Friday, March 20, 2009

"Just watch....This is going to be the subprime mortgage scandal for the next generation."

In U.S., a hot debate on infrastructure privatizing


By James B.
Copyright 2009

CHICAGO—As they struggle to close ballooning budget deficits amid the worst financial crisis since the Great Depression, many U.S. state and local governments will be tempted to follow the example of Chicago.

The third-largest U.S. city has raised billions of dollars in recent years turning public assets over to private businesses that then run them as for-profit enterprises.

The early success of those transactions, as well a much-longer track record overseas, has stoked an interest in these "public-private partnerships" -- or P3s for short.

So, too, has the growth of funds focused on P3 investing. In recent years, they've raised money from pension funds and other big investors faster than assets have hit the market, creating a demand for deals that has only gained strength as Wall Street melted down and triggered a flight to safety.

"These things give investors steady earnings over a long period of time," said James McKinney, head of debt capital markets at William Blair & Co, a lead adviser to Chicago when the city leased 36,000 parking meters to a private consortium.

But critics warn the push to lease toll roads, airports, parking meters and other public assets to corporate concessionaires is not the painless panacea backers claim.

They say the deals, especially when asset values are depressed across the board, are myopic moves that elevate private profit over public good, entail long-term costs and risks, and could trigger a financial crisis of their own.

"The devil is in the details -- as future generations to come will learn," said Pat Andrews, editor of, a Web site dedicated to preventing more highway privatizations in the state of Indiana, another pioneer of such transactions.

"That's the most irritating thing about this -- the sheer shortsightedness of it. It's money now and who the hell cares about three generations from now. And that's not right."

But backers say a reluctance to tax, coupled with chronic underinvestment in public services for decades, has left many city and state financial managers little choice.

"There needs to be an introduction of private sector capital to help deal with the legacy of underinvestment and, frankly, undercharging for infrastructure that has gone on in this country for a very long time," said Tom Osborne, head of Americas Infrastructure/Privatization at UBS.

But McKinney at William Blair & Co admits the current downturn is focusing policy-makers' minds.

"There are a lot of municipalities that are suddenly open to discussions on the topic, that's for sure," McKinney said.


In the deal William Blair brokered last year, a Morgan Stanley infrastructure investment fund paid Chicago nearly $1.2 billion up front to operate the parking meters for 75 years -- or more than 60 times the system's annual operating profit of about $19 million.

That eye-popping multiple generated lots of buzz and interest among cash-strapped municipal officials nationwide.

"We've got guys marketing coast to coast right now, talking to people, introducing them to the concept, and going through the math on it and the economics of it," McKinney said.

Adding to the P3 push: Massive liquidity sitting on the sidelines. In recent years, billions of dollars have flooded into so-called infrastructure investment funds.

But with so much interest and so much money at stake, it's no surprise that public asset privatization has sharp critics.

Indeed, an effort by the state of Pennsylvania last year to lease its turnpike to private investors came to nothing amid legislative opposition to the plan.

Elliot Sclar, a professor at Columbia University in New York, sees the P3s as just the latest product Wall Street bankers have dreamt up to make a buck - and one taxpayers will pay to clean up.

"Just watch," Sclar said. "This is going to be the subprime mortgage scandal for the next generation."

With too much money chasing too few good deals, Sclar says, the transactions will get riskier. When a private operator eventually hits trouble, states and municipalities that saw the long-term leases as free money will find themselves involved in complex and costly litigation and unknown liabilities.

But opponents also include bankers like Dennis Enright, a principal at NW Financial Group, a regional investment banking group in New Jersey involved in municipal underwriting.

Enright's objection is simple and compelling.

If private investment funds are willing to buy the bonded debt of a decaying road like the Chicago Skyway based on the expected cash it will generate over the next 99 years, then doesn't it makes more sense --- from a strictly financial standpoint -- for government to do the deal itself?

"What we tried to bring to it was some rational analysis to this," he said. "It was curiosity that drove us to analyze them and when we did the math we said: 'Oh my God, this is crazy."

Enright says he's also concerned about the length of the concession periods involved in U.S. deals. Although backers of the deals often point to the long track record of P3 success in Europe, South America and Asia, there are some significant differences. In almost all the overseas deals, the assets were roads newly built by the concessionaire, not existing ones originally built by the public. And concession period was typically much shorter and usually no more than 30 years.

Osborne at UBS acknowledged that tax-exempt municipal bonds are a cheaper way to raise money than the equity and corporate debt private firms rely on. But like all the bankers involved in the deals, he said the bottom line is more complex.

