Recently I had an opportunity to converse with Rep. Paul Opsommer about the hotly debated DRIC bridge and HB 4961.
Below is the results:
Joan: Rep. Opsommer, thank you for your time. As Vice Chair of the House Transportation Committee I appreciate the information you have to share today.
Rep. Opsommer: Thank you, it is my pleasure.
Joan: I have to tell you, HB 4961 is a very confusing bill. I know it is supposed to relate to the DRIC (Detroit International River Crossing) bridge debate, but you would never know that by reading the bill.
Rep. Opsommer: You’re absolutely right, it is confusing. What HB 4961 does is give MDOT new powers to enter into a variety of tolling contracts on their own, without legislative approval. If you’re on the inside you know that one of the projects they would like to do is the DRIC, so that is why the mainstream media is calling it the DRIC bill. But the word DRIC or any of its details aren’t actually in it.
Joan: So why write the bill like that? Wouldn’t it be normal to just write a bill specific for that bridge?
Rep. Opsommer: MDOT absolutely could, and in fact if you look at all the rest of the toll projects we have here in MI they have been authorized only after the legislature has voted to specifically allow for tolling to take place. I have a letter from the Attorney General’s office that confirms that currently MDOT can’t toll bridges, roads, or other projects on their own; they have to get permission from the legislature first.
Joan: And that would go away then if HB 4961 is passed?
Rep. Opsommer: Yes, it would. MDOT would be able to create and enter into these tolling projects on their own, and the legislature would have no say in it. And that would apply not just to the DRIC, but to any project anywhere in Michigan that MDOT would like to toll.
The jury is still out in Michigan on how much people want to see tolling get used; I hear arguments on both sides. But when I talk to taxpayers there is wide agreement that decisions on where to toll, and how high the toll rates can go, should stay with someone who is elected. Otherwise you have unelected bureaucrats making those decisions, and whether you want to call it a toll, a user fee, or a tax, I think we should make sure it is still the legislature who approves the use of toll roads in particular. This is even more important when I hear that toll road rates would be used not just to break even on a project, but as a source of revenue for mass transit and other projects. If you are going to set toll rates not based on breaking even but to generate revenue for other purposes, it is no longer a user fee, it is a tax.
Joan: The Governor has control over MDOT, correct?
Rep. Opsommer: Yes, it is her department, but if you cut out the legislature you lose an important check and balance. The Governor would be able to enter into tolling contracts on her own. In my mind whether you want to look at it as the administration having that power or MDOT, it is very similar either way. Otherwise, you might find that some of the roads in your backyard have been turned into carpool lanes, or toll roads, and there won’t be anything your State Representative or Senator can do about that.
Joan: So they can’t just change the law?
Rep. Opsommer: Maybe going forward, but not after the fact. There is for example a moratorium on these kinds of projects now in Texas, called “Public Private Partnerships”, because people got upset after the law was passed and projects were underway. But the projects that were already started had to be allowed to go forward because the contracts had already been entered into. These agreements can be worth billions of dollars over the life of the contract. They can last 50, 75, even 99 years or more, and the lawsuits that would arise out of trying to break them would be monumental. You remember what happened here in Michigan with the contract for the State Police HQ. That contract would be small peanuts by comparison.
Joan : The term used to describe these projects in HB 4961 is called “Public Private Partnerships” Can you define for me Public Private Partnerships?
Rep. Opsommer: Well, these are generically referred to as “P3s”. I think everyone knows what a public road is, and everyone knows what a private road is. A P3 is kind of like a blend of the two, that depending on who you talk to can either bring the best or the worst of big government and big business together.
Joan: How would you answer that question?
Rep. Opsommer: To me, it all comes down to how much taxpayers can be on the short end of the stick if a toll operator doesn’t get enough revenue. Let me explain how these work. In some cases, what will happen is the state will lease a piece of its infrastructure over to a third party. The state gets a big chunk of money upfront, and in exchange the private operator is allowed to use tolls or charge the state rent on those roads for several decades to both recoup that money and also make a profit. In other cases they will build a new road and essentially do the same thing.
