What’s With VPA Going Private?

The Virginia Port Authority has always been a kind of strange duck — not quite public, not quite private. Its leadership swings one way or the other as whims suited.

If it needed money from the state’s transportation funds, it was suddenly more public. But if the news media wanted data about top officials’ salaries, its coloration changed, lizard-like, back to being private, at least until 2007, when salaries were finally disclosed.

The VPA, an “autonomous state agency,” was created in 1952 and operates three major water cargo facilities in Norfolk, Portsmouth, Newport News as well as a transshipment facility in Front Royal. Just about all of Virginia-bound cargo containers, the most popular way of sending goods, goes through its facilities. The VPA boasts of some of the best deepwater facilities on the East Coast, although aggressive Savannah has beat out Hampton Roads in terms of volume and the global recession has cut shipments everywhere.

For years, the VPA was run by J. Bobby Bray who helped built up its facilities, and while personable enough, was surrounded by a tough squad of gatekeepers who tended to regard him as a kind of deity needing protection. Until he left several years ago, Bray held court in posh offices on Norfolk’s waterfront and was frequently seen schmoozing with legislators and state officials in Richmond.

So, one has to wonder what Bray’s role is with proposal to run the facilities and invest in them from CenterPoint Properties, which is an arm of CalPERS, the California state pension system. The Chicago-based firm has presented an unsolicited offer to lease the port with all kinds of goodies thrown about.

Bray says he likes the idea and small wonder he does. The former VPA executive director is now with Kaufman & Canoles Consulting which has been hired by CenterPoint to help prepare its bid, according to The Virginian-Pilot.

Bray told the Pilot’s editorial board that other groups are talking about the same kind of public-private partnership deal with the VPA but that they “just didn’t, fit whereas CenterPoint did.”

Further details are somehow not available. We don’t know who the other supposed contenders are. Bray could not be reached when a Pilot reporter called for more details. But then, that’s par for the course, isn’t it?
Consider that Virginia loves public private partnership deals. It is a cunning way that the state’s fiscal conservatives can unload public facilities onto private entities and not have to raise as many taxes while praising free market economics and letting somebody else make a profit. And, private entities can bail out projects after somebody in planning screws up on traffic volumes and tolls or other sticky little details.

That’s just what the state did with the Pocahontas Parkway in Richmond when the superhighway and magnificent bridge spanning the James River did not live up to revenue expectations. Panicky state officials, worried about what a default would mean for the state’s pristine bond credit rating, got the Australian TransUrban firm to bail them out.

So what goodies is CenterPoint Properties and/or the California Public Employees Retirement System offering? From what I can make out of the deal, CenterPoint pays VPA $500 million upfront, an ongoing profit share of up to $1.3 billion and greater cargo volumes if it lets CenterPoint manage its properties for something like 60 years.

CenterPoint claims that the state would $8.9 billion in economic benefits. About half of that, $4 billion or so, would come from money the state would save by not having to run operations. The private firm would get the VPA’s annual claim on 4.2 percent of the commonwealth transportation fund which last year amounted to $36 million. CenterPoint would fund the deal with a 39 percent equity payment and 61 percent in debt that it would absorb.

VPA would continue to get $987 million in annual payments from CenterPoint and pay local communities such as Norfolk which is still being paid for terminals VPA took over years ago.

What does CenterPoint get? Some pretty darned good cargo facilities built with considerable public money and (semi) public oversight, that’s what. And CenterPoint gets first rights to develop the gigantic Craney Island spoil site which has long been intended for a massive new cargo crane facility costing billions. Craney Island must be one of the best, and last, undeveloped deepwater port facility sites left on any American coast.

CalPERS is one group that the financial community watches closely for market cues. It had been reputed to have some of the brightest and most aggressive investors short of TIAA-CREF. But don’t forget that in last year’s financial meltdown, CalPERS took some huge lumps by having invested in dicey California real estate, losing about 35 percent in its housing portfolio and forcing a shift in top management.
So, forgive me for being simple, but am I missing something here? What’s the urgency? Why does a big time institutional investor like CalPERS so badly need to come swooping in to line up managing some of the best and most promising port facilities in the U.S., especially when it is taking a huge hit with bad real estate plays? Is VPA going under and we don’t know it? Can’t Virginia’s officials can’t help themselves when they hear the words “public private? They seem to absolutely love shoving public projects paid for with public money off to the private sector because it fits some kind of fiscal philosophy they all subscribe to, the real public be damned.
Or is it inside baseball? Given Bray’s conflicted involvement, that’s probably a fair guess.

