Road lobby to lawmakers: If goal is to MAXIMIZE profits, use a private toll contract

Today the Joint Study Committee on Private Participation in Toll Projects (mandated by the private toll moratorium bill) invited boatloads of bureaucrats and private sector road building contractors (engineering firms, law firms, financial consultants, etc.) to sing the praises of private toll deals before state lawmakers (and the Governor’s 3 appointees, all pro-privatization and pro-TxDOT…think people who believe TxDOT walks on water, tells no lies, and is always right).

A few government folks warned Public Private Partnerships (or PPPs) are not prudent or do-able in all situations, but none repudiated them outright or recommended the Legislature do away with them. At a Senate Transportation Committee hearing March 1, 2007, PPP expert Dennis Enright with Northwest Financial in New Jersey said PPPs cost 50% more, the private sector assumes NO FINANCIAL RISK (though PPP advocates claim “risk transfer” is the advantage of doing a private deal), and recommended toll projects always stay in the public sector. No such moral clarity today. One thing’s clear: the highway lobby and the PPP chief cheerleader, Robert Poole of the Reason Foundation, have been very busy lobbying our elected officials since the hearing March 1, 2007.

It was all a taxpayer could do to keep his/her cool when listening to the spin and the brazen attempts to raid our wallets with the highest possible toll “the market will bear,” simply because they can. The hogs at the trough are alive and well and far outnumber the ordinary citizens who can take off work to sit in a 6 hour hearing (with no breaks, but lawmakers always have a “back room” stocked with drinks and food both in Austin at today’s meeting) before they can give a stitch of testimony against these sweetheart deals that amount to a public fleecing.

Read the TURF testimony (which we were not allowed to finish before being cut off) here.

A Secretary from the Florida Department of Transportation even admitted the primary funding source for their PPP deals is private activity bonds (or PABs), which is a pot of public money established by the feds to encourage private toll contracts (note how it’s cloaked with “private” in the title).

VA Secretary of DOT a STAR!!!!!

Deputy Secretary of the Virginia Department of Transportation (VDOT), Barbara Reese, stole the show today and displayed the kind of integrity and leadership we need at TxDOT. We liked her so much we suggested the Legislature get her down here to run TxDOT post-haste!

She described how Virginia’s DOT approaches transportation starting with “an unwavering commitment to the public good” (since someone has to pay that tax/toll) and total transparency (“no closed door deals”). They have a section of their web site where anyone at any time can examine the performance of any contract and, hence, the department’s technical and financial decisions on behalf of taxpayers.

Reese also noted that they’re very open and candid about what they’re doing and why, and emphasized they involve the public at every step of the process. She was specifically asked by one of the committee members if they proceeded with a project if the public didn’t want it, and she emphatically said, “No.” What a novel concept, actually listening to the public who pays the bills…TxDOT and our Texas politicians have a lot to learn about integrity and serving the public interest from VDOT.

She said 80-90% of their road maintenance has been outsourced from government to the private sector which has subsequently reduced the number of VDOT employees from 12,000 down to 8,600. Here’s the kicker. If a VDOT project wasn’t done in time or came in overbudget, “you have a lot of explaining to do and possibly could lose your job.” How refreshing! A government agency that will actually fire people who don’t deliver for the taxpayers! I’m concluding TxDOT’s recent $1 billion accounting error and ad campaign selling tolls roads and the Trans Texas Corridor to the public using TAXPAYER MONEY would have resulted in heads rolling at VDOT. Where’s the accountability at TxDOT?

Hogs at the trough get trotted out

Then out came the private sector firms (who will profit handsomely from PPPs and toll roads) blowing sunshine in lawmakers’ ears about what the private sector brings to the table. They talked about “risk transfer” and tried to claim since a private lender is involved in private deals, that the deal is more scrutinized than a public sector model. Oh really, is that how we arrived at the current subprime mortgage crisis? Because lenders were so good at “scrutinizing” buyers’ ability to make payments? Let’s remember who bailed that mess out…we the TAXPAYERS did. There is no private “risk” anymore. It’s the taxpayers, the taxpayers, and ONLY the taxpayers who pay the price for corporate America’s mistakes and our government’s malfeasance.

URS and other companies who do these traffic and revenue toll viability studies are known for perpetually OVERprojecting the expected amount of traffic that will take these toll roads, and when the cars don’t materialize, it’s once again the taxpayers who bail out the failed toll road, like we did on the failed Camino Columbia toll road in Laredo (and there’s plenty of examples of failed toll roads in Florida, and in VA and elsewhere). It’s a total scam, they’ll say and do anything to get these toll roads built, sell the bonds, get their money, and leave the taxpayers holding the bag. I’ve even heard companies admit they can’t tell TxDOT the truth because then they’ll never hire them for these studies again. It’s all about the money, folks. The public good gets checked at the door. It’s been long since buried in Texas.

Very few start-up toll roads are financially viable

Well, the fact most of these toll projects aren’t 100% toll sustainable has been abundantly obvious since day one of the Governor and Legislature’s shift to tolling. They’re using all kinds of public subsidies to make the projects work so that they can still toll you! Wisdom and prudence would say if the road can’t be paid for by the tolls, then don’t build it as a toll road, period. No so with today’s politicians. They instead choose to subsidize it so they can still tap the vein and get their revenue stream.

