Friday, November 21, 2008

"TxDOT's last 'assessment ' was sullied by contract discrepancies."

TxDOT stands by derailed U.S. 281 study

November 21, 2008

Patrick Driscoll
San Antonio Express-News
Copyrioght 2008

The Texas Department of Transportation, booted from the lead role on an upcoming environmental study for the U.S. 281 tollway, still thinks such a study is overkill.

A less intensive "environmental assessment" finished last year took a hard enough look, TxDOT Director Amadeo Saenz said in a letter last week to the Federal Highway Administration.

If another study needs to be done, then a new assessment rather than a full-blown "environmental impact study" is the place to start, Saenz said. However, he added, he does not object if others want to exceed the requirements.

"An EIS may help address concerns related to the complex natural and human environment that co-exist in this area of San Antonio," the letter states.

Such assessments determine whether further study is needed. Federal officials had signed off on two since 2005, both of which concluded that rebuilding U.S. 281 to add six toll express lanes would not cause major impacts.

Lawsuits, the latest filed by Aquifer Guardians in Urban Areas and Texans Uniting for Reform and Freedom, wiped out those federal clearances. TxDOT's last assessment was sullied by contract discrepancies.

Now federal officials aren't taking any more chances. They wrote back that an assessment this time will be skipped and that a full study will be done. They also don't want TxDOT heading the study.

Meanwhile, it looks like the Alamo Regional Mobility Authority, which took over the 8-mile toll project from TxDOT, will step up as the lead agency for the study.

© 2008 San Antonio Express-News

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"TxDOT should have no role in supervising the new environmental studies."

281 tollway proposal runs into new demand


By Patrick Driscoll
San Antonio Express-News
Copyright 2008

A storm of controversy engulfing a planned U.S. 281 toll road over the past three years finally has convinced federal officials to accept nothing less than a thorough environmental study — but with the state taking a back seat.

Less-intensive studies, called “assessments,” concluded a more detailed look wasn't warranted on U.S. 281 toll lanes. Lawsuits since 2005 derailed two such assessments.

Now it's time to make sure concerns are answered, the Federal Highway Administration said in a letter to state officials.

“We do not believe that an environmental assessment will sufficiently address that controversy,” wrote Janice Weingart Brown, the agency's Texas division director.

Also, the Texas Department of Transportation, which did the recent U.S. 281 assessments, has no business heading up the next study, Brown said in her letter, which was sent to TxDOT Director Amadeo Saenz last week.

That's because TxDOT bungled some contracts involving endangered species surveys as part of the 2007 study.

“Given the recently discovered discrepancies in the award of scientific services contracts ... we believe that the San Antonio district office of TxDOT should have no role in supervising the new environmental studies,” Brown said.

The federal highway department will expand its oversight for the upcoming study, Brown said, which could start in January and last three years.

But the Alamo Regional Mobility Authority, a local toll agency that took over the 8-mile project from TxDOT, now will take the lead on the study, spokesman Leroy Alloway told the San Antonio Express-News Editorial Board Thursday.

Federal and state highway departments have concurred with the switch in roles, Alloway said. An agreement could be drawn up by January.

“We've been discussing it with the leadership of both agencies,” he said.

The Texas Transportation Commission, which oversees TxDOT, agreed Thursday to let the mobility authority use some of its state grant funds to pay for the study. Authority Director Terry Brechtel estimates the cost will be $8 million.

Critics of the road project, which would rebuild U.S. 281 to add six express lanes from Loop 1604 to Comal County, say it's a foregone conclusion that an agency pinning its hopes on toll revenues to survive will decide tolls are needed.

“It basically guarantees that the only alternative that comes out the other end of the environmental study will be a toll road,” said Terri Hall of Texans Uniting for Reform and Freedom, which co-filed a lawsuit earlier this year.

Mobility authority officials say construction on U.S. 281 could start as early as 2012. Until federal officials changed everything last month by yanking the environmental clearance, that's the same year the toll road was supposed to open.

Portions © 2008 KENS 5 and the San Antonio Express-News

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Macquarie nails investors: "The gift that has kept on giving in a very wrong way."

This parrot's dead, not resting

Monty Python's Flying Circus 'Dead Parrot' sketch: [LINK]


Michael Sainsbury
Copyright 2008

Shareholder: I wish to complain about this parrot what I purchased not half an hour ago from this very boutique.

Executive: Oh yes, the, uh, the Norwegian Blue ... What's, uh ... What's wrong with it?

Shareholder: I'll tell you what's wrong with it, my lad. 'E's dead, that's what's wrong with it!

Executive: No, no, 'e's uh ... he's resting.

*AS Babcock & Brown moved ever closer to its maker yesterday, nicely positioned to follow Allco Finance Group to the corporate graveyard, there still seemed to be a stubborn refusal to acknowledge that the so-called Macquarie model is, like Monty Python's parrot, actually dead.

Just like his predecessor Phil Green, Babcock chief executive Michael Larkin, while he went close, could not quite admit the bird was indeed no longer alive.

