Global P3 advisers say Bingaman-Grassley bills would end US market for tollroad concessions
Allen & Overy, a major international law firm say in a commentary that US Senate bills 884 and 885 would "compound the capital starvation of the US transportation network" and could "end the US market for tollroad P3s" (public private partnerships, also known as longterm leases, or concessions). They say S884 titled the "Transportation Equity for All Americans Act" (S. 844), would create significant disincentives for State governments to lease highway property under a P3. And S885 named as "Transportation Access for All Americans Act" would substantially reduce the federal tax benefits currently available to investor concessionaires or lessees of highway property.
S884 wants to exclude vehicle-miles traveled and lane miles of any privatized highway from use in computing a state's entitlement under apportionment of federal highway funds generally. Vehicle-miles and lane-miles on public tolled highways would continue to be used for computing the state's share.
"Privatized" is defined in S884 as any highway in which a private entity has control over operations and owns the toll revenues.
The loss of federal grant money through privatization would be major point against it in political debates within states.
Higher tax rate
S885 increases the corporate tax on privatized highways by:
- extending the cost recovery of "leased property" for tax purposes from 15 years to 45 years
- forcing the write-off of 'intangibles' over the full life of the lease rather than the present 15 year
- close off Private Activity Bonds
The legislation purports to apply to leases or concessions signed in the future, but it is unclear whether future modifications to leases or extensions of concession would trigger the less friendly tax treatment.
Dave Lewis and David Horner at Allen & Overy say in cases like this "the devil is in the details" and is sometimes only established by rulemaking by the IRS, and by litigation, leading to considerable unpredictability in the interim.
Dykema another law firm looking at toll concession law has published a commentary highlighting the "cloud of uncertainty" generated by the Bingaman/Grassley proposals. At Dykema Payson Peabody says depreciating intangible asdsets over 15 years is "critical to the economics of most P3 infrastructure transactions."
States rights issue
Another observer says S884, S885 should be seen mainly as a federal government versusus state and local issue. He makes the point that the states own the roads (including 'interstates') and the states have led the way to privatization.
Long before Mary Peters was secretary of USDOT under Pres GW Bush and supporting privatization, California did concessions on 91 Express Lanes and the South Bay Expressway (then CA route 125 South), and Virginia did the Dulles Greenway, Chicago Mayor Richard Daley privatized the Chicago Skyway and Indiana was leasing the state Toll Road.
To the extent the federal government extracts more tax from new tollroad concessions, this observer points out, the states will get less in upfront fees, or in new construction from concessionaires. What the US drags in in extra taxes will be matched by reduced opportunities for states in privatization and concessions.
A number of states have recently passed new enabling legislation for toll concessions, notably California and Arizona. Texas has been backing away from concessions but some there want to retain the option. Many counties are looking at toll concessions to fund projects. Together with Florida and Virginia which have several important projects there is a potential coalition of governors against S884, S885. (ADDITION: 2009-05-05 14:45)
Brownfield vs greenfield, empty distinction
The rhetoric of the S884/885 sponsors refers to privatization of existing tollroads or "brownfields" facilities such as Indiana Toll Road and Chicago Skyway. But the text of S885 refers to "improvements," so "greenfield" projects - construction of new roads - slated for Texas, Virginia, Florida and many other states - could be caught up in the higher tax measures.
The distinction between greenfield and brownfield projects is irrelevant over time anyway, because so-called brownfield projects usually require considerable rebuilding and improvements immediately, and over the life of the concession they are usually totally rebuilt.
BACKGROUND: Public toll authorities pay no taxes and can issue unlimited amounts of tax-free bonds. Over the past decade and more there has been bipartisan support for measures to reduce the tax disadvantages of investors in infrastructure through TIFIA loans, Private Activity Bonds, and accelerated depreciation - deliberate moves to lessen the handicaps of competing against tax-free 'public' entities.
This is already being reversed with stimulus funds being channeled through public agencies and finding their way into public tollroads. Significantly larger, Build America Bonds in which the debt service is subsidized 35% by the federal government also go exclusely to public toll agencies lowering their fianncing costs substantially.
Now comes the push back of S884, S885, couched in terms of accusations by hostile lobbyists that some of the past measures to reduce the tax burden constitute "sweetheart deals" and "double-dipping" and "profiting from subsidies," "exceedingly generous cost recovery provisions," "perverse incentives," "the tax tail wagging the dog," to quote phrases thrown around by one lobby - Owner Operators & Independent Drivers Association (OOIDA.)
Another lobby the American Trucking Association (ATA) says that the US "cannot maintain a national highway network if key segments are leased" although it doesn't explain why that's so.
ATA wants higher fuel taxes saying 99c in the dollar go to the highway trust fund (neglecting the loss of a quarter to transit subsidies and another quarter to multiple levels of administration and to corrupt earmarking for 'bridges to nowhere') while claiming toll collection costs are one third of revenues (about twice the actual average proportion now, and probably six or seven times the costs of a modern comprehensive all-electronic system.)
Bingaman says his subcommittee "uncovered" the fact that the federal government and taxpayers "now subsidize these (privatization) deals through exceedingly generous tax provisions," failing to say that every single one of these measures was contained in bills passed by the US Congress and signed into law over the past several years - most in the Clinton years.
Now they are "uncovered"!
The bills are formally co-sponsored by Senator Jeff Bingaman (Dem-NM), chair of the Senate finance committee's sub-committee on Energy, Natural Resources and Infrastructure, and Senator Charles Grassley (Repub-IA), the ranking member of the Senate Finance Committee, but were written in collaboration with inside-the-Beltway lobby groups antagonistic to privatization because of its threat to their influence-peddling and earmarking business.
Staff in the senators offices were not aware of the bills until several days after groups claiming to represent trucking interests had heavily publicized them with laudatory press releases. The senators staff had to backdate their own press release by four days to make it appear the senators were on top of the legislation.
COMMENT: This is reactionary legislation that would take America back in a completely in the wrong direction. It would exacerbate the discrimination against private investment in infrastructure and deny highways and the motorists who use them a huge pool of equity capital available for investment. Even the claim that it would gain more tax revenue for the US Government is bogus, because it would kill the very projects that could be the source of tax revenues.
The legislation is being pushed by Washington DC trade associations, groups who make a living out of the political allocation of resources via government taxes and grants, and who play a minor role when resources are allocated by markets. They also oppose tolling and other forms of road pricing by public authorities because public toll authorities are self-sufficient financially, whereas federal and state DOTs are entirely dependent on lobbying and influence peddling for their funds and leadership.
see earlier report with the text of the bills: