Stop CANAMEX, Stop the Intermountain West Corridor and I-11! Stop the Sun Corridor! Stop the 202!

Thursday, August 8, 2013

Companies seek partnership with ADOT to profit on freeway, Part 1: The Networks

For an updated exploration on the public-private partnership for the South Mountain Freeway, see "Freeway Could Take a Toll on Arizona" posted February 2016.  

A late July announcement from the South Mountain Development Group raised eyebrows amongst environmentalist and anti-freeway organizations across Arizona.  A group of three of the largest construction companies in the United Stated has proposed to fund and build the long contested Loop 202 extension through South Mountain.  Among those troubled by the announcement was the Sierra Club, who publicly opposed the freeway as an environmentally destructive project.

“Why did they wait to announce this until the day after the deadline for the comments on the freeway Draft Environmental Impact Statement?” asked Sandy Bahr of the Sierra Club.1 Now that the announcement has been made, the controversial public-private partnership model is likely to gain the attention it deserves. The attention may come a bit too late, however, due to the timing of this July 25th announcement in relation to the Draft Environmental Impact Statement (DEIS) comment period, despite the proposal being submitted a few months ago. Had news of the possibility of privately funded construction come out sooner, this new type of arrangement may have brought more critical comments.

A public-private partnership or P3 (or PPP) is essentially privatization, with perhaps a friendlier face. Projects that would normally be delivered by the state, such as transportation infrastructure like highways, are taken on by private companies. In cases such as this, private companies finance the project, build it, and they often operate and maintain it. Then they get their money back in addition to profits, of course. In a P3, the public sector has more control than in a privatization situation, but it also takes on most of the risk, meaning ultimately the money still comes from the tax payers via the state, even if it's a few decades down the road--especially since tolling is not part of this proposal for the proposed South Mountain extension to the 202.

Arizona has what is considered broad-enabling P3 legislation, which passed in 2009.2 Much effort has been in the works since then to move things in the direction of increased privatization. In fact there is a vast network of P3 promoters who have been pulling strings in Arizona. Unsurprisingly, some of these same P3 promoters are involved in the 202 proposal.

Going by the name South Mountain Development Group, the companies, Kiewit Development Co., Kiewit Infrastructure West Co., Sundt Construction, Inc. and Parsons Corporation submitted an unsolicited proposal to the Arizona Department of Transportation (ADOT) in February to build the Loop 202 extension. "Unsolicited," while technically correct, is a misleading term due to the longstanding relationships between public (such as ADOT) and private interests, and their pro-P3 organizations. You can see the push for P3s coming out of networks such as these:
  •  Sundt sponsored P3 conferences in Phoenix on several occasions, and attending at least one in 2010 was a representative from Kiewit, a representative from HDR (the engineering firm contracted to do the Environmental Impact Statement for Loop 202), and Gail Lewis of the P3 Office for ADOT as speakers.3
  • Kiewit is on the board of a pro-P3 organization called the Association for the Improvement of American Infrastructure (AIAI). According to their website, AIAI "is a non-profit organization formed in the District of Columbia to help shape the direction of the national Public Private Partnership marketplace."4

  • ADOT's John Halikowski is co-chair with Arizona-Mexico Commission's (AMC) Jim Kolbe in the newly founded Arizona organization called the Transportation and Trade Corridor Alliance (TTCA). The TTCA, which includes members of the Arizona Commerce Authority (ACA), was described as "heavily private-sector" by Gail Lewis, Director, ADOT Office of P3 Initiatives and International Affairs. AMC and ACA are also pro-P3 organizations with private and public membership.5 

  • Also a member of the TTCA, as well as the ACA, is Mary Peters, former Federal Highway Administrator for the U.S. Department of Transportation. She is also on the board of HDR. Participating with her in ACA is Doug Pruitt, former CEO of Sundt. 

