Truth Be Tolled

Florida puts "Alligator Alley" leasing plan on hold

TALLAHASSEE (Reuters) - Plans to lease Florida's "Alligator Alley" to private operators are now on hold after no bidders stepped up to take over the 78-mile stretch of toll road through the Everglades, transport officials said Tuesday.

The Florida decision is the latest in a string of proposed high-profile privatizations of U.S. public facilities to unwind.

Chicago gave up on a $2.25 billion Midway Airport lease deal because of financing difficulties, and opponents stopped a $12.8 billion turnpike privatization in Pennsylvania.

In Florida, following months of haggling and controversy, the state Department of Transportation called off a public hearing set for May 29 after a Monday deadline elapsed without a single proposal to privatize the road linking Naples on the state's Gulf coast to Fort Lauderdale on the Atlantic.

Tight credit and mounting opposition to the deal may have proved too much as deadlines came and went.

A state DOT spokesman said on Tuesday the agency was surprised by the lack of participation and wasn't told bidders got cold feet.

"We didn't get that type of feedback," said DOT spokesman Dick Kane.

State Sen. Dave Aronberg, a vocal critic of the planned privatization, hailed the DOT's setback. The proposal was misguided, posed homeland security issues and compromised the state's revenue generating capacity, he said.

"This was a bad deal from the beginning," Aronberg said. "It should never have gotten this far."

In April 2008 the Florida DOT put the roadway up for lease as a way to generate revenue for the cash-strapped state.

Eight firms responded to the initial request for bids, including companies from Spain, Italy and Portugal. The list dropped to six after additional requirements were imposed.

The bidding deadline, originally set for December 15, was repeatedly moved back as bidders reeled from a global credit meltdown that left them unable to obtain financing.

One consumer group lauded the deadline's passing, saying the state should not turn state-run toll roads into profit-generating operations for private business.

"By privatizing roadways, officials hand over significant control over regional transportation policy to individuals who are accountable to their shareholders rather than the public," said Brad Ashwell, advocate for the Florida Public Interest Research Group. "The public should retain control over decisions about transportation planning and management."

(Reporting by Michael Peltier, additional reporting by Michael Connor in Miami; Editing by Padraic Cassidy)

"Pouring good money after bad is generally frowned on. But that’s exactly what the Treasury’s doing; literally, committing hundreds of billions - or trillions – of public dollars to prop up companies that are financially dead. And we’re not even demanding accountability in return. Can you tell me where the bail out money’s gone? As for responsibility, Citibank said thanks very much for the bail out back in October. In November, guess what they did--they spent $10 billion to buy a toll road operator --- in Spain.

So much for personal responsibility."

--Laura Flanders, host of GRITtv

Cash-strapped states look to sell off assets

From Associated Press

ST. PAUL, Minn. - Minnesota is deep in the hole financially, but the state still owns a premier golf resort, a sprawling amateur sports complex, a big airport, a major zoo and land holdings the size of the Central American country of Belize.

Valuables like these are in for a closer look as 44 states cope with deficits.

Like families pawning the silver to get through a tight spot, states such as Minnesota, New York, Massachusetts and Illinois are thinking of selling or leasing toll roads, parks, lotteries and other assets to raise desperately needed cash.

Minnesota Gov. Tim Pawlenty has hinted that his January budget proposal will include suggestions to privatize some of what the state owns or does. The Republican is looking for cash to help close a $5.27 billion deficit without raising taxes.

GOP lawmakers are pushing to privatize the Minneapolis-St. Paul International Airport and the state lottery. Both steps require a higher authority — federal legislation in the case of the airport, a voter-approved constitutional amendment for the lottery. But one lawmaker estimated an airport deal could bring in at least $2.5 billion, and the lottery $500 million.

Massachusetts lawmakers are considering putting the Massachusetts Turnpike in private hands. That could bring in upfront money to help with a $1.4 billion deficit, while also saving on highway operating costs.

Investing in infrastructure
In New York, Democratic Gov. David Paterson appointed a commission to look into leasing state assets, including the Tappan Zee Bridge north of New York City, the lottery, golf courses, toll roads, parks and beaches. Recommendations are expected next month.

Such projects could be attractive to private investors and public pension funds looking for safe places to put their money in this scary economy, said Leonard Gilroy, a privatization expert with the market-oriented Reason Foundation in Los Angeles.

"Infrastructure is more attractive today than ever," Gilroy said. "It's tangible. It's a road. It's water. It's an airport. It's something that is — you know, you hear the term recession-proof."