"You can't look at these things purely on a financing cost basis," he said. "You need to look at whole-of-life project cost," including maintenance costs and the quality of service over the decades-long life of the project.

Critics remain unconvinced.

"If the public's going to have to pay higher tolls, it doesn't really matter as a driver whether you're paying it to a public entity or a private entity," said Kerry Korpi, an official with the American Federation of State, County and Municipal Employees union.

"If that's the bullet that has to be bit, it ought to be the public sector that's biting it and enjoying the income stream."

(Editing by Peter Bohan and Doina Chiacu)

© 2009 Reuters:

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Thursday, March 19, 2009

"Is it too much to ask for the Dallas Morning News to go all in and give us the full story?"

The News Must Have Amnesia Regarding Mayor Leppert and the Toll Road.

And Just What The Heck Does "At Risk" Really Mean?

© 2009 The Dallas Observer:

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Wednesday, March 18, 2009

"Call customer service..."

Turnpike authority director talks about tolls


By: Bob Robuck
Copyright 2009

Over the past few weeks, News 8 received quite a few e-mails from people, saying, after six months of receiving no notice from TxDOT, they suddenly received packets of bills with administrative fees attached. Many of the complaints come from customers who had already purchased a toll road pass, or a TxTag.

"Of all the calls that come into our call center, only about 5 percent are related to some kind of toll dispute," Tomlinson said. "Probably the biggest concern we had was we did have a slight problem with addresses in our vehicle title registration database."

Tomlinson said they cleared up that problem several months later and the fix should help with the billing process.

But, some people continue to say they have problems they just can't get solved, and that 5 percent that Tomlinson mentions still means millions of dollars in revenue.

"We have our customer service centers," Tomlinson said. "They're available to folks to handle any kind of dispute."

Most of the people who've e-mailed News 8 say their problems are with customer service, even at the higher levels and on up to actual TxDOT employees.

"I'm happy to talk to somebody if we haven't been able to do what people think is right," Tomlinson said.

When asked why it took News 8 nearly a month to talk to Tomlinson, he said "that's why we have all those levels in between."

Samone Murray, was one of the people profiled in an earlier report on toll road complaints. Murray got a TxTag and was billed six months later, with packets of toll invoices. She said customer service still can't fully explain the discrepancies.

Murray's toll charges are just a few hundred dollars, but the administrative fees TxDOT levied against her are in the thousands.

A TxDOT media representative said that Murray was offered to have those violations waived, but Murray said nobody ever called her. She's now retaining a lawyer. Her bill is now over $13,000.

When asked what Murray should do, Tomlinson said he would "invite her to call back to the customer service center."

Murray said her problem is with customer service, as they tell her that she doesn't owe anything and then somebody else increases her balance due over the phone.

"My advise to her would be to call our TxDOT representative at the customer service center," Tomlinson said. "I would say 5.5 million people went through the toll road this past month, and they didn't e-mail you because they were pleased with the service."

To those who aren't pleased, he said "call us back, let us work with you."

Part two of this interview will focus on the actual penalties TxDOT assesses, why they are so high, and how TxDOT justifies them.

© 2009 News 8 Austin:

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Heads in the sand and "pushing forward."

Federal report on Trinity toll road project highlights concerns


The Dallas Morning News
Copyright 2009

A federal review of the proposed Trinity Parkway toll road has raised potentially troubling questions about the viability of stretching the 10-mile highway through an extraordinarily sensitive levee system near downtown Dallas.

Federal officials released a long-awaited, nearly 4,000-page draft environmental review in the last week, showcasing just how uncertain federal approval remains for a project that city officials say will unlock decades of highway improvements near downtown. Critics worry that it will weaken the Trinity River levees.

The primary threats to the project remain just as they were four years ago, when the Federal Highway Administration first issued an environmental review, only to be met with opposition from the U.S. Army Corps of Engineers, which also must approve the project. The corps insisted the report overlooked possible threats posed to flood protection.

The new environmental report answers those concerns in painstaking detail, but nevertheless makes clear that the two biggest unknowns – how to pay for the multibillion-dollar road, and how to convince the corps that it won't pose a threat to property and people should the Trinity River flood – remain its biggest stumbling blocks.

Still, the report allows the Trinity Parkway's supporters to clear an important regulatory hurdle and provides a clearer view to a possible end to the years-long environmental review process.

"This is absolutely an important milestone crossed, and it's just one more step down the road," said Rebecca Dugger, Trinity River Corridor project manager for the city of Dallas. "There are certainly challenges ahead, but we all have our heads down and are moving forward."