"The idea of assets being pooled for investment has been around forever," Larkin said.

"What we recognise is that is going to happen and we think we are well placed to do it."

Then he gave a just a little ground: "The compensation that individuals receive has to be appropriately matched to the return that investors can get. We are changing to align our compensation model and our fee model to align it with the return that investors get in our funds."

Too little, too late?

"I not trying to move away from the Babcock structure," Larkin said. "The infrastructure business, we think, is very sound and that is what we put to the banks. We think we have got a very credible business; it is unique and world class."

The "Macquarie model" -- picking up infrastructure assets, preferably monopolies, with reliable income streams to service the debt used to buy them, then banking millions of dollars in fees for the deal, packaging the assets into a fund and stitching up long-term unbreakable contracts to manage them -- has been Australia's gift to the financial markets.

Unfortunately for shareholders in Babcock & Brown, it has been the gift that has kept on giving in a very wrong way.

In trying to hard and too fast to mimic the Macquarie model, Babcock finally admitted last night, after stringing its syndicate of 25 banks along for most of the year, that it really wasn't going to be able to deal with its $3.1 billion debt load after all.

And that's just a small slice of the $50 billion debt that the whole group, struggling satellites and all, continued to creak underneath.

It was apposite, too, that on Tuesday, Macquarie Bank chief Nicholas Moore waited until he was quizzed on the future of the listed infrastructure model, before making the signal sweep of his hand to remove his spectacles as he delivered his 43 per cent profit slump. It was, of course, precisely the right time for the only mini-moment of drama at a typically dry briefing.

Moore had just been forced to write down $1.1 billion -- possibly the first of many -- on all sorts of infrastructure assets (somewhere along the way property became infrastructure as well).

Yet Moore too, continued to mount a defence of the model that he himself had pioneered and used to drive the highest executive salaries ever seen in this country.

Not that he was too sure Macquarie would spin off separately listed companies after the abject disaster of its BrisConnections toll-road project. Nor would it use its own balance sheet, preferring to work with any partners still game enough to jump in.

"It's wrong to lump Macquarie in with the Wall Street firms when you're talking about what we are doing and where we are going. We have a different model," Mr Moore said later.

The Macquarie model, which no doubt keen students will be studying for years to come in courses on what went wrong in the noughties share market boom, has already claimed one local victim.

Last month, the last-out-of-the-gate Macquarie mini-me, Allco, collapsed in a steaming heap of debt. Like Babcock, it started paying too much for assets, more eventually than the model could bear.

Babcock's defining moment was outbidding Macquarie for the assets of West Australian energy group Alinta -- a company where Macquarie had been assiduously working both sides of the transaction.

But despite this, Babcock and its rivals pressed on, buying assets as the market was clearly getting more and more expensive.

Still, as Moore rather archly noted on Tuesday as he launched his defence of the model, Macquarie's London water utility Thames Water was still a good investment because people always need water, slump or no slump.

It's worth noting, too, that there is a big push by governments around the world -- Australia's included -- to spend up big on infrastructure projects to help kick-start faltering economies around the globe.

But in the old days, they used to call them utilities, governments owned them and there were no management fees.

Shareholder: Look, I took the liberty of examining that parrot when I got it home, and I discovered the only reason that it had been sitting on its perch in the first place was that it had been nailed there.

Nailed indeed, poor shareholder.

© 2008 The Australian:

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Thursday, November 20, 2008

"U.S. District Judge Randy Crane said he intended Falcon's sentence to send a message to other public officials."

TxDOT manager receives 5 year sentence for bribery scheme

November 20, 2008

Jeremy Roebuck
The Monitor
Copyright 2008

The Texas Department of Transportation's former Pharr maintenance director was sentenced to five years in prison Thursday on federal bribery charges.

Cresenciano "Chano" Falcon, 56, of Edinburg, admitted in May that he demanded money from contractors before he would certify their work on highway projects as complete.

One contractor - who had received a road sweeping project with the department - told the FBI about Falcon's scheme, when he couldn't afford to pay the bribe, prosecutors said.

Investigators later captured Falcon and two other TxDOT employees on audio and video as they extorted payments.

During a sentencing hearing Thursday, U.S. District Judge Randy Crane said he intended Falcon's sentence to send a message to other public officials. In addition to the prison term, Falcon is required to serve three years probation after he is released.

His two co-defendants - Noe Beltran, 42, of San Juan, and Ray Llanes, 50, of San Benito - have also pleaded guilty to extortion charges and are set to be sentenced Dec. 4.

Falcon was the maintenance administrator for TxDOT's Pharr district - which includes eight counties in South Texas. In that role, he oversaw all maintenance TxDOT performs in the area. Beltran and Llanes worked as highway inspectors.

© 2008 The Monitor:

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"Truth Be Tolled focuses on TxDOT's blatant bias and extralegal actions in its highly publicized Keep Texas Moving campaign..."

Grassroots Group Fights NAFTA Superhighway

New documentary highlights grassroots movement to kill the NAFTA superhighway.


