Abigail Field: Privatization Is Driven By Private Greed and Public Cowardice (and Public Greed, Too)

Link to Original Article

Posted on May 12, 2014 by Lambert Strether

Lambert here: Apparently, IBGYBG (“I’ll Be Gone, You’ll Be Gone”) applies in government as well as Finance. How cozy.

By Abigail Caplovitz Field, an attorney and a freelance writer. She writes news for Benzinga.com and others, and posts a new blog every Sunday morning at Reality Check.

“Privatization” and “public-private-partnerships” for infrastructure and other public assets are scams driven by private greed and public cowardice. Americans have been burned by these scams. Last month the Atlantic ran a nice piece on the growing privatization backlash.

Unfortunately, as governments at the city, state and federal level continue to lack the political will to raise taxes or cut spending, as our infrastructure continues to deteriorate, and as political leaders such as President Obama and Congress peddle the idea, the pressure to privatize public goods will continue to rise. Indeed, it’s no longer companies like Deloitte offering to do deals; we’ve reached the point where the Motley Fool is pitching retail investors.

The New Jersey Toll Road Privatization Push

It’s a topic I’ve given a lot of thought to, because in my role as Legislative Advocate for NJPIRG, I played a meaningful role in defeating then-New Jersey Governor, nee Goldman Sachs Jon Corzine’s push to privatize New Jersey’s ‘three big roads’–the Turnpike, the Garden State Parkway, and the Atlantic City Expressway.

The policy arguments we made then (2007)–and which USPIRG and others continue to make today–remain true, and provide a good, accessible framework for judging any privatization deal that may affect you.

As you read the NJ story and our cheat sheet for judging proposed deals, consider what’s at stake– the level of traffic congestion and air pollution, the safety and quality of roads, and even the availability of high-quality affordable mass transit alternatives.

When Governor Corzine came into office, there was a political consensus among a sufficiently large and diverse coalition of interests that the best way to fund New Jersey’s transportation needs was to raise its very low gas tax. But rather than gather and lead this political will to pass the tax hike–something that would have taken courage, but not heroism–Governor Corzine pushed the privatization idea. I don’t know if ducked the tax hike because he was a coward, or greedy, or driven by his deep saturation in Wall Street’s greed ethos.

Regardless, Corzine (and his Democratic legislative allies, most notably State Senator Raymond Lesniak) suggested that New Jersey should fix its chronic budget crisis by leasing the New Jersey Turnpike, Garden State Parkway and Atlantic City Expressway to a private operator for 75 years. The private operator would be guaranteed annual toll hikes, given management of the ‘three big roads‘ and would pay the state some $20 billion.

Six Principles For Judging PPP Deals

I published an Op-Ed in the Trenton Times on May 18, 2007 that explained how to judge a deal that we (I worked closely with USPIRG’s Phineas Baxandall) later fully developed in this white paper:

1. Public Control: public policy, not protecting private profit, had to control key management decisions that would not only affect the leased roads, but also the communities all along the roads. Because of the roads at stake in New Jersey, the issue was really statewide transportation policy.

What were we talking about? As the white paper explains:

“…toll levels, maintenance and safety standards, and congestion on the Turnpike and Parkway have a substantial impact on the number of cars using alternative routes, including local roads and mass transit. …

In the wake of the last Turnpike toll hike, for instance, many communities felt the impact of trucks diverted onto local roads…. Public control of key toll roads is necessary to ensure a coherent statewide transportation planning and policy making.

… Three examples illustrate these potential dangers:

● Non-Compete Clauses—Deals in California, Colorado, and to a lesser extent, Indiana, limited the state’s ability to improve or expand “competing” roads. In New Jersey…virtually all major roads compete for cars with the Turnpike and the Parkway.

