Who Taught MDOT A Bad Lesson About P3s
And that is exactly the point.
The end result though is that our taxes will increase skyhigh when we have to pay for these boondoggles. Remember the words “availability payments” when a school closes or a medical clinic cannot buy new equipment or when a police officer is laid off.
It has nothing to do with DRIC although MDOT and Canada have tried to combine both of them together. It has all to do with huge upfront banker fees, obscene P3 profits and gigantic taxpayer rip-offs.
Frankly, it is P3 cocaine as I said before. It corrupts the system: want jobs and $550M cash for a bridge and road project that you never have to pay back, pass P3 legislation.
What does a P3 operator contribute these days:
- Finances---nope, the Government has to raise the bonds for the project
- Expertise---nope, the same contractors that the P3 operator would hire can be hired by Government
- Riskbearing----oh please, it’s built into the price.
Let me give you one example of what I found shocking. At the Michigan P3 hearings, MDOT Director Steudle told Legislators that the need for legislative oversight was NOT required on P3 projects, even a $5.3B one like DRIC. Why it would scare away private investors he said. They would go to some other State he warned.
Yea right, with guaranteed rates of return of 13-20% for 50+ years or more for a project like DRIC , they are not going anywhere Director.
I could not believe that he actually said this with a straight face. How could he have dreamed something up like this I wondered.
Then I found out how through the Magic of the Internet and Google. By chance I found an article that talked about Key Points for P3s. Here is a key question and answer
- Q. Is prior legislative approval required when an individual PPP proposal is received?
A. Private entities are less likely to be willing to incur significant proposal development costs due to the added uncertainty of whether legislative approval will thereafter be obtained.
Poor people. Perhaps that is why the Michigan P3 legislation also proposes that the State can pay them if they lose!
They Q&A was part of a document prepared by the law firm Nossaman Guthner Knox & Elliott. I did a background check on them and you will NOT believe what I found:
- “MDOT Signs Nossaman as Legal Adviser on DRIC
Vanessa Buendia mentions Nossaman in the InfraAmericas article, "MDOT Signs Nossaman as Legal Adviser on DRIC." She reports that Nossaman was chosen as Michigan DOT's P3 legal advisor, after the agency issued a request for proposals. The article describes the Detroit River International Crossing as the first prospective project to be procured as a P3.”
Now I suspected who helped script the Director.
The firm even prepared a draft P3 Bill that I found. Guess what role the Legislature plays in that Bill. Nada, Ziltch, Nothing. The deal is between the P3 operator and a “public sponsor.” Here are some of the provisions...sound familiar:
- "The Legislature intends that the powers granted to cities,local agencies, counties, special districts, regional transportation agencies, any department or agency of the State and any other agencies in this Act are in addition to any other powers authorized under applicable law...
“Public private partnership” means any of the following types of agreements:
1 (1) Agreements whereby the private partner assists the public sponsor in defining a feasible project and negotiates fair and reasonable terms for implementing
the project; and
(2) Agreements whereby the private party assumes responsibility for delivering, improving, operating and/or maintaining eligible facilities in accordance with established performance specifications and payment terms.
"Public sponsor" means any department or agency of the State, any department or agency of a county, any cities, special districts, regional transportation agencies, any public corporation established under state law or county ordinance, joint powers authorities or any intergovernmental agency or corporation."
Project delivery methods. Notwithstanding any other provision of state law, public sponsors are authorized to enter into public private partnerships for eligible facilities pursuant to this chapter.
Procurement. (a) Notwithstanding any other provision of state law, the public sponsor is authorized to procure a private partner and award public private partnerships under this Act..
The public sponsor is authorized to pay a stipend to an unsuccessful proposer, in an amount and on the terms and conditions determined by the public sponsor...
Public-private partnership agreements. (a) In a public-private partnership, the public sponsor is authorized to include any provision the public sponsor determines necessary or appropriate."
Well, you get my drift.
I am NOT trying to be negative about the law firm. I believe the Nossaman firm CAN help the Michigan Legislators tremendously from a practical perspective about these types of deals. You see they worked on this deal:
- "California Transportation Ventures – South Bay Expressway
California Transportation Ventures – South Bay Expressway (SR-125)
Nossaman served as special counsel, playing a critical role in the development of a 9.3-mile toll road and a 3.2-mile gap/connector project in San Diego, California as part of Caltrans' PPP program. Our work included developing and assisting with the plan of finance, assisting with procurement and contracting, defending the legality of the franchise agreement, negotiating with local agencies, acquiring rights-of-way, and obtaining and defending environmental permits.
"South Bay Expressway
Nossaman helped to make the long-awaited South Bay Expressway / SR 125 in Southern California - which opened on November 19, 2007 - a reality.
Our attorneys advised the Expressway’s developer on a wide range of issues ranging from infrastructure and real estate to environmental, tax and related litigation...
Macquarie funds took over the project from Parsons Brinkerhoff several years ago."
As you may recall
- "South Bay Expressway company files for bankruptcy in San Diego
South Bay Expressway (SBE) company filed for a reorganization in Chapter 11 US bankruptcy this week, writing off around $200m in shareholder equity. The equity held by Macquarie Atlas Roads in Australia and previously Macquarie Infrastructure Group had been heavily written down since the pike opened in November 2007 and was valued at zero ($0.00) in the financial reports from June 2009 onward...
The project has also been afflicted by major ongoing litigation over huge claims made by Fluor/URS, the contractors who built the road but spent over a year longer than contracted at the job.
South Bay Expressway (SBE) have spent $40m in legal fees defending against the builders' claims which at one point totaled $740m...
Traffic and revenue forecasts underlying the financing plan for the SBE projected 60k vehicles/day in 2009 whereas traffic was in fact 23k/day, or 38% of forecast level.
Toll revenue in 2008 was $22m or 70% of the forecast $31m.
In 2009 toll revenue was $21m, about half of the $42m forecast."
Macquarie was one of the groups that responded to the MDOT/Transport Canada DRIC RFPOI weren't they? Did the MDOT people visit them when they went to Australia on their P3 trip?
And guess who did the traffic projections for this project:
- "Wilbur Smith had done the investment grade traffic and revenue forecasts."
Yes that Wilbur Smith that MDOT hired and who did a "refresh" on a Canadain report that I do not believe has ever been made public and is the so-called MDOT investment grade traffic study and whose financial revenues the MDOT Director refuses to release publicly!
Yes, the Nossaman people can teach the Michigan Legislators why NOT to do P3s and how to kill the Bill. NOW! Now that is legal fee money well spent.
posted by JoeBlog at 10:40 a.m.
<< Home