Thoughts and Opinions On Today's Important Issues

Monday, June 07, 2010

Lansing-izing DRIC Payments

Oh let me have a bit of fun with that horrible pun!

I did want to catch your attention after reading this in the DRIC-ite financial gibberish handout:

  • "Q. Are there years when there may be insufficient revenues to cover all costs?

    A. For such projects, there is normally a “ramp up” period of traffic and revenues during the initial years of a project’s operations. Any shortfalls will be capitalized and repaid in subsequent years. Over the concession period, projections show that there will be more than sufficient funds to cover costs, that is, Michigan will not incur any future financial liability."

Actually, the A. to that Q. is that there will always be a shortfall since revenues will never equal to financing costs based on the numbers in the handout. That is why the financing costs were conspicuously omitted.

Lansing-ized, capitalized...get it? Well I thought it was funny.

However it is not as funny as what the DRIC-ites are trying to pull over the eyes of Michigan Senators. House Representatives who voted for the P3 Bill with incomplete information should hang their heads in shame since they would be screwing taxpayers.

I did some calculations to show you how absurd the P3 DRIC would be. Frankly, it could NEVER be paid off if, in 2040, the most revenue per year would be $117,426,000 when annual payments would be totalling over twice as much. OR MUCH MORE.

However, I did want to do a quick table so those who are not financially inclined would understand how "Lansingizing" or capitalizing payments worked.

A caveat...the numbers may be slightly off because my interest adjustment dates may not be completely correct in the calculations but it is close enough so you will understand how it works:

We start off in year #1 with a total of $1.5B to be financed. At the end of the year, a payment of almost $250M must be paid but only $60M in revenue is available. Accordingly, the shortfall of almost $190M is added to the outstanding principal creating a new principal amount of about $1.69B.

Now we have to go through the exercise again but this time we start at $1.69B and the interest owing jumps to $281M leaving a bigger shortfall of $221M. This now leads to a new prinicpal outstanding of $1.9B.

As you can see, the principal just keeps getting bigger and bigger since the amount owing in interest is growing too and the shortfall keeps on getting bigger. By the start of Year 4, we have added almost $600M in Lansing-ized shortfalls to the initial amount of the P3 cost.

This simple math example should explain why the P3 Bill is a farce for a DRIC bridge. Bankruptcy of the project with all that would be involved would be the only result.

This what the DRIC-ites are trying to convince Michiganders to accept. Get one of them to show you the math. They won't because they dare not.

The Senators have no choice but to reject the P3 Bill! The Senators have no choice but to reject DRIC.