Unions don't like privatization deals out of fear that worker wages and benefits will be squeezed as private operators try to boost their profit by streamlining services.

Taxpayers, too, can lose out if the arrangements don't work — and sometimes even if they do, said Mark Price, a labor economist with the Keystone Research Center in Harrisburg, Pa. Higher tolls on privatized roads can push drivers onto state-operated roads, wearing them down faster and raising public costs over time.

"You're privatizing some profits in this process and socializing some losses," Price said.

Selling or leasing public assets can produce an immediate infusion of cash for the state, while foisting the tough decisions, such as raising tolls, onto private operators instead of the politicians.

"The downsides are often after they leave office," said Phineas Baxandall, a researcher with the consumer-oriented U.S. Public Interest Research Group in Boston.

Privatization deals 
Some states struck major privatization deals well before the economic crisis hit.

Indiana, for example, brought in $3.8 billion in 2006 by leasing the Indiana Toll Road for 75 years. Chicago stands to collect $2.5 billion by leasing Midway Airport, if the federal government approves, and has raised an additional $3.5 billion since 2005 through deals for the Chicago Skyway toll road, parking ramps and parking meters.

But in September, investors walked away from a $12.8 billion bid to lease the Pennsylvania Turnpike for 75 years after legislators failed to act on the deal. And Texas lawmakers uneasy over a proposed private toll road system approved a two-year moratorium on such contracts last year.

David Fisher, who managed Minnesota's state-owned properties a few years ago under former Gov. Jesse Ventura, warned that the state has a hard time finding buyers for properties such as old mental institutions.

Fisher said some public properties belong in private hands, such as Giants Ridge Golf & Ski Resort, a top-rated getaway in Biwabik, and Ironworld, a museum and library in Chisholm. Both are owned and subsidized by Iron Range Resources, a state agency.

"Certainly those things could be privatized, I think without harm to the state, but I don't know that you could find the right buyer," Fisher said.

Still just a Texas problem?

While oil companies are posting record profits, the White House plans to dig further into people's pockets.

The following article is by Christopher Conkey 

From the Wall Street Journal

WASHINGTON -- The Bush administration unveiled a plan to impose new tolls on freeways and encourage more private investment to finance road and mass-transit projects, a move aimed at stirring debate as lawmakers prepare for a major overhaul of transportation policy.

The White House says more tolls and public-private partnerships can solve perhaps the biggest problem confronting the nation's aging infrastructure: There are limited funds available to upgrade transportation networks and too many federal funds are doled out inefficiently through earmarks and pet projects that do little to improve mobility or reduce congestion.

The search for alternative funding sources is ramping up because Americans are driving less and shifting to more fuel-efficient vehicles. That means they will be paying less in gasoline and diesel-fuel taxes, which traditionally have been the biggest source of federal funding for highway and mass-transit construction.

Many states are moving to increase existing tolls. Pennsylvania, for example, is hoping to win federal permission for new tolls on a standing interstate. Meanwhile, several states are turning to business consortiums to finance, build and operate new highways, bridges and tunnels, although a political backlash has slowed the push in recent years.

The administration's proposal comes as Congress gears up to start work later this year on a six-year transportation spending bill that could cost well more than $400 billion. The last multiyear bill, which expires in September 2009, carried a $286 billion tab.

Earlier this year, a bipartisan commission concluded the nation is spending only about 40% of what is needed to reduce congestion, improve safety and spur economic growth. Transportation Secretary Mary Peters served on the commission but dissented from the majority view that gas taxes should more than double in coming years to support a big increase in transportation spending.

Ms. Peters says gas-tax rates should hold steady -- at 18.4 cents a gallon for regular gasoline and 24.4 cents a gallon for diesel, where they have stood for more than a decade -- and private money and toll revenue can address any needed increases in funding. She declined Tuesday to say how much more the U.S. needs to increase its overall spending on transportation infrastructure. Instead, she suggested ways to make transportation spending less wasteful.

"Our federal approach to transportation is broken," she said. "And no amount of tweaking, adjusting or adding new layers on top will make things better."

Many Democrats objected to the administration's plan, saying it could have gone further in identifying ways to raise investment and spur projects that could unclog major choke points. Perhaps the most common complaint centered on the shift in reliance from gas taxes to private-sector dollars.

"It's basically an opportunity for people who have wanted to systematically reduce the federal participation in infrastructure," said Rep. Earl Blumenauer (D., Ore.), who is spearheading a transportation debate in the House. "It's going to fall with a thud."