● Private Toll Decisions = Broad Private Control of Traffic Management—If the rules for increasing toll rates under Chicago toll road deal had applied to the Holland Tunnel since its inception, that roadway could presently charge a one-way toll of more than $180. As a practical matter, an operator would be unlikely to charge that price because drivers would instead take alternate routes. The point is that the Chicago toll-increase schedule effectively allows the private operator to charge whatever maximizes its profits. The toll operator can also offer discounts to particular types of motorists or encourage traffic between certain exits, as will maximize profits. Together these powers enable the operator to control toll policy, and thus dictate who drives on the toll roads, and when…

[Note: although Senator Lesniak said he would require annual toll hikes but limited them to the rate of inflation, even that doesn’t solve the issue; New Jersey would have given up its ability to set toll rates, and thus all its consequences, for 75 years. It’s not just about how high tolls go; it’s about controlling the policy–congestion pricing, HOV discounts, Lexus Lanes, etc.]

● Creates “Tax” on Normal Policy Making—The Indiana deal also requires the state to pay investors compensation for reduced toll revenue when the state performs construction such as when it might add an exit, build a mass transit line down the median, or bring the road up to state-of-the-art safety standards. This compensation would add significant costs, and potentially the state could not afford to do the work it would otherwise perform. As added complication, the exact level of these future payments might be subject to dispute and lawsuits.

2. Fair Value: deals pay the state far less money than its assets were worth, as the Atlantic article notes. In New Jersey, the best public advocate on this point was Peter Humphreys, then head of securization practice at the then 13th largest American law firm (McDermott, Will & Emery).

He testified before the Assembly Transportation Committee and explained the state could itself securitize the existing annual toll revenue of $700 million for a 15-year period and get an upfront payment of about $8.4 billion. Senator Lesniak’s approach imagined getting $20 billion from a 75 year deal. Thus serial securitizations–without changing the existing toll rates–for the same 75-year time frame would produce a nominal $42 billion.

Sure, that serial securization doesn’t account for the time value of money; but it also doesn’t consider the future toll hikes guaranteed to the private lessee. If the hikes contemplated in the Lesniak deal were enacted and also securitized, the serial figure would be much higher. $20 billion was way too little.

And it’s not just New Jersey; as the white paper recaps:

A financial analysis of the Indiana and Chicago deals by NW Financial, a New Jersey investment bank that represents the Turnpike Authority (among others), found that the private investors in those deals would likely recoup their investment in less than 20 years. That analysis is confirmed in at least Indiana’s case by the company that won the bid. Macquarie sent investors a presentation asserting an “Anticipated 15 year payback to equity.” Given that Indiana’s deal is 75 years long, and Chicago’s is 99 years, the analysis suggests that governments in these states received far less for their assets than they are worth.

3. Deals capped at 30 years. As I noted in the Trenton Times Op-Ed:

Sen. Raymond Lesniak (D-Union) has introduced a bill authorizing a 75-
year deal here, in the ballpark of Chicago’s 99 years and Indiana’s 75.
Some perspective: Henry Ford introduced the Model T 99 years ago, and the George Washington Bridge opened 76 years ago. The first section of the New Jersey Turnpike didn’t open until a mere 56 years ago.

Population also shifts dramatically on these timelines. In 1930, New
Jersey’s population was 4 million; 70 years later, it more than doubled
to 8.4 million.

From these markers, it’s clear that massive, unforeseeable changes will likely take place for transportation technology, networks and
demographics over the 75-year time frame being considered here. In the face of such uncertainty, New Jersey cannot predict its future
transportation needs, nor the revenue potential of its toll roads, well
enough to negotiate a deal that fairly allocates risks, dictates policy
or sets a fair price.

To minimize this problem, New Jersey must not enter a deal longer than 30 years.

4. State-of-the-art maintenance and safety standards. As we put it in the white paper:

The New Jersey Turnpike has been innovative throughout its history. Many of its design and safety choices have been replicated throughout the country and world. It is also recognized as having traffic management and danger warning systems that are among the best in the world. Similarly, the Garden State Parkway is consistently one of America’s safest roads.

…Indiana’s deal, for example, would not guarantee this performance. … the state of Indiana can require the operator to meet generally applicable safety standards, but must pay a hefty premium to implement higher quality…. In addition to the cost of construction or performing the maintenance, Indiana would be required to pay compensation to the private operator for any loss of revenues caused by the construction or imposition of new standards.

No deal for the Turnpike and Parkway should be approved that did not guarantee that state-of-the-art innovations would continue to be introduced.

