May 18, 2013

budget – p.33The IRS’sImpossible Job

politics – p.22Watergate: WhenCongress Worked

health care – p.37How DoctorsRun Medicare

economy – p.6Why the U.S. CreditRating Won’t Improve

For Whom theRoad Tolls

Cash-strapped state governments areasking private companies to pay forbadly needed projects. But not every

driver can afford the trip.By fawn johnson

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TRANSPORTATION

The (New)Rules ofThe RoadCash-strapped states like Virginia are turning to theprivate sector to help finance large infrastructureprojects, but it may just be a way of forcing drivers topay more in the long run. By Fawn Johnson

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RICHMOND, Va.—

D usty Holcombe had to look up his newboss on Google when he learned in 2011that he would be transferred to a smallgovernment office with the sole mis-sion of making deals with the privatesector. Holcombe, a 13-year veteran ofthe Virginia Transportation Depart-

ment, had never heard of Tony Kinn, the man tapped tohead the commonwealth’s newly minted Office of Trans-portation Public-Private Partnerships.

That’s because Kinn had spent most of his career faraway from government, honing marketing and business-development strategies for clients such as Macy’s, GeneralFoods, and Procter & Gamble.

Not a typical civil servant, Kinn can sell you an island inMontana. “We’re in the sales and marketing game,” he de-clares. “Twenty percent of the time we’re a state agency—

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sure you’ve done your business model to de-fine that it brings value.”

Together, Kinn and Holcombe form theperfect blend of bureaucratic know-how andprivate-sector competitiveness, a relationshipthat is increasingly vital as state and federalbudgets shrink. Like phosphorus and sulphuron a match, their combined aptitudes are in-tended to spark new and cheaper ways to allowpeople to travel about Virginia with less hassle.

Their solution is to woo corporate part-ners who aren’t shy about boosting their ownbottom lines. Such an unvarnished quest forprofits can be off-putting to residents whojust want the roads to be pothole-free. Whyshould a Wall Street firm make money froma taxpayer-supported utility? Typical public-private arrangements, such as leased roads orprivately tolled tunnels, are often met withgrumpy skepticism by drivers, who are just aslikely to complain about traffic snarls alongthe Capital Beltway or I-264 into Norfolk.

Is the United States ready to make the shiftfrom the Eisenhower-era national highwaynetwork—in which the public owns the roadsand highways it supports with tax dollars—toa partially private, profit-based system thatinvites partners from Wall Street and evenother countries?

The benefits of such a shift are rooteddeeply in the tenets of capitalism, if not pub-lic works. Businesses looking for new marketshave struck a gold mine of need, if they canrespond to it, in the country’s crumbling in-frastructure. If market-based motives oper-ate as capitalism dictates, the private sectorshould be able come up with new and innova-tive ways to solve complex traffic problems ata lower cost for a city or state. The disadvan-tages lie in the public’s potential lack of accessto a needed utility. If private companies runthe roads, it’s possible that those who are ableto pay more would get better access becausethey could assume the higher cost of tolls.

We may not be quite ready for the shift. TheVirginia Transportation Department is fight-ing to keep afloat a $2.1 billion public-privatetunnel project in the Hampton Roads regionafter a Portsmouth judge ruled in May that theaccompanying toll hike was unconstitutional.The case will likely wind up at the Virginia Su-preme Court, putting at risk the department’sability to negotiate tolling authority with pri-vate investors, a near-essential component ofpublic-private partnerships.

There is a history to this kind of objec-tion. Texas Republican Gov. Rick Perry facedwithering criticism for forging a deal with theSpanish infrastructure giant Cintra to builda 4,000-mile network of tolled highways.The project eventually died after the federalTransportation Department refused to sanc-tion it in 2010. The state Legislature madesure to outlaw it in 2011.

business and government is the new normal.The salad days of massive federal investmentin public services are long gone. The most re-cent surface-transportation measure to passCongress, clocking in at $105 billion, didn’teven make it past the halfway mark in termsof keeping pace with maintenance needs forthe next five years. Absent a steady influx oftaxpayer funding to build highways and tran-sit systems, state governments are increas-ingly looking for help from the business world.