The two major presidential candidates haven't released detailed plans on transportation funding, even as the issue is sure to be one of next year's biggest legislative battles. Republican Sen. John McCain has stressed the need to eliminate earmarks and pet projects. Democratic Sen. Barack Obama supports the creation of a $60 billion national infrastructure bank that would fund projects of regional and national significance. The two have also sparred over Mr. McCain's proposal to give consumers a gas-tax holiday this summer.

Selling off assets a mistake

By Michael A. Olivas

From the Houston Chronicle

The financial wizards of Wall Street are dancing themselves into a frenzy after discovering a golden opportunity right beneath their noses.

Like astronomers excited by a new celestial body, large investment houses are now sweeping the landscape with telescopes, hunting for attractive public assets that can be "privatized" through purchase or lease. From toll roads in Indiana to lotteries in Texas and more than a dozen states, all of our revenue-generating public assets are up for grabs.

Unless we stop the madness, we risk giving away key components of our public infrastructure at fire-sale prices.

Why should we care about who owns our highways, operates our lotteries or manages our public networks? That's the sly question posed to us by investment houses proffering bales of greenbacks to cash-strapped states throughout the country.

Perhaps the best reason to be wary of these megadeals is the scale of the fervor they have generated on Wall Street. If we've learned anything from the investor scandals of the past two decades, it's this: If a deal sounds too good to be true, it probably is.

Unless we stop the headlong privatization of public investments, we may wake up one day repeating Gertrude Stein's famous line: "There is no there there." But unlike Stein, we won't be talking only about Oakland — we'll be lamenting the barren balance sheets of our public treasuries.

Here are five reasons I believe we should rethink our stance toward privatization:

• Reason No. 1: Private interests are not driven to serve public needs.
There are two simple reasons why Wall Street wants to buy or lease state assets: They already exist, and they generate tons of cash. But in addition to paying down debt (in the case of a toll road, for example), these assets fund important public initiatives involving transportation, health, education and other essential government services. In Texas, to cite just one example, more than $1 billion collected through the Texas Lottery finances statewide education initiatives and medical research at the University of Texas Medical Branch at Galveston.

Arrangements such as these were carefully negotiated in the public arena, and it's doubtful if any of them could survive privatization. The private world lives by a simple credo: If it fails to deliver profit, it deserves to be eliminated. So, unless we resist the impulse to privatize, there's bad news ahead for Texas schoolchildren and researchers at UTMB-Galveston and for other worthy citizens and public needs nationwide.

And just where do we draw the line? Are state pension funds up for grabs, along with all of our state highway departments?

• Private companies are not guardians of public trust.
It's worth remembering how the Houston Astros opened their 2000 season in a spiffy new stadium named "Enron Field." The lesson is that companies come and go, and there are no guarantees that the purchasers or lessees of our public assets will perform any better than the likes of Enron, WorldCom or Tyco.

When our publicly elected officials perform badly, or criminally, voters at least have the opportunity to vote the bad guys out of office. But when we relinquish the control of our state assets to "outside entities," we are literally at their mercy.

• Beware public officials who resurface in private sectors.
During his 24-year tenure as a U.S. congressman and senator, Phil Gramm presided over numerous public initiatives in Texas. After leaving office, he resurfaced as one of the powerbrokers at UBS, the international brokerage house. Similarly, Kathleen Brown served as treasurer of California. She now works for Goldman Sachs and is spearheading an effort to lease the California lottery.

Ex-politicos are certainly entitled to earn a living, but there's something unsettling about powerful politicians moving into new roles where they can target public assets for lease or purchase. The easiest way to ensure a smooth transition from public to private life for these former politicians is to cut them off at the pass — and prevent the sale or lease of public assets that were created or operated during their tenures in office.

• States will never recoup their public investments.
By leasing its key tollroad to a foreign investment group, Indiana earned an instant windfall of nearly $4 billion. Despite the huge up-front payment, critics of the deal say that Indiana will never recoup the massive public investments that created and sustained the tollroad over the years. Private companies that pick the low-hanging fruit of public assets sustain zero start-up costs, are unburdened by government employees and their pensions and avoid the risks that taxpayers assumed when they voted to fund the project. This state of affairs has a name — "privateering" — and it's not in the public interest, since we are long past the point of provoking land rushes to "tame the frontier."

The ongoing benefits of our public assets belong to the taxpayers who created them — and not to international banks, U.S. private interests or former governmental officials cashing in on their connections.

