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East Coast P3 Conference: The View From the Little Guy

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HOT lanes, in real life.

HOT lanes, in real life.

Yesterday the East Coast P3 Conference wrapped up in downtown Charlotte.  Sponsored by the Charlotte Chamber of Commerce, the event focused on how to build public projects via public-private partnerships (P3). About two hundred movers and shakers attended, including Gov McCrory, Transportation Secretary Tata, Mayors John Woods and Jill Swain, Commissioners Sarah McAulay and Brian Jenest, a host of consultants, bank vice presidents, lawyers and….uhhh….me.  I attended because of the generosity- and behest- of some folks up in Lake Norman who insisted I needed to be there for the little guy and they put their money where their mouth was.

Our MC’s for the event were Swain and Charlotte Councilman David Howard, co-chairs of the Transit Funding Working Group.

McCrory and Tata kicked off as keynote speakers.  Interestingly, they said very little about public-private partnerships (P3s) but quite a lot about the new Mobility Formula. Tata talked about I-77 HOT lanes, saying the bids close by March 31, the best value proposal will be determined two weeks after that followed by a 60 day cooling off period and then “shovels in the dirt.”  Seventeen months later we can expect HOT lanes. Then they threw it open to questions and my hand involuntarily went up.  My question, pretty much verbatim, was:

The taxpayer contribution for the I-77 HOT lanes project is $170M. Yet, estimates show a general purpose lane project widening the road just where we need it would cost around $100M. Secretary, before we sign a 50 year contract that takes $20-30M a year out of the Lake Norman economy and costs the taxpayer tens of millions more, shouldn’t we evaluate a general purpose lane alternative?

The response (in so many words): We don’t know the time slip impact. We don’t know if the fiscal part is true. We’re also looking at it as a general purpose contract.

I have no idea what that last statement means, but I get the impression Tata really really really wants to do a P3.  I guess to him we’re a feather in a cap. Seeing as how he’s the guy who will sign the contract, that’s not a good thing unless you’re looking forward to fifty years of tolls.

The pervasive theme through the conference was how to get money to build stuff.  And boy are they getting creative.  Among the things for sale:

  • Green cards. A foreign national can contribute $500K – $1M in an EB-5 bond and get a green card for his spouse or children.
  • Air.  Some municipalities are looking at leasing the air rights above public rights-of-way.
  • Names. Kind of like football stadiums, some folks want to sell naming rights to our interstates. Soon we might be taking Interstate “Duke Energy” instead of I-85.
  • Safety. TXDOT now gets “concession payments” for allowing tolling companies to set a speed limit higher than normal.  The higher the speed limit, the higher the payment. They raked in $100M in return for an 85mph speed limit on one Texas toll road.

For me, one presentation stood out, although not for positive reasons.  It was given by the Director of P3 programs in Virginia.  Last year VDOT was subject to a lawsuit from citizens over a proposed toll increase for a tunnel under the Elizabeth River. The toll increase was to pay for a second tunnel. The plaintiffs argued that putting toll revenues to a different use constituted a tax, not a user fee. The Virginia Constitution grants the General Assembly sole powers of taxation; a government agency cannot set tax rates.  A circuit court judge agreed, but last fall the Virginia Supreme Court overruled. In a decision that would make John Roberts proud, they ruled the second tunnel- and therefore the increased tolls- were part of an “integrated transportation network providing benefits not available to the general public”, and therefore were not a tax.  As the presenter said, “we’ve got some smart lawyers.”

He also lauded the success of the recently opened Capital Expressway toll lanes. He neglected to mention they lost $51M in their first year of operation.  After his presentation the CEO of Charlotte Area Transportation Systems (CATS) started her closing remarks by thanking him and saying “this is a great model we hope to replicate here.”

Several presenters talked about the savings going the P3 route.  The folks at my table seemed to agree that financing costs would have to be higher- an equity partner is going to demand a whole lot higher return than a municipal bond holder. Also, toll lanes incur significant operating costs that general purpose lanes do not.  The much-loved Capital Expressway incurred $19M in operating costs last year for a 13 mile stretch of road. Since it’s brand new, I assume that does not include maintenance. I wanted to ask about those costs, but wore out my welcome with the first question.

The other theme was transparency. “The process needs to be open to all parties so there are no surprises,” trumpeted elected officials from the dais.  Except for I-77.  We still don’t know where we’re going to get on and off, we don’t know how we’d get on or off, and we still don’t know how much the damn tolls are expected to be. I learned yesterday that parts of the agreement will remain secret even after it is signed. And North Carolina’s P3 legislation allows P3 agreements to be conducted in secret.

In the interesting tidbits department:

  • I sat next to a lawyer who was part of an American Bar Association committee tasked with “removing legal obstacles so we can drive these agreements through.” I asked if the committee represented the public or the private sector.  She seemed surprised by the question, but after a bit managed to answer “both.”
  • Gen Jim Trogdon, formerly the #2 at NCDOT, was there plying his consultant’s trade. He was lauded for having come up with the idea of naming rights.
  • The NCDOT is considering everything to raise revenues: mileage fees, registration fees, and tolls tolls and tolls.
  • Virtually all of the slides, with the exception of one investment banker’s bond rates, were conceptual in nature.  In other words, they did not cite references, hard numbers or facts.
  • A few times presenters made reference to failed P3 projects, most notably the Chicago parking meter debacle.  But there was no focus on lessons learned from these.
  • The COO of Parsons Brinkerhoff said we should not “fall in love with a P3 project” and “P3s may not be the solution for everything.” Perhaps he should talk to Mr Howard.

Sarah McAulay, to her credit, came over and said ‘hi.’ As you know, I’ve had issues with Sarah in the past. She was joined a few seconds later by David Howard.  Howard represents Charlotte on MUMPO (now CRTMPO) and his vote counts for 46% of everything.  Sarah introduced me as the “anti-toll guru.” Fair enough. I explained to Howard that the I-77 toll financials make no sense- $20M would be required yet a similar project in Salt Lake City (same metro area) only grosses $900K.  He said I can always find negative reasons; we don’t have the money otherwise; and P3’s are the future of how we’re going to get things done.  I noted that if we don’t have money, a general purpose alternative would save the taxpayer vs what they’d pony up for HOT lanes, to which he replied widening with GP lanes is a “short term solution- you’d have the same problem in 2 years.”

I wanted to ask why that logic doesn’t apply to I-85 in Cabarrus, or why NCDOT is considering a huge project to widen I-77 through south Charlotte with general purpose lanes, but the next session started. It was not a productive discussion.

The biggest zinger of the event, at least for me, was the “question” Swain asked a panel near the end of the second day.  It was lengthy, but an accurate paraphrase (as quickly as I could write):

Inevitably in projects of this type there are citizens who do their own research on the internet or papers or whatever and they find projects that fail, and they focus on those projects. But since we’ve learned so much, aren’t they focusing on the wrong things? How do you answer those people?

The panelists’ response essentially was ignore them and let the facts speak for themselves.

It was a long couple of days.

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