A "model" scheme, Thinking Highways, August 26, 2014

This article, which might be better titled "Take the money and run", highlights how state toll road public-private partnerships (P3s) are structured to leave the taxpayer paying the bill when they routinely default.  It focuses on Virginia's P3s under the last administration, but the lessons apply more broadly.

Here is an excerpt:

Virginia’s 1995 Public-Private Transportation Act is held up as the “model” by contractors and financiers, especially as it was implemented at break-neck speed during Governor Bob McDonnell’s administration.  In four years, the number of Virginia P3s skyrocketed to 22 and with the Commonwealth signing over US$6 billion in P3s during 2012 alone, Infrastructure Investor magazine named McDonnell “man of the year” and called the state’s legal consultant, Allen and Overy, the world’s best law firm twice. Does any magazine for investors venerate hard bargainers for taxpayers?

“A great deal of the media praising public private partnerships in transportation projects comes from sources that have a self-interest in promoting them,” says Jack Trammell, now a candidate for Virginia’ 7th Congressional District.  “A major factor motivating me to run for office is what I think should be a national concern about this trend away from transparency and toward greater taxpayer risk in such projects.”

In the past, even Virginia’s Commonwealth Transportation Board (CTB) never saw P3 contracts, only being allowed up-down votes on the total taxpayer bill, which consistently put 95+ per cent of all costs on state and federal taxpayers. The privates put up tiny bits of equity, though they imply more because they borrow dollars from Uncle Sam that they likely will not pay back and they sell bonds that Uncle Sam guarantees and which will cost taxpayers when the P3 goes bankrupt – as they almost inevitably do – about 15 years down the road.

It is a “win-win-win” for private money and contractors but for unaware taxpayers it could be the biggest scheme ever in Virginia – and potentially US – history.  Is getting a highway or other transportation infrastructure, which may or may not be needed, returned to we taxpayers just when it’s beginning to need maintenance worth the fact that we’ve left virtually all construction costs, all risk, all financing costs and 10-15 years of tolls to the next generation of taxpayers?

Click here to read extensive details on the way these deals are fashioned so companies win and you lose.