• Beware a future that blurs public and private interests.
Building and maintaining a large public highway can involve eminent domain and financing supplied through tax-free bonds. These techniques are the preserve of politicians acting in the public interest, and they have no application in the private arena. After an investment house acquires a toll road, it's easy to imagine the board of directors voting to add new lanes — but only to serve drivers traveling to and from communities being developed by the firm and its investors. And if land needs to be condemned to create these new corridors, who gets to wield the power of eminent domain — an elected official, or the CEO of a major investment group?

Using information obtained under the Freedom of Information Act, The New York Times confirmed how companies are pursuing a concerted campaign to buy and lease large public assets, and are training their ranks to counter any voices of skepticism. But before we sell or lease the fruits of our public treasuries, a little skepticism may be a good thing.

Let's put the burden of persuasion and proof on those who would open their books, enter into full disclosure of public-private arrangements and fees and convince us that we should give them the keys to the public store.

I'll be thinking about these and other points the next time I attend a game at Enron Field, err, umm, make that Minute Maid Park.

Olivas is William B. Bates Distinguished Chair of Law at the University of Houston Law Center.

Lowering speed limit to promote toll road?

By Patrick Driscoll

From San Antonio Express-News

A recent toll road contract that shoehorns market incentives into a government monopoly would reward the state for lowering speed limits on Interstate 35, effectively steering drivers to the toll road.

The privatization contract for Texas 130 from Austin to Seguin, cutting a parallel path east of I-35, was quietly signed in March amid a legislative furor over whether to freeze such agreements. It includes a controversial clause that penalizes the state for widening or building competing roads.

If a project over the next 50 years — with some exceptions — interferes with Texas 130 toll traffic, the Texas Department of Transportation would have to pay Cintra of Spain and Zachry Construction Corp. of San Antonio for their lost profits.

But the state can also get credit, though not payment, for driving traffic to the tollway, including by lowering posted speeds on I-35.

Not that TxDOT would do that, and certainly not for financial gain, spokeswoman Gaby Garcia said.

"We don't expect to be reducing speed limits on I-35," she said. "They are set by traffic engineering studies and not by economic gain."

But toll critics say a gate is open to the manipulation of I-35 traffic to ensure toll profits, and they don't trust TxDOT as the sentry.

"Our highways are being hijacked for private interests," said Terri Hall of Texans United for Reform and Freedom. "Who's going to rein in this agency? It just baffles me."

To change a speed limit on a road, TxDOT usually follows a complex formula based on the fastest pace set by 85 percent of motorists. But conditions such as crash rates could warrant lower speeds.

Laws and policies can also lower speeds, for reasons such as conserving gas.

"Speed limits are not arbitrarily set," Garcia said.

But just as a speed limit giveth, sometimes it taketh away.

If TxDOT raises the speed limit on I-35, it must pay Cintra-Zachry for any toll losses, according to a maze of requirements in the 192-page toll contract and its 476 pages of support documents.

Oddly, any improvements to the freeway are exempt from the competition clause. Also exempt are projects in existing 25-year plans.

The contract doesn't stop there — it also covers speed limits for the 40 miles of Texas 130 that will run from Seguin to south of Austin, where it'll hook up with another segment that now loops around the city.

Cintra-Zachry will pay TxDOT $25 million upfront if the limit is set at 70 mph but will fatten the offer to $92 million for 80 mph and $125 million for 85 mph, which state law allows. The agency could opt instead to take a growing bite of profits.

Under the privatization deal, TxDOT's first, Cintra-Zachry will finance, build and operate the $1.3 billion tollway in the hope of eventually turning a profit.

Motorists in cars will pay about 15 cents a mile, with rate increases capped to the annual growth of state domestic product. There will be no tollbooths — collections will be done with electronic tags and cameras.

Cintra-Zachry recently began a process to buy the land, and it expects to start construction in a year or two and open the roadway in 2012. The state will handle property disputes.

Other people's money

"Sure, you can expect political objections, but if you play your cards right,
you'll win."

--James Bass, the chief financial officer of TxDOT, quoted by Jerome R. Corsi on
World Net Daily addressing the EuroMoney conference in New York yesterday regarding the leasing of public assets to foreign investors

According to Corsi, Bass likened the process of establishing public-private partnerships with those investors to playing a game of "Texas hold'em."

'No easy answers'

"Transparency and accountability will force public officials to face difficult questions. When forced to measure up to these public interest principles, public officials are less likely to see high-priced road sell offs as an 'easy out' to their difficult budget problems. There are no easy and attractive answers to questions such as what happens if diverted traffic from increased tolls leads to gridlock in nearby communities."

