Link to article here.

Investing pension funds in toll roads is an irresponsible–and immoral–idea
By Paul Burka
Texas Monthly
Saturday, August 23, 2008

I doubt whether Rick Perry, David Dewhurst, or Tom Craddick has ever heard of the Lane Cove Tunnel in Sidney, Australia. If they had, they might not be so eager to raid the teacher and state employee retirement funds to build toll roads.

On the day the Olympics opened (08/08/08), the Sidney Morning Herald carried the news that the tunnel “is rapidly turning into a bottomless pit for its financial backers….” Two credit rating agencies, Standard & Poor’s and Moody’s, have warned that the toll road could default on its $1.1 billion debt with a year. The tunnel has suffered three consecutive monthly dropoffs in traffic usage. The estimated usage before the road was built was 100,000 vehicles per day; actual numbers in June and July barely exceeded 50,000. A Standard & Poor’s analyst predicted that unless the project gets fresh capital (at least half a billion dollars), it will default within 10 to 16 months. Perhaps TxDOT, since it is such a believer in such projects, would like to invest.

The problem with the financial wheeling and dealing with retirees’ funds that Perry, Dewhurst, and Craddick have proposed is that toll road projects are risky investments. They are risky for two reasons. One is that they are subject to economic fluctuations that affect people’s driving habits, such as the price of gasoline or the pace of development. The second reason is that, when government is involved, they are vulnerable to political pressure and favoritism. Google “toll road defaults” and you will find a trove of stories with unhappy endings. The Camino Columbia toll road in Laredo, which was rife with political intrigue over which landowners would benefit from having a road go through their property, opened in 2000 and defaulted in 2004. Cost: $90 million. Auctioned off for: $12 million. Tx-DOT bail out acquisition payment: $20 million. The Dulles Greenway toll road to Washington’s Dulles Airport defaulted on its bonds within a year of its opening in 1995. The private owner, Toll Road Investors Partnership II, have lost money every year since the road opened. When toll roads lose money, tolls go up–in this case, to $4.80 by 2012. That works out to an astronomical 35 cents per mile. There are similar stories in Orange County, California (where the state had to buy failing toll lanes), and along Florida’s west coast, and near Richmond, Virginia, where the 8.8-mile Pocohantas Parkway, financed with tax-free bonds, has suffered around a 50% shortfall in projected toll receipts; the state has had to maintain the road because the private owners don’t have the money. Bond ratings have been lowered to below investment grade. To pay off the bonds, the toll was increased by 50%.

It is true that many toll roads have been success stories. In Texas these include the Dallas-Fort Worth Turnpike, which paid off bondholderes with toll revenues after thirty years and became free Interstate 30; the Dallas North Tollway and its northern extension; and the Sam Houston Tollway on the west side of Houston. The issue here is not toll roads per se. It is toll roads built with pension funds (and probably other investment funds as well, such as the Permanent School Fund and the Permanent University Fund). These are trust funds. They belong to the members. It is morally wrong to require fund managers to invest them in risky ventures like toll roads. Does anybody doubt that there will be pressure on the pension funds to invest in certain projects that favor certain people and certain contractors and certain areas? We all know what kind of people we are dealing with here. Rick Perry can’t resist it. He appointed the members of the boards that oversee the pension funds. These deals will be neck-deep in politics.

The Statesman’s story on the leadership’s plan quotes Britt Harris, the chief investment officer of the Teacher Retirement System, as saying that investments in infrastructure made sense if the proposal was “equal or better than something we can get [in another project].” Harris then pointed out that the fund’s “ultimate loyalty is to the members,” not to target investments based on geography or politics. The last clause does not appear in quotation marks in the article. Bravo for Britt Harris, but I think he should keep his resume updated.

The biggest risk in toll roads as investments is political pressure. The pressure comes in two forms. The first is pressure on the consultants to provide favorable projections for use of proposed toll roads. Does anybody trust TxDOT–or the consultants they hire, or the private entities they seek to contract with–to do hardnosed, accurate projections? If you do, then consider these comments from an article in Business Week several years ago, at about the time Rick Perry was unveiling his proposal for the Trans-Texas Corridor:

* “There is a history of feasibility studies for toll roads being overly optimistic,” says John J. Hallacy III, director of municipal bond research for Merrill Lynch and Co.

