SB 97 & All The Rest

Lots of stuff to discuss. Hope you all have the patience and time to digest it all.

Interesting perspective on Proposed Senate Bill 97 in your forward. My analysis is it is typical “fear mongering”. See discussion below.

Enclosed for your convenience is a copy of House Fiscal Legislative Analysis pertaining to Senate Bill 97. Permit me to comment on the Bill and ancillary issues pertaining to Public Private Partnerships (PPP’s) and infrastructure investment.

Senate Bill 97
The Bill authorizes the State and its various agencies to participate in Public Private Partnerships (PPPs) as a means to acquire private investment and management participation in state infrastructure projects. The objective of PPP’s is to facilitate private investment in infrastructure upgrades and repairs as a substitute for using taxation and state financed bonds as the sole remedy to pay for infrastructure needs. For example: The legislature raised the state taxes on fuels to pay for highway maintenance, construction and repairs, or alternatively, it could issue bonds secured by the State to be repaid with revenue either from the project (AKA TOLLS or USER FEES,) or increase taxes on the proletariat! Gas taxes or sales taxes.

As the Analysis confirms many states (other than Michigan) have now passed legislation authorizing their respective state agencies to enter into PPP’s as a basis to fund various transportation and other infrastructure needs (water and sewage). In the past I have referenced these projects as an alternative means to fund transportation and infrastructure needs in various letters to the media and others with copies to our relevant representatives.These copies are numbered and itemized below to refresh your memories. Several of the letters contain similar allegations and claims. My apologies for any redundancy. It is apparent the letters were of little interest to the recipients. So be it! It hasn’t been the first time. But, I digress.   Mea Culpa!

Criticism of Senate Bill 97

The problems with proposed Senate Bill 97 are:

  1. It limits projects to “Transportation Projects” or buildings related to “health care delivery or laboratories”. It appears the health care industry (hospitals) and possibly the marijuana lobbyists have their clients interests protected in this bill. Just saying!
  2. The definitions and language used are somewhat conflicting. The definition for Public Authority , as an authorized contracting party, is limited to the State of Michigan, a state department or state agency. The Analysis goes on to say that the bill “indicates that a public private agreement may include one or more local units of government”. How so? The Bill fails to define how local units of government would or could participate in PPP’s for “Transportation projects” other than as a third party beneficiary of a State PPP.
  3. With respect to Transportation projects there is much ado about not creating “toll roads”. Triston Cole made specific mention of this in his discussion with Ron Jolly. The Analysis states “MDOT does not have legal authority to establish toll roads under Public Act 284, and would not be granted such authority under Senate Bill 97”. Triston Cole, in his discussion with Ron Jolly on the Ron Jolly Show (See WTCM Radio Podcast 11/29/17) pertaining to Senate Bill 97 said Transportation projects would not be funded by tolls but by user fees! REALLY what is the difference between a user fee and a toll? With all due respect to Triston Cole and the legislature, A Rose by any other name is still a Rose! Just saying!

Reality check for Lansing: Any and all transportation projects implemented via a PPP in other states are funded by Tolls (aka User Fees), either paid at the time of use or via a pre paid transportation pass. Likewise, private participation / investment in a PPP will not take place unless the private investor has a discernible if not guaranteed revenue stream. For the establishment in Lansing it is call a Return on Investment by the investors in the PPP.

The following letters referenced above will provide further information pertaining the utilization and benefit of PPP’s. It is readily apparent the establishment in Lansing, on both sides of the aisle, have difficulty in engaging in, and understanding the creative financing aspects of PPP’s.

Letter No.1 Reply to Taxing of Fuels

Legislature Passes Outmoded Plan for Road Funding

“In the financial world leveraging of assets is a common practice to raise capital. Capital is what the state needs to fix the roads. The state has several significant assets in Interstates 94 and 69 that are part of the NAFTA superhighway. This is a planned project for MDOT. Interstate 96 is another significant asset. The legislature must evaluate leasing these assets to a Public Private Partnership (PPP) to raise capital to fund a permanent and protected “capital fund” for necessary road repairs throughout the state. We need leaders in Lansing with experience in creating complex financial partnerships to propose legislation permitting the use of PPP’s in Michigan.

