Public Private Partnerships – Risks and Agenda 21 Funding Issues
Also known as PPP's or P3
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By Vance Jochim - FiscalRangers.com [email protected]
Keywords: PPP, P3, Public Private Partnership Dangers, Scams, Frauds, Failure, Risks
Definition of P3 from Wikipedia: http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership
Purpose: To provide background on what a PPP is, the risks in general usage, and the problems when they are used to fund Agenda 21 sustainable development projects. See our separate page on Agenda 21 if you do not know what it is. It is at: http://TinyURL.com/HaltAgenda21
Background on PPP’s
- Many governments now rely on PPP’s to finance transportation infrastructure like highways or trains because private partners put up financing as part of deal vs government loading up on more debt. Thus, these are like pension guarantees that are not funded – they are not recorded as government debt. A primary, early example is funding of normal roads, bridges, tunnels and airports without any mandatory “green” or “sustainable development” requirements.
- Opposition to PPP’s has arisen since they are now also being used to implement Agenda 21 and sustainable development projects and the original purpose has morphed to a tool used to implement "Green sustainable development" objectives from the UN Agenda 21 without adequate oversight or understanding by the public.
- There might be some confusion about the use of “public-private partnerships” . The Brookings Institute says there were only 377 P3’s in the US from 1985 to 2011, while we constantly see the term used in local government planning statements. Thus, the formal definition from Brookings might be for large transportation infrastructure projects that can be tracked, and the local Agenda 21 version we are concerned with might be an NGO and local government agency “working together” without any formal infrastructure financing being involved. (I will research this further to clarify, with examples). It may be just the second type that is most prevalent in “sustainable development” projects leading to local citizen opposition because they operate without voter control, have Agenda 21 objectives and are created or operated without much transparency.
- Another term for this might be public joint funding
- Started in UK in 1992 – same year that Agenda 21 was adopted.
- Canada adopted in 2009 with creation of a “Crown corporation”, but earlier versions started at provincial level sponsored by the Canadian Council for Public-Private Partnerships in 1993. Before this, most PPP's were one off with a local or State agency, but now there is a movement to create Statewide or Countrywide mechanizms to formalize PPP creation. Such programs could be benign, and basically to create a straightforward infrastructure component like a bridge. The problem comes when they include criteria or reward firms for implementing "green" objectives that are derived from the socialist Agenda 21 program.
- 1400 PPP’s signed in Europe in last 20 years.
- HERE is a good 2009 overview of PPP’s in a general sense related to transportation infrastructure funding by Robert Puentes of the Brookings Institute think tank. This does not address the issues related to using PPP’s for “sustainable development” or Agenda 21 programs. Those risks are described below. However, the biggest risk to me of any PPP is any type of government guarantee or liability immunity. Back in California, a private firm funded and built a toll freeway, probably through a PPP type of program, and it never broke even, requiring local government, who guaranteed it, to cover some of the shortfalls. Also, some programs fail to clearly describe or show the true costs of government commitments for any maintenance, operations expense (i.e. if the private firm fails).
Examples of P3 Programs
The Federal Dept. of Transportation has a formal P3 program as defined here:
The problem is that once a vendor is chosen, others are locked out, and the vendor usually may have to agree to socialistic components in the program to become the "preferred" partner. It is never clear what they agree to do in return for the partnership award. As of May 17, 2013, this page showed a picture of a huge Capital Beltway project with a specific company formed to do the work.
Types of Projects funded by PPP’s
- Water service privatization
- Airports or ports
- Health public-private partnerships
- Ownership or leasing of existing government facilities, like a toll road, to a private firm.
