Colorado Should Add the “People” to Private-Public-Partnerships

The ECOreport publishes a white paper: Why Colorado Should Add the “People” to Private-Public-Partnerships

By Ken Beital

Screen-shot-2014-03-18-at-3.43.47-PMNote: due to time urgency this critical public policy white paper is being released as a work in progress. While every attempt at accuracy has been made, the white paper is not perfect and will be corrected with the assistance of peer review. 

Please submit input and corrections to: info@DriveSunShine.org. Seewww.DriveSunShine.org for current version that reflects public input. Thank you- the DSI research and editorial team)

Executive Summary

As Colorado law makers evaluate options for proceeding with US 36 project, the Drive SunShine Institute (DSI) recommends that law makers apply the new and innovative P4 Public-Private-People Partnership model.

Benefits of the P4 model to lawmakers include:

  • Support of voters for elected officials and faith in democratic processes
  • Guarantee that many eyes will mean a project business model that serves the public financial and policy interests
  • Willingness and buy-in for voters to support revenue increases if needed to serve the public interest

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White Paper

An ideal case study is unfolding in Colorado as the state embarks on its first highway infrastructure project utilizing a private-public-partnership (P3) model to finance a portion of the project with initial investment payback and follow-on revenue generation being facilitated by a 50 year operation and maintenance lease.

Much to the surprise of elected officials who had been working under the impression that all was well with the US 36 P3 process, about a month before the financial close of the roughly $175 million Phase 2 portion of the project, a public discussion began questioning whether the P3 deal was in the financial and policy public interest of Colorado.

At the February 13, 2014 joint Senate/House transportation committee meeting lawmakers were puzzled and inquisitive as to how what seemed to be a well crafted public policy process that had high involvement from the private sector, interested municipalities and transportation focused community organizations had resulted in an outcome of 5 to 14 days prior to the 50 year contract being signed, public hearings that on February 12 attracted 350 concerned and visibly upset voters on aWednesday night at the Westminster recreation center followed by more than 500 voters expressing frustration and upset at what they perceived to be a failure of a public decision making process.

Representative Tracy Kraft-Tharp expressed the question well at the February13 transportation committee where law makers had summoned CDOT, HPTE and transportation organizations involved in crafting the 50 year contract to explain what was going on. Representative Kraft-Tharp asked “I have hundreds of my constituents emailing me – they are upset with the US 36 deal and many are calling for my resignation. Can you explain to me why this is happening?”

An intelligent discussion evolved exploring the public process that had taken place to date. A representative noted that the high degree of public concern could actually be a helpful indicator to lawmakers that they had missed something and that it was possible that elements of the project may need review and amendment which in the end could lead to a stronger outcome for the state of Colorado.

Another representative noted that only “transportation geeks” – that is the very small segment of the population who really cared about highway issues along with government agencies had provided all of the public input for development of the 2009 FASTER legislation and the HPTE and that input from the people of Colorado had probably been left out. Another lawmaker observed that it challenging to get the public to attend transportation information sessions and cited an example where more than 25,000 emails had been sent to constituents and only 10 or so actually attended a transportation hearing.

Indeed, the attendees of the committee briefing seemed to bear out that observation. Of 100 or so attendees present in the legislative committee briefing room approximately 35 were current or former lawmakers/legislative staff, 20 were members of municipalities and transportation organizations that had previously provided input, 20 were CDOT or HPTE staff, 35 private sector company representatives and corporate lobbyists who had financial interests in Colorado highway P3 arrangements and about 5 members of the public, one of which was speaking on behalf of more than 18,000 Coloradan’s who had signed a change.org petition expressing concerns with the US 36 contract about to be signed.

Representative Ray Scott of Grand Junction, a new legislative member not involved in the 2009 FASTER bill, expressed the thought that it was legislation that had brought elected officials to the point where an appointed state board was about to sign a 50 year binding 600 contract in a few days and that no elected officials had seen the contract was a concern. He also noted that his constituents were also upset. Scott expressed the thought that perhaps the legislation responsible was “not very smart” and could be improved. Several lawmakers noted that no legislation was perfect and that it was common to improve legislation as needed. Representative Randy Fisher objected to the comment that the legislation creating the HPTE was “not smart”. Rep Fisher noted that FASTER was created with a large amount of input with a large amount of input from the government, private sector and transportation organizations. Rep Scott stood by his comment indicating that the high degree of public concern on the US 36 deal days before signing of the half century long contract was an indication that there was room for legislation improvement.

Next to speak were municipal representatives that had participated in the US 36 process to date, past Representative Gibb (sponsor of 2009 bill that created the HPTE), CDOT and HPTE. Each of these organizations reaffirmed their satisfaction with the results to date in terms of the benefits of the P3 contract despite the current public concern and urged rapid signing of the 50 year contract. Areas of improvement noted were more transparency in the public process and past Boulder County Commissioner Will Toor noted that the US 36 contract would not allow increased levels of electric vehicles to use the HOV lanes on Colorado highways without the tax payer having to compensate the concessionaire.

