General Assembly considers high-risk strategy to fund future transportation projects

Remember when Virginia politicians were calling for an audit of the Virginia Department of Transportation (VDOT) to expose waste, fraud and abuse?  The audit was supposed to expose how state transportation officials were covering up incompetent management and fiscal irregularities.

One election for governor later, it appears state officials have become so sophisticated, and such good managers now, that they can accurately predict the future.

HB 1395 (“Agreements under the Public-Private Transportation Act of 1995 and the Public-Private Education Facilities and Infrastructure Act of 2002”) would allow the Virginia Secretary of Finance to estimate how much future state tax revenue might be generated by a specific transportation project.

If approved, HB 1395 would grant Sean Connaughton (former chair of the Board of County Supervisors in Prince William, and now Secretary of Transportation) authority to award performance grants in advance of performance to private corporations, which would then build certain road/transit projects.  The disciplined financial review by external investors/partners, required to sell a revenue bond or to craft a public-private partnership, would be bypassed.

Wow, state officials are now so wise, they can count economic chickens before they hatch.

HB 1395 would redirect public revenues to finance speculative economic development projects that can’t be justified through normal cost-benefit studies, or through the normal priority-setting procedures of the Commonwealth Transportation Board… but relax, we can tilt the public-private partnership arrangement to shift all business risk away from the private sector and onto the taxpayers.  No need for a bailout later; Virginia will provide it at the beginning for its transportation “partners.”  Taxpayers will guarantee immediate private profits for transportation partners, because state officials can predict revenue growth so well now.

(Wanna bet the state officials predict the Road to the Wrong Side of Dulles will spin off just enough new revenue, if measured in decades and from a corridor stretching from Manassas Mall to Buckland, to justify that project’s construction?   How long before Art Silber appears with a proposal for a new baseball stadium for the Potomac Nationals, where transportation projects near the ballpark would be subsidized by claims of future tax revenue?)

HB 1395 assumes state officials can estimate economic impacts of new transportation projects, and predict future tax revenues with such confidence, that taxpayers can guarantee payments to the private partners.  With a crystal ball, state officials will calculate, among other things, “the production of goods or services at business locations within a geographical area surrounding or adjacent to the transportation facility; and multiplier or spin-off economic activity relating to the development of the transportation facility including, but not limited to, wages, salaries, and contract payments paid to multiplier or spin-off jobs.

Remember, we’re talking about only high risk projects, ones where “the private entity, due to the financial commitment involved on its part and the associated investment risks involved, likely will not develop the qualifying project unless the Commonwealth enters into an agreement with the private entity to reduce the private entity’s investment risks through the payment of performance grants.

This is high risk, tax increment financing on steroids.   It’s intended to quick-start pet transportation projects, while insulating the private “partners” from business risk.  Guess who will be left holding the proverbial bag?

Federal officials have demonstrated they can gin up reports with politically-based rather than risk-based economic assessments – look at the studies for dams and harbor improvements that were recommended by the Army Corps of Engineers.  Even Governor Wilder, famous for his financial discipline, has demonstrated a capacity to aim too high, and he has stopped fundraising for his proposed U.S. National Slavery Museum in Fredericksburg.  If you give state officials enough flexibility, inevitably they will commit to projects that are not cost-effective.

HB 1395 is not a fiscally conservative bill.  To obtain private sector funding for  transportation projects, Virginia politicians have alternative methods that are not as risky:
– a tax district, with additional property tax commitments by property owners (as was used to support Route 28 widening and Dulles Metro)
– a Community Development Authority, with clear obligations by landowners to provide revenues, would make sense for some projects
– the current public-private partnership law, where the private partner shares the risk, is a third alternative

(Another option to consider: don’t build every possible road, or every possible transit project.  Focus on reducing the demand for new transportation infrastructure.  Reduce long-term costs by incentivizing new development next to existing transit services, minimizing the need for new construction.)

Government agencies should assess the risks and the alternatives before spending public funds.  Fiscal conservatives should worry that HB 1395 will invite great mischief in the calculations of “spin-off economic activity,” torquing the analysis of risks.

HB 1395 is the wrong way to fund transportation improvements.  It is an invitation to economic gimmickry.  It is financially irresponsible to guarantee the profits for “partners,” while exempting them from the business risk in public-private transportation projects.

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2 comments so far

  1. Jim on

    Raise the gas tax now!

    It’s a no-brainer, but we have no-brainers running this state. The state gas tax was last raised in 1986, and the real value of the per-gallon tax has gone DOWN more than 50% since than. Funds from many other sources, including debt, are paying for transportation now.

    Gov. McD and the Republicans. S.O.S.

  2. […] Prince William based Your Piece of the Planet has an article about HB1395 that outlines some of the benefits this bill, if passed, would confer on private […]


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