure.
        In the case of transportation P3s, for example, the Commonwealth always retains ownership. Through project Comprehensive Agreements, the Commonwealth has detailed performance requirements and clear provisions for the Concessionaire handing the operations and maintenance back to VDOT at the end of the concession period. The Commonwealth uses private firms and vendors for all types of services, including design, construction and maintenance of VDOT facilities and roads. This relationship between the public and private sectors has been active for centuries in Virginia.

        Public-private partnerships allow sharing and transfer of risks.
        We have insurance and credit rating industries precisely to identify, measure, allocate and manage risks. Transferring the risks of design flaws, construction cost overruns or anemic revenues to a private partner puts private equity providers and privately held debt holders on the hook, not taxpayers. Two Virginia examples discussed (Pocahontas Parkway and Capital Beltway) both had powerful financial consequences for the private partners, but Virginia taxpayers saw no additional costs and no reduction in services provided under those Agreements.

        The Transform66 Outside-the-Beltway Project will proceed as a public-private partnership only if a P3 delivery method provides more value to the Commonwealth over the project life cycle than traditional design-build or design-bid-build methods. A decision on the delivery method will be made in December after a full public hearing and a meeting of the Commonwealth Transportation Board in Alexandria. The public already can view the draft term sheets that are starting points for any final agreement at both the project website and the VAP3 website.

        The evaluation being made is on identifying the best value over the life of the project, including operations and maintenance over decades, not just the lowest cost of design and construction upfront. P3s succeed when the life-cycle cost savings and efficiencies of combining design, construction, financing, operations and maintenance outweigh the lower cost financing advantage of a publicly-financed traditional procurement. Facility users, not general taxpayers, pay for the operations and maintenance costs.

        Triple-A bonds issued by the Commonwealth always are the lowest cost of finance, but Virginia carefully limits its Triple-A issuances to maintain that rating and taxpayers are on the hook for debt service. Revenue bonds backed by tolls do carry more risk (they usually are rated Triple B-), but in P3 projects the bonds can be issued by the private partner and do not count against the Commonwealth’s debt capacity. Because Triple B- bonds pay a higher interest rate, they attract investors looking for higher yields. Private investors in those bonds, not taxpayers, take the risk of not being repaid (see risk allocation below).

        A year ago the Ontario Auditor-General also found on average, P3 projects were delivered 27 percent less expensively than original estimates because of the integration and efficiencies of design, build, finance, operations and maintenance services. The province’s Infrastructure Ontario organization was formed in response to a series of schedule delays and large cost overruns on projects delivered through traditional procurements. Despite higher financing costs, Infrastructure Ontario P3s are documented as delivering higher quality, faster delivery and more value for public dollars.

        Toll concession projects do have to contend with all the economic and political forces that every business faces, including the prospect of financial restructurings and even bankruptcy. Realistic assumptions about use and revenues drive success. But well informed investors looking for investments in the infrastructure asset class are used to taking risks in anticipation of higher returns. In the end, the bankruptcy and financial restructurings belong to the private partner, not the Commonwealth. Transferring those risks provides a major value to the public.

        Public-private partnerships are not a substitute for strong, predictable public funding for infrastructure improvements and repair. But as needs continue to grow more quickly than traditional tax revenues and bond capacity grow, P3s can help fill the gap for priority projects. We are building better data on both traditional procurements and public-private partnerships. More questions and more discussions ultimately will further our understanding of what constitutes best value for Virginia taxpayers and transportation service consumers.

        Please contact me directly at as additional questions occur.

  3. VaConsumer Avatar

    I have often wondered how private entities who must make a profit can cost us less than well managed government funded ones. Apparently, one must unquestionably accept the premise that government is wasteful and expensive. My view is that some things, like roads and related infrastructure, need to be paid for collectively to serve everyone and it’s typical that government can do it best. As we’ve starved government since the Reagan years, we’ve reached a point where we don’t have infrastructure, we don’t have safety inspectors for food to pipelines, things are falling apart. Meanwhile, we have some super successful CEO’s and huge companies who are laughing at the average citizen as they rake in the cash as they plot the next scheme to separate us from our hard earned money. Giving up my resources to a for profit company is far harder than giving them for the real common good.

    1. Ahh … the starving government claim -

  4. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    As best I know this started back in the late 1970s and early 1980s. As best as I can tell the results in the main have been dismal ever since.

    “It’s highway robbery. Its a disgrace. Everyone knows that these tolls are ripping people off and there is not much we can do about it” was one characterization apparently by Representative Frank Wolf as he is quoted in Wikipedia in article titled “Virginia State Route 267.”

    The remarkable fact is that the State of Virginia keeps on doing these “deals.” That in my view is a public disgrace.

    And they want to keep doing them, and keep hiding details from the public.