By Mark Anderson
American Free Press
Copyright 2008

SAN ANTONIO, Texas—The focus of the new edition of the film documentary “Truth Be Tolled” is the Texas Department of Transportation’s (TxDOT) blatant bias and extralegal actions in its highly publicized Keep Texas Moving campaign—designed to sell the public on expensive tolls roads as the wave of the future of state transportation, while relentlessly pushing the Trans Texas Corridor (TTC).


Videotaped depositions of TxDOT officials included in the film show them admitting a number of things, while hedging on other points, all indicating that the neutrality expected and required from an executive agency is, by and large, not evident. Furthermore, TxDOT documents obtained by toll road opponents show that TxDOT officials view the citizenry with an uncomfortable degree of hostility. “Keep calm,” states a Keep Texas Moving training document shown in the film, referring to toll road-TTC opponents. “Leave the wrestling to the pigs. They always end up looking like pigs.”

American Free Press attended the film’s debut screening Oct. 30 at the Palladium Theater, where this writer interviewed producer-director Bill Molina, as well as Texans Uniting for Reform and Freedom (TURF) leader Terri Hall, both of whom spoke on camera for AFP news videos.

Molina cast Ms. Hall as the main spokesperson in the film to shine a light on TxDOT’s apparent corruption and clarify the troubling issues involved. She is perhaps the most visible TTC-toll road opponent in Texas; he is an award-winning filmmaker whose earlier editions of Truth Be Tolled laid out the truth about the much-despised TTC, which is Texas’s portion of the NAFTA Superhighway.

The TTC could gobble up at least 584,000 acres of land and 4,000 new miles of right-of-way for an expressway designed for legions of trucks to pass through Texas with minimal on-off ramps and interchanges. Railroad and utility lines would follow the right-of-way, which could be 1,200 feet (a quarter-mile) wide in some areas—three times the width of a typical interstate. The median likely would have hotels, eateries and fueling stations, which would deny such business to providers off the TTC.

The TTC is mainly for delivering Asian-made products shipped across the Pacific on a route that would bypass secure U.S. ports at Long Beach and Los Angeles, Calif. Instead, the shoddy products would be shipped to Pacific Ocean ports in Mexico, especially the Lazaro Cardenas port that’s controlled by shady Chinese shipping companies. From there, everything is hauled north by truck and rail. Kansas City, smack dab in the middle of the U.S., is seen as a major customs “port,” as AFP learned in earlier travels.

Molina’s new film centers on TxDOT’s hiring of registered lobbyists against state law and its improper use of taxpayer money for marketing the TTC and toll roads, instead of giving impartial information on all transportation options, including mass transit and the normal use of gas taxes for freeway upkeep and new construction. But, as the film shows, TxDOT’s Keep Texas Moving “campaign” (TxDOT itself uses the word campaign) is a full-court press to promote tolls roads in general—which could squeeze out freeways altogether—and the TTC in particular.

Numerous points in the film chronicle TxDOT’s conduct and related matters. The following are among the most signficant:
  • On U.S. 281, a north-south route that connects southernmost Texas with the San Antonio area, there is a seemingly relentless TxDOT effort to “toll” this freeway. Ms. Hall noted that the money from gas taxes is definitely there to maintain, repair and, if necessary, expand the freeway. “They’ve hijacked that road for five years—they’ve had the money for five years,” she stressed. She noted in past AFP interviews that the apparent tactic is to toll as many freeways as possible so there is no free competition if and when the planned mega-tollway, the TTC, is built.
  • The tolls under consideration, said Ms. Hall, could be 25 cents a mile, based on “what the market will bear.” This stems from the idea that American roads are now seen as a profitable asset for the Wall Street crowd, rather than being a public investment/service where tolls only need to be high enough to reflect construction and maintenance costs and to retire related debts. Even 25 cents per mile is like adding another $5 to a gallon of gasoline, she explained. Comparatively, the combined federal-state gas tax comes out to only a few cents per mile in Texas.
  • As TxDOT gathered public input across Texas in latter 2007 and into 2008, it held two types of meetings: “Town halls” and official public hearings. Hall, taking into account 12 town halls versus 46 public hearings, said that perhaps 200-300 people attended each hearing where their comments were actually recorded for the public record. But up to 1,000 people were apparently baited to attend each of the town halls so TxDOT could “take public input” on TTC 69, a part of the TTC charted to run north-northeast, first shadowing highways 281 and 77 (that run parallel from the Rio Grande Valley up to the greater Corpus Christi area). From there, TTC 69 would head toward Houston and way beyond along the highway 59 route. Ms. Hall estimated that TxDOT diverted 10,000 people, overall, into attending these phony town halls just so they could vent steam. “None of these [Town Hall] comments were actually part of the legal record,” she said.
  • The SB 792 bill passed by the Texas Legislature that seemed to stop the TTC and other toll roads (as AFP initially assumed last year) did no such thing. This “counterfeit moratorium” imposed the “market valuation” method that paves the way for levying high tolls that far exceed actual road costs and debt retirement, according to Ms. Hall.
  • TxDOT’s documents released for ongoing lawsuits filed by TURF—to argue that tax dollars are being illegally used to actually market and lobby for toll roads and the TTC—show evidence of manipulative “push-poll” methods being used to survey the populace about transportation issues. Push-poll questions are slyly worded to bring the reader to favored conclusions.
The film also stresses that the infamous 2005 Kelo vs. New London (Connecticut) U.S. Supreme Court decision that set the stage for “eminent domain” government land takings on behalf of private interests (instead of genuine public works) also set a major legal precedent for the Texas state government to engage in such takings, especially for the TTC.

