Thoughts and Opinions On Today's Important Issues

Monday, April 26, 2010

Michigan P3 Bureaucrats Overthrow State Government (Part II)

It's like buying a toll road or a DRIC bridge on a credit card when Michiganders have no money in the bank. No cash today and pay it back over time at outrageous interest costs.

I was so upset I was going to organize a tea party so I could meet with friends to calm my nerves about how the Legislative function was being usurped by the Bureaucracy in Michigan over P3s.

It is a bureaucratic heaven. Deal with private parties and Wall St. bankers, make them rich with upfront fees and who cares what the consequences to taxpayers are since the Legislators have no say in the matter. Just a Governor appointed Commission can approve or reject. All power to MDOT thanks to proposed P3 legislation. It is scary.

Imagine commuters in L. Brooks land waking up one morning and being told this about a P3 project that the MDOT Director and the Michigan Transportation Commission decided they wanted to build without any legislative oversight or approval. From the MRG website:
  • "Will Public Private Partnership projects apply to our existing roads?

    In some cases the answer is “yes”. For instance, one potential P3 project is adding a fourth lane to eighteen miles of I-75 in Oakland County. Though the added capacity is desperately needed, there is no money in our transportation budget for such a large project. However, with private investment a “fast” toll lane could be built adjacent to the existing lanes. Drivers who wanted to pay the tolls could guarantee faster travel and other drivers would have an expressway with less traffic."

And if that road could not pay its way, or the tolls were too high and few used it, would taxes have to be raised to subsidize it? What would have to be cut for billions of dollars of such programs from the State budget if some go sour---education, police, more local roads and bridge projects?

That was my reaction when I read the news story out of Lansing about the P3 hearings.

It was an episode that should have been created for the British political sitcom, Yes Minister! It was that absurd.

In fact, it was the most ridiculous thing I had heard in a long time, perhaps other than this comment which I read in another Lansing report:
  • "You all need to recognize that we don't have dollars for major infrastructure investments in this state," Gonzales told the House Transportation Committee. Referencing a recent article in Governing, Gonzales stressed that "we're broke fiscally and our systems are broken.

    "We have dysfunctional systems -- point being we'll be fortunate if we can, in a bipartisan way, later this year come up with a solution for the $84 million in funding" required in order meet the match for some $470 million in federal road funds."

So call in P3 operators to further impoverish the State, Representative, as they get their huge fees and obscene profits. Set aside $100M for DRIC so you don't have $84M for about 10,000 jobs for the 243 postponed MDOT projects. And don't take advantage of the billions of toll credits which the State would earn from the Ambassador Bridge Enhancement Project. This is unreal!

Who is there to protect the interests of taxpayers if this legislation goes through? In effect, the Legislature loses control over hundreds of millions of dollars of transportation spending. It is in the hands of the MDOT Director overseen by the Michigan State Transportation Commission comprised of six members appointed by the Governor with the advice and consent of the State Senate.

The Commission's role is "approval or disapproval of public private partnerships entered into by the department."

So now we have the Governor's appointed Commission watching over the spending by the Governor's bureaucrats. Nice work if you can get it.

In effect, the Governor has just wiped out the Legislature and MDOT can spend to its heart's content with no one being able to say a thing to them. Make it a P3 and who needs legislative oversight.

MDOT has complete discretion to do whatever it wants in the Agreement terms subject to including terms designed to protect the public interest and assure accountability of an operator. I would be really assured by that!

And how long can a P3 last---"for a period determined necessary for the economic viability of the arrangement." Now that's a loooooong time.

However, here is the pièce de résistance , the icing on the cake, the complete and total sell-out of taxpayers if obscene P3 profits were not enough:
  • "Tolls and charges imposed for use of a Transportation facility may be used for the repayment of bonds sold for those purposes. As provided by the terms of a public-private agreement, a portion of the revenue may be allotted to the operator."

Wow, this is truly unbelievable. No criteria set out about how the Wall Street bankers can be rewarded and on what basis.

Here is a news story I saw about the P3 hearings and a few fisking comments of mine:

Shaky Start For D.R.I.C. Bill

There is unanimous support for the Department of Transportation having the authority to create partnerships for private financing of infrastructure projects as long as the Detroit River International Crossing is not one of those projects. [OMG, unanimous support! Are they mad? Can't they read? A Department whose experts cannot predict traffic projections should never be given this kind of power to spend. It has to be unconstitutional somehow if all else fails!]

The House Transportation Committee began discussions Thursday of legislation (HB 4961 ) that would allow the department to contract with private companies to build new or expanded roads, with the department either making payments or allowing the company to collect tolls.

