Beware Public-Private Partnerships

When public money is not available or the public is not convinced that new programs or infrastructure are worth the projected costs, the politicians turn to public-private partnerships where government gives up control and guarantees a profit to private entities in return for "some initial funding" and management of the development.

There is a long history of failures of public-private partnerships in the United States, but, politicians continue to enter into these agreements.

A power transfers occurs from elected officials to Private Public Partnership and reduces substantially the power of the electorate.

Private-public partnerships are nothing more than government sanctioned monopolies. Privileged few businesses are granted special favors like tax breaks, free use of eminent domain, non-compete clauses in government contracts, and specific guarantees of return on their investments. That means the companies, in partnership with the government, can fix their prices, charging beyond what the market demands. They can use their relationship with government to put competition out of business.

Public Private Partnerships (P3 or PPP) known as Comprehensive Development Agreements(CDAs) in Texas differ from a completely private road/project and different from the government simply contracting work out to the private sector since a P3 involves an ownership stake or a long-term leasehold. While claiming to be built with private money and transferring the risk from the public sector to the private sector, this controversial financing mechanism virtually always involves public money and public risk through profit guarantees and taxpayers being on the hook for potential losses.

 

We all should be aware of what happened with State Highway 130.

SH 130 segments 5 & 6, Austin to Seguin (Awarded to Cintra)

Cost = $1.3 billion

Funding Sources:

Senior bank loans - $685.8 million

$430 million, TIFIA loan (a federally-backed loan that provides low interest rates and lenient repayment

schedules)

$209.8 million, private equity

$2.3 million, interest income

Notice that less than 17% of the funds used were from private entities.

We know now, 2017, that this project declared bankruptcy and thus defaulted on the loans. The lenders now own the Southern portion of SH 130, not the taxpayers.

Cintra, the same Spanish company that built SH 130 is lobbying the state legislature hard right now with HB 2861 and HB 2557 to allow them to enter into more public-private partnerships with Texas to build and operate more toll roads for up to 50 years.

Private-public partnerships continue to cause problems as reported in today's WSJ "Public-Private Road Project on the Skids". "When North Carolina brought in a private operator to add toll lanes to a 26-mile stretch of highway north of Charlotte, its goal was to reduce congestion and build a road the state couldn’t otherwise afford.

The hope was that the state’s first public-private partnership for roads would be a model of efficiency and the first of many such projects. But the expansion of Interstate 77 has hit speed bumps, with travel times lengthening and accidents increasing. Now the state is considering paying up to $300 million to get out of the deal and retake control of the roadway.

Commuters and political observers are saying the state ceded too much control to Cintra, the unit of Spanish infrastructure firm Ferrovial SA that signed the $650 million contract in 2014."

Of course the largest failed public-private partnership is Obamacare. It was reported in the July 26, 2012 issue of National Review, that hospitals, doctors and pharmaceutical companies issued the following statement: "To be successful, we must take action in a public-private partnership." The public-private partnership allowed the private sector to fleece the U.S. taxpayer while the Congress and Administration declared that the "health care problem" had been solved.

The message is: Beware public-private partnerships. They always cost more, reward crony companies, use significant public funds or guarantees, and cede control for many years. All politicans, including those in Georgetown, will resort to these scams if they believe they can convince their citizens that is a great deal for the city.