  • A consulting firm, Tom Warne & Associates, lists Kiewit, Parsons, ADOT, HDR, and others as clients.6  Tom Warne writes a newsletter that regularly discusses P3s.  He was awarded as a the American Road & Transportation Builders Association (ARTBA) P3 Division Entrepreneur of the Year.  Mary Peters also won this award.7

  • HDR is a 2013 sponsor of the ARTBA Conference, at which Gail Lewis of ADOT recently spoke.  According to their website, "ARTBA approached the National Conference of State Legislatures (NCSL) to develop a toolkit to help educate lawmakers navigate the challenges of enacting and improving P3 enabling statutes."8

And there are yet more webs to untangle. The timing of the announcement of this new P3 may be related to HDR's involvement. HDR is the corporation that the Arizona Department of Transportation (ADOT) contracted to do the DEIS. HDR is an engineering and consulting firm which also happens to be a major proponent of P3s, claiming 35 years of experience delivering P3s and offering their expertise to others through their consulting services.9  HDR is part of The Transportation Transformation Group which "is an unprecedented alliance of state government, finance, academic and private industry leaders who aspire to transform American transportation policy into a goal-based arrangement that maximizes flexibility to enhance the roles of the state and local public sectors and their private partners to solve the growing problems of congestion and mobility." This group includes a variety of notorious financial institutions like Goldman Sachs, Citi, JP Morgan, etc.10

While ADOT has many consultants, HDR is likely to be a highly influential one. It is unclear whether it is the consultant referred to in the minutes of ADOT's Citizen's Transportation Oversight Committee meeting in 2011, but it certainly could be (Tom Warne and Associates is another possibility). "Gail Lewis, Director, ADOT Office of P3 Initiatives and International Affairs, provided an update concerning P3 projects and processes... ADOT’s Steering Committee has been helpful getting P3 integrated into the process. An outside consultant is helping to formulate, guide, evaluate and negotiate programs as they come forward."11

While there could be a conflict of interest, it is possible that HDR could put in a bid for a P3 to build Loop 202 extension as well. There is at least one other P3 in Colorado for which they put in a bid that Kiewit also put a competing bid in for.12 Alternatively, HDR may not have seen any value in the Loop 202 project, thus why they did such an incompetent job on the EIS.

Opponents of the Loop 202 extension have pointed out that the freeway is intended more as a truck bypass. Few Arizonans have even heard of the CANAMEX Corridor, the NAFTA trade route that runs from Mexico through Arizona and four other states to Alberta, Canada. It utilizes existing roads but in order to fulfill its purpose to move more merchandise between nations, it needs to grow much larger, involving more road construction including the proposed Interstate 11 between Phoenix and Las Vegas. While the Loop 202 isn't part of the current official CANAMEX route, it would certainly serve the freight and commercial truck traffic that comes through Phoenix. Tax payers are less likely to want to pay for something that isn't meant for the local community, particularly if it's done without their knowledge.

Steve Brittle of the local environmental non-profit Don't Waste Arizona, pointed out, among several issues of concern, that, "trucks originating in Mexico will be fueled with diesel that doesn't meet the CARB diesel standards adopted by Arizona over a decade ago. In Mexico, there is no regulation about the sulfur in diesel fuel. In Arizona, the law was changed to allow only diesel fuel to be sold that has had 98% of the sulfur removed." He writes that the state had this information, as well as the stats on how many trucks come in from Mexico. Yet these models of Mexican truck traffic were not considered in air quality models in the DEIS. ADOT and HDR also know that the purpose of the 202 extension is to facilitate trade traffic coming in from Mexico. Why did this not make its way into the DEIS, especially considering HDR's involvement in P3s and trade?

While the population growth projections in the DEIS may have been influenced by the anticipated megapolitan called the Sun Corridor resulting from increased CANAMEX trade, it wouldn't be useful to HDR and ADOT to discuss the negative impacts to health and the environment. Why is it so certain that they know about it? Again, HDR put together this DEIS, with Mary Peters on their board. Mary Peters is well aware of CANAMEX since she was part of the CANAMEX Corridor Coalition as ADOT Director. Tom Warne of the consulting firm for HDR, ADOT, Kiewit, etc. was also in the CANAMEX Corridor Coalition as UDOT Director at the same time.13 Worthy of mention is that Arizona Representative Russell Jones, who introduced P3 legislation, is on the Governor's CANAMEX Task Force and part of the Arizona-Mexico Commission (AMC). AMC is said to be the godfather of CANAMEX by Jim Kolbe, their CANAMEX expert.14

These officials have recently been building their careers on pro-P3 efforts as part of a plan to build trade infrastructure designed to benefit international corporations, not to accomplish goals for the quality of life for the local community. The various companies take an interest in this trade corridor for differing reasons.