Most people who have called my office are more concerned when existing infrastructure is leased out than they are over when something new is being built. They don’t like the idea that something that they have already paid for and already owned is being handed over. In the case of the DRIC bridge, we would be looking at them building something new. The main concern for me there is whether the state would have to come up with “availability payments” if toll revenue isn’t adequate to cover the cost of maintaining the bridge. Because if the state has to pay, we all know that really means taxpayers.
Joan: What is an availability payment?
Rep. Opsommer: I guess you could best describe it as a form of rent, kind of like a financial guarantee. Basically, MDOT could enter into one of these tolling agreements and structure it in a way where the private operator would be guaranteed a certain amount of money every month. It would be set up so that they would get that money primarily through tolls, but in months when not enough people drove, the state would step in and make up the difference. So that is one way taxpayers could end up on the hook if you do these wrong, because we would have to take that money somehow out of our general fund or gas tax revenue.
Joan: So why would the state make that guarantee? The way I have heard the DRIC bridge described it would be private companies taking on all the risk.
Rep. Opsommer: Well, that is kind of the rub, and the debate, and that is why people realize that a public-private partnership is not the same as a truly private project. In a truly private project, a private operator does assume all of the risk. If they have a month where ridership is down, they eat that. There are no guarantees for them, there are no noncompete clauses to protect them, and they can’t rely on eminent domain to secure property for them. Those are the kinds of questions that need to be answered before you can determine if a P3 is prudent or if it is just a government sanctioned monopoly.
Joan: What is a noncompete clause?
Rep. Opsommer: They can mean a lot of different things, but in general they are parts of these contracts that help to give the private operator certainty that they will be able to make a higher rate of return on their investment. In some past cases, they actually prohibited the public from building for example any new roads that were close enough to the toll road where they might be considered as competition. It is my understanding that type of clause is not used much anymore, in favor of what they call “compete penalties”. This is where the public could still build its own roads, but would first have to pay the operator compensation to retain that right.
So that is another way that tax dollars come into play on these deals. In some cases the contracts are written so that you can minimize the amount of compensation that would have to be owed by intentionally slowing down some other roads to make the toll road look more attractive. There was a case of this in Colorado I was reading about where they lowered the speed limit and added traffic lights on a parallel public road in an effort to get more people to use the toll road instead.
Joan: Really. Is that legal?
Rep. Opsommer: I’m not sure if there have ever been any decided court cases over that, but that is what is in some of these contracts and how they get enforced. These contracts get relied on and when people complain everyone shrugs their shoulders and says I didn’t vote for it, it’s part of the contract and out of my control. That is one reason why I think you still want the legislature to vote on where these contracts can be entered into, so we can put some qualifications on them to make sure they don’t run counter to legislative intent. I’m a free market advocate, but I’m not an advocate for a fixed market based on collusion and public manipulation.
Joan: Rep. Opsommer, you also mentioned eminent domain. Didn’t we change law so that you can’t take private property from one person if you are just doing that for another private entities business purposes or profit? There was a big reaction to the Supreme Court case.
Rep Opsommer: Well, it is my understanding that eminent domain concerns were one of the reasons for the moratorium on these in Texas. Depending on who you listen to they wanted to construct parts of the so called NAFTA superhighway, which was going to be a big project and was going to take a lot of land that some people didn’t want to sell.
I wasn’t there so I don’t know the ins and outs of all that, but I do have a question about eminent domain and how it would work under HB 4961 because of some clauses about additional commercial activities and also how they define an instrumentality of government. So you may not be talking about property just for roads and bridges, but also for gas stations, fast food restaurants, or things like hotels if they are part of the project. And even if eminent domain remains with a public body, it needs to be in a public body wholly from this state, not in a non-domestic instrumentality of government.
Joan: Rep. Opsommer would you please explain what an “instrumentality of government is?”
Rep. Opsommer: That is a good question, I’m not sure if it is entirely clear in HB 4961 as written. My first take on it is that it is a kind of “government authority”. Authorities are new governmental bodies that get made by other governments in order to do things jointly. For example, you may have several fire departments in different communities that come together and form a fire authority that somewhat merges the departments.
In the case of HB 4961, MDOT gets to create new authorities between them and other governmental units to form a new instrumentality of government that would govern a certain project. It would have the powers of MDOT, but other members in the authority would also get to help make decisions. When you look at how HB 4961 defines an instrumentality of government it includes governments from other countries and other states. So if a project gets governed by a mixed authority, you could have people from outside of Michigan having a vote on what happens regarding toll rates or eminent domain on the Michigan side of the border.
