Monday, December 25, 2006

Economic Treason: The Selling Of America's Roads To Foreigners

Lost in last summer's furor over the proposed deal to allow a United Arab Emirates-based consortium to operate several American seaports is an increasing tendency by state governments to sign deals permitting foreign consortia to operate major American highways and collect tolls from drivers to pay the costs and make profits. Some of these agreements are so one-sided that state and local governments are actually PROHIBITED from improving side roads parallelling these highways to reduce the incentive for motorists to use side roads in order to avoid using the main roads and paying the associated tolls.

And while toll roads have been a tradition in the eastern part of the U.S. for many years, this trend is now growing in the western part of the country, too. Controversies over proposed toll roads in Colorado and Utah are brewing. On May 28, 2006, the Denver Post published a detailed report on the growing use of toll roads, in which they also reported that many of them nationwide are not drawing expected revenue. In 2005, the Deseret News published a similar detailed report on proposed toll roads in Utah. The graphic in the upper left shows just how many major roads in the Salt Lake Valley might be affected.

But what really attracted the attention of Mother Jones magazine and caused them to publish a three-page report on this subject in their January 2007 issue is a proposal by the state of Indiana to privatize the Indiana Toll Road. The contractors who will maintain the road and collect the tolls are foreigners. Those who object contend this is contrary to the expressed intent and purpose of the national interstate highway system as outlined when President Dwight Eisenhower (the same Eisenhower who warned us to be wary of the "military-industrial complex"). Here is the introductory part of the article:

"The road is one succession of dust, ruts, pits, and holes." So wrote Dwight D. Eisenhower, then a young lieutenant colonel, in November 1919, after heading out on a cross-country trip with a convoy of Army vehicles in order to test the viability of the nation's highways in case of a military emergency. To this description of one major road across the west, Eisenhower added reports of impassable mud, unstable sand, and wooden bridges that cracked beneath the weight of the trucks. In Illinois, the convoy "started on dirt roads, and practically no more pavement was encountered until reaching California."

It took 62 days for the trucks to make the trip from Washington, D.C., to San Francisco, and another 37 years for Ike to complete a quest, inspired by this youthful journey and by his World War II observations of Germany's autobahns, to build a national road system for the United States. In 1956, President Eisenhower signed the Federal-Aid Highway Act, which called for the federal and state governments to build 41,000 miles of high-quality roads across the nation, over rivers and gorges, swamps and deserts, over and through vast mountain ranges, in what would later be called the "greatest public works project in human history." So vital to the public interest did Eisenhower, an old-style fiscal conservative, consider the interstate highway system, he even authorized the federal government to assume 90 percent of the massive cost.

Fifty years to the day after Ike put his pen to the Highway Act, another Republican signed off on another historic highway project. On June 29, 2006, Mitch Daniels, the former Bush administration official turned governor of Indiana, was greeted with a round of applause as he stepped into a conference room packed with reporters and state lawmakers. The last of eight wire transfers had landed in the state's account, making it official: Indiana had received $3.8 billion from a foreign consortium made up of the Spanish construction firm Cintra and the Macquarie Infrastructure Group (mig) of Australia, and in exchange the state would hand over operation of the 157-mile Indiana Toll Road for the next 75 years. The arrangement would yield hundreds of millions of dollars in tax breaks for the consortium, which also received immunity from most local and state taxes in its contract with Indiana. And, of course, the consortium would collect all the tolls, which it was allowed to raise to levels far beyond what Hoosiers had been used to. By one calculation, the Toll Road would generate more than $11 billion over the 75-year life of the contract, a nice return on mig-Cintra's $3.8 billion investment.

The deal to privatize the Toll Road had been almost a year in the making. Proponents celebrated it as a no-pain, all-gain way to off-load maintenance expenses and mobilize new highway-building funds without raising taxes. Opponents lambasted it as a major turn toward handing the nation's common property over to private firms, and at fire-sale prices to boot.

The one thing everyone agreed on was that the Indiana deal was just a prelude to a host of such efforts to come. Across the nation, there is now talk of privatizing everything from the New York Thruway to the Ohio, Pennsylvania, and New Jersey turnpikes, as well as of inviting the private sector to build and operate highways and bridges from Alabama to Alaska. [Ed. Note: We in Alaska need to keep our eye on the Knik Arm Bridge and Toll Authority, who will operate the proposed Knik Arm Bridge. On page 11 of the 83-page Request for Qualifications, published on December 13th, 2006, it states that the developer will be able to collect and retain toll revenues for as long as 55 years. The language does NOT preclude the possibility of a foreign company becoming the private developer.] More than 20 states have enacted legislation allowing public-private partnerships, or P3s, to run highways. Robert Poole, the founder of the libertarian Reason Foundation and a longtime privatization advocate, estimates that some $25 billion in public-private highway deals are in the works—a remarkable figure given that as of 1991, the total cost of the interstate highway system was estimated at $128.9 billion.

This is just one of several similar deals in progress, and mig and Cintra are often part of them. So is the notorious Goldman-Sachs Wall Street firm which has played both sides of the field - advising states on how to structure privatization deals while SIMULTANEOUSLY positioning itself to invest in the toll road market. Their duplicity has not escaped the scrutiny of skeptics like Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, a truckers' group that opposes toll road privatization. "They're basically in the middle, playing one side against the other, and it's really, really lucrative", Spencer said.

Despite public concerns, the privatization model has the full backing of the Bush administration. Tyler Duvall, the U.S. Department of Transportation's assistant secretary for transportation policy, says DOT has raised the idea with "almost every state" government and is working on sample legislation that states can use for such projects. Of course, if the "chief executive officer" of the country is willing to sell our ports to foreigners, why wouldn't he sell our roads to foreigners? The case for impeachment grows daily.

Proponents point to huge financial stakes as justification. "You're buying the infrastructure of the economy, and it's enormously valuable," says John Schmidt, who served as associate attorney general in the Clinton administration and as counsel to the city of Chicago on the $1.8 billion privatization of the Chicago Skyway, the 7.8-mile freeway that connects the Dan Ryan Expressway in the west to the Indiana Toll Road in the east. "[Private road operators] haven't been able to get in here previously. There's been a demand, and it's been bottled up because we just haven't had privatized infrastructure in this country, so they've been buying toll roads in Chile and in France. Now, they suddenly have the opportunity to come into this country."

However, it isn't just the promise of profits generating lawmaker interest. Increased traffic congestion nationwide not only generates a demand for additional high-volume roads, but escalating maintenance demands on existing roads. Revenues are not rising at a pace commensurate with these increasing demands, although the willingness to spend public money on non-essential artsy-fartsy and other social engineering fantasies diverts funds that otherwise could be spent on infrastructure. However, the Federal highway trust fund, which is financed by the proceeds of the Federal gas tax, is running out of money—in part because lawmakers have not dared to raise the tax, currently 18.4 cents per gallon, since the mid-'90s. At this rate, the fund, which is the primary source of money for federal highways, will be spending more than it takes in by 2009. The Federal Highway Administration estimates that it will cost $50 billion a year above current levels of federal, state, and local highway funding to rehab existing bridges and roads over the next 16 years. Where to get that money, without raising taxes? Privatization promises a quick fix—and a way to outsource difficult decisions, like raising tolls, to entities that don't have to worry about getting re-elected.

However, these financial arguments don't impress everyone. Representative Peter DeFazio (D-OR), who confronted Indiana Governor Mitch Daniels at a Congressional hearing last May, was still fuming over Daniels' perceived arrogance. Daniels, DeFazio said, "just screwed the state of Indiana and the people of the state of Indiana." In his view, mig-Cintra has "a license to print money here. They do the deal, put money up front, turn around and go to a bank, which will gladly give them whatever they want, and pay themselves back, and they are left with equity and debt. They are projecting that they already would have broken even around the 15th year. So we've committed an asset for 75 years and after 15 years the state could have been making money on it."

DeFazio's views reflect his belief that the interstate highway system was intended to be a UNITARY system promoting efficient economic development, commerce, and even national security. "It's a scam, basically," he says. "And you lose control of your transportation infrastructure. It means you fragment the system ultimately. It just does not make sense for an integrated national transportation system."