    “Deputy Secretary of Transportation Nick Donohue told the conference that Virginia and California lead the country with their P3 laws, and that delegations from other states frequently visit the Old Dominion to see what has been done here. Stymied by transparency laws from talking to private corporations “off line,” he explained, other states cannot enact laws like Virginia’s. And that curtails the ability to put together deals like Virginia’s. An open and transparent process is critical to Virginia’s P3 law, said Donohue, but so is the ability to engage in confidential negotiations. He believes that Virginia has done a good job, based upon its extensive experience with P3s, in threading the needle between transparency and confidentiality. “Steps we have taken in the last couple of years have addressed a lot of problems” with Virginia’s law, he said.”


    I don’t believe a word of that quote, however well intended those words might be. Here past is prologue. One has to be a fool to believe otherwise.

    I few years back I spent a good part of several weeks reviewing past bond issues. Hundreds of pages. I was reminded, doing so, of the many indecipherable, non-nonsensical, opaque, and plainly unreliably and throw mud at the wall sort of traffic studies I had earlier read over the years. Obviously what I was reading in support of those bonds was designed to obscure rather than reveal plain truth and real risk. That is my opinion. They must flip this stuff out like pancakes these days. Who reads them? Who can understand them? I spend decades drafting and negotiating highly complex documents that regulated very large commercial transactions. I would no more rely on what I was reading in those documents I recently read on bond issues than I would try to fly my car to Mars.

    The Bar Association needs to look into this matter. In my view, some very bad habits now appear likely to have morphed into the makings of a racket. And of course no one is found to be responsible, despite the horrible string of results.

  5. Randy,

    I have to take issue with your blanket statement about privatization. As usual, the pro-government types don’t explore these situations with any nuance, usually resulting in post hoc reasoning and arriving at the conclusion that “privatization” is “bad” and “not gonna do it” For a more nuanced approach and how it should be done, even when there are downturns, just look what my friend Mitch Daniels did with the Tollway in Indiana. Government came out smelling like a rose because he was smart about it, unlike the buffoons here in Virginia. In Indiana, the private sector took it in the ear. That’s what privatization should be about. The Tollway still stands, albeit in reduced circumstances, with the public in better shape than it would have been. Maybe your complaint should be lodged at the feet of stupid politicians. You will probably note that Daniels is unusually smart for a politician, and that we can’t count on ordinary buffoon politicians to get it right so we shouldn’t do it. Yes, indeed, you’re right, the ordinary politician/government puke is a buffoon, and so you make my point for me.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Crazy D –

      You said:

      “I have to take issue with your blanket statement about privatization. As usual, the pro-government types don’t explore these situations with any nuance, usually resulting in post hoc reasoning and arriving at the conclusion that “privatization” is “bad” and “not gonna do it” For a more nuanced approach and how it should be done, even when there are downturns, just look what my friend Mitch Daniels did with the Tollway in Indiana. ….

      You make a very good point. Each transaction is entitled to stand on its own.

      That being true, I suggest that these transaction can be inherently risky absent special care and circumstances in most all cases. If that be true, should not sponsors and promoters assume very real and very substantial short and long term risks for a wide variety of losses and shortfalls during the life of the asset built. And should not there be very convincing evidence that sustainable cash flows and risk dilutions are built into the deal based on hard prior experience, seasoned performance and certifiable facts on the ground that each deal fully justify the risks asked of all investors.

      Should not high standards of performance be placed directly on sponsors and promoters given the prevalence of recurrent past failures in these sorts of transactions? If not, why?

      Concerns abound:

      How often do transactions or troubles have a Mitch Daniels in charge? Likely not often. More likely rarely. If true, why not?

      Are there tremendous pressures to do these or this deal imposed by people or interests who are taking little or no risk but stand to gain great benefit?

      Are fees of all sorts in very substantial amounts among those pressures?

      Are political pressures being brought to bear irrespective of the prudence due others, or undue risk that may be put on others further down the line?

      I am reminded of how few folks doing traffic studies made a living for long off nixing their clients deals because the traffic numbers do not work in their professional opinion. Or how few suffered any loss because the traffic projections were off target after the deal closed and the asset got built.

      Or how many Advisors did the same after concluding in his professional opinion the market driving his clients numbers could not be substantiated. Or suffered any loss when the market projected never materialized to support the project.

      Or how how many upfront fees are delayed and made fully contingent not on closing the deal but on its later performance and return for all investors.

      Or how many sponsors and promoters take heavy losses of time and real capital of their own after a closed deal fails to perform as represented.

      Who looks after all these concerns for all later investors or others that will find themselves on the hook for losses down the road, including the public?

      Do those who say they do really know what they doing? Have they personally ever taken any such risk themselves? If not, why? Do they really care? What is their personal risk if the asset built tanks or fails to perform, thus incurs substantial loss below projections or of investment too? None? A little? Never ever? Why not?