Twenty-four states have enacted legislation to allow PPP’s. Michigan has not. In 2009 House Bill 4961 was introduced to authorize MDOT to enter into PPP’s. It failed for good reason. It was built on the old model of pledging future toll revenue against debt secured by bonds. Lansing must divorce itself from the outmoded model that taxation and bond debt are the only ways to fund government transportation responsibilities.

There should be legislative efforts to call for a thorough unbiased financial and economic evaluation conducted by independent analysts of road PPP’s implemented in other states and foreign countries. This analysis should include a comparative review of all current models of PPP’s. The Pew Center on the States has identified ten different models.

The analysts should not be an extension of MDOT or the Governor’s administration. Why? This leads to administrative bias and “sealed container thinking.” A reason why Pennsylvania’s proposed PPP failed. The National Conference of State Legislatures has prepared a toolkit for state legislatures on PPP’s for Transportation. The Pew Center on the States has prepared an excellent “Do’s and Don’t’s analysis for PPP’s based on a critical analysis of Pennsylvania’s failed efforts for a transportation PPP.

Legislators and their staffs should review this material to understand the substantive benefits of PPP’s. They should validate their perceived negative aspects of PPP’s with facts based on analysis, not perceptions, rumors or heresay. If a legislator, a member of the administration or media can’t explain the legal and financial framework of the various PPP models, their criticism is “per se” illegitimate.

Michigan should look to Indiana that raised 3.8 billion dollars with a PPP that covers 156.9 miles. Michigan’s road funding will not be resolved until we have creative financial leadership in Lansing. It will not be resolved by raising and / or shifting tax revenue or by dealing for votes to increase taxes by sharing the tax bounty with special interest groups that are unrelated to transportation needs.

The use of creative financing based on private investment alleviates the need for federal funding. As a result “prevailing wage laws” required by the Davis Bacon Act can be avoided. Tolls and fees collected by a PPP is taxable income to the private investors thereby generating available returning tax revenue to the state.

Voters must reject the proposal. This is a mandatory “do over” for Lansing.”

Letter No. 2

The Solution to Funding Michigan’s Road Repairs Requires Leadership, Bold Decisions and Creative Financing.

The voters rejected Proposal 15-1. This forces a “do over” in Lansing. What should be Plan B for the immediate term? Raise cash by significant cuts in corporate welfare spending! For the long term implement Plan C that would create a restricted “capital fund” solely for the repair of existing roads and bridges.

Plan B would cut Michigan’s corporate welfare programs that received a financial boost in Governor Snyder’s 2015 budget. According to the Mackinac Center eliminating the Michigan Economic Development Corporation would result in a savings larger than $300 million in 2015. Eliminating film subsidies and other corporate welfare programs buried elsewhere in the budget would incrementally add to the “pot” for road repairs. The revenue the MEDC receives from tribal gaming operations should be redirected to funding the roads. Plan B is a start. What is Plan C?

In the financial world leveraging of assets is a means to raise capital. Capital is what the state needs to fix the roads. The state has several significant assets in Interstates 94 and 69 that are part of the NAFTA superhighway. The NAFTA superhighway in Michigan is a planned project for MDOT that will connect with the International Bridge. Interstate 96 is another significant asset. The legislature must evaluate leasing these assets to a Public Private Partnership (PPP). This will raise capital to fund a permanent and protected “capital fund” used solely for road and bridge repairs throughout the state. We need leaders in Lansing with experience in creating complex financial partnerships to propose legislation permitting the use of PPP’s in Michigan.

Twenty-four states have enacted legislation authorizing PPP’s. Michigan has not. In 2009 House Bill 4961 was introduced to authorize MDOT to enter into PPP’s. It failed for good reason. It was built on the model of pledging future toll revenue against debt secured by bonds. Lansing must trash the model that taxation and bond debt are the only way to fund state road repairs.

There should be legislative efforts for a thorough unbiased financial and economic evaluation conducted by independent analysts of road PPP’s implemented in other states and foreign countries. This analysis should include a comparative review of all current models for PPP’s. The Pew Center on the States has identified ten different models.

