UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

July 17, 2009

HOW PRIVATIZING PUBLIC WORKS IS RIPPING OFF THE PUBLIC

Ellen Dannin, Penn State School of Law - On July 24, 2008, the Denver Post reported that Coloradans were shocked to learn that the private contractor that had leased the Northwest Parkway objected to road improvements on W. 160th Avenue, "because they might hurt the parkway financially." Colorado State Representative Frank McNulty declared: "The purpose of toll roads is to augment state transportation infrastructure, not act as a roadblock to the construction of new transportation infrastructure in the northwest metro area." McNulty's objection came a year too late. Had he read the Northwest Parkway privatization contract he would have known that for 99 years the contractor had every right to object to new or improved roads and mass transit systems. He would also have known that building a "competing transportation facility" would entitle the private contractor to compensation for reduced toll revenues during the next 98 years.

However, neither McNulty nor any other Coloradan could have objected to signing such a contract, for the terms were not released until after the deal was signed. Blocking scrutiny of the contract terms for privatizing public infrastructure is not unique to the Northwest Parkway. In 2008, Mayor Daley forced the Chicago City Council to vote on the 75 year lease of the city's parking meters only two days after they first saw the complex 279 page legal and financial document.

As with Representative McNulty and New York Governor David Paterson, most people assume that privatization is the best and, perhaps, only source of money to build or improve our highways. bridges, and other public infrastructure. Privatization proponents also argue that the contracts shift future financial risk from the public to the private contractor.

However, these assumptions and claims are incorrect. Infrastructure privatization contracts are filled with conditions that mean money flows from the public to the private contractor when there are lower than anticipated revenues. For example, in September 2008, it was the State of Indiana that bore the risk of an Act of Nature when it reimbursed a private contractor $447,000 for tolls lost during emergency evacuations due to severe flooding.

In fact, these contracts tend to run on for over 100 pages because of all the provisions that mean the public, rather than private contractors, bears risks associated with infrastructure privatization. But far more important than money, infrastructure privatization contracts give private contractors a quasi-governmental status. "Adverse Action" provisions are common, with examples not limited to contracts for the California's South Bay Expressway (SR 125), the Pennsylvania Turnpike, and the Northwest Parkway, give private contractors direct and indirect power to object to new laws, judicial decisions, propositions voted on by the public, and other government actions that the contractor claims would affect toll roads and revenues. For example, Virginia's Pocahontas Parkway contract entitles the contractor to compensation for failure of the state to "exercise all discretionary authority available to it under Laws, Regulations and Ordinances to prevent any other governmental or private entity from developing Competitive Transportation Facilities, including but not limited to connections to State Highways." The impact will be to force governments to vet all laws and decisions for any effects on privatized roads and then decide whether the new law or action is worth the cost.

Noncompete provisions also alter the relationship between government and the public interest. First, public officials lose options for serving the public's need for high quality transportation when they must either ensure that the toll road is the only alternative. Second, and far worse, the agreements constrain options for dealing with congestion, pollution, and climate change for generations. Because solutions to these problems will likely mean decreased highway traffic and thus tolls, mitigating each of these problems will mean reimbursing the contractor for lost revenue. In some cases, governments will decide that the added cost is just too great and will opt not to mitigate the problems.

. . . Representative Frank McNulty should consider himself lucky. The Northwest Parkway contract only limited construction or improvements within 5 miles. A Texas Adverse Action provision required the state to pay the private company for revenue potentially lost for new highways built within 200 miles.

4 Comments:

Anonymous Mairead said...

This is so obviously against the public interest that it couldn't hold up in court if tested.

But will it be tested? I bet it won't, and the failure to take it to court will be "justified" by broadly the same logic-free arguments the Dems used not to withhold monies for the Iraq world-crime.

July 17, 2009 4:51 PM  
Blogger Yophat said...

Most of the contracts won't even see the light of day!

July 17, 2009 5:16 PM  
Anonymous Anonymous said...

The problem isn't privatization - it is corrupt government abusing its power and abrogating its responsibilities.

July 17, 2009 6:18 PM  
Anonymous pay justice said...

Corrupted government (because devoured by superwealth) abuses its power and abrogates its responsibilities when it privatizes profits for the few and socializes costs to the many - so how can you say privatization isn't the problem here, Anon?

It's ludicrous on its FACE, to privatize our roads. It's such an obvious transfer of wealth from earners to non-earners!

July 18, 2009 6:50 AM  

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