* “Of the 10 major private toll roads constructed since the mid-1990s, nearly half carry far less traffic than projected. Some $4 billion in toll road bonds risk default over the next five years unless they’re refinanced,” estimates Robert H. Mueller, a municipal bond analyst at the J.P. Morgan securities Inc.

What about financing toll roads with bonds? Well, don’t expect bond raters to give the bonds a good rating. I’m quoting here from an article that appeared eight years ago in a tollroad industry publication, so it is possible that things may have changed, though I doubt it. Credit is much harder to get today than it was in 2000.

Fitch-ICBA, the New York bond rating agency says that there is a permanent bifurcation of the toll road bond market. Established systems of toll facilities can expect to be rated in the range A to AA, whereas most standalone and startup toll facilities will be rated BB- to BBB. They see a continuing demand for new toll road financings because of what they call a “seemingly unbridgeable gap” between highway needs and the ability to finance them with tax monies that toll projects can often help to fill.

According to BondsOnline, bonds rated BBB are “lower medium grade” and bonds rated BB- are “speculative.” The lower the bond rating, of course, the higher the interest rate that bond buyers demand. No one is going to be getting any bargains on toll road bonds. And AAA ratings are just a dream: “Fitch says that the ever present possibility of state governments siphoning off surplus toll revenues or leveraging them for other borrowings prevents state owned turnpikes from achieving the AAA rating.” So how can asking pension funds to invest in these bonds ever be a prudent investment? It can’t.

The article continues: Another problem with bonds for highways is that bond rating houses distrust state governments. It is unlikely that any state owned turnpikes will ever reach AAA: The key reason is susceptibility to political interventions.

I have said this before, and I will say it again. There is a sensible way to finance roads. It is to increase the gasoline tax and index it to inflation in the highway construction index. The gasoline tax has some weaknesses. Part of it is diverted to public education. People drive less when gasoline prices go through the roof. Cars are more fuel-efficient. All of this cuts into the revenue potential of the tax. Nevertheless, Texans still love their cars. The suburban lifestyle here is designed around the automobile. Even if the revenue per mile driven is declining, there is a lot of life left in the tax. A portion of the revenue could be dedicated to paying off the bonds for toll roads. This should be capped to ensure that money will still be available for free roads. While the resistance to tax increases is formidable, so is the resistance to toll roads. If you can persuade the public that a gasoline tax increase will reduce the need for toll roads, I think that proposition could be sold. Anything is better than insisting that the savings of retired teachers and state employees be invested in risky ventures like toll roads.

Link to article here.

The story here is this (Note: the term “equity” is code for effective ownership of U.S. assets, like public highways):

“The U.S. trade deficit exceeded $712 billion last year, or 5.1% of GDP. That’s nothing more than America’s borrowing money from abroad to support a lifestyle that is unsustainable. But whether foreigners are now buying hotels, pharmaceutical companies or utilities, the numbers tell us that the rest of the world is no longer willing to foot the bill to feed America’s consumption habit. ‘It’s not just that American assets are cheaper. The untold story here is that foreign investors are no longer willing to finance American debt,’ says Stiglitz. ‘They now want equity.’

“If you were to look at America Inc. as a company, it’s like owning a company and you own a smaller and smaller fraction of it. So the fraction of America Inc. owned by Americans is diminishing,” says Stiglitz.

The Great American Yard Sale
By Jeff Israely/Paris, William Boston/Berlin
Time Magazine
Thursday, Aug. 14, 2008

When Belgian-based, Brazilian-controlled InBev launched a hostile offer for American beer king Anheuser-Busch last month, xenophobia quickly foamed to the top. Beer drinkers in St. Louis, Mo.–A-B’s home–vowed to swear off Bud if those foreigners bought “our” beer.