      All these are basic questions and concerns in any major commercial transaction with funds at risk. They need be asked and answered squarely, not finessed. Not obfuscated with opaque words. Not hidden in studies that no one understands or wants to understand. Not hidden in studies that overwhelm a clear understanding of the risks by asking the wrong questions while ignoring the right questions that will expose the snakes that everyone who has really taken the hard risks and who has fully controlled those risks knows will be found in most every woodpile in these sorts of transactions.

      In short, why have so many of these particular transactions failed? And if this is not a true statement and the vast majority of these investments have met their projections without lose to investors, why all the bad press?

    2. Mr. JD:

      I wish I had the space to say all the potential “positives” about P3s BUT my prime message is that we are ONLY hearing all the “posivites” in mainstream media coverage. Media parrot the press releases from the privates without the skepticism you exhibit towards my oped. And YES you should be skeptical. But you, and mainstream media, should apply the same skepticism to the claims that, for example, that private efficiency will ensure the project costs less (this is rarely, and probably never, true. All the data we have indicates that a P3 will cost “far more” money than a publicly built transportation highway); or the privates will do a BETTER job construction if they own the toll concession than if the state does because they, due to their longterm financial benefit in taking on all maintenance over the 50-100 year long contract.

      This is greatly debatable because few (probably none) of the toll concessionaires will still run the toll road in 15 years when it will likely first need serious maintenance. They will, more likely, be bankrupt, having handed the actual (now) crumbling concrete to the state by then. Besides that this is the “accepted” lifespan of a highway (about 15 years), it’s also the time frame that private shell companies can take “accelerated depression” on the highway. Here’s what few of us understand: Under U.S. tax code, IF we lease something for longer than the projected lifespan of that something, then we are allowed to take a 15 year accelerated depression on it.

      As Virginia’s present P3 director put it to me: “There’s a bunch of firms who have learned how to mine the tax code.”

      I don’t know what to say about your friend Mitch Daniels and I don’t claim to know whether selling that Indiana Toll Road asset was a good deal for Indiana taxpayers. But I doubt it was good deal for American taxpayers. Please look closely at the $6 billion of “new” money which has gotten the Toll Raod out of bankruptcy and ask yourself, “Why, if it couldn’t be profitable when it only owed $3.8 billion (purchase price), would investors think throwing almost twice that amount of money at it is a good idea?”

      Streetblog, by the way, did a three part series based on the Indiana Toll Road bankruptcy, asking pretty much that question, and concluded that P3s toll concessions are “bailouts waiting to happen.”

      See, also, Pocahontas Parkway southeast of Richmond. It’s gone under TWICE in less than 15 years. See that Transurban “bought” it out of the first bankruptcy with, for example, a $95 million TIFIA note to “service” the existing debt. Not pay it off, to refinance it. (There is other federal dollars thrown into the pot too, plus the original money for construction — none paid off). Now that the second bankruptcy is underway, WHO will recover/pay off/whatever all this debt? How much of the money that Uncle Sam will not recover in each bankruptcy “fire sale” be money that taxpayers will never see?

      I don’t claim to have the answers, I’m just appalled that mainstream media is not asking these kinds of questions.

      I don’t know if Indiana has any more or less buffoonish politicians than Virginia but I can report that Texas’ new governor, ____ Abbott, has rejected the P3 tolling concept AFTER the prior administration had gone heavily into P3s, and then into paying off the privates to buy down the tolls, and finding that the Cintra 130 — that state’s poster child P3 — still went belly up.

      Three things, I think, show up, regardless of how “buffoonish” any politician is. One, the politicians who get into these things are so ideological that they (possibly) neglect their responsibility. They just believe, almost religiously, that privates do everything better and more efficiently than public. Two, they desperately want to be able to say, “I did something for congestion” for the driving voter who cares (pretty much) only about getting other drivers out of his/her way. Three, they like to be able to say that, “My farsighted approach created all these good construction jobs today.”

      If, however, the state itself builds those projects without “private” money, numbers 2 and 3 are still applicable.

      Why, in media ccoverage of such projects at 95 Toll Lanes (out of D.C.) is that not pointed out? Before 95 opened, indeed while still in the contracting stage, reporters KNEW (or should have known) that the same company seeking 95 also owned the bankrupt Pocahontas Parkway. And could have called that same company and found out that Capital Beltway Express was drawing only $62,000 d day in tolls when it had told taxpayers/bond buyers, according to Public Works Finance magazine, at contract time, that itwould draw $335,000 a day.

      If you, PD, had one project in bankruptcy and another drawing one-fifth of the income you’d expected and, indeed, had already “re-structured” due to that fiscal issue, would you seek a the exact same type project in the exact same jurisdiction?

      Why didn’t reporters ask that question?

      Why aren’t they asking, “Why is so much of this ‘private’ money from Australia and Spain?”

      See some of the questions that others are asking. As Virginia gears up for the I-66 toll road, let’s please ensure they get asked.

  6. Mike Craft Avatar
    Mike Craft

    Distinction needs to be made between “Availability Payment P3” in which there is minimal risk transfer to private sector and long-term leases with demand risk transfer.