Joan: Well I find that alarming! Can you give me an example?
Rep. Opsommer: Well, let’s use the DRIC as an example. You could set it up so that Michigan owns its half of the bridge, and Canada the other half. Michigan then sets the toll rates on its side. That is how the Bluewater Bridge works for example. But if they want to create a new instrumentality of government to be the authority that governs the entire bridge and sets those rates, they need to find a way to bring Canada in. Some other bridges are set up that way.
I think it should be up to the legislature to be part of that process, determining how it would work, rather than just letting MDOT be able to approve it. I mean, Canada is supposedly loaning us $550 million dollars to help build this. I want to make sure there are no strings attached to that money. I don’t want a situation where as a result of that money we only end up owning 40% of the bridge. I don’t want to see a situation where eminent domain decisions are getting made on property holdouts on the Michigan side in way we can be outvoted.
Joan: And that hasn’t that all been decided?
Rep. Opsommer: No, not at all. You will read a lot in the main stream media that would make you think that. But there is nothing official. Remember, as you said, DRIC is not even mentioned in the bill. In fact, Canada or Canadian corporations being an instrumentality of government isn’t limited to just the DRIC. Like most of HB 4961, it is very open ended, and since they want to include governments from even other states, you have to assume that there are other mixed-governance projects like this that they have in mind.
Joan: Is it just Canada, or Canadian Corporations also?
Rep. Opsommer: The bill says both. I am looking into that, and they appear to be corporations that could best be described quickly as similar to not for profit corporations. I wanted to find out if the Ontario pension fund OMERS could be one of those corporations, but if they could I think it would have to be as a sister company.
Joan: Both? That’s another cause for alarm. Who is OMERS?
Rep. Opsommer: They are one of the likely bidders on a P3 for the DRIC. They were recently granted new investment powers by the Canadian government, and as we see more instability in stocks and bonds there is this push to find ways to turn transportation projects into a reliable stream of revenue. I think it is one of the reasons Canada is so interested in doing all of this. They have fought with the Ambassador Bridge on some issues, and if the DRIC would allow them to bypass that and also earn their pension funds profit at the same time, I see how this would be a big win for them.
Joan: So, what are your thoughts? Is the DRIC going to be built?
Rep. Opsommer: I honestly have no idea. It has passed out of the House, and could be voted on in the Senate any day. It’s obviously an important issue I have been involved with, but until I get answers to all of these questions its hard to say with any degree of certainty what it is you are even being asked to vote on. But as long as they are wrapping the DRIC bridge up into the P3 bill HB 4961 it will certainly be a highly controversial issue. I don’t want to see tolling take place in the counties I represent just because of a bridge debate on the other side of the state, especially when HB 4961 would strip me of being able to vote on it.
Joan: Are these laws allowing for that right to be stripped away in other states, or is this just being proposed in Michigan?
Rep. Opsommer: In some they only allow these with legislative approval, but in other cases they are indeed taking that power away. California is an example where their DOT doesn’t have as broad of power as what is being proposed in MI, but they recently changed the law there and stripped away the power from the legislature. So in some ways what MDOT is proposing is less than what they now have in California, but in other ways they want to mirror what Schwarzenegger has done and even go beyond that.
In Chicago they have done a lot of P3 projects, they recently turned their parking meters into a P3 project, and they almost did the same thing with the airport. Things have slowed down there a little because of the scandal with Governor Blagojevich that was in part due to him allegedly trying to raise cash with his unilateral ability to enter into projects like these. That case is now being heard, so we’ll have to see what the facts are in the end.
But Chicago has in general been raked over the coals for these deals because they have almost entirely spent all the money they received on these deals less than 5 years into them when most of the contracts last for 75-99 years. This is how they balanced their budget to a certain degree, but I think eventually they are going to run out of public infrastructure to put on the market, and they’ll end up at the exact same place they started.
Joan: Rep. Opsommer, thank you for your time. I appreciate your updating us on this important issue.
Rep. Opsommer: Thank-you.
When:April 15, 2010 Noon-2:00pm
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