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Pa.'s $1 billion bridge 'boondoggle': Is private funding cheaper?

Can the private sector really borrow and build 560 bridges cheaper?

MONDAY 7/28: PennDOT officials say the bridge funding program will rely on tax-exempt federal Private Action Bonds (PABs), which are typically less expensive than private funding, though more expensive than direct state general-obligation bonds. PennDOT hopes for other savings, including volume discount. More in my column in the July 28 Philadelphia Inquirer here. 

TUESDAY 7/22: A highway contractor active in Pennsylvania gives me this view of the "public-private partnerships" that President Obama and Gov. Corbett (with his Rapid Bridge Replacement Program) assure us will change the way our governments fund highway and bridge repairs: "As a highway bill, this is a boondoggle. I can assure you that the money involved will be far in excess of what would have been spent utilizing PennDOT's current procurement process."

But won't PennDOT's scheme get 560 much-needed bridges (most far from Philly) repaired and maintained more quickly? I asked. Maybe, maybe not, the contractor said. But this isn't really about completion dates, he added: "It is the difference of paying as you go with current taxes and fees or having the private sector provide the up-front money and then take 'availability payments' over 30-35 years once the work has been completed."

So how big are those payments, and how much will private highway financing cost, compared to government bonds? That's the question Obama didn't address and his Transportation and Treasury secretaries refuse to address, and PennDOT won't know until the bids are in. But you don't need the details to see that "P3's are financed at (high) rates that cannot be gotten anywhere but hedge funds. 12-15% are typical. When the cost of this work, plus the financing of same, is removed from Pennsylvania's highway fund, the drain on resources will be extensive and continue for a long time.

"Everybody that's trying to get elected likes the plan. But where's the money to pay for it? There are four teams bidding for the bridges. I see the financiers getting 12-15%. The big construction companies that don't build bridges, which are part of each team, will likely pull in a 'management fee' that's at least as large. Then the rest of the cost is building. So I don't see any way on earth you will save money.

Bad for taxpayers, good for Wall Street lenders? "Right. Perhaps the Commonwealth's two large underfunded Pension Funds should invest in this process to beef up their returns?"

"And why replace PennDOT's procurement system? The way they are set up, before this came along, you're getting 6, 8, 10, 12 bidders on every job. They go to the low bidder. There's no B.S., no negotiating, the prices are locked. It's pretty straightforward. These big companies don't do little bridges. Some of them don't do any bridges unless they're across like the Bering Strait (Alaska-Siberia). So who's building these (Pa.) bridges? The way I see it, they're hoping everybody on the losing teams becomes a free agent, and all the mom and pop companies, they'll all go together to the winner and get some work there." Which they would anyway, without the high-priced middlemen, if PennDOT bid the jobs directly.

How does this fit with the new gas tax and highway bill passed by the General Assembly and signed by Gov. Corbett? "There is so much work coming from PennDOT, a transformative change in PennDOT's roadbuilding and bridgebuilding. They're finally going to do jobs like the Route 1 and 95 intersection. And all that is competely different from this bridge thing. I wonder how many of these contractors out there will even offer to do bridges (once the master bridge contract is awarded?) If you're any good you have work already lined up. You're not waiting around."

He's also concerned about putting private contractors to work on many bridges simultaneously. Not so much in the Philadelphia area -- few of the targeted bridges are there -- but in the southeastern Poconos alone "they're starting 10 in the first year. Whose job is to coordinate construction when you have 10 private contracted bridges instead of one PennDOT? Just imagine what happens when the Pocono 500 NASCAR (race) is running." The traffic jams "will be epic."

PennDOT has said, no tolls. So "the money will have to come from the highway fund. Will that get in the way of the other projects? Sure. Once they start making these 'availability payments,' it will be taken right off the new highway fund. For 30, 40 years. You will be down to where New Jersey is. In the hole, with no reserves."

Just like with state pensions, Harrisburg appears to be kicking the can down the road: running up expenses now, for others to pay, with interest, when the current lawmakers are gone to their rewards.

No wonder Moody's, citing the state's 'imbalanced' election-year budget, on Monday cut Pa.'s bond rating so it now ranks third-worst in the U.S. -- only New Jersey and Illinois are lower.

PennDOT is also prepping a "P3" project fixing up 11 railroad stations on the Amtrak line from Ardmore to Harrisburg, with procurement solicitiations to include "hotels, train stations, (Americans with Disability Act) improvements, urban renewal, parking garages, etc. Who knows how this cost will be covered? But rest assured it will be paid out by future generations, lest we tax current voters."

Sounds almost as good as the Amtrak station built in Hershey a few years back. Amtrak trains don't actually go to Hershey. But the scheme got the town business interests what they wanted: a big, federally-taxpayer-funded parking garage.

Back to the bridges: PennDOT is supposed to award a contract "by Halloween," a week before voters decide Corbett's future. "It's supposed to come in around $1 billion," which would be the biggest public project in Pennsylvania history, bigger than the $800 million Pennsylvania Convention Center or the $400 million new prison at Graterford. But the contractor is concerned bidders won't find that price attractive. So "I think it will come in higher," and jobs will be dropped off the list to get it to budget.

"If this was a way to get something done that needed done -- a ton of bridges -- and then kick the can down the road, that's the plan."