If you thought the privatization crusade went away with Jeb Bush, you haven’t been hanging around the Florida Department of Transportation, haven’t read the transportation bill that came out of the Legislature and haven’t shown up at the conferences for the road building industry.

Gov. Charlie Crist declared that he wanted DOT to focus on congestion, but he didn’t mention anything about money. The backlog of projects is in the tens of billions, and no one is proposing more taxes. What to do?

Privatize.

[Art: Todd Davidson/ Getty]

Between Fort Myers and Naples, the $435-million widening of 30 miles of Interstate 75 is being done in three years instead of the original eight by having road builders provide part of the financing. Anderson Columbia, Ajax Paving Industries and the HDR engineering firm are partners in the project.

In Miami, DOT is putting together a “public-private partnership” to build a tunnel from Interstate 395 to the Port of Miami so trucks won’t have to go through downtown. It’s a $900-million project, but the builders are putting up part of the money, to be repaid through tolls they will collect for 35 years, after which point the tunnel reverts to DOT.

DOT is resisting the most drastic privatizing — selling off existing roads to private owners to raise money for future projects, as has happened with the Chicago Skyway toll road and the toll roads around Dulles Airport in Virginia. Florida has focused on enlarging private involvement in new projects that get more roads built faster.

Two years ago, DOT’s eminently knowledgeable financial guru, Assistant Secretary Lowell Clary, was in a cautious mood over the prospect of privately built or privately financed roads, wondering exactly what the advantage would be. Today he is talking about financial “hedging,” “shadow tolls” and “innovative financing.” He predicted “deal flow very soon.”

On a panel with Clary at a July meeting of the Florida Transportation Builders Association (FTBA) were representatives of Goldman Sachs, the Carlyle Group, MacQuarie Securities (a subsidiary of an Australian bank), and Itinere (a subsidiary of an $8-billion Spanish construction conglomerate). TEAMFL, the association of toll road authorities, lists among its new members the Bank of America and Merrill Lynch [“For Whom the Tolls Swell,” April 2006, FloridaTrend.com].

They are all elbowing their way into the hot new business called “public-private partnership,” known as PPP or P3 in industry jargon. Crist’s secretary of transportation, Stephanie Kopelousos, has declared Florida “a good business climate for P3s.”

‘No free road’

A lot of money’s about to be made here. The question is whether it’s a good thing for taxpayers and drivers.

House Democratic Leader Dan Gelber of Miami, a skeptic, calls it “borrow and spend.” “Somebody’s making a profit, and they’re raising capital more expensively than government does.” Tolls, he adds, “have become another way to tax people.”

Doug Callaway, president of Floridians for Better Transportation, has a different concern. “Remember the Florida Lottery,” he says. All the talk about “innovative financing” could take the heat off the governor and legislators to keep spending tax money on roads, just as lottery profits that were to enhance education “quickly became a replacement for existing sources.”

“There’s no free road,” Kopelousos says.

Enter “innovative financing.” It gets the roads built when the state otherwise wouldn’t have the money.

“Traditional” financing uses gas tax money, occasionally supplemented by other tax revenue, to pay for about $8 billion in road construction each year. It has been at that level for about five years, says DOT’s Clary, despite the rapid rise in the cost of right of way, road materials, equipment and even labor. Toll roads are financed by 30-year bonds, repaid from tolls.

Now the road builders have seen the opportunity for more road building business if they’ll provide financing themselves, like department stores boosting sales with their own credit cards. Investors like MacQuarie and Goldman see the opportunity for profits if they’ll take some of the risk of driver usage by purchasing a “concession” — the right to the toll revenue over an extended number of years while maintaining the road.

The deal with that 30-mile corridor on I-75 in southwest Florida is one example. Clary says DOT was going to spread the work over nine separate projects in an eight-year span because that’s what the state could afford. But the group led by Anderson Columbia committed to build the road in three years for the same amount of money.

Drivers benefit, Clary says, because they’re not subjected to construction on that stretch of road for eight years. The state benefits by avoiding increases in road building costs over those last five years. And the contractors, while taking more of the risk, get more business faster and have opportunities for bigger profits.

Engineering failure

Overseeing all this is a state secretary of transportation who has never run anything before and has no engineering degree (the first DOT secretary without an engineering degree since Walter Revell left in 1975). Kopelousos, 37, was a senior legislative analyst for Bush’s lobbying office in Washington after a stint as senior legislative aide to the late Congresswoman Tillie Fowler of Jacksonville. She became DOT’s chief of staff in 2005. Crist calls her a “consensus builder” who “understands how to manage high-profile issues.”

In a speech at the FTBA conference in July, Kopelousos noted a “perfect storm” of challenges: The “erosion of gas tax and other public funds,” the “aging transportation network,” a “growing transportation demand that cannot be met with traditional financing” and “predictions that the federal highway trust fund is going broke” as a result of spending more than it takes in from fuel taxes.

Her list epitomizes the pattern in which politicians (usually Republicans) engineer failure in government services and then declare that we need to turn the job over to private industry. Traditional sources are “inadequate” and gas taxes have eroded because politicians have not increased them, even as everything else about driving has increased (cars, paving materials, labor rates, oil and gas, tires). Traffic has been growing by 5.4%, DOT says, while lane miles are growing just 1.4%. State and local governments make the problem worse by their ineffective management of growth. We are often assured that growth “pays for itself” and helps our economy, but where’s the money?

So the “people’s governor” is acting just like cash-strapped citizens and business: He’s endorsing “innovative financing” to put off the day of reckoning. That’s how you get less congestion without more taxes.

DOT’s communications director, Dick Kane, stresses that “there are an awful lot of safeguards” in the 2007 legislation enabling this new approach. That’s true. But we also learned from other Bush-era privatization ideas that execution of these deals can be riddled with missteps and mischief.

If done properly, though, the approach can pay off. Money spent to relieve congestion has a substantial payback — five times the investment, by one oft-cited estimate — including economic growth, efficiency in moving goods, and savings in fuel and drivers’ time. The sooner we invest, the sooner the payback begins, if the financing doesn’t eat up the savings.

Lacking any real innovation in dealing with growth, and lacking any enthusiasm for mass transit, we’ll have to settle for innovative financing.

Drive now, pay later.