- Roads, toll roads, tunnels, toll bridges or bridges <<< the standard use for PPP’s
- Railroads, bike trails, bus systems, mixed use housing areas meeting Agenda 21 criteria
Public-Private Partnerships can also be created via REGIONAL Planning groups, usually setup as a group with Board members appointed from various local government agencies who can be staff as well as elected officials. A key problem with regional groups, like Metropolitan Planning Organizations (MPO's), regional economic development agencies, regional water districts (like the St. John's River Water Management District in the Orlando area) is the ability to prevent direct voter control over the funding and decisions of the regional group. These groups then setup deals to provide grants, funding, incentives to favored large firms who in turn agree to follow regulations wanted by the regional group. Here is a great story of a network of public-private partnerships linked and funded by regional groups, where government agency funds are spent on questionable private interests. One major objective was to lobby for the Sunrail commuter rail in the Orlando area, where Agenda 21 objectives were to be implemented by partners in favor for getting contracts. Voters never got to vote on the Sunrail - instead regional groups pushed it through to achieve Agenda 21 objectives while using favored large firms for planning, construction, etc. The Orlando Sentinel April 8, 2012 article is HERE.
Reasons for PPP’s
- Shift government capital spending from government debt to private programs. This basically enables more spending without more debt on the government balance sheet. If the government agency has hit bonding caps, this lets them run up more debt than may be prudent. Kinda like unfunded pension liabilities.
- A local government parks & rec program “works with” a local, private owner of a recreation facility to use it for agency run programs. An example is the “public private partnership” discussed by the Parks Master plan for Lake County, FL where the County would apparently rent or lease the owner’s ball fields for county run league programs. (See para 5.1 HERE) . This could be a beneficial program if there are no required tradeoffs for the vendor and the costs and policies are all objective and transparent.
- Combine design, operator, financing in one program, so it is run by private firms, not govt
- Agenda 21 implementation – supports friendly companies and organizations (including NGO’s) with grants, tax breaks, etc. if they in turn agree to implement Agenda 21 components desired by planners, but to the detriment of personal freedom or property rights.
- In turn for grants and tax breaks, company agrees to certain Agenda 21 objectives – green building, buffers, mixed use plans, restrictions, government controls, focus on non-auto transportation like trains, bikes, buses.
- Use of a P3 could be a step to privatization of a government service, like prison construction and management.
Risks & problems with PPP’s
- P3 Project justification is questionable. If a true need and market justification existed, then the market economy would do the project without government participation. Example is the Orange Blossom Express railroad project in Lake County, FL where $18-million of tax funds will renovate old rail lines belonging to CSX, but CSX won’t do it themselves, AND they still retain ownership without any payback requirement. Rushing in with government assistance distorts free market perspectives.
- Most P3 projects are for corporate welfare or subsidies. They include a means of using tax breaks, regulatory easing, taxpayer support for corporate subsidies. A clear example is the Lake County, FL “partnership” or contract with the Covanta firm for waste disposal where after a 20 year contract, the County, after paying bond payments for 20+ years, still did not own the waste processing facility paid for with tax revenues. That was clearly a sweetheart deal and left Covanta with ownership of the facility. Now, the contract is expiring and the County would have to continue paying fees to use the facility paid with taxpayer funds via bonds. Another example in Lake County is the MPO led process to raise $18-million in government spending to rebuild a local train track owned by CSX, but not obtain ownership rights or future payback provisions for all the funding. Essentially, CSX will get the $18-million rehab project without any repayments to taxpayers for the funding.
- P3’s bypass standard procurement systems and thus can include work objectives or reduced oversight that would not be approved through transparent or competitive bidding and procurement systems.
- P3’s encourage return favors – “I’ll vote for your PPP if you vote for mine”.
- P3's hide true debt for government projects by skipping government debt and loan accounting and just guaranteeing future stream of income to pay off private partner.
- Transparency over Spending details is prevented and explanations are harder to find, and excess profits can be awarded. For instance, although not a PPP, the local North Lake County Hospital District gives $10-million in taxpayer funds to two hospitals, and freedom of information act requests are not honored by them. The only provide consolidated financial reports with other hospitals, and will not provide spending details. They commingle the funds, and refuse to provide internal information on uses of the funds. Thus any use of a PPP could result in the same situation, and lack of transparency.