The analysts should not be an extension of MDOT or the Governor’s administration. Why? This leads to administrative bias and “sealed container thinking.” A reason why Pennsylvania’s proposed PPP failed. The National Conference of State Legislatures has prepared a toolkit for state legislatures on PPP’s for Transportation. The Pew Center on the States has prepared an excellent “Do’s and Don’t’s” analysis for PPP’s based on a critical analysis of Pennsylvania’s failed efforts for a transportation PPP.

Legislators and their staffs should review this material to understand the substantive benefits of PPP’s. They should validate their perceived negative aspects of PPP’s with facts based on financial analysis, not perceptions, rumors or hear-say.

Michigan should look to Indiana that raised 3.8 billion dollars with a PPP that covers 156.9 miles. Michigan’s road funding will not be resolved until we have creative financial leadership in Lansing and eliminate crony capitalism. It will not be resolved by raising and / or shifting tax revenue, or dealing for votes to increase taxes by agreeing to share the tax bounty with special interest groups unrelated to road and bridge repairs.

The use of creative financing based on private investment alleviates the need for federal funding. As a result “prevailing wage laws” required by the Davis Bacon Act can be avoided. Tolls and fees collected by a PPP is taxable income to the private investors thereby generating additional tax revenue. Repeal of Michigan’s “prevailing wage law” would reduce the cost of road construction labor. Where are the creative and bold leaders in Lansing?

Both Congress and the U.S. Department of Transportation are supportive of PPP concessions. The House of Representatives’ Transportation and Infrastructure Committee created a bipartisan panel on the value of PPPs for transportation infrastructure. It prepared a report titled “Public Private Partnerships: Balancing the Needs of the Public and Private Sectors to Finance the Nation’s Infrastructure”. There are 30 long term highway PPP’s stretching from Vancouver, Canada to Orlando, Florida ranging from 600 million dollars to 3.85 billion dollars.”

Letter 3 PPP’s for the Flint Water Crisis

A Solution for the Flint Water Crisis

The Flint water crisis has initiated a national debate on the capability of municipalities to ensure clean and safe water for its residents. The crises has become the proverbial political football, where ascertaining blame for incompetence and negligence is the focus of discussion. The focus has been on the Governor’s emails and who knew what and when in the government agencies responsible for monitoring Flint’s water quality. Lansing’s supervision to resolve Flint’s financial mismanagement has been the subject of many “but for” excuses. All have become the primary focus in the news and web sites like Michigan Capitol Confidential and Bridge Magazine. What is absent from the discussion is a long term practical solution other than how to convince the guardians of the Federal Government’s purse to bail out Flint with taxpayer dollars.

The maintenance of municipal water and sewer infrastructure presents the same financial funding issues that are associated with the maintenance of Michigan roads and bridges. The legislative solution in Lansing is to levy taxes on somebody or something. If it can be bought, sold or used Lansing will tax it! If it lives or breathes, tax it! This attitude reflects the failure of Lansing governance, irrespective of political affiliation, to embrace creative solutions and think outside the box known as taxation.

Permit me to again present the idea of Public Private Partnerships (PPP’s) that I raised during the road funding debate. Legislation authorizing the funding for roads, bridges and other infrastructure maintenance has been passed in twenty-four states except Michigan. Michigan’s House Bill 4961 in 2009 authorizing the use of PPP’s failed. WHY?

Communities challenged with aging water and wastewater infrastructure, increasingly complex regulatory requirements and budgetary constraints require proven alternative solutions other than taxation or bail outs from Washington. Many states and municipalities have entered into Water-Waste Water Utility Public Private Partnerships.

The American Legislative Exchange Council has a draft proposal available for state legislatures to consider to authorize PPP’s within their states. The District of Columbia; Chicago Heights, Illinois; Edison and Bayonne, New Jersey, and Seattle, Washington are a few municipalities that have implemented PPP’s to manage their water and waste water treatment facilities. In short proven and tested models and solutions are available.

