House Committee chairs Oberstar & DeFazio warn states against bad toll concessions

2007-05-15

TOLLROADSnews

James Oberstar and Pete DeFazio (Ob & Faz) chairmen of the House of Representatives transport committee and a subcommittee respectively don't want the states entering into bad toll concessions. The committee chairmen begin a letter they say is going to state governors, legislators, and transportation officials: "We write to strongly discourage you from entering into public-private partnership ("PPP") agreements that are not in the long-term public interest in a safe, integrated national transportation system that can meet the needs of the 21st Century."

Proposed arrangements don't adequately protect public interest

The letter, says Bush officials "have lauded PPPs at every turn" but the house transport committee "believes that many of the arrangements that have been proposed do not adequately protect the public interest."

We'll undo agreements not in public interest

The chairmen declare: "The Committee will work to undo any state PPP agreements that do not fully protect the public interest and the integrity of the national system."

They note that work has begun on the five yearly reauthorization of federal highway and transit funding due for 2009 (but on the past record likely about 2011). They declare "significantly increased investments" are needed but say they have serious concerns about PPPs that improve selected segments "but undermine the integrity of a national system and do not protect the public interest."

No rushing

They want "all financing options to be on the table" but they "strongly caution against rushing into PPPs" that do not protect the public interest and the integrity of the national system, and which are not sustainable.

They say their interest in PPPs is "directly related to the increased involvement of private companies, both foreign and domestic" in managing and financing roads.

Non-compete clauses blocking safety and congestion relief

Their initial concern was "non-compete clauses" that they say are frequently included in concession agreements "making it extremely difficult - if not impossible" for public authorities to address safety and congestion problems on adjacent parallel roads.

They have "serious concerns" about whether long lease PPPs "offer a balance of net benefits for the American public."

Impact on network

The chairmen say they are concerned about the impact that PPPs will have "on our national transportation network". The need for an "integrated" network is compelling.

"Shortsighted and unbalanced PPPs that mortgage our nation's surface transportation structure for generations to come may favor parochial and private interests to the detriment of an improved 21st century national transportation system," they say.

Near the end they return to the rushing theme, saying the "rush" to "embrace PPPs" particularly longterm leases of existing assets is turning public opinion against innovative finance. Those that expand capacity "may be a good idea" but the benefits and public policy concerns need to be fully examined before they are significantly expanded across the country.

They say that in response to the administration's model legislation for toll concessions and its strong support they will be releasing a discussion paper "that outlines what we think states should consider" before enacting PPP legislation or entering into concessions.

Click here for link to a reproduction of the Ob & Faz warning letter.

COMMENT:

This is a weird letter.

1. They warn against rushing into concessions that aren't in the public interest - bad concessions.

Well of course, everyone is against bad concessions. We're all against people rushing into bad marriages. And making bad purchases.

2. Concessions "proposed do not adequately protect the public interest, they say"

Precisely what proposed concessions do they have in mind, one has to wonder.

Cross Bay Expressway CA, no that goes back to 1991, can't be that. Dulles Greenway VA, no that concession was 1993 or thereabouts. Ambassador Bridge Detroit, gawd that concession's even older than Ob and way before young Faz was born - about 1925. Warnings about that are rather late.

The Chicago Skyway, no that's not "proposed" it's done. Indiana Toll Road also done, finis. Pochantas Parkway VA, TX130 5&6, also signed and sealed. Camino Columbia TR Laredo done, and gone, and back in state hands. Same 91 Express Lanes.

They can't be talking about concessions for the New Jersey and Pennsylvania Turnpikes because they aren't to the stage of writing concession agreements. Same is true for the Capital Beltway VA, and I-95/395 VA, NW Parkway CO, Third Crossing Hampton Roads, US460VA, Currituck Sound Bridge NC, stuff around Portland OR (Faz's territory).

OK here's one concession that's proposed but not yet done - SH121 in the Dallas area. It's the subject of a very lively debate in Texas about the pros and cons and the public interest, but it is not clear what our chairmen will bring to that.

Certainly there are a bunch of other concessions in Texas in the pipeline - a pipeline which may be frozen by state legislators.

3. Not in the public interest.

The sole purpose of concession documents is to secure the public interest with regulation where regulation is deemed necessary while leaving the concessionaire free where that is in the public interest.

4. Their committee will "undo" concessions they opine not to be in the public interest.

What's this? Ob & Faz have found a way to negate a contract between a state and a private contractor - to undo a concession contract? The courts of law usually adjudicate contracts in this country, not committees of the Congress, but good luck in your undoing work. It'll make for great news stories.

We suggest the chairmen invite down from Toronto Ontario for their hearings one of this news service's favorite characters in several years of reporting PPP toll concessions - Harinder Takhar, one-time Ontario Minister for Transport. No one worked more energetically and with more resources of lawyers, PR advisers, and other taxpayer-funded flunkeys precisely to "undo" a toll concession on the 407ETR tollroad. Even with the advantage of being simultaneously a legislator and an executive - the British system - Minister Takhar failed. Ran up millions in litigation, went to nearly every court in the country, and was beaten every time. In the end he hauled up the white flag and, after a decent interval, was fired by the premier. You'll have to pay his fare down to DC.

The lawyers had shaped a concession contract for 407ETR that provided beautiful armored protection against political ambush, improvised ideological explosives, shaped legal charges, RPGs, the lot. You'd better believe the lawyers working on concession contracts for PPPs in the US learned from up north what's needed to keep you politicians from "undoing" stuff that you opine is not in the public interest.

5. Rushing is bad.

Certainly, like bad concessions are bad. But this alleged rushing is a figment of the imagination of recently concerned persons. From announcement of an intention to concession to financial close has never been less than 18 months, more often two or three years and some are going on four and five years and still not done. Maybe that's more of a rush than the US Congress in writing a xyz-TEA bill, but by normal standards it seems quite slow and deliberative.

The states doing concessions invariably employ a bunch of savvy and pricey financial and legal advisers who get paid by the hour, so they are hardly incentivized to do a rush job.

5. Undermining the integrity of the network.

This is a fine rhetorical phrase but what does it mean? The highway network of the country has always been under diverse ownership and control - different state DOTs, MPOs, counties, cities, different toll agencies - and it works as a network. Sometimes the different roads managers have problems getting on together but they sort out them out. It is in everyone's interest for motorists to be able to move from one road to another. That doesn't change with concessions. Concessionaires don't make money by blocking customers out. They want as much networking as possible.

6. Non-compete clauses make it difficult to address safety and congestion problems

Only one toll concession - 91 Express Lanes - made it difficult to address congestion (extra capacity was specifically allowed for safety reasons) and that is widely acknowledged to have been a mistake in the drafting. Every concession written since has allowed extra capacity and instead many have provisions for compensation if unanticipated extra free capacity can be shown to reduce concession revenues. Some concessions have no limits on competition and no compensation provisions either - the Chicago Skyway for example.

To the contrary toll concessions by bringing new resources and and business management to toll roads are alleviating congestion and enhancing safety.

7. New capacity concessions may be OK but putting existing publicly financed facilities in concession is wrong.

This is a distinction without a difference. A road is never built and paid for. It keeps on costing. Existing facilities need to be managed, maintained, repaired, reconstructed, enlarged and adapted over the years.  Those costs looking ahead 50 or 75 years dwarf the original construction costs. All those costs need to be managed and financed efficiently, and the argument is that business via a concession is likely to do that better than a politically governed authority. 

TOLLROADSnews 2007-05-15