- The UK started them in 1990’s (known as PFI’s or Private Finance Initiatives) – moved to emphasize “value for Money mainly through an appropriate allocation of risk. However it has since been found that many programs ran dramatically over budget (in the US, think of TRAIN projects) and have not presented as value for money for the taxpayer with some projects costing more to cancel than to complete.”
- Private investors received a higher rate of return than government bond rate – thus the project was costing more to finance than if government bonds were used, yet taxpayers, not the private firm, guarantee the financing of P3’s, and bear the risk of default.
- The higher cost P3 financing is due to government already at maximum debt loads, thus this is a hidden way to pile on more debt to build more facilities that normally could not be financed by the government due to debt loads or limits.
- P3 projects are inferior to ones run through normal government procurement systems according to some mid-1990’s Australian studies. “A number of Australian studies of early initiatives to promote private investment in infrastructure concluded that, in most cases, the schemes being proposed were inferior to the standard model of public procurement based on competitively tendered construction of publicly owned assets.” “One response to these negative findings was the development of formal procedures for the assessment of PPPs in which the focus was on "value for money," rather than reductions in debt. The underlying framework was one in which value for money was achieved by an appropriate allocation of risk. These assessment procedures were incorporated in the private finance initiative and its Australian counterparts from the late 1990s onwards”
- In 2009, “the New Zealand Treasury, in response to inquiries by the new National Party government, released a report on PPP schemes that concluded that "there is little reliable empirical evidence about the costs and benefits of PPPs" and that there "are other ways of obtaining private sector finance", as well as that "the advantages of PPPs must be weighed against the contractual complexities and rigidities they entail".
- Unknown risks from using a new model, the Public-Private Community Partnership (PPCP) “wherein both the government and private players work together for social welfare, eliminating the prime focus of private players on profit. This model is being applied more in developing nations such as India.”
- Risks of P3 for Wichita- http://wichitaliberty.org/wichita-government/the-problem-with-public-private-partnerships/
- Weakened market tests: resources are devoted to a project not because it benefits the citizenry but rather because it benefits a powerful interest group and/or because a creative referendum entices a majority of voters to support their special interests.
- Weaker Management: Absent market tests, managers are less motivated to find that mix of services and creative array of financing tools to ensure that it proves “profitable” (that is, a rational allocation of capital). Roads, even charter schools, etc all have suffered here immensely.
- Lack of innovation: No institution in the private world can allow itself to stagnate – the creative forces of destruction will soon make it obsolete. PPP managers face much weaker innovative forces — if things go wrong, they can always appeal to their “public” nature for taxpayer bailouts.
- Corruption: Crony capitalism abounds in the PPP world.
- Faddism: Markets sometimes go on kicks — the tech boom, for example — but these soon collapse. Governments go on kicks for many decades — “renewable energy” and “mass transit” being perhaps the best examples but “magnet” investments in downtown malls, stadiums and convention centers are perhaps even more persistent ones. Before Walmart became a PPP, it did more for consumers than all the PPP malls in the world.
- Crowding Out: Capitalism plays a critical role in allocating capital — planting the seeds for our future. That is a very difficult task, one made much more difficult by the existence of PPPs. Government already seizes a disproportionate amount of our wealth and the PPP concept allows it to further distort the allocation by market forces. I’ve argued that the genius of the Progressives in the late 19th century was to preempt or push large sectors of the emerging future (the environment, schools, electromagnetic spectrum, infrastructure, welfare, the medical world) into the political world. The PPP concept simply exacerbates this tendency.
Solutions to Use of PPP’s for Agenda 21 Sustainable Projects and other Normal Projects
- All the above risks need mitigation before PPP’s are allowed at the local or State level.
- Ensure that all financing costs do not excees the interest rates paid by government on their debt. Funders should not be rewarded with charging interest higher than the government can get.
- Mandate a contract provision for performance and internal audits directed by the government partner but paid by the private firm.
- Mandate that all PPP transactions be maintained separately from the parent firm, and that all records are subject to public records act requests just like any government agency in Florida.
