Public-private partnerships usually prove harmless to taxpayers on projects like expanding student housing at the University of Kentucky.
However, “P3s” have been disastrous on numerous highway schemes where accurate traffic projections and accompanying estimates of toll revenue needed to pay for the roads are much-more difficult to come by than calculating how many students will move in and fork over the rent money needed to fund a new dorm.
One project missing from Combs’ bill this year is a proposal to place tolls on the Brent Spence Bridge connecting Covington with Cincinnati, an idea that’s mobilized groups like Northern Kentucky United – a coalition of business and labor leaders along with residents and elected officials – to stymie her legislation during past General Assembly sessions.
Former state Sen. Joe Meyer serves as Northern Kentucky United’s spokesman and succinctly summarizes: P3s “have fallen short of investors’ expectations and taxpayers’ protections.”
Meyer, also a former state Secretary of Education and Workforce Development who’s filed to run for mayor of Covington, cautions: “there have been a large number of bankruptcies” on P3 projects, including those involving the Indiana, American and Pocahontas toll roads as well as Virginia’s Dulles Greenway, California’s State Route 91 and Greenville, South Carolina’s Southern Connector.
These and other transportation-related P3s face higher-than-predicted costs and inaccurate traffic projections, which – when talking tolls – mean smaller-than-projected revenues, bigger-than-expected consequences and way-too-many unknowns.
- Meyer notes first-year revenues of 26 public and private toll roads opening between 1986 and 2004 averaged one-third less than projected.
- According to the Columbus Dispatch, the Southern Ohio Veterans Memorial Highway – Ohio’s first-ever P3 project – “will cost taxpayers nearly three times its announced price tag of $429 million.” Taxpayers will wind up paying $1.2 billion throughout the next 35 years just to fund a 16-mile bypass skirting Portsmouth, Ohio.
- The failures of expected revenues to materialize on similar projects have resulted in the risk of loss being transferred back to the public via “availability payments.”
Meyer notes that the private contractor for Louisville’s recently opened East End bridge – a P3 project connecting the River City with southern Indiana – enjoys an “availability payment” arrangement with the Hoosier State.
“If tolls collected exceed the availability payment, Indiana will be happy, but if tolls are less than projected and don’t cover the costs of the availability payment, Indiana is still on the hook for the full amount,” Meyer said. “At the end of the day, the transportation fund is liable for the full amount of the contract. This is just another ‘off the books’ debt.”
With an arrangement like this and for most of what’s being done in the name of public-private partnerships – like building those dorm rooms – why’s there even a need for P3 legislation?
The only way the case can be effectively made for passing such a law is if it strengthens the accountability process by getting rid of blank checks for crony capitalists and costly non-compete clauses that allow private partners to prohibit other badly needed projects from being built just because they may affect traffic flow on a P3-built roadway.
Failure to prohibit such a non-compete clause resulted in taxpayers being forced to buy back Orange County California’s Riverside Freeway. Without taxpayers both assuming the turnpike’s $135 million debt and paying the company nearly $73 million in cash, badly needed congestion-relieving improvements in the region couldn’t happen.
“As long as the risk of loss stays with the public sector, it’s a purchase contract plain and simple; everything else is window dressing,” Meyer says. “The state and its taxpayers would be better off using the normal procurement processes.”