    Availability deals are a contracting mechanism can act as disguised (and expensive) borrowing by public sector.
    Public sector availability payments–>developer–>developer debt repayment. These deals deserve close scrutiny.

    Demand transfer deals are more of a mixed bag. Despite inflammatory bankruptcy headlines Indiana Toll Road was a win for public sector. Private sector overpaid and Indiana used proceeds for road building around the state.

    Agree with JAB about TIFIA shortcomings. Cheap loans not priced to reflect risk to taxpayer. Expect unpleasant surprises.

  7. LarrytheG Avatar

    so the most obvious question is why did Va take this route under McDonnell – full bore – and continue it under McAuliffe with modest reforms?

    Why did Va do this instead of some other path?

    was this a GOP administration attempt to move roads to less govt activity on the theory that private entities will do it better and implement a true demand/supply model?

    I see we have the usual array of “this is bad – blame someone” views.

    but my question is why did we go this way and

    bonus question – which way should we have gone instead?

    and should that way have been more govt involvement or less?

    seems like we hate the govt and revere the private sector – until the govt turns something over to the private sector then it sucks big time…


    1. TooManyTaxes Avatar

      Many transportation projects are little more than welfare for land speculators and developers. Significant portions of the cost for road and transit projects need to be placed on the backs of those landowners who will receive massive increases in density (or even the ability to build at all – exurban areas) and developers who make hundreds of millions of profits only because the new transportation facilities enable them to develop.

      In Fairfax County, the advocacy of citizens groups, led by the McLean Citizens Association, persuaded Fairfax County to shift more than $400 M in road project costs (over forty years) from taxpayers to landowners in Tysons. They are still building in Tysons. They will either recover those costs from tenants and purchasers or earn a lot less money.

      TIFA makes P3 absurd.

  8. When a type of corporation goes belly up a high percentage of the time, time after time, anyone relying on a future payment stream from it must understand that doing so is foolhardy.

    1. Airlines?

      Banks making sub-prime loans?

      It’s a game of chicken Acbar. The Fed arbitrarily holds down interest rates so that the US government can pay the interest on the debt. The low return on borrowing makes for too many dollars to be invested chasing too few investment vehicles. So, I set up a “one time company”, borrow money from people trying to make some kind of return and let Uncle Sam float the loan for 10 years. The bond-holders are getting a few percent better returns than they could have gotten with normal debt. If things start to look sketchy the bond holders sell their bonds at a slight loss. But that doesn’t matter – they more than made up for the loss with higher returns the first five years. Meanwhile, somebody buys the bonds thinking that buying under face value really shoots up their return. Hell, of the toll road only can hold up for another 3 years! Eventually, it all falls apart. The “one time company” goes bankrupt. The last bond-holders lose their money. But the guys who put together the deal – XYZ Transportation Partners – cash out their bonus checks and move on to the next scheme.

      Why were bankers packaging together horrible mish-mashes of mortgages with non credit worthy borrowers? The bankers were betting that there was a bigger fool who would take the CDOs off their hands before the market cratered. Mostly, they were right.

  9. Thanks, Acbar. You point out one concept that bamboozles me: Why would any investor “invest” when these things go bankrupt so often? My hypothesis: they know that someone (and who else besides taxpayers???) else is taking the actual risk.

  10. Salz, what I don’t understand is why a company would invest equity into a venture that it knows will be wiped out — regardless of what happens to the bond debt, which is someone else’s problem. On the other hand, I can believe that companies would get into risky deals if they can shift much (but not all) of the risk to other parties.

    1. LifeOnTheFallLine Avatar

      The people who matter make their money birthing the project and bringing it up to the point where it begins operations. At that point, they’re insulated from the failure because they’ve incorporated the risk.

    2. How much equity do they really invest? The Rt 460 debacle showed how a company can charge hundreds of millions for studies, etc. Between high up front fees and what I lay off to bondholders – how much have I really risked? Meanwhile, the bondholders are motivated by a Fed trying to keep the US out of a debt meltdown.
      In a world where the Federal Reserve has purposely punished savers by keeping interest rates extremely low, investors have had to look elsewhere for their income. Thus the opportunity cost of giving up returns is simply greater than concerns of a potential liquidity freeze. Say an investor read about the dangers of junk bonds five years ago and moved $100,000 out of the SPDR Barclays High Yield Bond ETF (JNK) into something safer, such as the iShares 3-7 Year Treasury Bond ETF (IEI). The investor would have received $1,300 a year in income instead of $6,200 a year. That is $24,500 in lost income over a five-year stretch.

      1. TooManyTaxes Avatar

        Dulles Transit Partners (Bechtel & pals) didn’t put up anything for Silver Line Phase I.

    3. Jim:
      That, of course, is the great question. Why, if these companies are losing their own money, do they continue to invest?