So don’t believe them when tollers claim you have a choice whether to pay to take a toll road. No you don’t, a heap of YOUR public money is going into nearly every one of these projects, but you won’t be able to drive on them without paying a toll, too, in a double or even triple tax scheme. Why do you think they’re tolling existing freeways? Because they can make an extra BIG heap of cash off roads already built and paid for!

Any discussion of market valuation is always very revealing. The purpose of market-based tolls is to “maximize the profits” from the road (as we warned when we tried to kill this provision in the bill last year). Lawmakers and private firms said so repeatedly at the hearing. This shift to tolling has always been about creating a new revenue stream for road builders without having to raise the gas tax. Politicians honestly think raising the gas tax will bring worse political fallout than tolling. Well, they’re learning that’s a false hope. See, it’s not that they’re averse to raising your taxes, they do it all the time, they think tolls can ultimately be blamed on local government decisions so they basically think they get to pass the buck with tolling. There’s no question that paying tolls on all new lanes/roads will be the largest tax increase in Texas history, period, and there’s blame at EVERY level of government.

PPPs more expensive than public toll roads

The private firms admitted PPPs cost the taxpayers more, not to mention loss of control, but they think it’s justified since in some circumstances the road can’t be built without the private money since many public tolling entities have maxed their proverbial bond debt credit cards. So instead of restrain government spending and rein-in the prolific use of leveraged debt to get new roads built, their argument is the public should pay even more to have a private company build, maintain, and control our roads in 50+ year deals for the ultimate quick fix.

The road building industry is hitting tough times, like all of us hit hard by the recession, so instead of tighten their belts like we have to, they want the taxpayers to suspend all rational fiscal policy and allow PPPs to continue in Texas when we can least afford them.

Tolls not a “user” fee

Sasha Page of Infrastructure Management Group (IMG), a financial firm that consults on such deals, even admitted the private sector attraction to toll roads is due to the “monopolistic characteristics” of toll roads. Cha ching! You got it! Again, the testimony of industry experts time and again shows toll roads are monopolies, they are not “free market” as tollers try to tell us. And, tolling is not a user fee, it’s a tax, especially when they use a mix of other public funds to build them.

Market valuation, in particular, is another Robin Hood scheme to jack up the toll beyond the actual cost of the road and milk that money from one set of motorists and give it to another set. A user fee is directly tied to the user of the road as it is with traditional turnpikes. Toll advocates complain the gas tax is flawed because the payer is too far removed from actual road use because all the money gets put in a pot and gets redistributed. Well, that precisely what they’re doing with market valuation and PPPs. All told, they’re putting the money in a pot and spending it elsewhere, not on the road where the toll is collected.

Advocates will say it’s not fair to raise the gas tax for everyone, like in rural Texas, to solve congestion in Houston or Dallas. First of all, rural areas get far more back in gas taxes than they put in and urban areas have donated to rural areas since the gas tax first started. There simply isn’t enough population in rural areas to support any highway being built/maintained. The bottom line is this: we’ve all decided public infrastructure and connectivity of all our roads, whether urban or rural, are important and necessary and we’ve all agreed to pool the money collected for roadways to support and maintain a STATEWIDE highway system. All Texans benefit from our highway system, whether it’s to get to work, get goods to market, or to visit Grandma in another town, we all use and need our highway system.

Toll advocates bring up this straw man gas tax argument to stir-up strife and division among various regions as an excuse to push the most expensive transportation tax, toll taxes, on all of us without a public vote.

Market valuation is hard for politicians to sell back home

Representative Wayne Smith, who is the House author of SB 792 that unleashed market valuation on Texans, told Geoff Yarema, with the law firm that represents TxDOT in PPPs, that he’s having trouble selling market valuation to constituents. “Telling people that we’re extracting the maximum revenue from a toll road to go build more toll roads where we extract the maximum revenue is hard to sell back home, can you help us with that?” Smith asked.

You bet that’s hard to “sell” to constituents, because they recognize runaway taxation and gouging when they see it! They’re tired of being gouged at the gas pump and add market-based tolls on top of it, and you have an all out taxpayer revolt brewing. We tried to warn these guys market valuation is DISASTROUS public policy and we begged them to kill it, but lawmakers wanted to go home at the end of the last session rather than fight with the Governor over toll road policy. Some of them may well be going home from Austin for good when this mess hits the fan in the voting booth!

Reason Foundation infecting lawmakers

Robert Poole of the Reason Foundation again suggested that the federal law prohibiting the public and private sector from competing with one another on such contracts ought to be repealed. I repeatedly ran into the Reason Foundation lobbyists in lawmakers’ offices at the Capitol during the 80th Legislative session. They have infected the Texas Public Policy Foundation and other “free market” think tanks convincing them toll roads and privatizing infrastructure is free market and the best way to finance transportation. But for all the reasons laid out above and throughout this web site, toll roads as conceived under PPPs and the new policies under Bush and Perry are anything but free market or good public policy. It’s the MOST EXPENSIVE, monopolistic, runaway, Robin Hood form of taxation put into the hands of unaccountable bureaucrats.