President Donald Trump has signaled strong interest in partnering with the private sector to rebuild the nation’s infrastructure. Critics warn that public-private partnerships or P3s often allow savvy corporations to fleece taxpayers, but Governor McAuliffe and his secretary of transportation say they’ve found a way to protect the public and make P3s a success. Sandy Hausman has that story.
Randy Salzman is a community activist who’s studied the way public-private partnerships or P3s work. Often, he says, they’re a bad deal for taxpayers.
“The way these projects come out before they are built is it’s all this private money that’s going to save us from crumbling infrastructure. The reality is that the privates put up next to nothing.”
He cites a number of U.S. projects where private sector partners declared bankruptcy after 15 years or less, leaving the public to pay off investor bonds. Here in Virginia, he adds, P3s have not lived up to expectations, but partners have made money.
“There are two Australian companies. Macquarie is the money behind the Elizabeth River Crossings in Norfolk. Transurban owns Pocahontas Parkway, already belly up, owns Capital Beltway Express, generating $62,000 a day, when it promised investors it would generate $335,000 a day.”
But those were deals negotiated by former Governor Bob McDonnnel, who may have been guided by this belief.
“That private business could always do it more efficiently than government,” says Virginia’s Transportation Secretary Aubrey Layne. When he canceled a proposed road from Petersburg to Suffolk, the private partner got to keep $210 million for planning and preparation in what the conservative blog Bacon’s Rebellion called one of biggest contracting fiascoes in recent Virginia history. Layne was left to think of better ways to structure future deals. It wasn’t enough for a private partner to bring financing to the table.
“Nobody can finance a project any cheaper than the state of Virginia if we want to – with our AAA rating and our tax-exempt status,” Layne explains.
So his first rule: Private partners must give the state more than it could accomplish alone. Second: Encourage competition by negotiating publicly, ignoring the private sector’s claim that for proprietary reasons numbers should be kept secret.
“In truth, there’s very little proprietary information in the deals,” Layne says.
And rule three: Be prepared to walk away.
“Key to this was Governor McAuliffe saying, ‘I’m very comfortable with the state’s ability to do this. We’d love to have the private sector be here, but only if we can demonstrate that it’s added value.”
A test of this new approach came when the state decided to widen I-66 in Northern Virginia, outside the beltway. It offered $600 million and toll revenues for the next 50 years. In exchange, the private company would build the express lanes, allow free access for high occupancy vehicles, and pony up money for mass transit.
“The private sector is taking the risk, and they want to limit things that would reduce tolls. HOV usage does not help increase tolls, transit does not help increase tolls” Layne says.
Even so, two bidders met the state’s terms, and Governor McAuliffe has been crowing about the deal struck with an international consortium. Virginia once thought it might have to pay to get the job done. Now, he told lawmakers, we have a bidder prepared to pay us.
“They will build new hot lanes, spend $800 million on mass transit in the corridor," McAuliffe said. "They also will invest $350 million in additional improvements, and the consortium will also write us a check for $500 million. They will do this at the front end of the agreement so that we can spend it to further reduce congestion.”
It sounds too good to be true, and some critics warn it is. Why they’re worried in our next report.