Ralph Nader has also been vocal in opposing the privatization deals. Last February he wrote a scathing letter to Mitch Daniels, comparing the toll road lease to the Louisiana Purchase, "only Indiana is the France of this deal. You are taking a minuscule up-front payment in return for a large downstream private profit to a foreign company which is being handed a captive customer base." Nader says he and other consumer advocates were late to recognize the trend. "Who would have dreamed" that the nation would begin actually selling off its core assets, he told Mother Jones. "That's new. They caught everybody napping."

Some conservatives are also sounding the alarm. Phyllis Schlafly, writing for the conservative publication Human Events in September 2006, tore into the recent privatization deals under the colorful heading "Greedy Politicians Seduced by Siren Song of Filthy Foreign Lucre". "Why the rush to sell our transportation systems to foreigners?" she queried. "'Follow the money' explains all. State and local governments pocket the money upfront and get to spend it here and now, so politicians can cover their runaway budget deficits and enjoy the political rewards of spending for new facilities. They ignore the fact that U.S. citizens must pay tolls to foreign landlords for the next two or three or even four generations."

The role of Goldman-Sachs warrants further scrutiny. One of the most tireless of the privatization advocates is Mark Florian, the chief operating officer of Goldman-Sachs' municipal finance division, who advised Chicago (on the privatization of the Chicago Skyway) and Indiana on their toll road deals and says he has personally visited more than 35 statehouses to "help spur the market." And Goldman-Sachs isn't just any old Wall Street firm. It is one of the nation's most active and most profitable investment banks, and top Goldman Sachs officials have served in numerous administrations. Last summer, President Bush tapped its CEO, Henry "Hank" Paulson, as secretary of the treasury. Another former Goldman Sachs CEO is New Jersey governor Jon Corzine, who in September commissioned an analysis of whether state assets, including the New Jersey Turnpike, should be turned over to private companies. In addition to advising Indiana on the Toll Road deal, Goldman-Sachs has worked with Texas governor Rick Perry's administration on privatization projects, and according to Schmidt, the former adviser to the Chicago mayor's office, it was a Goldman-Sachs representative who first pitched the city on the idea of leasing out the Skyway.

That deal, which yielded $9 million in fees for Goldman Sachs, was "an eye-opener" for the company, Florian recalls: "That was a pretty phenomenal transaction. As soon as we were involved in that and saw the potential application of doing this more broadly, we were very excited about doing that." After the Skyway lease closed, Florian says, Goldman Sachs was inundated with calls from investors worldwide who wanted a piece of America's transportation infrastructure. "We said, 'Well, gee, if all these people are interested in investing, perhaps we can create a vehicle for them to invest through,'" he explains. To that end, Goldman Sachs put together an infrastructure fund that, by the time Florian addressed the conference, had already surpassed its original $3 billion target. Other investment firms, including Morgan Stanley and the Carlyle Group, began putting together their own funds. So appealing is the infrastructure market that Goldman Sachs has made significant changes to its municipal finance group to better position itself for a coming boom.

When Goldman Sachs began advising Indiana on selling its toll road, it failed to mention to the state that it was putting together a fund whose sole purpose would be to pick up infrastructure for the best price possible in order to maximize returns for its investors. Nor did the bank advertise the fact that, even as it was advising Indiana on how to get the best return, its Australian subsidiary's mutual funds were ratcheting up their positions in mig—becoming de facto investors in the deal. In the stock market, it would be known as "insider trading" - illegal as hell!

So America's money manipulators are working overtime to sell America's patrimony to foreigners. It's not enough that our borders and our jobs are for sale - now our infrastructure's for sale, too. And our elected officials are rushing to the trough to get their share of the slop. If this isn't economic treason, tell me what is???

In Alaska, former Governor Frank Murkowski tried to sell Alaska's gas for a song, allowing a highway route to ship the gas out of Alaska with NO spur line down to South Central Alaska. And he paid the price - we replaced him with Sarah Palin, who will open up the negotiating and bidding process to other producers and who favors a spur line in addition to the highway route. The rest of the nation needs to follow our example - if your politicos sell you out, turn them out.

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1 comment:

  1. Great article.

    It reminded me of the way in which the "money manipulators" gained control of the roads and toll taxes of Würtenberg in the movie, Jude Süß. A great movie, by the way, for anyone who hasn't seen it.