Pushing ahead

But while the city, the North Texas Tollway Authority and the state Transportation Department continue to press forward on the toll road – and on the parks and other amenities that make up the larger Trinity River Corridor project – the report also shows that the corps has lost none of its concern about the impact of the road on its levees.

Some of the same problems plaguing the road surfaced last month in a different context, when the corps issued a failing grade for the Trinity River levees, the 80-year-old dikes between which the city wants to run the toll road.

The city doesn't yet know how bad the problems with the levees are, or what fixes will be required. But one possible solution has been to build concrete diaphragm walls around manmade structures wherever they penetrate the levees.

The corps has proposed the same fix to address some of the concerns it has with the toll road, which will penetrate the levees in five key spots, according to documents included in the report.

The problem, city and NTTA officials said, is that there is no way to know how expensive those walls would be, because the corps hasn't said how wide they would need to be built.

State transportation officials said Tuesday that it is possible the corps would require them to stretch nearly the whole length of the road, a fix that could cost hundreds of millions of dollars or more.

For now, NTTA spokeswoman Sherita Coffelt said, the authority is estimating the walls' cost at about $45 million, though she said that number could change significantly, depending on what the corps requires.

"The challenging part is getting the constructability of the diaphragm walls and getting them approved by the corps," Dugger said. "They are actually pretty new to these guys."

'A huge risk'

For that reason and others, the plan to push ahead on the route between the levees carries significant risks, officials with several agencies involved with the project said Tuesday.

"The NTTA is taking a huge risk in a sense," said Dan Perge, an assistant engineering manager for the state Transportation Department's Dallas district, though he added it was a "calculated" risk. "You cannot preclude the selection of another alternative [route]. If one of those others are picked, everything you have spent in designing it would be lost."

But on Tuesday, federal officials who helped write the draft report repeated warnings that the between-the-levees option remains just one of several possible routes for the road. And officials at all levels said again that the decision about whether and where to build the toll road will be made by federal highway officials, not by state or local leaders. Any route affecting the levees must pass muster with the corps.

"At this stage, we are still looking at all the alternatives," said Anita Wilson, an Austin-based engineering manager for the Federal Highway Administration's Texas division. One of those options, she said, is a "no-build" choice.

Dugger conceded that pushing ahead was a risk – and that the city has no guarantees that the highway administration won't require another route altogether.

"That's why it is called at-risk," she said. "We've always been upfront, very upfront that this is at risk, and that something could happen at the end. But it was a risk we felt we needed to take."


The report: A nearly 4,000-page environmental review, still in draft stage, that helps assess eight alternate routes for the Trinity Parkway, including the route between the levees preferred by Dallas leaders. The report responds to criticism by the U.S. Army Corps of Engineers that earlier drafts failed to assess risk to its levees.

What's new: The $1.8 billion cost for in-the-levees route could mushroom, depending on what results of soil samples reveal and what steps the corps will require to mitigate impact of construction in and near the levees.

What's next:

•A public hearing at 7 p.m. May 5 at the Dallas Convention Center, with a three-hour open house immediately before.

•Written comments accepted until May 15.

•The Dallas City Council will vote again on a locally preferred route later this year.

•The Federal Highway Administration will decide final route in nine to 12 months or longer.


What Dallas Mayor Tom Leppert, a former construction executive, would do to get the Trinity project finished ahead of schedule:

•Have officials from the agencies working on the project share office space in one building

•Convene summits like today's once a quarter to make sure all agencies are heeding their commitments and meeting their timetables

•Ask state and federal officials to give the highest priority to the project and "fast-track" approvals where possible

•Hire outside contractors to produce or assist with some of the analyses that public agencies are responsible for

•Break some aspects of the project into smaller components and start work on them sooner

© 2009 The Dallas Morning News:

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Monday, March 16, 2009

Sam Rayburn rolls in his grave

Some on tollway board criticize Sam Rayburn name change


The Dallas Morning News
Copyright 2009

If the U.S. House of Representatives was once known as Mr. Sam's House, in recognition of North Texas native Sam Rayburn's 17 years as speaker, the state's largest, costliest and most controversial toll road may soon be known as Mr. Sam's Tollway.

On Monday, the North Texas Tollway Authority board voted 6-3 to rename the State Highway 121 toll road in honor of one of Texas' most dominant figures ever to serve in Washington. Effective immediately, the 26-mile toll road will be known as the Sam Rayburn Tollway. Signs will be erected within weeks, NTTA spokeswoman Sherita Coffelt said.