Peter Galuszka

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14 responses to “What’s With VPA Going Private?”

  1. Anonymous Avatar

    Isn’t VOLF also and autonomous state agency?

  2. Anonymous Avatar

    Sorry anonymous, not familiar with VOLF. What does the acronym stand for?


  3. Anonymous Avatar

    Virginia Open Land Foundation.

    I have a nightmare that some huge real estate conglomerate tries to take that private.

  4. Spank That Donkey Avatar
    Spank That Donkey

    Good Post, great subject.

    Dubai Ports Deal?

    Chinese Companies investing in ports… namely Panama Canal right?

    Somehow, I like our ports controlled by Americans… maybe it’s just me?

    Calpers? California politics in general? They’re $40 billion in the hole… controlled by govt. unions.

    With Obama taking this nation into a serious fiscal deficit…

    Can’t we find any American billionaires who like to own a serious asset like this port?

    Makes you miss the Rockerfellers, and Carnegies…

  5. Anonymous Avatar


    Anon 3:36 / 4:18 probably means VOF (Va Outdoors Foundation not Open Land Foudation)

    While Bob Lee is in charge ther is little danger. But he raises an interesting point since it is a hybrid.

    Spank That Donkey:

    On the hybrid question, how about 8 good port Enterprises in Va with a full spetrum of stakeholders as stock holders and a lot of sunshine.

    Oligarchs all have clay feet.

  6. Anonymous Avatar

    You are right. I was confused with another similar foundation with the acronym VOLF.

    It’s a hypothetical concern, but if it can happen with something as valuable as the state ports……

  7. Jim Bacon Avatar
    Jim Bacon

    Good post, Peter. My biggest questions at this stage are (1) who gets the money, and (2) what will the money be used for?

    Privately owned corporations routinely buy and sell assets, even ongoing enterprises, to meet their evolving strategic priorities. I have no problem in the abstract with the Commonwealth of Virginia doing the same thing.

    My concerns are as follows:

    (1) That the state get top dollar for the port enterprise it spent decades building.

    (2) That the sales process is as transparent as possible, so Virginians can be assured they’re not getting ripped off.

    (3) That it’s crystal clear who gets the money, and what’s to be done with it.

    Back when I was actively posting on this blog, I advocated privatization of the ports as a way to raise funds for major transportation projects in Hampton Roads that the Commonwealth can’t afford and local taxpayers aren’t willing to underwrite through higher taxes. I still think that’s a good idea, although I’d also suggest that the funds could go to a giant community foundation similar to those created in Petersburg, Danville, Martinsville and other towns through the sale of their community hospitals.

    Such a foundation could support important economic-development and social-welfare objectives that could help revitalize the region.

    However the region decides to go — funding transportation projects or a community foundation — that $1 billion would do far more good than staying tied up as equity in a port enterprise.

  8. Anonymous Avatar

    My sense is not to be as ready to dump public assets built up over time with the public’s money and trust as you seem to be.
    I agree about transparency, but I really don’t think we’ve seen much so far and given their history I am not holding my breath. We have both dealt with the VPA during the Linda Ford days and remember just how difficult that was. The attitude was that the public deserved to know nothing about them at all, that Bray was some kind of super human being and we should all be glad they existed.
    Peter Galuszka

  9. Larry G Avatar
    Larry G

    “….$1 billion would do far more good than staying tied up as equity in a port enterprise [or other taxpayer-bought entity].

    it’s an interesting concept in terms of why taxpayers would build equity in any government owned facility…. whose operation “could” turn a profit?

    or else the private sector would not be interested in buying it in the first place?

    i.e. what is an income-producing asset and why should or should not a government (taxpayers) own it (or not?)….

    you mentioned hospitals..Pete mentioned ports …and road (in a round about way).

    but if a community could own a hospital that made money… why would they sell it to a private “for-profit” enterprise?

    I dunno the answers.. heck I hardly know the questions but thought I’d give it a shot here in hopes that some who know about these things could help clue me (and perhaps others) in on the concept of PPP enterprises ..and the such…

    I know locally a deal was struck with the YMCA – adjacent to an elementary school – in the dirt stage… the YMCA got part of the larger parcel obtained for the school – in exchange for guaranteed access for the school kids to it’s facilities including the pool (during certain hours).

    it sure seemed like a win-win…

  10. Groveton Avatar

    Back when I was a devout and staunch Republican (about 5 years ago) I loved privatization. Everything that could be privatized should be privatized. That was my philosophy as well as the philosophy of most of my fellow Republicans.