(A note on the relationship of EV adoption to the public financial interest is required as one train of thought is that HOV+ Electric policies caters only to special interests and elite car buyers. A strong case can be made that HOV+ Electric is in the financial interest of all state tax payers per the following.)

HOV lanes in California and Florida allow free use of electric vehicles. This has encouraged the purchase of a significant number of electric vehicles in these states. When powered by by wind and solar, electric vehicles are pollution and carbon emission free. Studies have indicated that EV owners are much more likely to install solar or purchase electricity from renewable energy source like wind or community solar gardens to avoid powering their transportation with high carbon sources of generation. A 2010 EPA report indicates that 61% of US greenhouse gas emissions come electricity and transportation. Lowering greenhouse gas emissions quickly is of particular interest to the state of Colorado which in 2013 lost more than 500 homes to a wild fire near Colorado Springs and experienced a 1,000 year flood event in the fall that caused more than $1 billion in damages to state highways and other infrastructure. While it is not possible to assign a cause and effect relationship to any specific weather occurrence, both of these expensive extreme weather events may have been caused or worsened by rising atmospheric carbon levels. The addition of 10,000 electric vehicles to a state transportation system utilizing wind and solar generation sources provides an estimated carbon reduction of 150 million pounds annually. (Source: Drive SunShine Institute analysis)

Senator Matt Jones of Louisville also expressed public policy concerns on the US 36 contract. Senator Jones noted that he has been requesting the ability to read the US 36 contract for the last 6 months and that he had authored a letter signed by 14 elected Senators and Representatives requesting that elected officials be able to read the 600 page US 36 contract prior to the HPTE signing the contract. Senator Jones noted that CDOT and HPTE has rejected the request to provide elected Colorado officials with the contract.

Senator Jones noted that he had been extensively involved in the US 36 process and had never been told of the $120 million project shortfall that was cited as the reason for proceeding with the US 36 P3. Jones noted that lawmakers were never given the chance to provide public financing for US 36. The Senator indicated that he could have found public financing for the highway project if he and other elected officials had been given the opportunity to do so.

Senator Jones also noted that the Chicago parking meter P3 contract of 75 years in length generated $1 billion in rapid cash for the city of Chicago but cost the city $1 billion in lost profits. It was noted by subsequent speakers and in written testimony that the Chicago P3 deal resulted in the procurement of thousands of digital parking meters that quickly failed and significantly increased parking rates to $7 per hour. Downtown businesses are bitter that drivers now often choose to avoid downtown because of the high parking rates at city P3 meters. Public policy was also impacted- street festivals, bike lanes and new pedestrian malls are in many cases no longer an option because any short term or long term closing of parking meters requires fiscal compensation to the P3 concessionaire. For instance a new 4 mile bike lane that removed parking meters would require millions or tens of millions of dollars of compensation be paid via the P3 over the life of the 75 contract. Thus that new bike lane will likely never happen due to the parking meter P3 contract.

Further written testimony indicates that the city of Chicago actually lost more than $11 billion in revenue via the P3 deal (Source: In The Public Interest – click to view document excerpt below)

In 2009, Chicago signed a 75-year contract with a consortium of companies backed by Wall Street giant Morgan Stanley for the operation of the city’s 36,000 parking meters. It has since become Exhibit A for reckless outsourcing schemes in America.

Though Chicago got $1.2 billion in the deal, Chicago drivers will pay the private companies at least $11.6 billion to park at meters over the life of the contract. However, the broader economic and social impacts of the contract will haunt the city for generations.

Upon signing the contract, the company dramatically increased parking rates, to $7 for two hours of parking in some parts of the city, and extended paid parking to seven days a week. Downtown businesses blamed the price increases for a decrease in economic activity. Residents complained that parking downtown was cost prohibitive.

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The seriousness of allowing the Colorado’s HPTE to sign the US 36 contract by proxy on behalf of state lawmakers in the next 5 to 14 days can not be understated. Known as an “aggressive pit bull” White House Chief of Staff Rahm Emanuel became mayor of Chicago in 2011. Colorado lawmakers are now considering whether to enforce a 60 day review period on the US 36 contract or to take no action and delegate their fiduciary trust to the people of Colorado to the HPTE. The HPTE has stated it will rapidly sign the 50 year US 36 contract prior to the end of February 2014. The lesson from Chicago is that once P3 contracts are signed they are binding, irrevocable and non-amendable without consent from the concessionaire. Mayor of Chicago “Pit bull” Rahm Emanuel did his best to break the remarkably bad Chicago P3 and failed. None of the legal or political resource available to Emanuel were able to extract Chicago from the costly P3 arrangement once the 75 year deal was signed. High pressure sales tactics were used to push the deal through city council chambers. Council members were only given a few days to consider and approve the 75 year deal. The high pressure Chicago decision making process is similar to the case that elected Colorado lawmakers are now in with US 36.