Holcombe’s role is to serve as Kinn’s op-posite—the one who makes the gears turn inthe office. He is a government whiz who cannavigate a procurement process blindfolded.Buzzwords and acronyms pepper his dia-logue. Holcombe, not Kinn, is the one you canpicture leafing through back issues of PublicWorks magazine that lie in his office’s recep-tion area, the ones with profiles of heavy-dutyexcavator buckets and track-mounted crush-ers. Holcombe talks like this: “Our goal is totry to mature a project enough before we takeit out for procurement. Get the environmen-tal petition in place. Make sure sketch-leveltraffic and revenue studies are done. Make

the private sector gives not one tinker’s damnabout that.… We’re dealing with them busi-ness-to-business.”

Kinn’s boisterous personality, his whitehair, his overstuffed frame, his mile-a-minutechatter—it all seems to clash with the bureau-cratic nothingness of this public office build-ing in downtown Richmond. He’s an imp, nota drone—the visiting uncle who sneaks thekids an extra dessert at Thanksgiving. “Thisis fun. Are you kiddin’ me?” he says. “We’vegot limited money. We’ve got 50 competitors.”

Kinn arrives an hour late to a meeting withNational Journal and his top two staffers, Hol-combe and project director Jacqueline Crom-well, because he was busy plotting with otherstate officials about the next round of public-private deals coming through his office. Oneproject involves cultivating developers forland around Metrorail stops where Virginiaowns air rights. He dangles tidbits about theother projects without further embellish-ment. In that way, he is also a tease. “One willbe urban, one will be rural, and one will be re-ally rural. I can’t tell you any more,” he says.

Like it or not, this tenuous marriage of

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“We’re in the sales and marketinggame. Twenty percent of the timewe’re a state agency.... We’re dealingwith them business-to-business.”Tony Kinn, Virginia Transportation Department

TRANSPORTATION

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national journal m ay 18 , 2013

market by courting investors who want to de-velop the land around several of Northern Vir-ginia’s Metro stations. They are concoctingsimilar pacts for a NASA space-flight facilityoff Virginia’s coast, looking for investors whomight want to sell recreational rides into space.

“Kind of like King’s Dominion on steroids,”says Cromwell, the office’s program directorin charge of public relations, referring to thestate’s popular amusement park. “Where areyou going to beat flames and shooting rockets?”

The office was the brainchild of the state’ssometimes controversial Republican gover-nor, Bob McDonnell, who has a geek streakwhen it comes to transportation. McDonnellis one of the few high-level elected officialsto openly declare what transportation gurushave been saying for a decade without beingheard: The gas tax is an antiquated way tofund roads. Without changes, highway cofferswill dwindle over time as cars become light-er and more fuel-efficient. McDonnell waspilloried from both the right and the left forhis proposal to replace Virginia’s gas tax withnew sales taxes, but he is to be commendedfor pointing out the elephant in the room. Hisgas-tax replacement bill became law in March.

Kinn and McDonnell are kindred spir-its, but Kinn had not met the governor whenhe was asked to head the new office. “I got aphone call on a Friday afternoon from some-one who says, ‘Do you want to speak to thegovernor?’ My response is unprintable in thisinterview,” Kinn says cheerfully as he holdscourt, Falstaff-like, with Holcombe, Crom-well, and National Journal in a brightly lit con-ference room. “I said, ‘Who are you? What areyou calling me for?’ … I told my wife after bothinterviews, ‘I fixed that one. They’ll never callme back.’ ”

ics be damned: Officials such as Kinn and Hol-combe are looking for creative ways to attractprivate investors to develop roads, tunnels,and government land because they see noother options. State budgets are not going toincrease anytime soon, and tax increases arepolitically unpalatable. What’s more, whenprivate investors are looking for places to puttheir capital, why not take advantage?

