Thursday, December 31, 2015

Cintra, Macquarie file bankruptcy on Indiana Toll Road |

Cintra, Macquarie file bankruptcy on Indiana Toll Road |

This is from September, 2014, but I just ran across it. This article lays out the way the "private-public partnership" (PPP) works, using the vaunted Indiana Toll Road privatization as an example.  It starts when a state or local government decides that bonds, taxes, and user fees won't do to pay for a highway or other major infrastructure, so they consult some big investment bank about "creative financing" arrangements. The bank finds some gigantic pools of money floating around--sovereign wealth funds, hedge funds, and so forth--and they "lease" the asset from the state, using bonds to pay themselves back. The lease is for longer than the useful life of the asset.  They set up a shell corporation--called a concessionaire--to operate the highway as a toll road. The toll doubles so the consumer gets hit, the investors get huge profits up front during the next 5-10 years, and then, when the asset is used up and needs work, they bankrupt the shell concessionaire.  The losses fall on whoever gets stuck with the asset after the music stops, or the whole deal gets repackaged for a new investor.  As the article explains:

"They structure the deals to be extremely long leases so that they can depreciate the road as an asset on their taxes. They put very little of their own money at risk as the equity (a mere $800 million out of a total $3.8 billion), and allow the private bond investors and/or taxpayers to take on the risk for the vast majority of its debt. The companies get their own equity back with some profit in just a few short years of collecting tolls. This leaves the other investors to the take the actual losses just about when the road is going to go bankrupt, and often when the road is also in need of major maintenance or rehabilitation."

And at the point the public is stuck with a used-up highway or other asset that they actually need to use to, you know, get to work.  Now, you might think that this scam could be run only once, but it has been done many times. Does it surprise you that Texas thinks this is a great way to do things?  What is even stranger is that this sort of thing is all the rage in Washington. The Treasury and DOT produced this paper: "Expanding the Nation's Infrastructure through Innovative Financing."  It is quite enthusiastic about PPPs, despite the way they work out in practice, often to the detriment of the public:'s%20Infrastructure%20through%20Innovative%20Financing.pdf

But then again, given that so many Americans have been brainwashed into hating the very idea of government, it is no surprise that they allow themselves to become victims of privatization schemes. All you have to do is promise people that "the private sector" is more efficient and that you will eliminate "waste, fraud, and abuse," and ordinary people go along with schemes that cost them jobs and money and wreck the public assets they need. But don't try and tell them that, because they heard The Truth from Fox News or Rush Limbaugh.

If you need more, here is a three-part series that explains it.

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