Senator Jones explained that he has been considering HOV EV legislation that may no longer be possible if the P3 for US 36 is signed. He cautioned his elected colleagues to not allow the HPTE to proceed with the contract signing lightly. Jones warned that any transportation legislation or amendments proposed in Colorado will now have to be evaluated to see if they will require a fiscal note to compensate Plenary Group for 50 years of revenue impact. Jones noted that signing of the P3 will mean that transportation policy in Colorado will henceforth require approval of the private sector or compensation by tax payers to the private sector.

At the end of the briefing, after roughly 120 minutes of testimony by government agencies and representatives, a party representing the people of Colorado was gratefully provided 6 minutes to speak. Representing 19,000 Coloradans requesting a 60 day hold on the US 36 contract signing (18,000 signatures in the last 4 days) Ken Beitel, a clean energy analyst and co-founder of the Colorado based Drive SunShine Institute (DSI) urged law makers in spoken and written testimony to not hand their elected fiduciary trust to a state board charged with aggressively allocating public state assets to P3 arrangements. Beitel noted that the actions of law makers over the next 5 to 14 days will determine the future on Colorado highway policy and hundreds of millions or billions of dollars of highway revenue.

Beitel’s written testimony backed up statements from lawmakers that felt “public” agencies were included in the P3 and that the people of Colorado’s input and the financial consideration of tax payers had been left out of the P3. On February 14, 2014 the day following the joint briefing the Drive SunShine Institute (DSI) submitted a white paper detailing high level P4 concepts that will include input from Colorado voters and will better serve guarding policy and financial interests of voters.

 The P4 Model – Public-Private-People Partnership

Problem:

The traditional P3 model while including the private sector and public government and NGO organizations does not include input from the people affected by the P3 or represent their financial or policy interests.

Solution:

The P4 model specifically includes representation of the people in development of the business model of a project. Public representation includes the people affected by a proposed P3. There are many options available for including “people” in a P3 process including the following:

  • The P4 process at project conception will allow analysis and voter review of the merits of P3 financing vs public financing and all elements of the contract.
  • A large merit of the P4 process is that it provides “crowd sourcing” of the fiduciary responsibility for signing the contract. Having a public that may be skeptical of the intentions of foreign toll road developers review a 600 page contract greatly enhances the potential for the contract to serve the public financial and policy interest.
  • If any voter who wants to read a P3 contract is able to do so, and the voters approve the contract, there can be a reasonable degree of confidence that the contract will serve the public interest of the state or city.
  • It may be that the voters choose to publicly finance the project in order to retain control of profits generated and to retain control of public highway policy and the flexibility to change course by democracy vs being in a 50 year private sector contract straightjacket.
  • In the cases where voters and lawmakers choose to publicly finance a project there will then be broad public support for revenue increasing alternatives that might be required to retain 50 years of profits from a project.
  • For instance in the current debate as to whether to P3 eight Colorado highways:
  • Would the public prefer toll lanes and P3 contracts on most Colorado highways or prefer alternatives like an increase in the fuel tax, use of marijuana revenues, a project delay until it can be paid for without P3 credit, an increase in oil and gas severance tax which in Colorado is about 1/3 the effective rate of Wyoming or a flat tax of 1% or 2% on income and capital gains more than $500k.
  • TABOR is a major constraint on Colorado fiscal and public policy. It may be that rather than chose to toll and P3 public highways, citizen’s groups and the people of Colorado would like to do a 2014 ballot initiative that would repeal TABOR and provide more flexible infrastructure finance options.
  • P3 deals that do not provide the people with public financing options are a poor democratic process and are likely to result in voters turning on elected officials responsible for the P3 and tolling arrangement.
  • Details on how much needs to be invested in a project and what the profits for the project will be must be fully revealed to state or city voters.
  • Voters and elected lawmakers can work together to determine who has signing authority on high dollar 2 year or longer contracts. Options include:
    • Ballot initiative required to lease high value state assets (high fiduciary trust and protection of public interest
    • Elected official review and sign contracts on behalf of voters (high fiduciary trust, medium protection of public interest)
    • A state board appointed by the governor signs the contract on behalf of voters (low fiduciary trust, low protection of public interest – government appointments are often driven by corporate campaign contributions)

In conclusion, as Colorado law makers evaluate options for proceeding with US 36 project, the Drive SunShine Institute (DSI) recommends that law makers apply the new and innovative P4 Public-Private-People Partnership model.

Benefits of the P4 model to lawmakers include:

  • Support of voters for elected officials and faith in democratic processes
  • Guarantee that many eyes will mean a project business model that serves the public financial and policy interests
  • Willingness and buy-in for voters to support revenue increases if needed to serve the public interest

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(Photo at top of page: Aerial View of Boulder Colorado)

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