“GOTTA FREAKIN’ PRODUCE”Virginia is far ahead of other states in courtingprivate investors. Global analytical firm Inspi-ratia recently ranked the commonwealth asthe top entity in the United States, and secondin the world, for private-sector attractiveness.Virginia’s deal-making seeds were planted in1995, when the General Assembly passed a lawencouraging transportation officials to chaseprivate-sector dollars. Talks with investorswent slowly at first because government fundswere plentiful and public-private partnershipswere in their infancy. By 2012, only three pub-lic-private projects had been completed underVirginia’s law, but 18 others were in the works.

Kinn’s job is to step up the pace, a goal heattacks with gusto. His office is one of the firstgovernment agencies in the United Statesto be judged on the private investment it at-tracts. Since it was formed in July 2011, it hassecured $6.3 billion for Virginia, using $1.8billion from taxpayers as seed money, a bet-ter than 3-1 ratio of private-to-public dollars.

Kinn prides himself on consistently bad-gering all of Virginia’s agencies to seek out po-tential investors. “You gotta freakin’ produce!”he says. “Our job is to drive these agencies,give them opportunities on a regular basis sothat they don’t even want to see us coming.”

Kinn’s office is wading into the real-estate

Former Gov. Mitch Daniels fared better inIndiana. The Republican succeeded in com-pleting a public-private deal to finance the157-mile Indiana Toll Road, which secured$3.8 billion for the state. Yet critics still com-plain that truck tolls could increase more than3,000 percent over the 75-year deal. Econo-mists say the private dollars were a windfallfor the state when the deal closed in 2006, butthe agreement will wind up being a net lossfor future generations.

“It’s almost a kind of confidence game,where you’re continually putting more debtinto the future,” says Phineas Baxandall, afederal budget and tax analyst with U.S. PIRG.

GOP Gov. John Kasich of Ohio recent-ly opted not to pursue a leasing deal with aprivate infrastructure company to upgradeCleveland’s I-90 Innerbelt, because he didn’twant the state to relinquish control of tollingon the road. Kasich is up for reelection, andDemocrats say the move was a political ploy.Political or not, the decision shows the gover-nor is sensitive about public wariness when itcomes to handing over roads to unelected en-tities, no matter how efficient those business-es are at doing the work.

Public-private ventures can cause newkinds of headaches. Market investors don’trun in the same circles as bureaucrats, andthey barely speak the same language. (This isone reason Holcombe and Kinn make a goodteam: They can translate for one another.)

And that’s not the only problem. In busi-ness, a cash return on an investment is ex-pected, something generally not required ofgovernment-paid projects. Taxpayers stuck intraffic and having to pay out of pocket for theprivilege get even grumpier.

Skeptical taxpayers and sketchy econom-

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Cash up front: Indiana Gov. Mitch Daniels’s plan to privatize the state’s toll road has been widely criticized.

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BEYOND BUREAUCRACYKinn was just the type McDonnell wanted forthe job: a business-first operator who isn’t hap-py unless investment opportunities are mov-ing, moving, moving. Kinn met his team forthe first time at an alehouse across the streetfrom their Richmond office. “I talked to thesepeople, and I thought, ‘My goodness, if theyjust allowed these people to do their jobs, wecan do just about anything we want,’ ” he says.

His attitude toward his staffers, whom hesays he dearly loves, is an odd mix of contemptfor government culture and awe of their indi-vidual expertise. It drives him crazy to seetheir ingenuity squelched in bureaucracy,and he insists they have to rise above it. “If Iwant the private-sector industry to play withus, then our people have to be held to a higherstandard,” he says. “They have to deliver.” Forexample, Holcombe and his team created an

interim agreement with two private partnersto help finance the tunnel between Ports-mouth and Norfolk, which got them in earlierthan usual. That made everything work bet-ter. “We were both putting funds in for the de-velopment of the project,” Holcombe says. “Itmatured the project a little bit more.”

