Thoughts and Opinions On Today's Important Issues

Friday, April 16, 2010

BLOGExclusive: The Granholm Legacy--P3 Taxation

  • "The latest overseas trip was Granholm's 10th since taking office in 2003."

I hope she will not be stopped at US Customs. Rumour has it that not only will the Governor bring back jet lag on her return but she will be carrying some strange stuff in her suitcase: the concept of P3s as a salvation for Michigan.

Oh it is serious, addicting many politicians world-wide it seems. Take a look at the BLOGs I wrote about P3 addiction if you want to know more about this fatal disease if not treated properly:
P3 Cocaine (Part 1)
P3 Cocaine (Part 2)

Of course, what that really means as Michigan Representative Pam Byrnes told us in her e-newsletter is a big rally on Friday for business, political and labour leaders to promote the passing of P3 legislation to save DRIC. Naturally, it won't be presented this way. The P3 umbrella will surround and hide DRIC to make P3s oh so appealling

Why Michigan leaders want to endrun President Obama by helping Canada out on DRIC has always mystified me. It cannot help the Governor if she wants a federal job. Take a look at my BLOG "Why MDOT Needs P3 Legislation For The DRIC Bridge"

P3s would serve a purpose for MDOT for sure and for Canada:

  • 1) little legislative oversight over spending if the money is coming from the private sector (until payback time when it is too late)

  • 2) a way perhaps to try to get around the eminent domain legisaltion

  • 3) a way to avoid a Dubai Ports situation and having Congress intervene.

Let's cut the P3 BS.

It is nothing more than a financing tool that Wall Street is trying to sucker Governments to adopt to make bankers richer. After all, the fees are huge. With the economic melt-down, who needs the investment bankers when Governments can borrow money at cheaper rates than the private sector. Look at the mess Macquarie is in with their tollroads to see what happens when this concept sours.

  • "Macquarie to split gems from dud pikes

    Macquarie are proposing to split their portfolio of pikes into the gems (called Mature MIG) and the duds called (called Active MIG). For the MMIG gems investors will pay a premium but will see the returns roll in steadily. The duds, Macquarie management will be working their tails off - active management - to make them less duddish. But being a more dicey investment AMIG the dud securities will probably sell at a lower price."

I do not understand why a State which can borrow money at low rates these days would want a P3 where the bankers want a monopoly and a rate of return from 13-20%!

I thought the rules about off-balance sheet borowings had changed so that a "loan" as a P3 deal really is has to be shown as one and not merely "expensed out" to make the State balance sheet look better.

If you want your hair to curl, take a look at this story about bankers and loans to Government. While not dealing specifically with P3s, if true, it is a scary read. Of course, I say, "if true" because I cannot vouch for its accuracy so you will have to read it with that caveat in mind:

  • "Looting Main Street:

    How the nation's biggest banks are ripping off American cities with the same predatory deals that brought down Greece

    By Matt Taibbi

    April 12, 2010 "Rolling Stone" - - If you want to know what life in the Third World is like, just ask Lisa Pack, an administrative assistant who works in the roads and transportation department in Jefferson County, Alabama. Pack got rudely introduced to life in post-crisis America last August, when word came down that she and 1,000 of her fellow public employees would have to take a little unpaid vacation for a while. The county, it turned out, was more than $5 billion in debt — meaning that courthouses, jails and sheriff's precincts had to be closed so that Wall Street banks could be paid."

Go to the top left of my BLOG and place the words "Port Mann Bridge" in the search box. You will learn the gory details of how the Macquarie P3 deal for a new bridge costing over $3B fell apart because of the economic melt-down and how the Province of British Columbia had to step in and save the deal.

More importantly, you will discover how the Province using the same contractors as the P3 group would save a billion dollars for taxpayers by financing the project the traditional way and shave a year off the project time-line.

A DRIC bridge financing would be a disaster since tolls would have to be up to 4 times higher than that of the Ambassador Bridge. Who would ever use it at that rate? Don't forget the bridge alone is over $2B and the entire project on both sides of the river is estimated at $5B. We know those numbers are not going to hold but will be much higher! Our Boston Big Dig by the time it is done.

Need proof of the financial failure to come---where are the financing numbers of the second section of the MDOT Wilbur Smith report and why hasn't MDOT revealed them BEFORE the rally!

If the tolls will really have to be that high, how can the new DRIC bridge compete? It cannot. Unless there is a subsidy to be provided by taxpayers, a new tax in other words for years to come for Michiganders. How many other bridge and road projects around the State will have to be postponed or cancelled to pay for DRIC? And that is exactly now being contemplated! As I Blogged before:

  • "

    "That is why separately Transport Canada's Mark Butler said:

    "We are continuing our discussions with Michigan on governance issues and financing issues,” said Mark Butler, a Windsor-based spokesman for Transport Canada...

    Butler said the Canadian government would prefer that the new cable-stayed or suspension bridge be undertaken on the basis of a public-private partnership. But he said this approach is not yet set in stone."

    Now you know why it is not set in stone. But it gets even worse:

    "Given the anticipated tolled nature of the border crossing, MDOT says there are several public-private partnership models ranging from real tolls to availability payments that could be applied to the DRIC under current market conditions."

    What a joke...from real tolls to phony tolls ie payments support by either direct Government payments or guarantee or subsidies. All at extra taxpayer expense forever! They dare not say that in the RFPOI because then the Legislator who reads it would know that this is a financial disaster."

We are all being sold a bill of goods. Michigan especially now that we learned that the Canadian Prime Minister, Stephen Harper, really wants to be the owner after he issued his secret mandate letter to buy the Ambassador Bridge. The DRIC project was a phony, designed it appears to me to help him out in his fantasy.

I have Blogged before about the Danish Professor and his work on Mega-Projects. Here is another expert and what he has to say about these Mega-Projects as well:

  • "Error and optimism bias in toll road traffic forecasts
    Robert Bain

    Abstract Traffic forecasts are employed in the toll road sector, inter alia, by private sector investors to gauge the bankability of candidate investment projects. Although much is written in the literature about the theory and practice of traffic forecasting, surprisingly little attention has been paid to the predictive accuracy of traffic forecasting models. This paper addresses that shortcoming by reporting the results from the largest study of toll road forecasting performance ever conducted. The author had access to commercial-in-confidence documentation released to project financiers and, over a 4-year period, compiled a database of predicted and actual traffic usage for over 100 international, privately financed toll road projects. The findings suggest that toll road traffic forecasts are characterised by large errors and considerable optimism bias."

In other words, P3s are a recipe for disaster. Why the Governor would want to be remembered for this is beyond me!