- Any P3 proposal should be inspected to ensure it cites a primary objective to maintain personal private property rights and a strong orientation to “the public interest” and not just the interests of environmentalists and Agenda 21 objectives.
- Ensure that any public hearing on the P3 project is not co-opted by professional facilitators seeking to develop a “consensus” on pre-determined Agenda 21 objectives.
- Any P3 proposal should be inspected to ensure it does NOT contain any restrictions resulting from Agenda 21 concepts, such as priority for public transportation or bike paths over use of autos, restrictions on parking, requirements for housing that is the “stack and pack” high rise projects common in Europe, requirements to tear down or restrict family residences in favor of apartment buildings, etc. Any such “planned community” should be developed by private interests without having to meet planner guidelines, and there should be no government guarantees, funding or restrictions.
- If the government is asked to guarantee any income or success indicator, then the government agency should receive an objectively valued interest in the income and ownership of the private provider (stock, asset pledges, etc). Recently, in Lake County, the local Lake Sumter Metropolitan Planning Organization pushed through an $18-million funding to renew an entire rail line owned by CSX without any tradeoff in ownership of the railline or future income streams. That can happen with PPP’s and is against the taxpayer’s interests and should not be tolerated and prevented by legislation.
- Selection of P3 “partners” should be based on objective bidding based upon competency and price instead of “green” certifications or willingness to meet arcane “sustainable development” planning requirements and restrictions.
- P3’s should not be allowed for funding housing projects or mass transit systems without a clear disclosure of costs over 40 years and a full vote by citizens.
- Implement central control units to ensure proper structure, public purpose, management, low costs on interest, proper, objective procurement and contracting methods, etc. According to Robert Fuentes of the Brookings Institute in 2009, “20 countries have begun implementing specialized units throughout various governmental agencies to assist with the expanding opportunities for PPPs. These so-called PPP Units fulfill different functions such as quality control, policy formulation and coordination, technical advice, standardization and dissemination, and promotion of PPPs.” This may be part of the purpose of the Feb., 2012 pending Florida Bill on P3’s, but a Senate committee pulled a requirement for an oversight committee, which indicates it is not truly “for the people”. The Florida bill also provides full legal liability & immunity (just like a government agency) for the private firm, thus there are no protections for construction defects (i.e. Chinese drywall ) or other liabilities that would normally be faced by a private vendor.
- The above Fuentes article sums up the general policy and performance issues on P3’s by saying:
“So to sum up, it is clear that for transportation PPPs to be considered appropriately the private sector needs to approach transportation projects with a strong sense of commitment and understanding of the public interest. This will not happen without the federal government providing (a) clarity of objectives, (b) clear understanding of roles and responsibilities, and (c) consistency of decision-making. Currently the U.S. is failing on all three points.
In other words, to date, the intense interest in PPPs for infrastructure focuses mainly on procurement, finance and project delivery. Yet in addition to the infusion of capital that accompanies many PPP arrangements and apart from the projects themselves, there are significant policy issues that must be part of the discussion to both take advantage of the private sector funds ready to be invested and achieve other national goals and objectives.
We should make sure we're not forgetting about the fourth "P": policy.”
Examples of Public-Private Partnerships
- Fuel Distributors - The Federal government wants ethanol to be part of gasoline, so they provide a five cent a gallaon federal tax credit to distributors who change their systems to distribute ethanol to fuel users. This reduces resistance to ethanol distribution and also makes the distributors dependent on government so they accept future environmental or Agenda 21 related demands. It also eliminates smaller businesses that don't have the cash flow to implement the equipment changes to handle ethanol (which degrades many components in the fuel distribution equipment as well as damages consumer owned engines.) In Central Florida, when 10% ethanol fuel was rolled out, distributors and gas stations completely dropped non-ethanol fuel due to the costs of maintaining two separate distribution systems & tanks. As such distribution systems consolidate, they become easier for government to control with future incentives since there is no small business competition.
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