Holcombe and Cromwell, who each havedecades of civil-service experience, are criti-cal players in fashioning deals that are attrac-tive to the private sector. They make sure per-mits are delivered on time and concurrentlywith construction plans. They navigate thematrix of federal, state, and local rules forthe private companies. They schedule pub-lic meetings and contact all the stakeholders.They let the private partners in on the con-struction planning early so they can seek theirown contracts in non-bureaucratic ways.

“You’ve got contractors that are not look-ing so much for change orders or more mon-ey or more time out of a traditional contract.They’re looking to deliver on time, on budgetfor less than what they told you,” Cromwellsays. “It’s a completely different way.”

Public-private partnerships make senseonly for the biggest and most complex infra-structure projects. Simple road paving, for ex-ample, needs nothing more than a standard“design-bid-build” process to seek out cost-effective contractors. It doesn’t need a lot ofup-front money, and the job can be completedin a few months or years.

Bigger projects that span five, eight, or 10years—and probably a few electoral cycles—benefit from private-sector partners becausethe firms can infuse a state with cash at thefront end. They can also provide consistencyin the design and construction phases even ifpolitical administrations change. No matterhow sophisticated an infrastructure contractgets, private-sector partners add a tricky newdimension to an already difficult process. Un-wieldy projects can run amok for any numberof reasons, and that makes some people suspi-cious of the private partners from the get-go.

The biggest concern the public expresses,although often not in an organized fashion, islack of accountability. Citizens carry the im-pression, true or not, that a big project is beingturned over to a company that has no roots inthe community and no reason to take the pub-lic’s preferences into account. The reality tendsto be more complex. Municipalities often havedueling political goals. Large projects tend tocross several local jurisdictions, which canmake the political talks messier. Even withoutthese local problems, transportation analystsacknowledge that elected bodies will alwaysend up ceding some of their authority to a pri-vate entity in the course of these deals (wit-ness the recent dustup over flaws in the SilverSpring Transit Center in suburban Maryland).That doesn’t always sit well with the locals.

TRANSPORTATION

Life is a highway: After itsconstruction, the interstate systemimparted to drivers an unprecedentedsense of freedom and mobility.

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Such doubts were on display when Kinn’soffice sought private investors to operatewhat’s called the Port of Virginia, composedof ports in Newport News, Norfolk, andPortsmouth. The administration thought aprivate operator seemed like the right ideabecause the port was not running efficiently.Yet the Virginia Port Authority’s board of di-rectors unanimously turned down multipleprivate offers in March and stuck with its ex-isting nonprofit government operator. Theunspoken reason, according to several ob-servers, was that the nonprofit was a knownand trustworthy entity to the port operators.The private bidders were unknowns, and theprospect of dealing with them made the busi-nesses surrounding the port nervous.

The decision didn’t go over well with thelosers. David Narefsky, an infrastructure law-yer for Chicago law firm Mayer Brown, seesthe failure to secure private operators at thePort of Virginia as a show of weakness bythe McDonnell administration. Kinn’s officecould not overcome the general anxiety abouta long-term private-sector lease for a highlyvisible Virginia asset.

Kinn even had to buck up his own stafflawyer when it was over; the lawyer thoughtthey had lost the fight. “I said, ‘You have wona major battle. You’ve changed the Titanic.You’ve created mileposts. You’ve created sign-posts on how the performance needs to bedone, and our job is to do projects that benefitthe citizens of the commonwealth.’ ”

Kinn and his staff spend a lot of time cal-culating and communicating the benefits ofpublic-private partnerships. In January, theypublished a slick-looking set of fact sheets formembers of the General Assembly highlight-ing the jobs and personal-earnings growththat come from projects such as new expresslanes on the Capital Beltway and improve-ments to Virginia’s Route 460. Fairfax Coun-ty, for example, realized $425 million in addi-tional personal earnings for its residents andgot support for more than 13,000 jobs, ac-cording to the fact sheets.