A special state panel would offer Texans money for their land, but takings are the next logical step toward those who refuse to sell, as officials hint on the film. On a more positive note, Waller County, Texas went on record against the TTC, not wanting to be in the path of this monster tollway that would gobble up huge tracts of prime ranch land that has been in the same families for generations.

Perhaps most damning of all, though, is the Texas Ethics Commission’s listing of Gary Bushell as a registered lobbyist. It turns out TxDOT hired him in an advisory/consultative function, although the Texas Government Code (556.005) fordids state agencies from hiring registered lobbyists regardless of the reason or function. Texas highway commissioner Jim Houghton, a master of doublespeak, did admit to the hiring of Bushell but, strangely, answered “no” when asked if he was concerned when he found out Bushell was a registered lobbyist.

Notably, state legislative committees have investigated TxDOT’s conduct. The legislature reconvenes early next year. AFP plans to attend key hearings whenever possible.

So much more could be said of the film’s latest edition, which gets into more TxDOT details than the previous edition which covered the “big picture” of the TTC. Check it out at the website Other sites include

© 2008 American Free Press:

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Waller County remains in TTC-69's crosshairs

Council discusses TTC path


Waller County News-Citizen
Copyright 2008

WALLER COUNTY - Mayor Pro-Tem Maurice Hart discussed the continued possibility of the Trans-Texas Corridor cutting a path through Waller County at the Waller City Council meeting on Monday Night, November 17.

Hart is a member of the Waller County Sub-Regional Planning Commission (WCSRPC), which was organized as a tool to fight the Trans-Texas Corridor (TTC) proposed Interstate 69.

The Texas Department of Transportation (TXDOT) is working on an Environmental Impact Statement (EIS), which will provide information on how the TTC might affect Waller County, among other areas. Hart said while it appeared for a time that TXDOT would stop looking at Waller County as a location for the TTC, that apparently is not the case, because Waller County is still in the EIS.

Hart noted that the commission was sending a letter to Texas Department of Transportation “to put them on notice that they have to coordinate with us.”

Hart also shared that members discussed inviting other municipalities to join the Commission, including Hempstead, Pattison, Brookshire, and the Farm Bureau. Hart also stated that some citizens may be invited to join as non-voting members.

Police Chief James Fulton introduced two members of his force at the -- Officer Anthony Scopel and returning Officer Chris McClure.

“We honor our veterans of foreign wars in November,” he stated. “But we often forget about the battle we fight here at home ... that is, fighting crime.

“It takes a select person to come into a community such as ours and put their lives on the line for us,” Fulton said, with much applause from the audience.

Waller Economic Development Corporation Director John Isom and Mayor Paul Wood also discussed future city plans and meetings they have attended over the past few weeks.

Isom discussed an upcoming feasibility study that will look at using the railways for commuting, and setting up an area in Waller as a regional water detention area. Mayor Wood discussed a tri-county meeting, in which Highway 290 improvements were listed as a high priority item in both Harris and Waller counties.

Waller Council then approved the Police Department’s “In-Car Camera Operation” Policy Number P-1, approved advertising for bids for the 12” water main extension along Stokes Road, approved the Comprehensive Plan for the City of Waller as presented by GrantWorks, Inc., and approved changes in vacation benefits for city employees.

© 2008 Waller County News-Citizen:

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Wednesday, November 19, 2008

"I believe I started a chain reaction that will continue to pay off."

Tollroad gadfly leaves Texas


Ann Fowler
Oak Hill Gazette
Copyright 2008

Sal Costello, an Oak Hill area resident who has been a thorn in the sides of pro-toll politicians for the past four years, quietly packed up and moved to Illinois this summer.

He told the Gazette, "Life is short. I'm retired from activism. I'm focusing on my family and my health. I picked up jogging a couple years ago and I'm trying to de-stress my life. As always, I am fascinated by what is most efficient. We purchased a solar passive home, and I hope to reduce our need for energy as much as possible over the coming years."

Costello got involved in the anti-toll movement when the Capital Area Metropolitan Planning Organization (CAMPO) tried to toll the nearly-completed section of Mopac that crossed over William Cannon. He founded the Texas Toll Party to fight the myriad of toll roads planned for Austin and to delve into the business dealings of the parties involved, calling into question many relationships and transactions of people and businesses who he perceived to be pro-toll.

But his zeal took a toll on his home life. Costello wrote on his blog, "I would eat and sleep the fight for about four years, doing just enough to hold on to everything else as the months slipped away. A number of times that obsession came too close to taking my family and my home from me."

