P3 PayGo Testimony, House Finance 2/4/16
Good evening. My name is Justin Katz. I’m the research director for the Rhode Island Center for Freedom & Prosperity.
The amazing thing about infrastructure, and this whole issue, is that we’ve got roads that need repair, we’ve got workers who want to repair them, we’ve got a public that wants to pay to fix the roads — the problem is we’ve got special interests who already have the money we’re already paying to fix the roads that won’t let us do it. They’re holding that money hostage; they’re holding our roads hostage and holding the jobs hostage, saying, “You can’t do this unless you come up with new money somehow in your economy to fix this problem.
It brings to mind, actually, something a former chairman of this committee said recently, Steven Costantino, when somebody had suggested that he was in on the scandal of 38 Studios, and he said, “Well, look, I was just doing what I was tasked to do by my superiors,” meaning legislative leadership. That’s not how representative democracy works. The people upstairs are not your superiors; the people in Rhode Island are.
So, I’m basically here to give you the message that you have options. Don’t expect that you’ll be able to go out and say, “We had to fix the roads.” A lot of the benefits everybody agrees on: We need new infrastructure; we need repairs; we need maintenance. Don’t expect you’re going to be able to go out and say, “Well, we had to do it, and this was the only option,” because there are other options.
A few years ago, we released a report, Spotlight on $pending, in which we came up with — pretty easily — about a quarter billion dollars of worth of reductions in the proposed budget at that time, and in fact, y’all actually followed some of that advice, whether we inspired it or it was just that obvious.
So, at the first mention of this toll proposal last spring, we came out right away with a PayGo idea: “Hey, why don’t we just pay for this with the money that we have.” And judging from the governor’s budget just released — spending item after spending item — the state apparently has money coming out of its ears. You can find money to pay for infrastructure, whether it’s the Republicans’ plan or some other plan, and once you find that money, like the tolls, it’s never going away, because you’ve saved that money — you’ve adjusted your budget.
The big argument against that is that we need this surge — we need the money upfront to pay for quick repairs — which is why we at the Center began to look into the P3 model, which comports with the legislation that Representative Nunes has submitted. In our vision of the use of this model, you don’t need public debt, and you don’t need tolls.
Representative Nunes described the concept pretty clearly, but to make it very clear, the partner is more like a contractor; they’re hired to do the job. This is what happened in Pennsylvania with the Rapid Bridge Replacement Project. This isn’t privatizing roads; it’s hiring a contractor to do the job.
So our basic idea was a PayGo P3, or P3 PayGo, where you would free up the money, which is in the budget already — we’re already paying to repair our roads — and you guarantee that money to a private contractor who uses it to find their own financing over time, and there’s lots of flexibility you can give them in order to find a package that works for them.
This leaves no additional risks to taxpayers beyond whatever the payment that’s agreed for the long term is, and you contrast that with the inherent risk of things like revenue bonds. The bonds are no longer reliant on the tolls, but they’re reliant upon revenue in the future; there is some risk there.
You contrast also the risk of the truck diversion and other problems. We talk about these gantries as if they’re just going be up there and have no problem. There’s going to be maintenance. It’s $43 million in the first place, and you have to maintain them. I drive by, frequently, the windmill in Portsmouth, which is now down because it fell apart just as it was about to make a profit, and it’s been sitting there idle for years. These are the risks that taxpayers will bear, but that a private partner could also bear.
And frankly, you do have the benefit of removing the project of this size from the Rhode Island Department of Transportation. Listening to Director Alviti for several hours, it seemed like the message was basically, “We failed miserably for decades; we’re making changes now that only 10 other states do; and, trust us, it’s going to work. But in the meantime, before we’ve proven ourselves, give us hundreds of millions of dollars and tolls forever that at the whim of the legislature could become tolls on cars.”
This could all be put aside with private partners on a PayGo plan.
Looking at Pennsylvania, what we found was that there are a lot of extra incentives you can put into these programs. There are milestone payments, fees if they miss deadlines; there are also fancy financing ways to ensure that they hit those deadlines. But the real key is that the government is on the taxpayers’ side against a private entity, so you’ve created incentives where you’ve got your actual representatives and the people who work for you have incentive not to hide anything, not to try to slip anything by anybody, but to be on top of the contractors.
To wrap up, well managed, this massive infrastructure project that we all agree needs to be done will be a great boon to our economy no matter the funding mechanisms. You’re still going to get all the improved infrastructure; you’re still going to get all the improved quality of life; you’re still going to get all the construction jobs. You’re not going to get the damage of increasing the burden of what we have to pay for infrastructure, for our government — increasing taxes, increasing tolls, increasing the risk.
If I were a business looking at Rhode Island, I would be very nervous that my business… we do this every year. I read all of your legislation. It’s great, riveting stuff. Every year, it’s like another little interest group that we go after them and say, “Hey, we’re going to tax you, now. We’re going to give you a toll.”
If I were a business, that’s what would scare me. If I move into Rhode Island, how long until this spotlight — this Eye of Sauron, if you’re a fantasy fan — focuses on me and says, “You’re the industry, now, that’s going to be responsible for our mismanagement for decades.”
Poorly managed, this project is just going to be another gift to special interests and insiders who prosper from corruption and mismanagement. You think of being paid to fix damage on the iWay. So going through with a P3 PayGo or PayGo — however it could work for the legislature — would take the risk and the burden off of the people whom you’re actually supposed to represent.