They’ll get over it. A-B’s shareholders sure did, considering the $52 billion price tag, which at $70 a share was a 27% premium for a stock that had gone flat. The ruling Busch family ultimately faced up to the fact that the U.S. is for sale, and foreigners are buying. It’s everything from the St.-Tropez crowd buying up condos in Palm Beach, Fla., to Asian and Middle Eastern governments sinking billions into U.S. banks to Europeans taking over U.S. pharmaceutical and infrastructure companies. Even tourists are busy using their euros and pounds to snap up iPhones, jeans, shoes and everything else they can stuff into the empty suitcases they carry along for just that purpose, damn them.

The weak dollar and our weakening economy are underwriting the great American yard sale. Investors from Dubai are behind the June purchase of the General Motors Building in New York City for $2.8 billion. The Abu Dhabi Investment Council’s sovereign wealth fund bought a 90% stake in the landmark Chrysler Building. General Electric’s plastics division is gone, and its famed appliance unit could soon be in the hands of China’s Haier or South Korea’s LG. Chrysler is hoping to hook up with India’s Tata Motors or Italy’s Fiat. Switzerland’s Roche Holding is offering about $44 billion to acquire the 44% of the biotechnology outfit Genentech that it doesn’t own.

The surge of foreign buying spans the economy. Since 2003, foreign-led mergers and acquisitions have increased more than sixfold. Last year there were over 2,000 foreign-led acquisitions of U.S. companies in deals worth some $405.4 billion, twice the value of deals in 2006 and up from $60.8 billion in 2003, according to Thomson Reuters, the financial-information company. Unlike the 1980s panic about the Japanese buying up American landmarks like Rockefeller Center, the response of the financial establishment has been to welcome the latest rush of foreign investment. “The U.S. needs these flows, particularly now,” says Bank of America chief market strategist Joseph Quinlan. “It helps create income and jobs for Americans.”

That would include Anne Marie Moriarty, a vice president at Corcoran Real Estate Group, who shuttles between New York City and European capitals, tempting foreign buyers with choice American properties. Moriarty is brokering the $16 million sale of an apartment in Manhattan’s Chelsea neighborhood to an Italian buyer, just one of the latest in her run of foreign deals. She says that since March 2007 her residential sales to foreigners have doubled, which is part of the reason that New York’s real estate prices have held up in an other wise tanking market. “It’s bucking the trend,” says Moriarty. Foreigners “see it as a long-term investment. Part of [real estate] for them is owning a piece of New York.”

Foreign companies were also the buyers in four of the top U.S. commercial real estate deals in 2007, according to Real Estate Alert newsletter. Rome-based investor Valter Mainetti has been building his Michelangelo Fund around trophy properties, ones that have historical or architectural value beyond their location and square footage. In 2006 he acquired a minority share in New York City’s Flatiron Building, a property that today is valued at $180 million. In June he raised his holdings to a 53% share of the famous building. “The Flatiron is expensive, but with the [cheap] dollar, it made sense to increase our share,” says Mainetti. “The stability of the New York real estate market is unique. This current crisis will pass, and the dollar will re-establish itself. We are confident.”

Foreigners spent $52.2 billion on U.S. commercial real estate in 2007, double the previous year’s total, according to Real Capital Analytics, a research group based in New York City that tracks property investment. Dan Fasulo, head of research at Real Capital Analytics, says foreign investment in U.S. property is a relatively recent phenomenon. He compared the current trend to the globalization of stock-market portfolios in the 1980s. “This isn’t just about the dollar. The strongest driver is that investors are looking for geographical diversification. The same situation played out on Wall Street about 10 to 15 years ago,” he says.

Buy American (Companies)

Over the past five years, foreign takeovers of U.S. companies have steadily risen. Among the more notable: Swiss pharmaceutical maker Novartis’ $39 billion staggered buyout of Alcon, the world leader in eye care; British energy distributor National Grid’s takeover of utility KeySpan Corp. for $11.8 billion; Saudi Arabian petrochemical company SABIC’s acquisition of GE’s plastics division for $11.6 billion; and Italian aerospace company Finmeccanica’s pending takeover of the U.S. military contractor DRS Technologies in a $5.2 billion deal. Some 55% of foreign direct investment in the U.S. came from the Old Country last year, with extra impetus now coming from its currency advantage. Says Scévole de Cazotte, senior policy director for Europe at the U.S. Chamber of Commerce: “European companies are very much conscious of the potential windfall. You buy cheap now with the belief that in 10 years the currency will have rebounded.”