The significance of the existing massive network of pro-p3 companies and organizations is that they see tremendous potential for profit so they have built relationships with people in the public sector (politicians and transportation and commerce officials) by providing those officials with the resources they need to accomplish the goals of the P3s. Financial institutions see profit opportunities; the various companies that do the actual design, construction, etc. see dollar signs; and public sector folks see possibilities for career advancement.

Why the Loop 202 South Mountain Freeway and why now? It's likely it has something to do with new federal legislation. "President Obama signed into law the “Moving Ahead for Progress in the 21st Century Act”, or MAP-21, July 6, 2012. It authorizes federal highway and transit investment through September 30, 2014 and provides a historic expansion of the Transportation Infrastructure Finance and Innovation Act (TIFIA) program as well as a number of other important policy reforms."15 Darwin Bondgraham writes, "The U.S. Department of Transportation... routinely grants Transportation Infrastructure Finance and Innovation Act (TIFIA) loans to P3 developers. TIFIA loans provide companies with much cheaper interest rates and more flexible terms than anything available in the private capital markets—again because the public subsidizes them."16  A hypothetical "South Mountain Toll Road" is listed among other examples of possible projects that could be funded with TIFIA, as seen on the USDOT Federal Highway Administration website.17

Private companies are salivating for grants and low interest rates on loans for public projects, but they also intend to get their money back and then some. An arrangement involving something called availability payments is an increasingly common way for P3s to make money for companies. They get paid back by the state after they've completed the project. "The ultimate source of project financing, then, is always the public, either through tolls or taxes. Why then allow private banks, drawing from private capital markets, to serve as intermediaries? Private financing simply permits the insertion of the financial interests of investment banks and private-equity funds into the long-term wealth-producing potential of public infrastructure. By allowing private investors to fund the construction of a project, the state allows these parties to impose their monopolistic claims on future flows of tax or toll revenues" [my emphasis].18 (This will be examined further in Part 2).

In reference to the TTCA, which clearly exists to facilitate CANAMEX infrastructural development, ADOT Director and chair of TTCA, John Halikowski stated, “Our job is not to lead the horse to water. Our job is not to make the horse drink. Our job is to make the horse thirsty.”19 This is a very telling quote that says a lot about the philosophy of at least one high-ranking Arizona transportation official. The citizens of Arizona, the horse in Halikowski's view, are not thirsty for massive transportation infrastructure, yet the goal of the TTCA is to sell us a story that convinces us that this is for our own good. But we see urban sprawl all around us. Empty subdivisions on the fringes of Maricopa County as one example. Arizona is a natural desert that does not need the increased development that private businesses hunger for. There are federal contracts and TIFIA loans that need to be awarded before September 30, 2014 and they are on a deadline, after all.

There are many reasons to oppose this freeway extension.  “The off-reservation alignment would gouge a 40-story high, 200-yard wide cut into South Mountain, which is sacred to all O’odham and Pee-Posh.”20 According to the Gila River Against Loop 202 website, the main concerns are public health, air quality, ground water, loss of land, and desecration of Muhadag Do’ag (aka South Mountain) and other sacred places.21

Opposition to the freeway is strong and justified whether or not it would involve private partners. The issue is whether the pro-P3 entities have the power to push this project, and what the consequences would be. Are the P3 arrangements and CANAMEX something the public knows about or even wants? Would this set a precedent for increasing privatization?

See updates on the Loop 202 here.
Read "Companies seek partnership with ADOT to profit on freeway, Part 2: The Methods" on how the P3 companies will make their money if this is not a toll road.

Thanks to Gila River Against Loop 202 and Darwin Bondgraham for assistance and insight for this series.

1 Environmentalists fighting against proposed South Mountain ... -
11 (p4) CITIZEN’S TRANSPORTATION OVERSIGHT COMMITTEE Arizona Department of Transportation Minutes January 18, 2011
19 Thirst in the Sun Corridor -

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