5. Complete Transparency and Accountability. Again from the white paper:

…That requires full disclosure of the deal’s terms, and any related contracts and subcontracts, at least six months before a deal is done, plus public hearings. This commitment to transparency is doubly important given New Jersey’s past struggles with corruption and pay-to-play contracts. The public must have full confidence in the process for considering a potential deal.

Likewise, New Jerseyans need to be able to hold their representatives accountable for their decision to approve (or not approve) a deal. The Legislature must vote on the final terms of any potential deal. True accountability requires that both the Legislative and Executive Branches answer to New Jerseyans

6. No Budget Gimmicks. This one is self-explanatory, but also crucial, as Legislatures typically blow the wad of cash they get from these deals without fixing anything. The Atlantic piece mentions some of that, as does the white paper.

In response to our campaign based on the principles–we demanded the Governor sign a pledge to honor them–he came out with some nice sounding principles that didn’t go nearly far enough, as I discussed in this Op-Ed in the Newark Star Ledger July 10, 2007.

Ultimately the plan cratered. The Assembly Transportation Committee, led by Assemblyman John Wisniewski (also a Democrat) was a major reason why.

While NJPIRGs position always was: privatization is fine if done right–and the principles defined “right”–realize that Wall Street will never do a deal that lives up to the six principles. It’s just not profitable enough for them, and would put too much risk on them.

Extracting “Latent Income” (NOT!)

I began by claiming cowardice and greed are the reason these deals are done. Of course, that’s not the official line. The NJ framing of the advantage of privatization–which was branded as “monetizing” the turnpike, parkway and expressway–was reported in this April 12, 2007 Philadelphia Inquirer article this way:

““Monetizing” assets means squeezing latent income from them by selling or leasing them.”

As I pointed out in this letter to the editor about that article:

The article stated that “‘monetizing’ assets means squeezing latent income from them by selling or leasing them.” The Inquirer’s readers may imagine that this process harnesses additional value or productivity from the roads themselves. That is not the case.

“Monetization” simply means to borrow against a future source of revenue. Instead of receiving toll money at a later date, the government would receive cash up front today. Thus, monetization only “extracts latent income” the way individuals do when they take out a payday loan or a second mortgage.

To be fair, I should have said “in this case Monetization simply means” as monetizing doesn’t have to involve borrowing. But that doesn’t change my point then or now. The myth of privatization is that private companies can magically make things more valuable than government can, without articulating a coherent, stands up to scrutiny reason why it can.

Given that $20 billion was much less than the 75 year toll revenue was worth, where was the latent value extraction in the Lesniak deal?

Cowardice And Greed

Public policy involves tough choices. Privatization deals offer legislatures and governors an easy sounding way out; let stuff happen long after they’re out of office (and hope that’s when the bad consequences hit), and get in return a big wad of cash to blow now. No need to raise taxes or cut services.

Thus often privatization advocates on the government side are simply cowards–they don’t want to raise taxes, and they don’t want to cut spending.

The greed happens on both sides. On the private side, it’s the extraordinary profit potential. On the public side, greed can also shape decisions whether through quid pro quo type corruption or revolving door corruption.

And of course, greed and cowardice are not mutually exclusive motives.

Federal report gauges U.S. impacts of global warming

Doyle Rice, USA TODAY 12:06 p.m. EDT May 6, 2014

Link to original article and video

Global warming is affecting where and how Americans live and work, and evidence is mounting that burning fossil fuels has made extreme weather such as heat waves and heavy precipitation much more likely in the USA, according to a massive federal report released Tuesday at the White House.

 

“Climate change is here and now, and not in some distant time or place,” said Texas Tech University climate scientist Katharine Hayhoe, one of the authors of the 1,100-page National Climate Assessment (NCA), the largest, most comprehensive U.S.-focused climate change report ever produced.

 

“The choices we’re making today will have a significant impact on our future,” Hayhoe said.

 

The assessment was prepared by hundreds of the USA’s top scientists. It agreed with a recent report by the United Nations Intergovernmental Panel on Climate Change that the planet is warming, mostly because of human activity.