Infrastructure is a prime example. Barcelona-based Abertis has been buying up airport-operation contracts from Atlanta and Burbank, Calif., among others, and a variety of service contracts in tele communications and parking garages. Now it is seeking a $12.8 billion deal to operate the Pennsylvania Turnpike, but the state legislature has balked. The road to growth leads to the U.S., says Abertis spokesman Toni Brunet, who notes that states and municipalities have lagged behind European public entities in privatization. “In terms of infrastructure, the U.S. is an emerging market,” says Brunet.

Indeed, European infrastructure firms calculate that the U.S. needs a massive infusion of capital to modernize its roads, bridges and power lines, highlighted by a recent spate of blackouts and the tragic collapse of a Minneapolis highway bridge last year. Steve Lucas, cfo of British power utility National Grid, says estimates are that the U.S. will spend $2 trillion in the next two decades upgrading electricity and gas infrastructure. “That’s bigger than China,” he notes.

The U.K.-based utility has been on a shopping spree that–while hardly anyone was looking–has transformed the company into a force in power and gas in the U.S., serving 4.4 million electricity customers and 3.4 million gas customers. In 2000 it bought New England Electric System and the Eastern Utilities Association. Two years later it grabbed Niagara Mohawk. Then in 2006 it scooped up Rhode Island Gas, and last year it completed its acquisition of KeySpan. That deal put National Grid among the top five distributors of electricity and natural gas in the U.S.

Shopping for Innovation

It’s not just about accumulating buildings or businesses. The U.S. is also a technology supermarket. Talk to Peer Michael Schatz, CEO of Qiagen, a German biotech firm that is a leader in technologies to isolate and prepare DNA and RNA for medical testing. Last year Qiagen merged with Digene, a U.S. biotech group that has developed groundbreaking diagnostic technology for the early detection of cervical cancer. Schatz says constant shopping for innovation in the U.S. is a key to his business plan, scouring technology-auction sites of American universities, searching for the right technology in the early phases of development. “The difference between the U.S. and Europe is that the U.S. has stellar science and a rapid rate of innovation and transferring that technology to the market for commercial purposes,” he says. “No other country comes close.”

There’s even an upside to the relative cheapness of the U.S. dollar. Volkswagen CEO Martin Winterkorn wants to boost the number of VWs the company sells in the U.S. to 800,000 over the next decade. But he has to cut costs to get the price down, which means building the cars on American soil with more U.S.-made components. So in July, Volkswagen announced plans to build two new sedan models in a $1 billion plant in Tennessee. VW hopes to export cars to Europe. “They could save $8,000 a car by building in the U.S.,” says Sean McAlinden, chief economist with the research group Center for Automotive Research, based in Ann Arbor, Mich. “The market has changed. It will be a much bigger market for the kind of small car with advanced technology that the Europeans are so good at making.”

And it’s not just Volkswagen. GM’s European-manufactured Opel Astra is expected to be built in the U.S. in the future. Volvo, writhing under the burden of the weak dollar, has reportedly asked Ford to find facilities for it to produce Volvos in the U.S. instead of Sweden.

Viewed from ground level, rising investment in the U.S. looks like a great thing. Without the inflow of foreign capital, the dollar would probably be even weaker and interest rates and inflation could be higher. But Joseph Stiglitz, a Nobel Prize winner and former chief economist of the World Bank, says there may not be a happy ending. For years, Stiglitz has warned that Americans are living beyond their means. The U.S. trade deficit exceeded $712 billion last year, or 5.1% of GDP. That’s nothing more than America’s borrowing money from abroad to support a lifestyle that is unsustainable. But whether foreigners are now buying hotels, pharmaceutical companies or utilities, the numbers tell us that the rest of the world is no longer willing to foot the bill to feed America’s consumption habit. “It’s not just that American assets are cheaper. The untold story here is that foreign investors are no longer willing to finance American debt,” says Stiglitz. “They now want equity.”