He added, "I decided to move on. In early July we put our home up for sale and received a cash offer in 10 days. Part of the deal was a super fast closing. So within three weeks we went from a sign in the front yard to driving away in a U-Haul filled with everything we own towards Southern Illinois."

Costello moved from Austin, home to nearly a million people, to a town of 400. It's a bit of a culture shock, he said, but it's home to his wife, who grew up nearby.

Costello knows he will be remembered – negatively by some, positively by others.

"I believe I started a chain reaction that will continue to pay off," Costello said. "Although not all 2004 tolls have been stopped, many tolls on freeways we've already paid for have been stopped and corrupt elected representatives have been de-elected/fired.

"Sections like the William Cannon/Mopac overpass are available to all drivers for free," he said. "That road alone will save Southwest Austin families hundreds of millions of dollars. I've heard some people call that stretch the ‘Costello Bridge.' I kind of like the ring to that."

© 2008 Oak Hill Gazette:

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Tuesday, November 18, 2008

"When it comes to accounting, the company takes a fruit-salad approach, using whatever method is best to achieve an outcome."

MacBank smoke and mirrors

Mac Bank smoke and mirrors

November 18, 2008

Michael West
Sydney Morning Herald (Australia)
Copyright 2008

In the circumstances, this is quite a neat result from Macquarie, although it remains to grapple with more formidable matters: debt, smoke and mirrors.

We will deal with the accounting chipmunkery later.

First up, the headline number - a half-year profit of $604 million - came in just a tad below consensus estimates as both the operating income of $2.97 billion and the write-downs of $1.1 billion exceeded expectations.

Costs were commendably smashed 33% lower and, incredibly, performance fees were up.

The dividend payout ratio was ratcheted higher to keep the punters happy and earnings guidance was for more of the same in the present half for a full-year profit of $1.2 billion.

These numbers are largely irrelevant, however, to the fate of Australia's most impressive financier. This stock is trading on a price/earnings ratio of five times for a reason.

Headline claims that Macquarie has "conservative gearing'' are patently ridiculous. The debt load lies in the assets beneath. True, much of this $150 billion-odd in obligations is non-recourse to the mothership and sits in the assets controlled by the satellites but this is money that will have to be repaid, refinanced or extinguished somehow, and at some point.

Just meeting the interest payments while deal-flow and cash-flow are under such intense pressure from the credit crisis is challenging enough.

We can leave the detailed results analysis to the experts and focus on another area which will prove tricky (more on the interim figures later).

Now that the gloss has come off the "Macquarie model'' - don't mention Brisbane! - some real scrutiny will be brought to bear on the group's expedient accounting practices; and of course the various assumptions deployed in its valuations such as the "discount rate'' on its infrastructure assets.

This is critical to a complex beast such as Macquarie, which books profits, not only from cash earnings (fees and so forth) but from the uplift in valuations on the assets under its control.

Fruit-salad accounting

Too much is taken as read by the market. When it comes to accounting, the company takes a fruit-salad approach, using whatever method is best to achieve an outcome. This is the case throughout. It will come back to bite.

While Macquarie has diversified brilliantly and the importance of its original infrastructure plays to the overall result have diminished it is worth looking at the stalwart Macquarie Infrastructure Group (MIG) as a case in point.

Where does MIG feature in the MacBank results?

In its 2008 report, the group notes, "Specialist Funds - Macquarie is a manager of specialist funds which own assets in infrastructure and related sectors (toll roads, airports, communications infrastructure, utilities and other asset classes)''.


But where does MIG sit in this structure?

There is no mention of toll roads in Macquarie Capital, which appear to be MIG's advisers. It's not in Equity Markets Group. There is no mention in Treasury and Commodities Group, nor in Real Estate Group.

Financial Services Group is wealth advisory and it's not in Banking and Securitisation.

Perhaps it's in Funds Management - yet none of the descriptions there mention toll roads or infrastructure.


Macquarie claw fees out of the valuation uplift. Presumably, the MIG fees form part of the $4.645 billion "fee and commission income'' recorded in the full-year numbers ($2.2 billion for the half released today).

MIG's June accounts show the satellite owns only one toll road, which is the M6 road in the British Midlands. This is accounted for as an intangible asset and amortised over its useful life - all above board.

All the other roads are owned between 22.5% to 50%. In a normal treatment these would be equity accounted. Not by MIG though. The units are treated as financial assets "at fair value through profit or loss'', that is, they are "marked to market'' with value uplifts recorded as revenue and flowing to profit.

Unfortunately, most of these units are not listed and MIG must use a valuation model to determine the fair values. This is what Warren Buffett dubs "mark-to-myth''.

Moreover, this information won't be unearthed in the financial statements per se but in the separate Management Information Report. That MIG is a triple-stapled security does not ease the burden of analysis.

Here MIG deploys DCF methodology (discounted cash-flow). This is all hunky-dory and signed off by the group's excellent auditors, PricewaterhouseCoopers. The risk-free rate is the yield on 10-year government bonds in the relevant jurisdictions, plus a risk premium.