Rayburn was born and is buried in Bonham, Texas, about 50 miles northeast of NTTA's Plano headquarters. A mentor to Lyndon B. Johnson and a key ally of Franklin D. Roosevelt during the New Deal era, Rayburn is considered one of three Democratic giants to have represented Texas in Congress, along with Johnson and House Speaker and Vice President John Nance Garner IV, also known as "Cactus Jack."

Despite Rayburn's North Texas roots, naming the toll road after him was unusually divisive for the NTTA board. Three board members – including both representatives from Denton County and one of two from Collin County – strongly objected.

Denton County board member Dave Denison dismissed the choice as merely "nostalgic" and urged his colleagues instead to give the road a name closer to what most drivers already know it as, 121 Tollway.

"It is already known as 121, and it has been for years. It was called Highway 121 back when I was drag-racing on it 50 years ago," Denison said.

Denton County board member Michael Nowels told his colleagues he was dismayed by the vote to name the road after Rayburn, when the majority of the toll road runs through Denton County. Collin County board member Gary Base also voted against the change.

"I am disappointed and frankly surprised at how this is turning out," he said. "This road goes through Collin and Denton County, and the three board members who are from those two counties want it to be called 121. The other members are from someplace else."

NTTA chairman Paul Wageman, who also is from Collin County, noted that the toll road actually runs through Dallas County, too – albeit for just two miles.

What's more, he said, the only county commissioners court to weigh in on the naming – Denton County – voted unanimously to support calling it 121 Tollway.

"I would have much preferred it to be named 121," said Denton County Judge Mary Horn. "That's how it's been known for years now, and it's what everybody calls it."

Both Denton and Collin counties are heavily Republican, and Horn said if the authority was determined to name it for an individual, there were better choices.

"Personally I would have preferred Ronald Reagan Tollway," she said.

In the end, the strong objections from Base, Nowels and Denison failed to sway a single vote. Denison's motion to table the issue until a future meeting was also rejected, despite his pledge to his colleagues from Dallas and Tarrant counties that he'd go along with whatever names they wanted for the handful of toll roads under development in their counties.

"We're a regional authority and we are here making decisions on behalf of the entire region," Wageman said. "While we respect individual board members' views, and those of individual counties, ultimately we have to decide what is in the best interest of the authority."

Timeline: Sam Rayburn

•Born in Tennessee Jan. 6, 1882; moved to Texas at age 5.

•Elected to the Texas House of Representatives in 1906, where he served three terms, including a short stint as speaker in 1912.

•Elected to the U.S. House of Representatives in 1912 and served until 1961.

•Speaker from 1940 to 1947, 1949 to 1953, and 1955 to 1961, the longest tenure in U.S. history.

•Died Nov. 16, 1961. His funeral in Bonham was attended by 105 members of Congress and President John F. Kennedy, future president Lyndon B. Johnson, and former presidents Dwight Eisenhower and Harry Truman.

© 2009 The Dallas Morning News:

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Texas Comptroller Susan Combs banks on the support of Spanish infrastructure firms

Texas Comptroller Susan Combs to Speak at Spain Business Forum

March 16, 2009

News Release from Comptroller Susan Combs
Window on State Government
Copyright 2009

(AUSTIN) — Texas Comptroller Susan Combs will participate in two panel discussions during the Spain – U.S. Sustainability Conference on Tuesday, March 17, at New York City’s Grand Hyatt Hotel.

During the 9 a.m. and 2:15 p.m. sessions, Combs will speak about topics including: challenges in transportation, Texas investments in infrastructure, renewable energy and financing public and private partnerships under current economic circumstances.

Combs will speak alongside HRH Prince Felipe of Spain; U.S. Sen. Chris Dodd, from Connecticut; Miguel Sebastián Gascón, Spanish Minister of Industry, Tourism and Commerce; Alfredo Sáenz, CEO of Banco de Santander, the biggest bank in Spain; Francisco Gonzalez, president of BBVA, Spain's second-largest bank; Rafael del Pino, president of Ferrovial, a Spanish-based infrastructure company; Baldomero Falcones, CEO of Fomento de Construcciones y Contratas (FCC), a leading Spanish construction company ; Juan Villar Mir, vice president of Obrascon Huarte Lain (OHL), a Spain-based highway construction company; and Barry Gold, managing director of the Carlyle Group Infrastructure Fund, a private equity firm.

© 2010 Window on State Government:

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