Tuesday, April 24, 2007

Private Toll Road Moratorium: "Take a deep breath. Think things over. It’s not a bad idea."


Let’s Please Put the P3 Pep Rally in Its Proper Perspective

April 23, 2007

by Robert Whalen, Executive Editor
The Bond Buyer
Copyright 2007

Much noise has been made over the past few years about how state and local governments throughout the United States are going gaga over the prospect of inking public-private partnerships as a means to finance infrastructure development and relinquish services traditionally operated by the public sector.

Private sector professionals laud the so-called P3 contracts that were negotiated for the rights to operate the Chicago Skyway and the Indiana Toll Road, along with all of the plans in Texas that, until recently, seemed almost certain to happen. These dealmakers have quite an influential and powerful ally in the White House these days, as President Bush’s Department of Transportation and its Federal Highway Administration have become high-profile, high-decibel cheerleaders for the cause.

Indeed, Transportation Secretary Mary Peters just a few weeks ago stumped for P3s in Pennsylvania, which is considering how it might scare up some cash by leasing out its extensive tolled turnpike system. There are similar considerations taking place in Alaska, Florida, Georgia, and New Jersey, to name just a few.

About six months ago, some of the sharpest minds in transportation infrastructure finance got together at a conference in Houston hosted by The Bond Buyer. Prospective P3 projects generated quite a buzz through the crowd of bankers, lawyers, advisers, investors, and public officials. One of the central themes articulated by speakers and attendees — including at least a few proud Texans — is that the Lone Star State is leading the way on P3 transactions with its ambitious road building agenda.

It turns out that Texas might be leading the nation in a different direction. State lawmakers there want to put a halt to the P3 gallop and have called for a broad-based moratorium on such contracts. Sound crazy? Take a deep breath. Think things over. It’s not a bad idea.

This is not the diatribe of a cynic, mind you. If it was, one might come up with some other meanings for P3: politicians pandering to profiteers; public purses pilfered; proverbial pots of pyrite; or piracy, plunder, and poppycock. But perhaps that’s too intemperate, and it’s off the intended point. These “partnerships” may, in fact, be as fantastic as advertised — a way to develop and maintain world-class infrastructure, which is key to economic vitality and to the overall quality of life, without putting a direct, visible touch on taxpayers.

So this is not a gripe. This is a call for a more robust and more balanced debate about the logic behind these deals, and about the potential pros and cons that may lie ahead.

While private sector parties with at least a little bit of skin in the game have artfully drummed a pro-P3 message into the popular lexicon, there has been — at least in these pages — only a few scattered voices of dissent, or even skepticism.

Language matters. Loose or imprecise language leads to unclear thinking. As a buzzword, P3 — some prefer the less-snazzy PPP — is convenient and a more than a little catchy, and “public-private partnership” is certainly kindler and gentler than, say, “privatization.” But are these one and the same?

Let’s deconstruct the rhetoric. Let’s call a concession contract a concession contract. Let’s avoid, in this debate, the idea that states are “sitting” on piles of cash, and that these contracts can “unlock” the value of the public’s infrastructure assets. Let’s dispense with the notion that transportation needs have outpaced the requisite revenue. It’s not the revenue — generated with taxes, tolls, and fees — it’s the political decision not to increase funding for the projects.

Perhaps instead of selling off public assets, state officials throughout the U.S. might consider facing the music and increasing the revenue with — gulp — tax increases and toll hikes. Sorry, folks, there is no free lunch. Things need to be built and maintained, and somebody’s got to pay for it. Let’s stop vilifying taxes — they’re neither good nor evil. Taxes are simply what governments use to raise money to pay for the goods and services they provide.

Let’s talk about what the governments are really looking for — quick, politically painless (for the time being) cash. Maybe, too, they’re looking to offload or drastically reduce their public sector workforces and the attendant long-term benefit packages, the kind of future liabilities that they now have to account for.

While we’re at it, let’s discuss whether it’s a good idea for governments to get out of the business of, well, governing. Let’s discuss whether there are some things that are simply too important to the public well-being to turn over to the private sector, which is, appropriately, motivated purely by profit.

Let’s discuss whether leasing a toll road is better than selling debt backed by tolls. In some cases, as with New Jersey, the dollars that back highway debt are pretty much leveraged to capacity.

And let’s discuss what impact the proliferation of these concession deals is going to have upon the form, function, and general health of the tax-exempt municipal bond market.

This is my inaugural column for The Bond Buyer. Please send feedback to robert.whalen@sourcemedia.com. You also might want to check out The Bond Buyer’s new blog space at http://blog.bondbuyer.com .

In the meantime, let’s consider injecting some P4 to into the P3 discussion: Pause, Ponder, and, Perhaps, Proceed.

Robert Whalen is executive editor of The Bond Buyer.

© 2007 The Bond Buyer: www.bondbuyer.com

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