Risk premiums

These figures are all laid out in the notes to the MIG report. Risk premiums range from 4% up to 9.5%.

Given the recent toll road experience - counter to cherished beliefs it was found this year that toll revenues worldwide are in fact elastic when it comes to toll and fuel prices - one would be compelled to ask whether these risk premiums were actually appropriate.

Further, the year-to-date growth figures are provided in the MIG Management information Report for 2008. There are a lot of minus signs here, an indication perhaps that higher risk premiums are required.

The Westlink M7 asset has a risk premium of 5%. Is this realistic for outer Sydney? PWC?

The Financial Accounting Standards Board (FASB) guidance on fair value estimation using company-generated figures suggests raising 15% risk premiums up to 25%. It would seem 5% is decidedly skinny.

For those who have not had the pleasure of getting acquainted with the beauties of the discount rate, it is a powerful little variable. The lower the discount rate (risk premium), the greater the fair value and the greater the fee - in this case to MIG and Macquarie.

Moving along, treating its investments as financial assets at fair value through the P&L (profit and loss) means that no debt is consolidated, that is, no debt materialises on the balance sheet from these infrastructure investments.

Were you to employ equity accounting, you would book the investments at cost - which is broadly equivalent to net assets (after deducting the debt, that is) - and add in your share of profits each year.

The road toll

In the early years of toll roads, the roads make losses because of high early depreciation, slow traffic build-up and start-up costs. This means that you don't show the share of debt. By treating them as financial assets at fair value through profit or loss, you mark to your own self-made market and don't bring in your share of early losses.

Linking this to the famous MacBank remuneration, it would be fair to say that if the group had not "upfronted'' its profits by this convenient "fair value'' treatment, its executives would have had to wait a lot longer to pull out their $30 million salaries.

In fact, if profits were about cashflow rather than imaginative accounting, there would never have been a $30 million salary. Too late now: that cash is gone.

In 2007, MIG sold Sydney toll roads Eastern Distributor, M5 and M4 - via the spin-off of Sydney Roads Group - to Transurban. It is worthwhile pondering why Macquarie reduced its Australian holdings.

Smoke and mirrors

Responding to questions over the accounting at today's presentation, Nick Moore avoided canvassing the magical reclassifications which had allowed the group to avoid taking a large hit on MIG and Macquarie Airports.

On the way up the bank happily booked big profits out of capital in MIG and MAP then took fees as a proportion of their heady market value. Now, on the way down, the fees are still coming in but neither the asset values in the satellites nor the plunging value of the satellites themselves have been recognised in the mothership's accounts.

Then there is the accounting in the satellites themselves.

According to MIG: ''MIG ... (has) designated (its) non-controlling investments in toll road assets as financial assets at fair value through profit or loss.''

Under AASB 139, you can use that reclassification if the units were bought for ''trading'' (or because they are classified as such).

AASB 2008-10, released on October 24, provided a one-off chance to reclassify ''trading'' financial assets at fair value through profit or loss back to being a loan or receivable (or even as a held-to-maturity financial asset).

In that case, you would adopt amortised cost as the basis of accounting. You took fair value as at 1 July 2008 - before it all went pear shaped - and called that your cost basis. The amortised cost refers to amortising any difference between that ''new'' cost basis and the amount you will receive at maturity over the life of the asset.

In other words, Macquarie and PWC apparently took a dog that had plummeted, and were able to go back to July 1 before the global meltdown. They could then reclassify it and make their calculations as if the market meltdown had not happened. There are words for this kind of treatment but they ought not to appear in print.

These instruments whose fair value had gone through the floor are shown at a virtually unchanged value as at July 1, 2008.

The reclassification had to occur before November 1, or else Macquarie would have been forced to adopt fair value as at that date, that is, post the market disaster.

The MIG accounts say these units were ''designated''. If they were ''designated'' as such under AASB 139, reclassification was not an option. Hardly true, hardly fair.

The good and the bad

Back to the half-year result. The good points are that operational income beat analysts' estimates.

The stock should therefore rally for a while. (Shares, in fact, spiked 26% at one point.)

That the writedowns were also higher than expected will instil confidence that the group is being frank with the market and taking the pain on the chin. If the market misses the accounting stuff that is.

Further, the adept management of costs - staff costs were cut by 48% with a big hit to the bonus pool - will bring optimism that Macquarie will survive the tumult. The personal cost to the ambitious army of bankers who signed up with $30 million bonuses deep on the radar and now find themselves lucky to have a base salary amid the global fall-out is another story.

The impressive flexibility of this company was on display once again when it came to meeting the need for lower costs. The cuts were primarily made in staff however. The cost-to-income ratio still rose.

Outlook for jobs

Pursuant to a story here the other day about mass job cuts, Macquarie actually added to its headcount in the past six months. However, new boss Nick Moore batted away questions at the analyst briefing today as to how many would go.

It was a ''business by business'' decision, was the line.