      According to Public Works Finance magazine, Capital Beltway Express put up $88 million in Transurban’s cash to build the I-495 beltway toll project, Virginia put up $409 million and CBE took a $587 million TIFIA loan, plus sold $587 million in “private activity bonds.” CBE’s “design build” construction didn’t come in close to the projected cost (do they ever?), ballooning almost 25 percent about the “cost” that all the news articles put it, $1.5 billion.

      Who paid the additional money? I don’t know. Were any change orders justified? Again??? But I read a US DOT report which said that design build projects always cost more money than the traditional design-bid-build. DB’s, the report, said did come in one percent faster but for more money. All P3 projects that I’ve seen are “design build.”

      I’m away from my notes but, if memory serves, CBE’s TIFIA loan is not due for years after highway completion, I think 10, and even then, PW Finance reported from the bond prospectus, that nothing on the principle needed to be paid for over 20 years.

      The North Carolina analysis indicates that I-77 Mobility Partners will be in the black before even opening that tollway due primarily to the shell companies creating additional shell companies which create internal invoices that, the analysis projects, will eventually be passed to taxpayers. I’m not an accountant and certainly am not qualified to verify/discredit that analysis but Lane Construction, as I emailed the quotes from their RFI to you in past, said very clearly in it’s “request for information” in the I-66 project that P3s always cost more than public projects because 1) P3s have a ton of additional fees for lawyers, consultants, subsidiaries, accountants that don’t exist in public projects; 2) the debt service is so much higher; and 3) the privates wouldn’t be in it if they can’t ensure a profit.

      The Ontario auditor general studied 74 P3 projects (not just transportation) and concluded that Canadian taxpayers paid $8 billion more than if they’d have built all the infrastructure themselves, primarily because private financing cost 14 times what public financing costs. (I think I emailed you that citation a few months ago???)

      But let’s consider that it was the tolls which were truly expected to pay CBE and its parent, Transurban back that $88 million equity? At $62,000 a day (which was its reported income as of April 2014), that is $22.6 million annually. In four years, the actual cash is paid off – and even if there was no “profit” in construction or finance or extra fees… After that, tolls for however many years before they (possibly) go bankrupt is money in the bank, right?

      What happens to the $587 million loan, or the $587 million bonds (again, figures from Public Works Finance), when/if CBE does go bankrupt? How much interest savings would Transurban/CBE have had to pay if it had borrowed that much money?

      Take a look, Jim, at Macquarie projects. Macquarie is behind the Elizabeth River Crossing’s P3 and, shockingly, paid $1 billion MORE than the next highest bidder for the Indiana Toll Road in 2006 (maybe 2007?) and then went belly-up last year? Several other – and I read somewhere six — Macquarie American P3 transportation projects have arrived in bankruptcy or are on the way with “restructuring,” “zeroing assets” and other terms which indicate financial stress.

      Why, if it is losing that much actual investor money, is Macquarie interested in other American tollway projects, like the I-77 project in NC?

      P3 financing might be above board and perhaps these foreign multinationals really are struggling to help American transportation. That’s a possibility. But why isn’t anyone asking these kinds of questions so that we taxpayers can “see” that it all is above board and these companies really are struggling to aid American transportation?

      Your questions are, as always in my experience, good ones, especially this “Why” question. I think it need a good answer but it can’t come from me. It has to come from Macquarie or Transurban or Cintra of Ferrovial or one of the toll road financiers/operators and it can’t be given to taxpayers in the same manner that the big banks “explained” derivatives a few years ago, explanations which still to this day no one understands.

      I submit that these companies are NOT losing their own money. They are, I submit, losing OUR money.

      Where is the vaunted American Fourth Estate?

      As always, please excuse typos, etc. Off top of head.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        Salz –

        Your reporting is excellent, salz. You are due a prize. Thank you.

        You have mentioned the Mainstream Media. Consider for a moment more the Mainstream Media. For decades it has been writing articles on same subject you have just covered “off the top of your head” in the above few paragraphs, but its articles never touch your points. You has raised this. And its an important issue.


        Apparently what you have written are things they have failed or refused to see, or have buried, whether unconsciously or not. Or perhaps their system is set up so they are unwilling or unable to spend the time and lack the expertise to understand and appreciate what you understand and appreciate. Why is this not embarrassing to our “watchdogs”, the main stream media? Is this the sign of a failed or failing culture?

        Regarding the pertinence of your comments. Here’s another example.

        As best as I can recall Dulles Airport paid out roughly $300, 000, 000 dollars for outside construction supervision for “improvements” built at the airport roughly between 2000 and 2010.

        As best as I can recall this $300,000,000 amounts to three times the cost of the original airport. Remarkably, these latest monies (the three hundred million) were not paid to build anything. But to pay hire hands to watch somebody else build things that cost several billions to build.