What’s the solution? We the people must challenge our elected representatives to enter the Twenty-first Century of political governance. They must begin thinking outside the box of taxation and seeking bail outs from the Federal Government. Many states, like Michigan, are looking to the Federal Government for solutions for health care, education, road funding and now water treatment facilities. Michigan is becoming a dependant of the Federal Government and thereby relinquishing its sovereignty guaranteed by the Tenth Amendment to the Constitution.

Lansing is always focused on more funding for education failures, picking winners and losers in the private sector (mostly losers), and use of the Michigan Economic Development Corporation as a slush fund for whatever political party holds office. It is time for a change! Just saying folks!

Alleged PPP’s for I-75 Corridor Upgrades in Oakland County and Update of 15,000 Lights on Detroit Area Freeways

See: http://www.bridgemi.com/business-bridge/i-75-will-be-states-largest-public-private-transportation-project

The referenced projects summarized in the above linked article were also referenced by Triston Cole in his interview with Ron Jolly and were alleged to be the beneficiaries of Public Private Partnerships. NOT SO!

They are merely deferred payment third party construction and maintenance projects that the state will eventually have to pay with interest. In a traditional PPP the state is the beneficiary of an income credit and not the holder of a long term debt. The state acquiring an upfront cash credit is the attractive element of a PPP. It serves as a funding mechanism for infrastructure construction, maintenance and repair. All state payments plus interest on these projects will have to come from tax revenue collected from state taxpayers. The article and its reference to these projects as PPP’s by Triston Cole and others is “fake news”. If these projects were covered by a bona fide PPP the private investor would have an indefeasible equity and property interest in the I-75 Corridor to ensure the payment of tolls or other fees in order to create a revenue stream from his investment in the project. The private investor in the described lighting project would have acquired an ownership interest in the 15,000 lights on the Detroit Area Freeways to secure his investment and most likely, lease back the use of lights to the city of Detroit for an agreed to fee. Neither appears to be the case in these instances.

One more thing! The fact that the State of Michigan has NOT yet passed legislation authorizing the state or its agencies to enter into PPP’s on behalf of itself or the City of Detroit rebuts the assertion that the two projects referenced in the linked article, notwithstanding the claim, are bone fide PPP’s. They are merely deferred payment construction, repair and maintenance contracts ostensibly disguised as PPP’s for political rhetoric.

If the establishment in Lansing was serious about creating “bona fide” PPP’s for transportation and other infrastructure needs, especially roads and bridges they would repeal that part of Public Act 284 that prevents MDOT from establishing toll roads and bridges. This is an essential part of a PPP. There must be a revenue stream in which the private investor has an indefeasible right and claim to that justifies his willingness to make an investment. This is a must do and an integral part to any PPP.

One last thought. If Congress passes proposed tax legislation that provides tax incentives for U.S. companies to repatriate foreign profits, it seems to me the Lansing establishment should also provide tax incentives for companies required to pay Michigan state taxes on repatriated income by deferring state income taxes on any portion of repatriated income invested in Michigan infrastructure bonds, and with the added benefit that any interest income earned on the bonds is also tax free. Will it happen? Probably not. Why? Lack of political will and know how for the Lansing establishment to undertake. It is readily apparent that creative financing to raise capital for infrastructure needs is not part of the establishment’s mindset. Just saying folks.
Regards,
The Deplorable One
Cedar

You Betcha! (7)Nuh Uh.(0)

Jim Fuscaldo

James Fuscaldo is a retired attorney with degrees in law and science. He has a Bachelor of Science in Pharmacy from Drake University in Des Moines, Iowa, and a Juris Doctorate in Law from John Marshall Law School in Chicago, Illinois. He was employed by Broadlawns Polk County Hospital in Des Moines, Iowa; Eli Lilly and Company, Indianapolis, Indiana; Northwestern University Medical School, Chicago, Illinois, and The Dow Chemical Company, Midland, Michigan before retirement. He had been actively engaged in the following areas of the law during his 30-year legal career with The Dow Chemical Company. International Law. ( European Economic Community and Latin America) Intellectual Property Law. Commercial Business Law, including compliance with Federal Antitrust and Unfair Competition Laws. Federal Bankruptcy, Mergers and Acquisitions. Federal, Food, Drug and Cosmetic Law and compliance with Federal Trade Commission Regulations. Product liability litigation pertaining to prescription and nonprescription drugs. James served as General Counsel for Dow Chemical Latin America and General Trademark and Copyright Counsel for The Dow Chemical Company and was a member of Dow’s corporate legal management and supervisory team before retirement from Dow. In 2013, he received a Constitutional Defender Award from the Constitution Celebration Committee, and has been active in local politics in Northwest Michigan for several years. 