On the face of it the Macquarie mothership's capital position seems comfortable, though a moving feast. In any perspective on this company the parent and its satellites should be analysed as separate entities (debt is higher in the latter) although it should never be forgotten that they are also intertwined.

The trust structures enable the mother to adopt the fall-back position that they she has no legal obligations or liabilities when it comes to solvency. Still, fees flow from the trusts to the head-stock so they are linked financially and reputationally.

The Brisbane connection

The contribution from Treasury and Commodities rose modestly, proving the group can make money in a volatile market. Likewise Macquarie Securities which did well in difficult conditions.

The negatives include the fact the result was bolstered once again by a low tax rate at 11%. The rise in performance fees was also a worry as satellite investors lost a lot of money. The question looms as to how sustainable are these performance fees.

As evinced by the disaster of its BrisConnections infrastructure float, which is now offered at 0.01 cent, the retail satellite model is dead. Whether the wholesale fund model can take up the slack remains to be seen in a deadly environment for both asset values and growth in cashflow.

A large element of the unknown presides. A few months ago nobody had heard of an Italian mortgage business.

Suddenly it counted for $200 million in writedowns. Now the analysts are wising up to other exposures such as the potential for a hit on Macquarie's Spirit Finance operation - a US real estate sale and leaseback business.

What else is in there is anybody's guess, in terms of potential for losses. In the meantime, there is trading revenue and a reasonable short- to medium-term capital buffer in the parent. This should buoy confidence for a time.

The sort of accounting and disclosure issues canvassed above, however, will come back to haunt the Millionaires Factory.

© 2008 Sydney Morning Herald:

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Monday, November 17, 2008

Blind Justice - Jaundiced Citizens: Rep. Krusee weaves past DWI charges and into more controversy

Judge dismisses drunken driving charges against Krusee


By Isadora Vail
Austin American-Statesman
Copyright 2008

State Rep. Mike Krusee has been cleared of a misdemeanor drunken driving charge from April. Visiting Judge Chuck Miller announced that the case had been dismissed this morning.

According to a written statement by Williamson County Attorney Jana Duty, “After reviewing all of the evidence in the case it was determined that the officer did have probable cause to arrest, due to his observations on the scene, however the evidence is insufficient to sustain a conviction by jury.”

Krusee’s attorney, Jason Nassour, has said Krusee only had one glass of wine at a friend’s house on April 30. A trooper saw Krusee’s car swerving on U.S. 183, according to an arrest affidavit. He failed field sobriety tests and refused a breath and blood test, according to the affidavit. The trooper arrested him and booked him into the Williamson County Jail.

Nassour said he knew it was a tough case for the county attorney’s office to dismiss, but he reiterated his defense since the arrest that Krusee was not intoxicated.

“I hope and pray that everyone who thinks the county is getting light on crime watches the (DPS) video,” Nassour said. “What they should be saying is ‘I hope they don’t arrest me if I look like that’.”

Krusee carried and passed legislation in 2003 that created the driver responsibility program to help fund the Texas Mobility Fund. That program included a number of surcharges for driving offenses, including $1,000 for a first conviction of driving while intoxicated.

© 2008 Austin American-Statesman:

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Jerry Werner and Peter Samuel
National Center for Policy Analysis
Copyright 2008

So-called "intelligent transportation systems" (ITS) combine information and communications technologies with vehicles and public infrastructure in order to manage congestion, traffic routing, travel times and fuel consumption. These programs have finally become mainstreamed; however, the results are not always pretty, say Jerry Werner and Peter Samuel, of TOLLROADnews. Take for example the Transportation Technology Innovation and Demonstration program.

Critics say the program has been used to steer taxpayer money to a private company -- "" -- chosen not by competitive bids but in behind-closed-doors political deals.

They allege that the program maintains's monopoly control over traffic data and that federal grants are improperly used to "sell" the private monopoly's offerings to states and municipalities. And they accuse the U.S. Department of Transportation (DOT) of evading legislative provisions intended to open the program to competition, say Werner and Samuel.

In fact, an analysis of the agreements between state and local agencies, DOT and show how lopsided they are in favoring Some of the revelations include:

  • Changing the normal "local agency cash match" requirement to a new "non-Federal match."
  • Preventing the local public-sector partner from providing valuable traveler information to the public.
  •'s huge conflict of interest in marketing transportation data.
  • Revenue "sharing" that goes right back into's coffers.

Soon, the widespread availability of accurate and comprehensive real-time traffic information will be vitally important to our nation's mobility. This is particularly true as we are increasingly unable to "build our way out of congestion" because of shortfalls in the Highway Trust Fund. Even though, DOT sees the building of new, privately financed toll roads as the primary solution, our nation's ability to better utilize and leverage our existing roadway infrastructure must play a much larger part in the solution, say Werner and Samuel.

Source: Jerry Werner and Peter Samuel, "The 'Smart Road' Scam," Regulation, Fall 2008.

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© 2008 National Center for Policy Analysis:

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Rep. Krusee's DWI arrest debuts on YouTube

DWI charges against Krusee dropped

Video of sobriety test released by County Attorney's Office


KLBJ News Radio (Austin)
Copyright 2008

The Williamson County DWI case against State Representative Mike Krusee has been dismissed.