We used to measure the economy in terms of GNP, which is the amount of income produced by U.S. citizens. But now we measure it by GDP, the income that is actually produced in America. The distinction becomes important, says Stiglitz, when an increasing proportion of the country is owned abroad. “If you were to look at America Inc. as a company, it’s like owning a company and you own a smaller and smaller fraction of it. So the fraction of America Inc. owned by Americans is diminishing,” says Stiglitz.

That means that when the economy recovers, there will be less wealth left in the country to reinvest in it. But then returning to the original question–Why is the American yard sale not setting off alarms?–Stiglitz explains that the alternative is even worse. “There isn’t an outcry,” he says, “because the focus right now is the weakness of the American economy, and anything to keep our economy going is welcome.” That’s why no one really objected to Citibank’s becoming a Middle Eastern–financed bank, because it’s better than Citi’s becoming a dead bank. “But clearly we’re worse off as a country,” he says.

When the dust settles on the current downturn, the U.S. economy will probably regain its dealmaking swagger. But unlike the Japanese experience in the 1980s, the current trend of foreign buyouts won’t be unwound. Yet the only way for the U.S. to avoid becoming a second-rate economy is to make the investments necessary to stay ahead in knowledge and innovation. Will we do it? There are a whole bunch of rich foreigners who have just bet their future on it.

• Find this article at:
• http://www.time.com/time/magazine/article/0,9171,1832861,00.html

Link to article here.

Alliance for I-69 is the biggest pro-TTC-69 lobby group in the state. Their chief lobbyist, Gary Bushell, is also the same lobbyist TxDOT illegally hired with our taxpayer money to lobby elected officials in the path of the TTC-69. Bushell is also a notable campaign contributor to MANY politicians, Bexar County Rep. Frank Corte among them. Today, Alliance for I-69 teamed up with Zachry, who along with Spanish company ACS won the development rights to TTC-69 in June, hit Victoria with their dog and pony show, and they’ve been in Austin hitting up lawmakers, too. Their logo on the material they left with lawmakers even has a Canadian, Mexican, and U.S flag morphed together, yet TxDOT denies the Trans Texas Corridor is about NAFTA, international trade, the movement of freight/goods, or the economic integration of the three countries.

I-69 partners make presentation
Victoria Advocate
August 05, 2008

The Alliance for I-69 Texas and U.S.-owned company Zachry American Infrastruture have partnered up and are traveling across the state giving presentations on I-69. On Tuesday, they stopped in Victoria.

During the short initial meeting, city leaders met with Gary Bushnell of the advocacy group and Gary Kuhn, senior project manager for Zachry, the firm awarded the contract for the superhighway.

The Interstate 69 corridor project is a proposed multi-use, statewide network of transportation routes in Texas that will incorporate existing and new highways, railways, utility right-of-ways and toll roads. Zachry was awarded the contract for the project in June by the Texas Transportation Commission.

The presentation focused on ways Victoria could use I-69 to their economic advantage and about the potential the corridor has in terms of new transportation technology.

According to Kuhn, Zachry is working on a master plan that takes into account local projects Texas communities want to do and how the company can help improve local economic development. Kuhn also discussed Zachry’s proposal for a freight shuttle that would go alongside the existing route of U.S. 77 in Victoria. According to Kuhn, the freight shuttle combines the best characteristics of the rail and truck transportation, but is more efficient, cheaper and causes less pollution. He added that it would run on electromagnetic pulses that create motion and a freight shuttle system across Texas could be up and running by as early as 2015.

“We’ve been working with the Alliance to visit all the communities involved in the I-69 Interstate. There is a lot of collaboration that needs to take place among these communities,” Kuhn said. “It’s a kind of one for all and all for one deal.”

The meeting included Mayor Will Armstrong, Dale Fowler of the Victoria Economic Development Corp. and Lee Swearingen of the Victoria County Navigation District.

Link to ACS statement here.

TxDOT has repeatedly misled the public about the Trans Texas Corridor projects and has denied they’re part of any effort to economically merge (through trade and commerce) the U.S. with Canada and Mexico through key transportation corridors. Yet the release by ACS below clearly states the opposite. TxDOT also tried to misrepresent the breadth of the TTC-69 development contract awarded to ACS/Zachry in June leading even lawmakers to believe it only included upgrading Hwy 77 to interstate 69.