        In addition:

        In my view, and I believe the facts show, that what was built for several $billion dollars (over and above the $3 hundred million supervisory fees) by and large was not necessary to have been built, or was built in the wrong way. If this be true, than most of what was built for these several billions of dollars was largely a waste of time, money, effort, and thus was of little if any benefit to the flying public. Or any one else it was chartered to serve. So who did it serve? Who was it intended to serve? These are important questions. Not only because of the waste, but also the loss.

        For, if this be true, that those improvements have reeked great harm on the airport instead. Why? Because we still have to pay for them.

        Hence, if this be true than it is pertinent to ask:

        How much of what was build duplicated what was already there?

        How much of what was built was irrelevant to the needs of the airports customers, and its airlines?

        How much of what was built was built in a highly risky, complicated, and unnecessary way, destructive of its own market?

        And also:

        How much of what was built cost far more than any benefit gained? How much of what was built served any market at all, whether it be then extant or in the future be reasonable foreseeable to justify its cost?

        How much of what was built was aimed at a market that never showed up?

        How much of what what was built priced the airport out of its own market? Whether flyers or airlines that fly them?

        How much of what was built failed to provide its market any way to get there, or properly serve those who did arrive, or cause other needs of other customers and other markets to be ignored or improperly served?

        Are these reasonable questions? Are they only the tip of the iceberg? If so, why have they not been brought to the attention of the public that pays for Dulles Airport? And be fully discussed in public for the benefit of all those now forced to pay the bill?

        1. Yes, Reed, those are reasonable questions. Ones needed to be asked, too.

          My thought is to STOP potential projects until questions such as your’s are addressed relative to the “new” project. As it is now, several states are following the Virginia “model” to what I think is disaster for we taxpayers.

          This is the kind of story that needs regular coverage by someone with an expense account and access to expert legal, financial and engineering knowledge. Newspapers used to do that kind of coverage but now are dealing, if at all, with people who only care about Justin Beiver and the Redskins (or whatever coming name will be).

          Thanks for the “prize” boost. Unfortunately, there is no possibility since I’m not a member of a daily, weekly, monthly media.

      2. DonR’s “game of chicken” hypothesis makes more sense than anything else I’ve read here. Yet, Salz, you still hold to the POSSIBILITY that “P3 financing might be above board and perhaps these foreign multinationals really are struggling to help American transportation.” It seems to me the repeated pattern here has pushed that ‘possibility’ beyond remote and implausible to the realm of utter fiction. Which demands the question, why does an honest public servant go along with this game, over and over again, believing like Charlie Brown that THIS time Lucy really will let him kick the ball down the field? I know, you’re chuckling at the concept of an ‘honest public servant’ but in government, too, we must have our prevailing fictions sustained by the few exceptions that prove the rule. So, assuming honesty, why do our public servants facilitate this charade? What’s in it for them? Does it belie even their definition of honesty? Or are they so caught up in their own “private enterprise can always do it better” rhetoric (or just plain dumb) that they turn a blind eye to the games being played so predictably?

        Methinks we have a sense of the answer to that question, but you ask another, “why isn’t anyone asking these kinds of questions so that we taxpayers can “see” that it all is above board and these companies really are struggling to aid American transportation?” Worse, and worse. Why not indeed? Is it because most reporters don’t care when the human interest story is so distant? Is it because your typical news reporter couldn’t follow the dots or see the pattern even if he did, despite the fact that it’s no secret how these games are played, as this very blog demonstrates so ably? Is it because your typical news editor has less expensive fish to fry? Is it because we don’t expect reporters from companies owned by Mr. Murdoch and Mr. Bezos to ask those questions? Is it because even you know who really is struggling to aid American transportation and I just don’t get it? I’m afraid of getting worked up into a cynical stew here.

        You close by repeating the challenge, “Where is the vaunted American Fourth Estate?” What is so secret that we can see it but reporters cannot? Surely it must be something in plain sight that no one wants to read about. I’ve come around to what Reed said, “It’s a mess we’re in. . . . But the two handed game being played by major private entities and government is perhaps the most pernicious.” And that happens so often, nobody wants to read about it.

        1. All good points. Thanks. As a former journalism prof, I am
          (perhaps overly) disturbed by the lack of interest by the press in what is relatively easy to document, if much harder to understand.

          I see this as a career-making story for a good journalist with space (over time) to do a little digging but maybe that’s just me being me. I also think the taxpayers should care greatly BUT please note how few “different” names are commenting here, so maybe my hopes for taxpayers isn’t close to correct.

  11. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Rough and speculative translation of salz’s scenario =

    A small group of private operatives make large amounts of money via upfront fees, and pre-planned manipulations of tax code and Bankruptcy laws that are planned for and integrated into various stages of the the deal, and various iterations thereof, while the US treasury and other public credit facilities are used to fund the gigantic losses that are quite likely to occur, all abetted by Bankruptcy laws, tax codes, and other regulations, and third party Bondholders. A new version of a very old story.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      If your profits are assured in all cases through fees for services, and pass off any and all liability for loses, and/or covert them into net gain through tax, bankruptcy, and currency exchange, and still raise the funds from third party sources (public and private) to build and even perhaps maintain the road, given that once built and paid for by others it is to big for others then in need to abandon, you have devised a bullet proof transaction insofar as your personal interests. The financial and/or functional success or failure of the asset built is then, to a substantial degree, irrelevant to your interests.