    Then came the fall. Or, at least, the fall in my belief of the invicinability of the “free markets”. My first “ah ha moment” was the realization of just how “un free” most American markets really are. Tax breaks, subsidies, punitive regulations, etc all play a role in making supposedly free markets less free. And the Republicans are just as happy to implement these freedom sapping rules and regs as the Democrats.

    So, I moved to the “honestly and intelligently regulated” philosophy of markets. That led me to a number of Democratic candidates instead of my usual “all Republican, all the time” history.

    Then, an interesting happened. A man who is much more of a staunch Republican than I ever was (GW Bush) decided that some businesses were “too big to fail”. He was supported in this very un-free market thinking by the vast majority of the Democrat – controlled Congress.

    That’s when I really began to question privatization. How private is an entity if the governemnt can decide it’s too big to fail and force a governmental buyout? How private is an entity if the government can threaten those who lend to the entity to unwillingly give up their rights to a “preferred class” (see Obama Administrations’ disgraceful behavior with regards to GM bondholdeers and the union)?

    Privatize roads in NoVa? No way! The roads are “too big to fail”. Privatize ports in Virginia? No way! The ports are too big to fail.

    We should be demanding that our government do its job not pushing pseudo-privatiziations that result in the taxpayer indemnifying the investors anyway.

  11. Groveton Avatar

    I will also guess that CalPers has a counter-intuitive problem – too much money. Or, at least, too much cash. A lot of pension funds, private equity firms, etc lost a lot of money over the last 18 months. But they also sold out of investments like real estate, equities, etc. Interest rates are low so there’s not much of a return in conventional bonds. And, if inflation spikes, conventional bonds might not be such a hot idea. Meanwhile, the investors expect a return – especially when there is a management fee. Few people will pay a management fee for someone to sit in cash (or near cash equivalents). Maybe these “special situations” are starting to look good again.

    I also have heard that the road and rail access to Virginia’s ports is a problem. Nothing like a few trillion in stimulus funds to help that. A good port choked by bad surrounding infrastructure might be worth a lot more than it seems – especially if someone else will pay to fix the surrounding infrastructure.

  12. Groveton Avatar

    My goof – post before last I was thinking Chrysler but I typed GM. It should be Chrysler.

  13. Anonymous Avatar

    Groups like CalPERS and Spanish and Australian firms, not to mention some Wall Street investment houses like Lazard Freres (at least before the crash) were getting into infrastructure projects all over world, such as Dubai, CHina, INdia and big U.S. tollroads. Am not sure what the impact of the crash has been but I would think it has cooled their jets for a while and CalPERS took a major hit by getting burned on giant California residential developemnts (some which were not even built yet and probably won’t be). Don’t know where infrastructure funding is going.
    As for the port in Virginia, yes, transport is a big problem and a lot of stuff such sa the third crossing across Hampton Roads depends on developing Craney Island. New rail links are planned, too. But with the recession, shipments having really cooled off as they have everywhere.

    Peter Galuszka

  14. Larry G Avatar
    Larry G

    re: “privatization and too big to fail”.

    I think the Republicans made it clear when talk of bailouts of the banking industry was just fine with them but not manufacturing….

    that was the “aha” moment for me.

    These guys basically think the Government exists to help THEM.

    They don’t like to call it Government welfare if it is business .. because that’s the same line they use to talk about Government support of other things…

    and all of this boils down to (in my mind) what the purpose of government really is.

    so we agree… “unregulated” is dumb as toast – even though we have a lot of Pachyderms running around right now who two years ago would shout it from the rooftops… now they say.. that regulation is a necessary evil..to be kept under control.

    So… it’s okay to regulate drugs if you don’t want bad ones going down your gullet but if you are in the business of making them.. govmint regulation can only mean trouble for your bottom line.

    and drugs are a good example.. of the pros/cons of regulation since the Bushies loosened up the regs.. and now we’re ..so ironically… seeing a huge upsurge in lawsuits seeking compensation for injuries.. and even more ironic.. buying huge blocks of ads on of all channels – the FOX NEWS channel.. where they switch from an AD soliciting people who think they’ve been harmed by a drug for legal services …to the next “news” segment about “frivolous” lawsuits that must be fixed by Congress.. except they forget.. the Pachyderms no longer own it long stock and barrel… anymore.

    I’m glad that Groveton had his ephinany… heh heh.. but what about all those years when he supported those idiots!!!

    I would think that if he really wants to make up for his past mistakes that he donate to the Dems.. a total of all he donated to the Pachyderms AND he do community service by working for the Dem Gov Campaign.

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