It is imperative for the office’s success, andthe success of public-private partnershipsanywhere, that these types of jobs and earn-ings numbers are repeated again and again.Complaints arise automatically when newprojects are announced, especially if they in-volve tolls. By taking a more holistic view ofthe economic impact, Kinn and his team hopeto expand the dialogue about privatizationbeyond just tolling and fees to also includejobs and earnings figures.

“PAY OUT THE KAZOO”Drivers hate tolls. That is the beast thatKinn’s team is continually fighting, and it isalso the biggest drawback to government’sexploration of private-sector deals. Tolling

is the most common characteristic of public-private transportation agreements because itis the private sector’s way of collecting pay-ment for its work.

Kinn ran into this problem almost imme-diately. His first task was to close a pendingpublic-private deal to finance a new tunnel inthe Hampton Roads area connecting Ports-mouth and Norfolk. The negotiations werefar along and relatively noncontroversial;they began in the administration of Virginia’sDemocratic former governor, Tim Kaine, andwere heartily endorsed by McDonnell.

Kinn brought the agreement to the finishline in December 2011, less than six monthsafter he took his job. The project is valued at$2.1 billion, with a taxpayer contribution of$420.5 million. The new Midtown Tunnel isslated to run parallel to an existing tunnel un-der the Elizabeth River. The two private-sec-tor partners, the Australian Macquarie Groupand the Swedish Skanska Infrastructure De-velopment, will operate and maintain the toll-ing for both tunnels.

Here’s the catch: Tolls will go up 25 centsper car in 2014. After that, they can go up an-nually, as much as 3.5 percent a year, for 56

years. The private partners will use the tollrevenue to maintain the tunnels and subsidizebus and ferry services between Portsmouthand Norfolk. They will pocket the rest.

McDonnell hailed the agreement withMacquarie and Skanska as “a significant stepforward for transportation improvements inHampton Roads.” Some constituents weren’timpressed. “He outsourced this mega-billion-dollar contract to a foreign country and gotour corner of the state to pay out the kazoofor the next 56 years to the tune of a guaran-teed $20-something billion in profits,” wasone comment on the website for the local Vir-ginian-Pilot newspaper.

“NO TOLLS!!! NO TOLLS!!! NO TOLLS!!!NO TOLLS!!!” shouted a commenter on thewebsite for WAVY, the local NBC News affiliate.

Experts shrug off such pocketbook com-plaints, contending that the beauty of the dealisn’t readily apparent to people forking over$1.84 every time they traverse a tunnel. Theaverage Hampton Roads resident doesn’t see,for example, that Virginia taxpayers no longerhave to assume the “revenue risk” that comesfrom unpredictable traffic patterns, says Si-mon Santiago, a lawyer with the Washington-based Nossaman law firm, who helped brokerthe agreement with Macquarie and Skanska.

Transferring the risk to the private sectorgives state officials the ability to “keep pub-lic contributions at their lowest,” Santiago ex-plains. Private companies, meanwhile, haveincentive to “keep tolls at their lowest” to at-tract customers.

The rationale is cold comfort to manyHampton Roads residents. Regular com-muters calculate that the initial toll hike willamount to $1,000 in yearly travel expenses.Truckers could pay as much as $15 to crossduring rush hour, an expense that could forcesome of them out of business. As an added ir-ritant, the contract calls for tolls to go up inFebruary 2014, but the new tunnel isn’t sched-uled to open for two years after that.

The fate of the toll hike is in doubt afterPortsmouth Circuit Court JudgeJames Cales Jr. ruled that the lawused to craft the Midtown Tun-nel agreement violates Virgin-ia’s constitution. Cales said ina court hearing that he agreedwith the plaintiffs’ assertion thatthe General Assembly cannotpass a law that cedes tolling andtaxing authority to another enti-ty. The agreement with Macqua-rie and Skanska does just that.An appeal will likely wind up atthe Virginia Supreme Court, andit could prompt major queriesabout the ramifications of invit-ing Wall Street firms to financepublic infrastructure.

Two for the Road

Public-Private Transportation Act Projectsin Virginia

Source: Va. Office of Transportation Public-Private Partnerships

Virginia’s transportation partnerships focuson traffic-choked regions, such as the state’ssoutheast corner.

