The title, of course, was just to rile you. But now that you are excited (hopefully), let's discuss a matter at the heart of the future of Virginia's infrastructure. Should our infrastructure, a public good, be managed, operated, and owned by the people of Virginia or by private entities?
In order to begin this discussion, let me take you back to the momentous year of 1995. Then Governor George Allen signed into law The Public-Private Transportation Act of 1995. The bill was unanimously passed in the Virginia Senate. Only one delegate, the Honorable Delegate Howard Copeland, voted against it (See LIS Bill Tracking for SB856). Now, you are probably wondering, what in the heck is Public-Private Transportation Act of 1995?
As in this last legislative session, you are probably familiar with the General Assembly's push to make the State Corporation Commission (SCC) obsolete (see HB3068 and Kindler's great series on it). The Public-Private Transportation Act removed the regulatory authority granted to the SCC by the Qualifying Transportation Facilities Act of 1994. The General Assembly had originally decided that they wanted to sell transportation infrastructure to private entities, but that such a process required the regulatory oversight of the State Corporation Commission. Then suddenly a year later, they decided SCC oversight was not necessary and stripped their regulatory role in this act. Originally, the SCC was to act as an independent oversight body by ensuring that the economics of a deal were reasonable and that no suitable alternatives to the deal existed. In addition, private entities were to be treated as public service corporations and their rates (i.e. user fees, tolls) would be subject to the same rate approval process. All of these provisions were removed by the passage of the Public-Private Transportation Act.
The Act also does not require full transparency to the public. The public may inspect a "proposal" pre-award and the actual bid post-award. But there is no requirement to allow full inspection of all bids, related contracts and sub-contract prior to the contract award. While there is a requirement for public comment, without full transparency, it is unclear how the public might intelligently comment on a deal where they lack crucial details that will be contained in the contract. Also, access to documents post-award is nice, but not useful since the contract is executed at that point.
Other states have delved into this process on a much larger scale than we have so far. And here I am just providing a sampling of examples from NJPIRG's "Six Public Interest Principles for Considering Toll Road Monetization":
On impacts to public decision making
Non-Compete Clauses-Deals in California, Colorado, and to a lesser extent, Indiana, limited the state's ability to improve or expand "competing" roads. In New Jersey, such a clause would cripple the state's ability to conduct effective transportation policy since virtually all major roads compete for cars with the Turnpike and the Parkway.Private Toll Decisions = Broad Private Control of Traffic Management-If the rules for increasing toll rates under Chicago toll road deal had applied to the Holland Tunnel since its inception, that roadway could presently charge a one-way toll of more than $180. As a practical matter, an operator would be unlikely to charge that price because drivers would instead take alternate routes. The point is that the Chicago toll-increase schedule effectively allows the private operator to charge whatever maximizes its profits. The toll operator can also offer discounts to particular types of motorists or encourage traffic between certain exits, as will maximize profits. Together these powers enable the operator to control toll policy, and thus dictate who drives on the toll roads, and when.
It's well understood that drivers avoid high tolls. That's the principle underlying congestion-pricing policies that increase tolls during peak traffic hours to shift drivers toward mass transit and less crowded times. The principle also creates the appeal for California's so-called "Lexus lanes," on which tolls adjust throughout the day to ensure light enough traffic for speedy travel, at least for those who can afford it.
Creates "Tax" on Normal Policy Making-The Indiana deal also requires the state to pay investors compensation for reduced toll revenue when the state performs construction such as when it might add an exit, build a mass transit line down the median, or bring the road up to state-of-the-art safety standards. This compensation would add significant costs, and potentially state could not afford to do the work it would otherwise perform. As added complication, the exact level of these future payments might be subject to dispute and lawsuits.
The Indiana and Chicago deals are not encouraging; nor is the way the process played out in Texas. A financial analysis of the Indiana and Chicago deals by NW Financial, a New Jersey investment bank that represents the Turnpike Authority (among others), found that the private investors in those deals would likely recoup their investment in less than 20 years. That analysis is confirmed in at least Indiana's case by the company that won the bid. Macquarie sent investors a presentation asserting an "Anticipated 15 year payback to equity." Given that Indiana's deal is 75 years long, and Chicago's is 99 years, the analysis suggests that governments in these states received far less for their assets than they are worth. In fact, analysis by economist and long-term valuation expert Roger Skurski at Notre Dame University finds that the Indiana Toll Road lease, which sold for $3.85 billion, should have more reasonably been valued at $11.38 billion.In Texas, the Department of Transportation initially excluded the toll authority from bidding to build and run a new toll road they planned near Dallas. The winning private bid would have generated an estimated 12.5 percent rate of profit on its equity investment and would have required the public to compensate Cintra, the private company, if a "competing roadway" was built within 20 miles. One state senator initiated hearings which led to a temporary moratorium on private deals and the toll authority was allowed to bid. The public authority's bid offered an estimated $2.5 billion in additional present-value funds over the life of the deal on top of the $3.1 billion offer from Cintra, despite the public entity's higher estimated costs for constructing the road.
I personally feel that transportation infrastructure is a public good and as such should be owned by the public. And if we are utilizing tolls, any excess monies collected above operating, maintenance, and debt service for that transportation facility should go back into the Transportation Fund and not into private investors' hands. But I look forward to your comments and considerations on this topic.
And last some useful links on the topic:
A petition to stop the private HOT lanes on 95/395
WaPo's article "Infrastructure: A Road to Riches"
New Jersey PIRG on privatization
Mother Jones' article on highway privatization