 

The assessment provides “the loudest and clearest alarm bell to date” for immediate and aggressive climate action, said John P. Holdren, President Obama’s science adviser, at a press conference in Washington on Tuesday.

 

“All Americans will find things that matter to them in this report,” added Jerry Melillo, chair of the National Climate Assessment Development Advisory Committee.

 

“Corn producers in Iowa, oyster growers in Washington state and maple syrup producers in Vermont are all observing climate-related changes that are outside of recent experience,” the U.S. report stated. “So, too, are coastal planners in Florida, water managers in the arid Southwest, city dwellers from Phoenix to New York and native peoples on tribal lands from Louisiana to Alaska.”

 

MORE: Stories on weathering the change

 

SPECIAL REPORT: Why you should sweat climate change

 

While scientists continue to refine projections of the future climate, observations unequivocally show that the climate is changing and that the warming of the past 50 years is primarily due to human-induced emissions of heat-trapping gases such as carbon dioxide and methane. These emissions come mainly from the burning of coal, oil and gas, the report states.

 

“If people took the time to read the report, they would see that it is not necessarily about polar bears, whales or butterflies,” said meteorologist Marshall Shepherd of the University of Georgia. “I care about all of those, but the NCA is about our kids, dinner table issues, and our well being.”

 

 

The colors on the map show temperature changes over the past 22 years (1991-2012) compared with the 1901-1960 average for the contiguous U.S.(Photo: NOAA)

“We’re already seeing extreme weather and it’s happening now,” said study co-author Donald Wuebbles, a climate scientist at the University of Illinois. “We’re seeing more heat waves, particularly in the West and in the South.”

 

Specifically, the three most significant threats from climate change in the USA are sea level rise along the coasts, droughts and fires in the Southwest and extreme precipitation events across the country.

 

The assessment was written by 300 scientists and other experts from academia; local, state and federal governments; the private sector; private citizens; and the non-profit sector. Representatives from oil companies such as ConocoPhillips and Chevron and environmental groups such as the Nature Conservancy endorsed the assessment’s findings.

 

“The National Climate Assessment brings to light new and stronger evidence of how climate change is already having widespread impacts across the United States,” according to Kevin Kennedy of the World Resources Institute, a Washington, D.C.- based environmental group.

 

“Chevron recognizes and shares the concerns of governments and the public about climate change,” said Chevron spokesperson Justin Higgs. “Chevron’s Arthur Lee was one of 60 committee members and 240 authors to assist in the compilation of this report. We recognize the importance of this issue and are committed to continued research and understanding.”

 

A vast majority of climate scientists — generally pegged at 97% — concur with the basics of the science behind climate change, though some still find flaws in the details. A report last week, for instance, in the peer-reviewed journal Nature Climate Change found that the impacts of extreme heat are often exaggerated.

 

The assessment is a federally mandated report prepared by the nation’s top scientists every four years for the president and Congress to review. This is the third report produced.

 

ORIGINAL SOURCE: National Climate Assessment

 

The United States Global Change Research Program (USGCRP) coordinated the development of the NCA, which is exclusively focused on climate impacts to the United States, according to the requirements of the Global Change Research Act of 1990.

 

Contributing: Associated Press

 

 

Ten indicators of a warming world: These are just some of the indicators measured globally over many decades that show that the Earth’s climate is warming. White arrows indicate increasing trends; black arrows indicate decreasing trends.(Photo: NOAA)

Defending Water for Life / STEWC at Hope Festival, 2014

Link to orginal BDN article, “20th Annual Hope Festival held at Orono,” and slide show.

CB tabling HOPE 2014 best shot

ORONO, Maine — The 20th annual Help Organize Peace Earthwide (HOPE) festival was held Saturday, April 26, at University of Maine in Orono.

The festival is held each year to celebrate Earth Day and all the good work being done my more than 60 organizations working to take care of the earth and each other, according to a press release.

The day’s events featured at least 60 organizations who had displays, provided activities, music or speakers or otherwise participated in the event. There also was a special display of 20 years of HOPE Festival posters and videos.

The annual HOPE Festival was organized by the Peace & Justice Center of Eastern Maine, located in Bangor.

