SPECIAL REPORT: Public-private partnerships hammered in congressional hearing

| 2/13/2007

Tuesday, Feb. 13, 2007 - While the U.S. DOT and the Bush administration must be big fans of public-private partnerships, one U.S. House subcommittee isn't ready to sign off blindly on the concept.

The Highways and Transit Subcommittee of the House Transportation and Infrastructure Committee held a hearing on public-private partnerships Tuesday, Feb. 13.

Members of the subcommittee didn't waste any time taking privatization to task after Subcommittee Chairman Rep. Peter A. DeFazio, D-OR, called the meeting to order.

"I have real doubts about the conversion of existing infrastructure - essentially the monetization, sale or long-term lease of that - and what the benefits might be," DeFazio said in his opening remarks.

"And how, if you do that, do you protect both the public interest and assure that we are not fragmenting the national interstate system?"

DeFazio said he hopes the hearings on public-private partnerships and the highway funding crisis would, in part, lead to the feds developing some sort of education and guidance programs for state officials considering entering into these types of agreements.

He said he doesn't want to see states that seem to be rushing these projects through get taken to the cleaners.

"I think we're seeing that in a couple of the previous agreements in Indiana and Chicago, most notably," he said.

In what had to feel like a tag-team wrestling move to supporters of public-private partnerships, DeFazio turned the floor over to Ranking Member John J. Duncan Jr., R-TN, who didn't waste any time in slamming certain aspects of public-private partnerships.

In short order, he challenged many public-private partnerships as being "sweetheart deals"

"In recent years, we've been seeing that some very large corporations have been hiring so many retired federal employees or retired admirals and generals and they've been getting sweetheart deals with just ridiculous profits," he said.

"We have to see whether some of these are good deals for the people or not. Some are and now, unfortunately, some are not."

The first witness to testify before the subcommittee was Tyler Duvall, assistant secretary of transportation policy with the U.S. Department of Transportation.

He spent a lion's share of his time defending public-private partnerships. With federal infrastructure hitting a crisis level, he said, the feds have identified these types of arrangements as a way that the public can get a project done with the private partner shouldering the risk.

While DeFazio acknowledged that the funding alternatives must be explored, he is very unhappy with what appears to be a one-pronged solution coming from the DOT. He wants other funding alternatives on the table.

"The bottom line is, this is your only solution," DeFazio said.

The chairman highlighted his continuing concern that states leasing away infrastructure for decades may be in over their heads. Repeatedly, DeFazio asked Duvall if the DOT was doing enough to educate state and local governments on the potential downsides of these agreements.

"We need to be more aggressive about promoting the negative aspects," Duvall said. "We'll get those on the Web site."

The initial panel of witnesses also included the secretary of transportation for Wisconsin, Frank Busalacchi - a strong opponent of public-private partnerships. He said the two groups have very different goals and meeting all the goals would be a delicate balancing act, to say the least.

"The public interest is different from the private interest and, in this case, it will be extremely difficult to assure a win-win solution," he testified. "The private sector's legal responsibility to its shareholders is to make money - profit is their purpose."

Busalacchi also pointed to the problem of these deals being brokered behind closed doors. That secrecy, coupled with the obvious desire for profit by the private sector, has the public leery of these types of deals.

"The public sector needs better tools to evaluate the deals and share that evaluation with the public," he said. "It's not clear the deal in Indiana would happen if it were being considered today. Last news report I saw, half the citizens polled in New Jersey think the (public-private partnership) approach to the Turnpike is not in their best interest. Why wouldn't we listen and consider the strong public reaction to these deals?"

The hearing Tuesday included testimony from Frank Wilson with the Metro Transit Authority in Harris County, TX; Karen Hedlund with Nossman, Gunther, Knox and Elliott in Arlington, VA; Dennis Enright with NW Financial Group in Jersey City, NJ; Alistari Sawers with Transportation and Project Finance, RBC Capital Markets in San Francisco, CA; and Robert Poole with the Reason Foundation.

- By Jami Jones, senior editor