Stop Calling Crony Corporatism "Public Private Partnerships"

As someone whose company engages is what is usually called "public-private partnerships" or PPPs, one would expect me to be an enthusiastic supporter of all such efforts.  (As an aside, my company privatizes the operation, but not the ownership, of public parks and we are paid entirely by user fees and get not one single dollar of tax money.)

But I totally agree with Randal O'Toole's frustration here, talking about light rail in Denver:

Now RTD has been forced to admit that two other lines being built by the same company won’t open on time. RTD claims that it saved money by entering into a public-private partnership for the line in what is known as a “design-build-operate” contract. In fact, it saved no money at all, but was merely getting around a bond limit the voters had imposed on the agency. If the private contractor borrows a billion dollars or so and RTD agrees to pay the contractor enough to repay the loan, the debt doesn’t appear on RTD’s books. Taxpayers will still end up paying interest in the loans, which actually makes it more expensive than if RTD had stayed within its debt limit.

Public-private partnerships work great if the private partner is funded out of the user fees collected for the project, such as a toll road or water system. The Antiplanner resents the way the transit industry has coopted the term, public-private partnership, because their kind of partnership works differently. Instead of being dependent on fares, the private partner gets a fat check from the agency each month–up to $3.5 million in this case–whether anyone rides the train or not. This means the private partner has little incentive to make sure the system is working. RTD has withheld a portion of the monthly payments until the problems are solved, but eventually the contractor will get all of the money.

The solution isn’t for the agencies to build the lines themselves. The solution is to completely avoid megaprojects that aren’t funded out of user fees. Without the discipline of user fees, everything that’s happening with the A line should have been expected.

  • Dave Boz

    "Public-private partnership" is also how we get sports arenas, all of which are money-losers. This is the formulation that will lead to yet another money-losing hockey arena in Tempe, less than 30 miles from an existing money-losing hockey arena in Glendale.

  • http://nomayo.mu.nu Stephen_Macklin

    Stop calling it Crony Capitalism. Cronyism and actual Capitalism are fundamentally incompatible.

  • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

    "The solution is to avoid megaprojects that aren’t funded out of user fees."

    That is not the solution. This is the same as saying "The solution is to build only profitable projects".

    The beauty of a free market is that companies (groups of people) risk their own capital (not that of the state) and get the profits, if any. If private interests don't see a high probability of profit, they don't build the project. That leaves politicians to fund all of the money-losing projects like light rail.

    Projects crafted by politicians are merely scams. These need to provide a service as a cover story, but profitability doesn't matter. What matters is that contractors like RTD make a profit on their contract, that politicians get kickbacks from RTD, and that particular sub-contractors to RTD are run by wives, chiildren, cousins, or associates of the politicians so that these sub-contractors can also profit.

    About the kickbacks. I don't think contractors like RTD usually approach the politicians with offers of kickbacks. The politicians find contractors who will do the project, including the costs of kickbacks and specified sub-contractors demanded by the politicians.

    Everyone wins except taxpayers, and taxpayers won't notice until the bonds default. Everyone will have wandered off with their profits by that time. These are beautiful schemes.

  • Jerry_In_Detroit

    i prefer the term crony socialism.