Virginia for sale

June 7, 2012

Governor Bob McDonnell might as well have put a for-sale sign on Virginia’s front lawn when he announced that the state’s Office of Transportation Public-Private Partnerships (OTP3) has a “pipeline” of potential privatization projects. The governor and Sean Connaughton, the head of the Department of Transportation, appear to be racing to move as many of Virginia’s public assets into private hands as possible. The Bond Buyer has the story:

In a move that is likely to make Virginia the leading state for public-private partnerships, Gov. Robert McDonnell has announced 22 transportation and infrastructure projects that may be developed as P3s.

The governor is asking for public input on the projects, which include highway, seaport and spaceport projects that are either under active consideration or flagged as possible candidates for P3s.

“It’s a fairly major step forward for P3s in Virginia,” said Secretary of Transportation Sean Connaughton.

Virginia’s 1995 legislation enabling P3s allows private companies to submit unsolicited proposals that meet certain guidelines, and that is how most of the commonwealth’s P3 projects have emerged, Connaughton said.

In April, APM Terminals Inc. submitted such a proposal to operate the Port of Virginia as a P3. That project is among those announced by McDonnell. Virginia is now making an effort to harness more interest from the private sector, said Connaughton.

On Tuesday, the Bond Buyer also reported that Virginia received an unsolicited proposal from a division of A.P. Moller-Maersk Group, the Danish conglomerate operating in 130 countries, to take control of Port of Virginia facilities in Norfolk, Portsmouth, Newport News and Richmond for a 48-year concession.

The proposal was reported to be valued in excess of $3 billion over the term of the concession, or at least $62 million a year for the four ports. A commissioned report from George Mason University said that in 2006, the port operations at Newport News, Norfolk and Portsmouth handled over 16 million tons of cargo (page 3). In Maersk’s proposed concession, they would pay a fee of about $3.90 a ton to the state. It’s not clear whether the offer is worth it for taxpayers, however, because the Viginia Department of Transportation releases very little information to the public.

This is unfortunate because Virginia’s governor has a history of undertaking privatization projects that net rich returns for investors but are of unknown value for taxpayers. I wrote this in April about McDonnell completing the financing for a tunnel privativation project:

For an equity investment of $208 million, Macquarie stands to realize over $5 billion in cash flow over the 58-year concession after repayment of bonds, loans and mandated capital expenditures.

The funding structure of the tunnel deal looks very similar to the I-495 Hot Lanes project (an addition of four high occupancy vehicle lanes) that is just being completed in Northern Virginia. These kinds of large, complex construction projects do benefit from professional oversight, but taxpayers have no idea how much of their money the state is leaving on the table. Numerous sources have said that the Hot Lanes projects will cost $1.4 billion, but no one appears to have figures on the returns to the project’s private builders, the Fluor Corporation.

The governor has put Virginia up for sale, but there are no price tags that taxpayers can see. That makes it impossible for the public to comment substantively on the process.

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