Yet as TURF warned (and the media has failed to report), the devil is in the details and the request for proposals by TxDOT clearly stated this contract was for the long-term development of the TTC. TxDOT also denies this grants ACS/Zachry the right of first refusal (preferential contracts without competitive bidding) for TTC-69 segments, but again, this statement by ACS tells its investors otherwise.

Read more about the egregious contract and taxpayer rip-off on the first segment of TTC-69 in the Rio Grande Valley here.

ACS to participate in the development of a great transportation infrastructure corridor in Texas

Iridium and the North American Zachry have been chosen by the State of Texas as strategic partners for 50 years to design, plan and develop a great infrastructure corridor of 1,000 kilometres in length.

The estimate project investments, involving the construction of road and railway infrastructures, exceed 30,000 million dollars, 5,000 million during the first seven years.

The I-69/TTC (Trans Texas Corridor) will connect the Mexican border with the Gulf of Mexico coastline, Houston and major industrial and logistics centres in Texas with the north of the country.

This is the second concessions project awarded to ACS in North America in seven days, after last week being awarded the A-30 highway in Canada.

Madrid, June 26, 2008. ACS Infrastructures Development, the North American branch of Iridium, the concession development company of ACS, and the Texan concessionaire Zachry American Infrastructure have become the successful bidders for the design, planning and development, as strategic partners of the Texas Department of Transportation (TxDOT), of the I-69/TTC infrastructure corridor for the next 50 years.

The I-69/TTC will be a great road and railway infrastructure corridor that will cross the State of Texas from north to south. Specifically, it will start in the Rio Grande valley to Houston offering new exits towards the centre of the Union from large industrial and logistics centres in the south of the State, including a branch towards the Gulf of Mexico and the port of Corpus Christie. The estimate investment for the entire project is around 30,000 million dollars, of which 5,000 million shall be invested during the first 7 years.

With the award of this project, ACS and Zachry, the largest construction group in the State of Texas, have become strategic partners of the Texas Department of Transportation and shall propose the development of specific projects and activities for which they will have a preferential negotiation option without public tender. In fact, the consortium is already considering the renewal of a first route whose concession will be negotiated with the Texas Department of Transportation, the US 77, which shall include the construction of a series of highways under concession regime connecting to it and which shall require an investment of 2,500 million dollars.

The I-69/TTC development project includes, in its initial design, the construction of a 1,000 kilometre network of highways and roads as well as railway lines. Based on this, ACS and Zachry will draft a Master Plan with the Texas Department of Transportation to establish the priority activities as well as the form and deadlines for their execution.

The winning consortium for the project, led by Iridium and Zachry, and which has UBS as its financial advisor and SDG as infrastructure planning consultant, also enjoys the involvement of Dragados, the parent company of the ACS construction area, and SICE, company belonging to its Industrial Services area and which has extended experience in the installation of traffic control systems, as well as other engineering and construction companies in the State of Texas.

The I-69/TTC is one of the high priority transportation infrastructure corridors identified by the State of Texas, the first of which has already been set in motion. In total, it entails an infrastructure network of around 3,000 kilometres and investments of 150,000 million euros to improve State communications with Mexico, centre and north of the country and Canada. Eight States of the Union, including Texas, which is the developer, are involved in the project.

Second concession in North America in one week

The awarding of the I-69/TTC represents the consolidation of the presence of the ACS Group in United States, where it already has considerable presence in civil works, and is the second concession won by Iridium in North America in seven days. Last week the ACS concessions developer was awarded by the State of Quebec, together with Acciona, the project to finance, build and operate for 35 years the A-30 highway in Canada, a project with an investment of 1,000 million euros, which shall require the execution of important civil works to connect the south of Montreal with the North American border. The A-30 is also the first concession awarded to Iridium in Canada.

This way, ACS continues its expansion process in North America, a market it has defined as strategic. Through Dragados, the parent company of its construction area, is already present in United States in its civil works activities since 2005, when it became the successful bidder for the first expansion of the New York Subway; a large engineering project connecting the Grand Central Station in Manhattan to Queens under the Hudson River, representing 400 million dollars. Later Dragados assumed new projects in the north east of the country to improve roads, dams and subways, and recently was awarded the construction of a dam in Puerto Rico and the first contract for the expansion of Miami airport. In December 2007, it acquired 100% of Schiavione; a company specialized in construction in the north east of the country.