CompletedUnder constructionIn procurement

Transpo-geek: McDonnell

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TRANSPORTATION

“The principle of public accountability hasto be stabilized,” says Patrick McSweeney,the lawyer who represents a Portsmouth CityCouncil member and hundreds of other resi-dents in the case. “Elected officials are out ofthe picture for 58 years.”

McSweeney says it is typical that big pub-lic-private infrastructure projects like theMidtown Tunnel go unchallenged becausethe public can’t figure out how, or whom, tofight. They may be told one thing in an earlypublic meeting and then, as a deal develops,some of the features of the project change.They may face divided opinions among theirelected officials.

“The developers, the chamber, they havesuch an influence on government. The gov-ernment officials don’t realize they are beinginfluenced in that way,” McSweeney says.

It’s hard to get the public’s attention untilit’s almost too late. Despite the government’sseemingly endless stream of postcard notices,public meetings, Web announcements, andcommunication to local media, someone willalways be caught off guard.

“Throughout this whole process, you willstill get individuals who indicate, ‘Oh, I neverknew about this project,’ ” Holcombe says.

MONSTER IN THE CLOSETIt is ironic that one of the most socializedparts of American society, the national high-

way system, came about out of fear of beingoverrun by communism. At the height of theCold War, President Eisenhower saw the follyof a local, unconnected, and disorganized net-work of dirt roads if the country ever faced aland invasion or an atomic bomb. As supremecommander of the Allies in World War II, hehad been inspired by Germany’s autobahnsand the ease at which goods and services (andweapons) were transported.

Less well-known is that Eisenhower orig-inally proposed that the national highwaysystem be funded by tolls. The DemocraticCongress rejected that, and negotiators fi-nally hit on the idea of a Highway Trust Fundfed by a tax on fuel. Half a century later, withfuel-efficient cars putting a big dent in TrustFund revenue, states are scrambling for solu-tions. Still, the public by and large isn’t readyto surrender its romantic, 1950s-era world-view. “Nobody wants to pay for somethingthey think they are getting already for free,”says Patrick Jones, executive director of theInternational Bridge, Tunnel and TurnpikeAssociation, offering perhaps the best expla-nation for why public-private partnershipshave not been used to their full potential inthe United States.

Jones, who represents the tolling indus-try, believes the public negativity about toll-ing is misplaced yet understandable. After all,the only time tolling shows up in the news is

when rates go up. This phenomenon is so per-vasive that Jones’s group is trying to counterwhat he calls the “niggling negativity” abouttolling with a relentlessly upbeat public-rela-tions campaign.

Last year, IBTTA hired a team of PR ex-perts to make sure the industry is pointingout the positive aspects of tolling at everyopportunity. When San Francisco’s GoldenGate Bridge implemented all-electronic toll-ing, for example, the association applauded.“Tolling once meant, ‘Stop.’ But today high-tech tolling means ‘Go, go, go,’ ” Jones says inthe press release.

People may be willing to embrace tollsif they have few other choices. A recent pollfrom the infrastructure firm HNTB foundthat 46 percent of respondents preferred newroads funded by tolls if the only other choiceswere new roads funded by higher gas taxes (25percent) or no new roads (28 percent).

People also feel better about tolls if theysee a direct benefit from them. Seventy-onepercent of respondents in the HNTB poll saythey would be willing to pay a higher fare on aroad or highway to save travel time.

Therein lies the problem. The benefits oftolling are frequently not obvious, and yearsof construction while tolls are still being col-lected further cloud the picture. It is difficultto walk back from an initial bad impression.The headlines about the improvements for

Tunnel vision: Taxpayers are covering less than a fourthof the $2.1 billion cost of the Hampton Roads project.

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Cleveland’s I-90 Innerbelt highlight the traf-fic jams during construction. Regular usersof the Hampton Roads tunnel fear similardelays. It’s not hard to see how a toll hike be-comes an additional affront to drivers.