  4 comments for “SB 97 & All The Rest

  1. KG One
    December 9, 2017 at 8:41 am

    Two (very serious) caveats.

    First, I get that P3's are somehow the big "ooh, shinny" thing. But speaking as someone who travels a bit and sees (and hears) things first-hand outside of Michigan, let me be one of the first to warn everyone that they are not the be-all, end-all solution that proponents are making them out to be. There have already been several serious notable P3 failures in Indiana, Alabama, Texas and California.

    Funding pitfalls aside, the second issues still deals with the ever-present elephant in the room, the actual building of the roads themselves.

    We do have the technology to construct long-lasting roads here in America. We've done it here in all places Highland Park.

    The problem with that solution is that it turns the entire current business model of building roads that literally self-destruct shortly after they are completed right on its head.

    How ever will those legions of government bureaucrats survive, when the roads that they are tasked with overseeing, last longer than their professional careers? Ditto for the contractors.

    Oh, woe, for them!!!

    It should be patently obvious to most people that their job security trumps the value for Michigan Taxpayers hard-earned money.

    Sadly, Pat Colbeck is the only Michigan State Senator (and candidate candidate for Michigan Governor) who has mentioned this as part of any real solution to the road dilemma.

    The fact that the rest of Lansing has remained conspicuously silent on that topic should speak volumes right there!

    You Betcha! (4)Nuh Uh.(0)
  2. Sue Schwartz
    December 10, 2017 at 6:20 am

    Thanks "The Deplorable" and KG1 for your insights.

    I'm against P3's. Any issue which gives taxing authority to non-government entities is just plain wrong. Any issue which gives tax monies to non-government entities (TIFF's) is just plain wrong. There are lots of reasons for this. KG brought up the major one--building disposable roads to keep the tax money a-spinning. And, evidently tax monies used for disposable buildings which aren't so disposable should be another hard lesson learned. Throwing money at an issue is not the fix (war on drugs, war on poverty, etc.) and is a lesson still not learned. Government bailouts of corporations, school districts etc., wrong, wrong, wrong.

    Lastly, Michigan relying on 50% or more of it's budget on federal funds, thereby compromising it's sovereignty is outrageous and doesn't make us better. If we can't pay for it ourselves--WE DON"T need it.

    You Betcha! (6)Nuh Uh.(0)
  3. 10x25MM
    December 10, 2017 at 8:33 am

    PPP's distort and conceal the true costs of infrastructure projects, leaving the public unable to determine their relative costs and benefits. Eventually, you wind up with a lot of expensive, underutilized infrastructure which weighs on economic growth.

    PPP's encourage polite and criminal corruption by removing much of the decision making on infrastructure projects from public scrutiny. While Michigan does not have outright PPP's yet, we have enough experience with quasi government entities such as the Detroit Land Bank to understand where this is going.

    You Betcha! (8)Nuh Uh.(0)
  4. 10x25MM
    December 17, 2017 at 6:08 pm

    Anyone who wonders how PPP's turn out in a unit of government with relaxed morals should read this article which appeared in the Chicago Slum Times on Friday:

    Rahm’s trust a bust? Fails to raise a dime but has cost taxpayers $5M
    The Watchdogs 12/15/2017, 11:23pm

    .......The bold idea was that private financing could be found for much-needed, big-ticket improvements for the city, making it possible to get more of them done sooner and sparing taxpayers from having to foot the bills. City Hall says that still can happen.

    But the infrastructure trust has fallen short of the expectations the mayor laid out. It has yet to raise a dime in private financing for a single public works project, records show. At the same time, it has cost Chicago taxpayers more than $5.1 million to pay for its handful of employees, offices on Wacker Drive, consulting fees and other expenses......

    You Betcha! (2)Nuh Uh.(0)

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