    2. Isn’t this more or less the playbook for Trump Enterprises? Run your venture into the ground while you divert all the income to other ventures and your real backers? What a concept for how to run a Nation!

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd


        I had the very same thought that you’ve just expressed when I was writing the paragraph you commented on.

        Here, however, there is an addition ingredient. Here one is also using (and in my opinion abusing) the US treasury and Virginia’s treasury monies and credit (the people’s money and credit), as well as the monies of private lenders and bondholder’s money, in ways that destroy their wealth in order to enhance your own, moneys they advanced on the representations you had sponsored and promoted and structured into a transaction which has proven at best to have been deeply flawed.

  12. LifeOnTheFallLine Avatar

    Further proof that introducing private business to public funds is a bad idea. At this point, about the only thing I trust the private sector to do better is make sneakers and they can’t even do that without exploiting weak labor laws in poor countries.

  13. LarrytheG Avatar

    so the private sector companies know the risk and won’t take the deal unless the terms are sweet?

    and the State/VDOT don’t want the risk either?

    so VDOT looks at the cost of a project – and analyzes if/when tolls would cover the cost – or not and if they are wrong – the project would have long term adverse impacts to the VDOT budget – over the years ahead..

    .. and they donj’t like that idea and want the private sector to mitigate that risk – even if they have to pay the private sector an arm and a leg to protect VDOT and the state from the financial volatility ?

    or have I got the logic here all bollixed?

    but what is the realistic alternative to this approach?


    if the alternative to this was to essentially not only not have toll projects but not have the money to do much of anything … or much longer timeframes to do anything at all?

    would we be better off to NOT do these projects and just live with the fact that we donj’t do them because we cannot quantify the risk – and/or deal with the consequences of risk?

    remember, VDOT has had some previous shots at running toll roads…

  14. LarrytheG Avatar

    re: I have often wondered how private entities who must make a profit can cost us less than well managed government funded ones. ”

    well you’re now at the crux …

    because many here in BR have said on multiple occasions that govt is incompetent and corrupt, guilty of mission creep and simply cannot be trusted to do a good job… the less govt, the smaller the govt – the better.

    and they further cite as “proof” if govt actually gives the private sector the job – that even worse things happen because not only is the govt incompetent at doing things itself – it’s even more incompetent at contracting with the private sector to do them.

    fair enough.

    so where does that leave us in terms of getting things like roads or gawd forbid – toll roads – done?

    we have all this incessant blather about the free market – and private enterprise doing best what govt can’t do right –

    but again – what’s a better path?

    Should we privatize VDOT and let the private sector do roads?

    what’s the better alternative to what we have now?

    1. There are competent governments in the world. We just don’t happen to have one.

      The question is not whether government is competent. The question is whether the government being discussed is competent.

      1. LarrytheG Avatar

        good article! thanks!

        1. Limited government powers
        2. Absence of corruption
        3. Order and security
        4. Fundamental rights
        5. Open government
        6. Regulatory enforcement
        7. Civil justice
        8. Criminal justice
        9. Informal justice

        and the US did not make the top 10

      2. LarrytheG Avatar

        the actual index article is here:

        there’s a lot to it.. still reading … though I will note that private toll companies are present in most of the countries.

        and all of the top 10 have govt-sanctioned universal health care and mandated insurance … like Germany and Switzerland.

  15. LarrytheG Avatar

    I note that the Southern Environmental Law Center supports reforms to P3 as opposed to favoring repeal of P3 all together.

    and they have specific ideas about the reforms – a good thing.

  16. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Today I fear we are playing games with many iterations of fraud. There are many and an increasing number of players involved. Lets briefly discuss two of the players and games.

    One group might be described as very clever and increasingly corrupt capitalists. Those who set up deals bound to fail after they get rich structuring, selling, and handing off transactions with grenades inside. These folks make their bundle on the deal before it blows off the hand or head of the next or last guy in line. It’s a game where increasingly the players can’t stop. They’re hooked on making so much money, or building so much power, and achieving today’s twisted definitions of success, and/or are caught up in a corrupt society that blinds them to its evil, including their participation in that evil. Indeed our society has outlawed evil so as to insure it, and keep its minions at the very tables tearing them apart.

    Increasingly its played by elites joined at the hip, milking one another. More and more are getting involved. But the two handed game being played by major private entities and government is perhaps the most pernicious.

    Our Federal Government and many states are increasingly jumping feet first into the corruption of our systems. This includes finance and most everything else too, our educations, our marriages, our religions, the very words we are being allowed to speak without attack and punishment. Its hard to stop. Secrecy, word play, spin, and obfuscation is key to the game we are up against. Transparency and straight talk are gone. Because what’s happening cannot stand light.

