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

Tuesday, August 12, 2014

Loop 202 Extension Public-Private Partnership: a primer

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. 

Environmental destruction, desecration of a sacred site, displacement of people from their homes, and waste of money on a massive truck bypass for international trade, are just a few of the main reasons many people oppose the Loop 202 extension, aka South Mountain Freeway. Compounding these problems is the fact that private companies are looking to make a profit from this transportation project.

A public-private partnership (P3, or PPP) is in the works for the $1.8 billion Loop 202, pending the results of the final environmental impact statement (FEIS) to be released in mid to late September. P3s involve a business deal between the public sector, usually local government, and a company or companies who take on some combination of design, build, maintain, finance, etc. These arrangements are increasingly promoted in the US for infrastructure projects as a means of accessing funds that are otherwise lacking. They are largely touted as an innovative financing solution by various interested parties described as an "infrastructure-industrial complex composed of global construction corporations, investment banks, private-equity firms, and elite law firms organized as vertically integrated consortiums." You can learn more about the companies and their vast pro-P3 networks in Companies seek partnership with ADOT to profit on freeway, Part1: The Networks. The pro-P3 campaign has become so influential in the US that even the Federal Highway Administration promotes it and provides massive resources for implementation. Arizona law enables many types of P3s but this would be the first for a road.

Across the world, P3s have been used to accomplish infrastructure projects (including water, as well as projects in health, education, and more), in many cases promoted by the World Bank or other such institutions. P3s are a form of privatization, something favored by "free market" proponents often as part of structural adjustment programs, but are said to be more accountable and transparent than full privatization. P3s come from the same ideology that pushes trade corridors like CANAMEX or the Intermountain West Corridor, as well as "megapolitans" such as the so-called Sun Corridor as important nodes of international trade, which all likely have a lot to do with the pressure for completing the Loop 202 which would facilitate this trade traffic.

Essentially public-private partnerships are corporate welfare disguised as a solution to transportation "needs." A P3 for transportation could involve a toll concession, or since this is an unpopular idea in AZ especially for a truck route, could involve some combination of financing options involving tax breaks (e.g. PABs), payments from taxpayers through the local government at a later date (availability payments coming from taxes such as the Arizona Transportation Excise Tax), and lower interest rates on federal loans (e.g. TIFIA loans). Whether one has to pay to use the road, or the money comes from local or federal taxes, the money is still coming out of our pockets. It would appear to be the case that a P3 might possibly be faster, but there is much evidence that P3s end up costing more than the projects would otherwise. This is the case especially if the project wouldn't be built in the first place. You can read more about the financing options available to P3 project in Companies seek partnership with ADOT to profit on freeway, Part 2: The Methods.

Although allegedly within a P3 contract, the private partner takes on the most risk, often the contract terms are used to make the government insure the private contractors' financial success
The companies clearly want a low-risk deal, and something they can make a large profit from. Transparency is a major problem, as contracts are often not available for public review and are difficult even for attorneys to understand.

ADOT used a "Value for Money" approach to reach the decision to go with a P3 for the Loop 202. Likely this was done by a pro-P3 consultant. The approach is controversial because it can easily be skewed in favor of the P3 option. "'Value For Money' (VFM) reports are a specialized analysis that compares the predicted costs of a P3 project and traditional public procurement (referred to as a 'public sector comparator'). The VFM process relies on two problematic tools—discount rates and the value of risk transfer—that can be manipulated to favour P3s."

The consortium that put in the initial unsolicited proposal may or may not get the contract, as ADOT plans to put out a Request for Qualifications after the FEIS is released, allowing other companies to put in bids. ADOT held an Industry Forum in February and put out a Request for Information to learn what P3 projects companies might be interested in. You can see their List of Attendees by Company.

Private companies' interest in profit, and their potential contract may make it more difficult to oppose the project. On the other hand, the opposition to the freeway may increase the financial risk enough to deter the companies' involvement. In recent months, the water shortage effecting the southwest has become an immediate concern, indicating that Phoenix cannot withstand more growth and development.

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