CB tabling HOPE 2014 CB tabling HOPE 2014 2

Perry extends moratorium on water project

Link to Original BDN Article.

By Tim Cox, BDN Staff | April 22, 2014, at 12:47 p.m. | Last modified April 22, 2014, at 4:44 p.m.

PERRY, Maine — The Perry Board of Selectmen voted unanimously Monday evening to extend a moratorium that temporarily blocks water exploration activities being conducted by the Passamaquoddy Tribe at Pleasant Point.

The proposed extension of the moratorium, put in place for 180 days last fall, did not generate any opposition or controversy.

Five people attended Monday’s public hearing that the board convened on the proposed extension, but the selectmen received no public comments, according to board chairman Karen Raye.

Since voters approved the moratorium at a special town meeting in November, a committee has been at work drafting an ordinance to regulate water exploration activities.

The committee of about 12 people has made good progress, according to Raye. “I’m hoping there is a possibility we could wrap it up in May,” she said Tuesday. If a proposed ordinance is approved by the selectmen in May, Perry citizens may be able to vote on it during the June 10 primary election, she said.

The tribe has a representative on the committee, and Raye said it also was informed of the public hearing.

The moratorium extension does not delay the tribe’s water project, she said. “I don’t think they’re really concerned about us taking a few more weeks.”

Tribe officials did not return calls seeking comment.

The action approved by the board on Monday extends the moratorium on “large scale groundwater extraction activities” for 180 days or until the town adopts an ordinance.

The original moratorium was approved by a 43-0 vote at a special town meeting Nov. 4 and took effect immediately.

The tribe, dissatisfied with the quality of water supplied by the Passamaquoddy Water District, a public utility that serves the reservation and the city of Eastport, has developed several exploratory wells in the town. In late September it conducted tests, pumping out water for 10 days in order to determine the capacity of the wells and the effect on the aquifer. Several Perry residents complained to town officials that those pump-out tests reduced the water level in their wells and tainted the quality of their water. Town officials issued a stop work order at the conclusion of the pump-out tests.

State officials received the tribe’s application for approval of wells in late February, according to Roger Crouse, director of Maine’s drinking water program at the Department of Health and Human Services. State officials sent the tribe a letter on April 16 requesting additional information, he said. Once the additional information is obtained, the permit could be approved within 30 days, according to Crouse.

The tribe is seeking approval of “at least two” wells for public water, including one back-up well, Crouse said Tuesday.

The tribe’s application is “kind of unique,” noted Crouse, because it is seeking to develop a new source of water for an existing water district.

In addition, the tribe is partnering with the federal government to pay for the project. “There’s just a lot of need for communicating and coming to a consensus for what they’re trying to do there,” said Crouse.

The tribe also would have to negotiate an agreement to sell water to the Passamaquoddy Water District.

The entire project, including building a treatment plant and installing a water line, would cost $4-5 million and take several years to complete, according to tribe officials. It would be financed by the federal Environmental Protection Agency.

Terrifying Worldwide Water Privatization Strategy

Back in 2011, we were made aware of this article which links the World Bank with several transnational corporate entities, including Nestle, to private water worldwide, but especially targeting countries with a lower socioeconomic status.  I was then informed by an expert source that it was not being spearheaded by the World Bank, but rather the World Economic Forum.

Then the other day, Nickie Seckera of Community Water Justice, who has been resisting Nestle’s expanding empire over the water in Fryeburg, sent along this information:

The Alliance for Water Stewardship offers a partnership with founding members as Nestlé, Unilever, Veolia and many more to help secure the multinational corporate agenda of controlling groundwater resources.

Beware of organizations as this who claim to protect global water resources. For whom are they protecting it? Corporate-backed organizations as this are out for protection of their future profits in securing water sources all over the world for their dominance over local people. The prospects of commodification and control could change how we access drinking water for all future generations. As we know, they are not out for the common good but for profit – and the highest bidder will win access to life.