    So for example, lets head back to “High Finance in the Public Interest” our Public Private Partnerships. Beyond roads, lets glance at the finance of our homes, how it was corrupted not so long ago.

    Corruption – This was the essence of the securitized sub-prime real estate loan packages that the Federal government forced on the markets after the Federal government created the problem in the 1990s, and then used its solution (those securitizations) to blow up the US economy.

    This marked the birth crony capitalism on steroids. Here and now we see the birth of its rampant infection of our society, our culture, our people, our government, and how we live, and how now it is almost into every aspect of our lives, wreaking its harm upon us in ever more pervasive ways.

    The key here is the government teaming up with the private sector. Otherwise the government cannot do what it wants to do. It needs private helpers. For that it has to threaten, coerce, or bribe or be taken for a ride.

    That system builds quickly into a devil’s bargain – all players doing the same to each other, all around. Making sure that nobody at the table loses, and everybody covers for everybody else. This is how projects like Dulles Airport, the Toll Road, the Silver Line, the Million Dollar Bus stop got so wrong, so fast, as if to spin wildly out of control, with no one seeming to be in control or ever accountable. Like the nearby one trillion dollars spend on Shovel Ready Projects. That set one example for the mess were are in. Many heroes are out there trying to stop and change this, and some have, and more will but most are overwhelmed, cast aside, or forced to go along.

    As to our home loan example from the 1990s to 2010, the government here could only get this done then with the enthusiastic expertise and bloody hands of financial wizards and bottom feeders, and their enablers who in the case of those real estate home loan securities structured, opined falsely on and peddled their financial poison in the disguise of derivatives so complex and esoteric that those instruments hid and enlarged exponentially the very risk they purported to neutralize. As they were intended to do.

    So here was built the playground for evil-doers. Everybody played the game, from Congress on down. One akin to selling packages with lit bombs to Russians boarding planes ready to fly into the sky over the Sinai.

    You would think we would learn. This seemed not the case. Our Leaders find and attack scapegoats instead, another very old game. It’s everywhere. Roads, airports, public facilities are only part of what’s getting out of control.

    Witness the growing student loan scam. Or the “rampant rape epidemic” on our campuses. This society, its politics, its systems of governance and economy has grown amazingly corrupt, very quickly. Its pervasive now.

    It sells poison to its kids and calls it education, one that leaves them with staggering debt, no job, no learning, and no marriage, but instead leaves more and more students with the illusion they’ve been raped, abused, harassed, offended and oppressed at school. Meanwhile, their government is hard about the task of trying to define who those students should think they are, launching them into gender wars in time for upcoming elections.

    It’s a mess we’re in.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Please note the last sentences of my above comment, namely:

      “Witness the growing student loan scam. Or the “rampant rape epidemic” on our campuses. This society, its politics, its systems of governance and economy has grown amazingly corrupt, very quickly. Its pervasive now.

      It sells poison to its kids and calls it education, one that leaves them with staggering debt, no job, no learning, and no marriage, but instead leaves more and more students with the illusion they’ve been raped, abused, harassed, offended and oppressed at school. Meanwhile, their government is hard about the task of …launching them into gender wars in time for upcoming elections.”

      This rapidly growing problem is highly destructive to our society. In short there is growing web of myth makers in and out of our Federal Government and academia devoted to developing and spinning intentionally made disinformation about targeted social issues and statistics relevant to those issues. Such as the nature, cause, and number of sexual assaults and rapes on college campuses, much of which actively plays into their work promulgating and enforcing Federal policies, rule makings and regulations within US government agencies, such as the Department of Education. This is done to gin up anger and angst with groups such as young women to marshal them into blocks to help the instigators win elections.

      Numerous articles on the website delve into these matters. For starters you might read the article and my extensive series of comments beneath that article as to how the system has been deployed at the University of Virginia.

      Please see:

  17. LarrytheG Avatar

    I’d be the first one to admit that Govt is seriously flawed… as govt – like corporations , is run by people and people screw up left and right.

    but the measure of all of us – is not to condemn and walk away …

    we can condemn – if we offer serious alternatives…

    much like the SELC has condemned the current P3 process but has offered reforms they support.

    that’s been the character of govt over time – things get screw up – we do reforms… perfection is not the standard.

  18. Fiscal Sanity Avatar
    Fiscal Sanity

    I wrote the SELC Nov. 2012 report on P3’s. The GA adopted my most important recommendation – make the Commonwealth Transportation Board truly independent and not subject to the whims of the Governor. Policy makers are also recognizing that P3’s are prone to crony capitalism and that true competition in bidding is needed. In capitalism, the consumer needs choices as well, or its called a monopoly and is better served by government. I-495 HOT lanes still provides consumer choice. Midtown Tunnel does not.

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