But the possibility that the DRIC project could be one of those partnerships drew concerns from both sides of the aisle, particularly with the department, as the bill is structured, having the ability to create the partnerships without legislative oversight. [Thank goodness someone is on the ball on this matter]

The process, which was also recommended by the Transportation Funding Task Force and has support from most road interests, would allow the state to finance and build projects either ahead of schedule or that it might never have the money to build, various supporters said at Thursday's hearing. [The road interests----they are so foolish. They don't care where the money comes from for their business of building roads as long as it comes, but they need to think as taxpayers also. When they see how they will be over-charged for projects, and taxes or tolls go sky-high, then their tune may change. However, by then it is too late and the bureaucrats who entered into the dumb deals will have been long gone]

In addition to the DRIC, some of the projects listed as candidates for the program were I-75 in Oakland County, I-94 in Detroit and commuter rail lines from Howell through Ann Arbor to Detroit. [Oakland County gets a road. Oh, isn't that where the big DRIC booster L. Brooks is from.]

Republicans thanked the department for providing a list, but Rep. Paul Opsommer (R-DeWitt) said the proposal has to include more legislative oversight. "I just don't see this process moving forward without some legislative oversight," he said. The bill as it stands is essentially a "blank check" to MDOT, he said. [Darn Republican spoil-sport]

But MDOT legislative liaison Ron DeCook said other states have had to repeal their legislative oversight to get projects moving. [Proof that MDOT does not give a damn about the Legislature and wants to avoid them as much as possible. Get those projects moving regardless of whether it hurts taxpayers]

And he said the private financiers of the projects, including the DRIC, would not fund a project that was not viable. "We are trusting the private sector to evaluate these projects and make that determination," he said. [What a ridiculous comment. The bankers get their fees upfront and could NOT care less if the project fails. The State would have to come in and salvage the project. Look at the mess that Macquarie had with their toll roads. Were they the Australians that MDOT saw who educated them on P3s. If so, heaven help us if this is the result. This is a complete dereliction of duty on the part of MDOT for which termination is too good a punishment for any bureaucrat who acts this way.]

Rep. Marty Knollenberg (R-Troy) said the DRIC was too risky of a project to be included, considering its size as a binational public-private partnership and that the state has little experience in these contracts.

And he said allowing the DRIC to remain as a potential project would kill the bill. "If that wasn't a consideration, you would probably have P3 on the floor," he said. [I agree with his comments re DRIC but this legislation is too dangerous and needs serious amendment.]

Dan Stamper with the Detroit International Bridge Company, which owns the Ambassador Bridge, said the proposal was simply an effort to take business from his company. "MDOT now wants to use the P3 process to sell the international corridor to another private company," he said, adding contracts between the state and the owner of the Ambassador Bridge prohibit the state from introducing such competition.

Mr. Opsommer said the proposed additional bridge would not have sufficient traffic to cover its expenses. "We all know they're going to come back and say "We're going to go bankrupt if you don't provide more money,"" he said. [Wait until he reads my BLOG re P3 math]

But Liam Kelly with KPMG, a consultant for the department on the P3 process, said the contract would not allow for such funding requests. "One of the great strengths of the P3 process is it does transfer this risk to the private sector," he said. [Of course the P3 investor builds in a big contingency amount too that is in effect financed as well. That makes the project cost higher than the traditional way to finance projects like these. And he did not say that if the project goes broke, the State will have to come in and salvage it or buy out the P3 partner]

And, under the bill, the facilities remain under the ownership and control of the state, Mr. Kelly said. [Except that the P3 partner can do what it negotiated for the entire length of the contract and the State has no say if they negotiate badly as Ontario did with Highway 407 and tolls!]

Rep. Coleman Young II (D-Detroit) raised concerns that taking decisions on building the DRIC out of the hands of the Legislature would also take some bargaining power from his community. He said the DRIC should not move forward without a community benefit agreement that ensures much of the work on the project goes to community residents. [The Representative need not be concerned. For DRIC for instance, Community Benefits are minimal anyway:
  • "He said he was disappointed with the lack of progress on the Community Benefits Program (CBP) requests. He felt that many of the benefits were items for which he already paid taxes. He said he had hoped the future in Delray would be made better by the DRIC, but now felt Delray would go down with or without the DRIC. Of the 62 items submitted by the Community Benefits Coalition, almost all had come back “no.” He does not consider that MDOT working together with the community. He prefers to be disappointed without a bridge than with a bridge.]

The committee is expected to revisit the bill next week. [I truly hope it is sent back to be rewritten]

Doesn't anyone get it? P3s are a financing tool. The money has to be paid back:

  • "MDOT provided the committee a list of a dozen potential P3 projects that represented potentially $6.4 billion and tens of thousands of construction jobs. The largest of the projects outlined was the DRIC project at an estimated $1.85 billion for the U.S. side.

    "These are very large projects," said MDOT's Ron DeCOOK. "These are projects that would not be done under our normal funding scheme right now. If we had the opportunity to use P3s in addition to our regular program we could add these projects to the list."

If Michigan does not have money to undertake projects how will it have the money to pay it back and at a rate higher than traditional Government financing?

Is this taxation without representation? Pass the teabag please. It's a pity.