How “public-private parternships” extract private profit from public infrastructure projects

[marmar]

from Dollars & Sense:


By DARWIN BONDGRAHAM | November/December 2012


In 1995, California granted a private company the right to construct express toll lanes along the State Route 91 freeway in Orange County, a region inhabited by millions, with some of the heaviest traffic flows in the nation. This was the first modern privatized highway in the United States. The California Private Transportation Company (CPTC), a partnership of three corporations—Level 3 Communications, Granite Construction, Inc., and the French toll operator Cofiroute SA—completed the project with $130 million in mostly privately sourced money. To recoup this expense, and to make a profit, CPTC was given a 35-year concession to operate the toll route. State leaders promised that the private company would provide greater efficiency and savings, and that the public would benefit from clear and safe roads, even during a time of government budget constraints.

It did not take long for things to unravel. The SR-91 toll lanes did not unclog what local traffic reporters referred to as the “Corona Crawl,” so state and local officials sought to expand nearby highways to ease worsening congestion and improve safety. When transportation offices announced the improvement plans, CPTC unexpectedly filed a lawsuit, citing a non-compete clause in their contract to build and operate the toll lanes. The people of California were legally blocked from improving their highways because it could reduce private profits. In 2003, the Orange County Transportation Authority was forced to purchase the SR-91 toll lanes for $208 million to put an end to the fiasco.

In 2004, California’s state legislature halted the experiment in privatizing highways. But that did not stop other states from pushing forward with privatization. In Virginia and Texas, several major privatized freeways were built in the 2000s. Then, in 2009, things came full circle. California once again authorized so-called public-private partnerships to procure highways and other public goods. Although privatization of transportation projects has a tarnished record, owing much to California’s costly experiments over a decade ago, all across the United States major highway and other infrastructure upgrades are once again being handed over to private investors, now under the moniker of “public-private partnerships,” or P3.

P3 is at least three things:

* It is a rebranding of privatization. The phrase purposefully evokes a win-win scenario involving equal “partners” working toward a common goal. Government leaders have been sold this new kind of privatization as a solution to declining tax revenues and borrowing capacity, while private companies claim to be offering their expertise and capital in a spirit of public service.

* It is the result of a long ideological campaign against public-sector unions and “big government,” which conservative think tanks, pundits, and politicians blame for growing deficits and crumbling infrastructure. This worldview, meanwhile, hails private companies and the private profit motive as the bearers of efficiency and fiscal discipline.

* Finally, P3 is obviously a money-making opportunity. It is propelled by an infrastructure-industrial complex composed of global construction corporations, investment banks, private-equity firms, and elite law firms organized as vertically integrated consortiums. Allied through their own trade associations, they are actively pressing for new laws to expand the types of public infrastructure from which they can extract profits, and in recent years they have been quietly succeeding.

A New Kind of Privatization

To understand the P3 privatization model, it is best to start with the basics of the traditional public model of infrastructure development. In the United States, this is known as the “design-bid-build” process. Take, for example, a state highway. State engineers usually design a project, sometimes by contracting out work to engineering firms. With blueprints ready, the state department of transportation allows companies to bid against one another for the construction contract. Meanwhile, the state borrows money by selling bonds, usually at low cost, because banks compete to serve as underwriters. The state then uses the bond proceeds to pay the lowest-bidding construction company to build the project. Bond holders are paid back over a longer period, usually from gasoline taxes or other tax revenues dedicated to infrastructure funding. The entire process is characterized by the monopoly power of the state (assumed to be acting in the public interest) forcing private companies to compete against one another, and so to drive down costs. .....................(more)

The complete piece is at: http://www.dollarsandsense.org/archives/2012/1112bondgraham.html

[PETRUS]

1. K&R

[Romulox]

2. Sounds *just like* like Governor Snyder's "free" NAFTA bridge to Canada!

Check, check, and check!

* It is a rebranding of privatization. The phrase purposefully evokes a win-win scenario involving equal “partners” working toward a common goal. Government leaders have been sold this new kind of privatization as a solution to declining tax revenues and borrowing capacity, while private companies claim to be offering their expertise and capital in a spirit of public service.

* It is the result of a long ideological campaign against public-sector unions and “big government,” which conservative think tanks, pundits, and politicians blame for growing deficits and crumbling infrastructure. This worldview, meanwhile, hails private companies and the private profit motive as the bearers of efficiency and fiscal discipline.

* Finally, P3 is obviously a money-making opportunity. It is propelled by an infrastructure-industrial complex composed of global construction corporations, investment banks, private-equity firms, and elite law firms organized as vertically integrated consortiums. Allied through their own trade associations, they are actively pressing for new laws to expand the types of public infrastructure from which they can extract profits, and in recent years they have been quietly succeeding.

[Baitball Blogger]

3. If we're going to stop the insanity we need to understand how these issues have created

trouble for the public in the long-run. It's the only way to stop them from spreading to the rest of the country.

[snot]

4. K&R'd & bookmarked!

[nilram]

5. ditto