--Phineas Baxandall, Ph.D., U.S. PIRG Senior Analyst for Tax and Budget Policy, in his report, "Road Privatization: Explaining the Trend, Assessing the Facts, and Protecting the Public"

Download a PDF file of the report here.

Some things should be left in the public domain

By Alan Snitow and Deborah Kaufman

From USA Today

Falling bridges, collapsing levees, bursting pipes, sewage spills, failing electrical grids — this short list of major infrastructure failures in just the past few years might lead one to think that there's a conspiracy, that terrorists are taking down our public services and tax-built assets.

But it turns out that we are doing it to ourselves, first by underinvesting in our water, transportation and energy systems, and then by trying to solve the problem by auctioning off these assets in a fire sale to the highest private bidder.

Water utilities have been among the most controversial items up for sale, but other public services are also on the block as state and local governments hope to balance budgets by auctioning off public bridges, highways and airports. Last year, Indiana's toll road was sold to a foreign consortium for $3.8 billion in the largest highway privatization deal in U.S. history. Other public properties under consideration for sale: Chicago's Midway International Airport, the New Jersey Turnpike and the Pennsylvania Turnpike.

This is not a sideshow or an arcane environmental issue. Trillions of dollars and essential services that preserve our public health and national security are at stake.

In the case of our most basic public resource — our water — the federal government has for years starved states and cities of funding needed to upgrade aging plants and antediluvian water pipes that are often more than 100 years old. The reasons for neglect have not been political or financial, but ideological.

The Bush administration — and to a lesser extent the Clinton administration before it — cut clean water funding to drive an agenda committed to private profit over the public trust. That agenda survives in spite of widespread droughts and a growing climate crisis that will require a strong government hand to ensure universal access to clean, affordable water.

The privatization drive, until now, has survived in spite of public opinion. Republican pollster Frank Luntz recently found that 86% of Americans support a federal trust fund for water. "I can tell you from personal experience," he told a House committee, "that such an overwhelming consensus about the role of Washington doesn't happen often — but it exists here."

Federal and state politicians don't seem to be hearing that message, perhaps because it is drowned out by the lobbyists and campaign contributions of multinational water companies that seek to profit from water scarcity.

But what happened this summer in Stockton, Calif., is already altering the terms of the debate.

In July, the Stockton City Council voted unanimously to roll back the largest water privatization in the West. After four years, the $600 million showcase deal with a multinational consortium, OMI-Thames Water, has been scrapped in favor of a return to public control.

The decision came after repeated court rulings determined that the deal violated California's environmental law, but the legal issue was only the last straw. Noxious odors drifted regularly from the sewage treatment plant. There were sewage spills, fish kills, increased leakage from underground pipes, staff turnover and increases in water rates after years of rate stability.

Citizen watchdog groups had also reported that the private company had adopted a "run-to-fail" approach to preventive maintenance. "Employees were feeling frustrated that they couldn't maintain the facilities the way they had previously," said Stockton City Council member Susan Eggman.

Four years into the 20-year contract, nobody was willing to go to bat for OMI-Thames. The Stockton City Council's unanimous decision was supported not only by the formerly pro-privatization newspaper The (Stockton) Record, but even by Gary Podesto, the former mayor who drove the deal.

"If I were there, I would do the same thing," he told the Record. Although a "non-disparagement" agreement forced local politicians to portray the decision as amicable, this was a rout, and OMI-Thames was unceremoniously being shown the door.

There was, however, another deeper reason for dissatisfaction: widespread concern about the loss of citizen input into the future of an essential resource.

Stockton Mayor Edward Chavez told us, "The real lesson is: If you really want to make people angry, shut them out."

In 2003, the City Council approved the deal by a 4-3 vote just 13 days before a citywide ballot would have required voter approval for privatization. The initiative won, but the vote was declared moot because of the earlier City Council action. The heavy-handed maneuver enraged many Stocktonians and shifted the debate.

Now, doubts about corporate water privatization are spreading from small towns such as Lee, Mass., to midsize cities such as Stockton and metropolises such as Atlanta, where water privatization failed miserably in 2003.

Even so, whenever a bridge falls, a levee breaks or a steam pipe bursts, we invariably hear renewed calls to privatize. Let Stockton's experience testify that privatization is not the solution.

Instead, what is required is a new commitment by citizens and government to rebuild our infrastructure so that our water and other essential services remain in the public domain to be managed for the benefit of all citizens, and not for the profit of a few.

Alan Snitow and Deborah Kaufman are producers of the PBS documentary film "Thirst" and, with Michael Fox, are co-authors of the new book "Thirst: Fighting the Corporate Theft of Our Water."