Prosecutors with the Williamson County Attorney’s Office filed the motion this morning. They state that while there was enough evidence to arrest Krusee in April, there is not enough evidence to convict him of the misdemeanor charges. Krusee was arrested on April 30th by a DPS trooper, whose arrest report states initially pulled Krusee over on Hwy 183 because of expired registration tags. The officer also reports that Krusee told him he had had one glass of wine.

In a statement, County Attorney Jana Duty said, “After reviewing all of the evidence in the case it was determined that the officer did have probable cause to arrest, due to his observations on the scene, however the evidence is insufficient to sustain a conviction by jury.”

According to court documents, there was no physical evidence in the case because Krusee did not submit to a breathalyzer test and a blood sample was not taken at the Williamson County Jail. In addition, officials with the County Attorney’s office describe Krusee’s movements during his recorded field sobriety test as “rock solid”.

“Because we live in a digital age,” Duty’s statement continues, “jurors tend to rely on what they see on the videos offered in the case more so than relying on the training and experience of the officer and what the officer observed at the scene.”

Krusee had already announced he would not seek re-election before the arrest. The House District 52 seat was recently won by Democrat Dianna Maldonado, who will take office in January.

© 2008 KLBJ:

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The end of the toll road for Sal Costello

Anti-toll guerrilla has moved on down the road

Costello's four years of rough tactics hurt finances and marriage, leading to move to Illinois.


By Ben Wear
Austin American-Statesman
Copyright 2008

Texas politicians who support toll roads won't have Sal Costello to kick them around anymore.

Costello and his family moved to a small town in Southern Illinois this summer. He announced it on his blog Sunday, quietly, an adverb seldom associated with Costello in the past.

Costello, if you're new around here or have forgotten, was a Southwest Austin graphics designer who in 2004 made a warp-speed trip from obscurity to notoriety after politicians pushed through a plan to build seven more toll roads. The plan included putting tolls on three roads that were already under construction using nothing but tax money. After a three-month sprint through the political process, the tollway program was approved by the Capital Area Metropolitan Planning Organization board that July.

End of story, it seemed.

No, says Costello, who organized something called the Austin Toll Party and began high-tech guerrilla warfare against the plan and the politicians who voted for it. Costello, who's now 44, sustained the jihad for the next three years or so, often making personal attacks (many, but not all of them, factually accurate, but far too many of them unfair or beside the point), on officials who advocated toll roads. This newspaper, after allowing him to blog on for a time, eventually took him off the site because of his attacks.

Costello — in spite of or perhaps because of his whatever-it-takes tactics — made a difference, though.

One of those tax-built roads, the William Cannon Drive bridge on MoPac Boulevard (Loop 1), fell out of the toll plan within a few months of Costello's offensive. The other two roads, pieces of Texas 71 and U.S. 183 in East Austin, after spending a couple of years officially as future toll roads, are now to remain free to drive in perpetuity. Several election officials who pushed for the roads have left or are leaving public office. None of the other toll roads in that July 2004 plan have begun construction.

With other activists around the state — there is now a Texas Toll Party — Costello helped delay or kill other toll roads and made the Trans-Texas Corridor plan a top issue in the 2006 governor's race and 2007 legislative session. It's safe to say that absent Costello's activism, you'd be driving on more toll roads right now and more in the future than you will with his participation.

Some people will say that's a bad thing, that a number of roads won't get built or will get built much slower because of the anti-toll movement, making our roads more congested. You can make up your own mind about that.

I often wondered how Costello continued to make a living and sustain a marriage, given his obsession and bruising approach. The answer, Costello says now, is that by 2007, he was in financial straits and his marriage was troubled.

"Basically, my wife was saying 'I've had enough of this,' " Costello says now. "She was saying, 'Hello, are you in there? I know you're obsessed with this toll stuff, but I'm here too.' "

Costello, in a final post on his anti-toll blog, says his crusade succeeded but that "success can take a toll on other areas of one's life. I decided to move on."

They put their house up for sale in July , sold it quickly and, telling almost no one he knew in Austin, moved to a town of about 400 people near Carbondale, Ill . His wife, who grew up in that area, works for a nearby university. Costello says he has a freelance marketing contract with a school that serves children with learning disabilities.

Looking back, does he rue the cards he chose to play in the toll debate? Costello accused dozens of politicians and other officials of corruption or other venality, often based more on inference than evidence, and on his blog accused one toll official of being a deadbeat dad. Incorrectly.

"I don't have any regrets how I did things," he says. "Sometimes ,if you want to get things done, you have to bust up some eggs. I'm proud we helped educate some folks."

There are no toll roads anywhere near his new town (he didn't want to reveal its name), and Costello says he doesn't want to get anywhere near political activism ever again. It, uh, took a toll.

"I'm retired from that," Costello says. "It doesn't pay, and it's a long road. It's a lonely road."

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© 2008 Austin American-Statesman:

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