“The Alliance for Water Stewardship is a partnership of global leaders in sustainable water management who are dedicated to promoting responsible use of freshwater that is socially, economically and environmentally beneficial. AWS drives collective responses to shared water challenges through its stakeholder-endorsed international Water Stewardship Standard. AWS’s Founding Partners are American Standard, CDP, Centre for Responsible Business, Centro del Agua para America Latina y el Caribe, Ecolab, European Water Partnership, Fundacion Chile, Fundacion FEMSA, Future500, General Mills, The Gold Standard Foundation, Hindustan Unilever Foundation, Inghams, Marks & Spencer, Murray Darling Basin Authority, Nestle, Pacific Institute, Sealed Air, United Nations Environment Programme, the UN Global Compact’s CEO Water Mandate, The Nature Conservancy, The Water Council, Veolia, Water Environment Foundation, Water Footprint Network, Water Stewardship Australia, Water Witness International, WaterAid and WWF.”

http://www.marketwatch.com/story/top-global-organizations-pledge-to-support-water-stewardship-2014-04-08?reflink=MW_news_stmp

Thank you Nickie for your outstanding work.

Anacortes/A town in-between

Sandra Spargo, Defending Water in the Skagit River Basin, Anacortes, Wash.

Dec. 12, 2012

Will Anacortes’ push for manufacturing jobs on Fidalgo Island take us back to the future, as seen in the mill picture to the right?

A town in-between by local author William Dietrich was published in the Seattle Times’ Pacific Northwest Magazine on Feb. 20, 2005.  The article’s excerpts include the following:
  • With its industrial legacy and recreational future, Anacortes remains confused about where it goes next. Despite the presence of some beautiful waterfront parks, most of its shoreline is still relegated to industry. City officials want to draw middle-wage boat builders, not barristas and barmaids. Nor is Anacortes willing to take anything that comes along. Citizens voted to block a third grocery store because it would occupy land originally cleared for industry and was too far from the downtown core. Many testified against welcoming a luxury-yacht builder onto public port land, so the company went to Port Angeles instead.
  • “We’re not in a hurry,” says Mayor Maxwell. “We don’t have to do backflips to attract business. If Anacortes stays the way it is, that’s just fine.” A long line of fast-talking promoters has come to town with dubious dreams, little capital and less delivery.
What direction will Tethys Enterprises’ bottling plant take Anacortes and Skagit Valley?
Does a one-million-square-foot beverage bottling plant–along with its trucks and trains–
fit Anacortes and Skagit Valley’s culture, lifestyle and environment?
 
Steve Winter, CEO of Tethys Enterprises, states on Go Skagit (Sept. 14, 2012) that his plan “is to create a ‘center of gravity’ for the beverage industry in Anacortes that would attract a bevy of suppliers and service businesses, similar to how the presence of Boeing established a ring of support industries to northwest Washington.”

Winter states the following in the Skagit Valley Herald of Sun., Dec. 9, 2012:
  • The huge advantage that we will have is the ability to instantaneously produce product for the entire western United States. So when a company wants to do a brand introduction, they can come to one company–to our company–and have us manufacture a product for the entire western United States. 
 What is the definition of the “western United States?”
Regional definitions vary from source to source. As defined by theCensus Bureau, the western United States includes 13 states: AlaskaArizonaCaliforniaColoradoHawaiiIdahoMontanaNevadaNew MexicoOregonUtahWashington, and Wyoming. In turn, this region is sub-divided into Mountain and Pacific areas. The states in light red, particularly the Plains States, are sometimes considered “western,” although they are often grouped with separate regions such as theMidwest and the South. (Wikipedia)

Moreover, previous to the Anacortes contract, Tethys courted the City of Everett for five million gallons of water per day from Spada Lake to produce bottled water. During the failed courtship, Tethys hired Jason Jenkins to produce a pre-contractual promotional video. The video starred Mayor Ray Stephanson. He stated that Everett has the capacity to fill the entire bottled water demand for the western U.S., and Everett’s rail and deepwater port give easy and low-cost access to western U. S. and Asian markets. —  By the way, Everett, Bellingham and Anacortes offer deepwater ports for Asian export of bottled water/beverages. See Tethys’ promotional video at  http://www.youtube.com/watch?v=19y5bxfbF2Q

More to come . . .