Iridium, the ACS concessions company, has been for the last ten years the greatest private transportation infrastructure investor in the world, with promoted investments exceeding 22,000 million euros. The infrastructure and public equipment company participates in the management of more than 40 companies of these characteristics, encompassing the entire concessional business value chain.

Link to article here. Even more appalling than this investment handed to Goldman Sachs (for presumably a variety of toll road infrastructure projects), is the fact that the GLO has already given that amount to a single company, Australia-based Macquarie. This is the same company that bought dozens of Texas newspapers in the path of the Trans Texas Corridor to control the negative press it’s been getting, a bidder on many Texas toll projects, and proposing to takeover the Austin airport.

Texas Land Office commits $100 million to infrastructure fund
By Robert Elder
Austin American Statesman
August 5, 2008
The Texas School Land Board today voted to invest $100 million in an infrastructure fund run by Goldman Sachs. (To recap the hierarchy of these investments: The school land board approves investments for the General Land Office, which does real estate and land investing on behalf of the Texas Permanent School fund. Income from the PSF helps pay for public education. Got it?)

Rusty Martin, deputy commissioner for funds management, told the land board that the Goldman fund will top out at about $7.5 billion and invest primarily in transportation and utilities infrastructure.

The generally dismal state of global infrastructure has spurred great interest in infrastructure as an investing asset class. The need is obvious, from bridge collapses in the U.S. to China’s goal of adding the equivalent of the U.S. highway system in the next few years.

The area has also drawn the attention of Texas lawmakers such as Sen. Steve Ogden (right), chairman of the Senate Finance Committee. The Bryan Republican has floated the idea of Texas public pension funds as a source of capital for infrastructure in the state. If the funds are investing — or contemplating investing — in infrastructure deals all over the world, Ogden reasons, why not put some of that money work in Texas?

To date, Texas public pensions have not committed large sums of money to infrastructure, although some funds hold stock in publicly traded infrastructure companies.

The Goldman Sachs investment is the General Land Office’s second infrastructure deal. The GLO in February committed $100 million to Macquarie Infrastructure Partners II. Macquarie Group Ltd. is an Australian investment bank.

Link to article here.

Senate subcommittee questions value of public-private partnerships
Landline Magazine
July 31, 2008
Though public-private partnerships have been discussed at both the state and federal level for quite some time, there are still some areas of the controversial plans that have yet to be fully explored.

The Senate Finance Subcommittee on Energy, Natural Resources and Infrastructure examined some of those areas, including taxes and financing, at a hearing Thursday, July 24.

Subcommittee Chairman Jeff Bingaman, D-NM, started off the hearing by saying he has mixed feelings about public-private partnerships.

Bingaman said that, although he’s not necessarily opposed to the idea of private investment in U.S. highways, he’s also not convinced that it is the silver bullet that many of its proponents make it out to be.

“There’s no denying the seriousness of our surface transportation funding challenges, but the question is whether our federal response should be to encourage states to essentially sell off vital components of the Interstate Highway System,” Bingaman said.

“I am personally open to the role of the private sector, but I have real concerns about this rush into public-private partnerships and its adequacy to replace or supplement a strong and vital federal infrastructure program. Before we move away from our long-term state and federal highway partnership, we must better understand the consequences of doing so.”

Bingaman went on to say that he was concerned about the practice of selling longer and longer leases in order to take advantage of subsidies in the tax codes.

JayEtta Hecker, director of physical infrastructure issues for the Government Accountability Office, testified that, in addition to Bingaman’s concerns, there are other pitfalls of public-private partnerships to be on the lookout for. Not the least of which is the very real possibility of increased tolls for those who use the roads.

“There are, however, potential cost tradeoffs. It is a concern that there are views that this is somehow free money,” Hecker said. “The reality is that these techniques are going to result in higher tolls to the users because of the way they’ve been managed relative to a publicly owned toll road.”

Hecker went on to say that the way these deals are typically done in the U.S. is vastly different from the way they are done overseas – something the GAO would like to see change.