Even when commuters are given thechoice, they may not opt for the costlier, fast-er way around. The “HOT lanes” on I-495, an-other of Virginia’s much-touted public-pri-vate partnerships that gives drivers the choiceto pay to avoid Washington’s Beltway conges-tion, posted an $11.3 million loss in the first sixweeks of operation. Drivers simply didn’t seethe need to pay the extra money. “It’s kind ofexpensive,” one Virginia driver told NJ.

In Hampton Roads, Kinn thinks Virginiascrewed up the public-relations effort becausethe toll hike was one of the first and mostwell-known facts about the project. “If timingis everything, the horse had left the barn” bythe time the deal was inked, he says.

Kinn has a better way of explaining it, buthis sound bite now comes off like an excusefor the toll hike instead of a big bonus for thearea. He believes local drivers should not havehad the opportunity to add up the annualcosts of the toll hikes without taking into ac-count reduced gas expenses and faster com-mute times. “Would you pay 18 cents a day toget home an hour earlier?” he asks.

PLEADING THE CASEPublic-private partnerships have a distinctadvantage in the current political climate.They bring in dollars from private investorswilling to bet on the future flow of traffic sothe state doesn’t have to. The terms of suchdeals tend to be good for cities and states thatare short on cash—they get two to three timesthe value of the taxpayer investment for a newroad or bridge. They can then invest morestate money in basic repairs.

“A city or a state says, ‘There’s no way wecan raise money, and [a public-private part-nership] puts money on the table,’” says Bax-andall, the PIRG analyst.

That’s more or less how it worked inHampton Roads. The Midtown Tunnel hasbeen the No. 1 transportation priority in thearea for at least 10 years, but it is hugely ex-pensive. The deal with Macquarie and Skan-ska definitely makes sense at the moment,with three-fourths of the up-front costs com-ing from two outside companies. It could turnout to be a worse deal later, and the residentswould have no recourse.

“Twenty years from now, let’s say, peoplemay be cursing how high these tolls are. Thepeople who put down the Hampton Roadsproject now won’t get the blame for that,”Baxandall says.

It is difficult to fault the Hampton Roadscontract on any other grounds than a ba-sic dislike for private-sector involvement in

government and the long-term obligations itbrings. The project gives an economic boostto the area with minimal risk to the taxpayer.The negotiators had the right expertise, didtheir homework, got all the technical speci-fications right, and touched base with all theright people. The Virginia Transportation De-partment and the attorney general’s office arebanking on a judicial reversal from their ap-peal, and the beginning stages of tunnel con-struction are going forward in the interim. Ifthe contract is found to be unconstitutional,the department could find itself with a $1 bil-lion financing hole to continue the project.

It wouldn’t be the first time a deal likethis threatened to crumble. A classic exampleof a public-private partnership gone awry isthe South Bay Expressway, a 10-mile expresstoll road near San Diego. California negotiat-ed the deal in 1991 with Macquarie, the samecompany partnering in the Hampton Roadsproject. In 2010, just three years after the roadopened, the private operator hired by Mac-quarie declared bankruptcy. San Diego even-tually bought the road back at fire-sale terms.

The South Bay deal was among the first ofits kind in the United States, and it sufferedfrom rookie errors. Delays and unexpectedcosts led to large budget overruns. A design-and-build team sued Macquarie over the con-struction timetables. The road opened forbusiness at the start of a massive economic re-cession that hit Southern California especial-ly hard. Both the costs of the lawsuit and thecollapse of the subprime housing market werecited in the bankruptcy declaration.

Even here, the story has a happy ending.After the city took over the expressway, it

was able to slash tolls by almost half to attractdrivers. Usage went up 20 percent in just a fewmonths. The road won’t be paid off until 2042,but like any mortgage, the owner-taxpayerscan use it while paying down their debt.

Since that debacle, government operatorshave learned a lot about how the pieces of apublic-private partnership need to fit togetherto make sense to the public. Kinn likes to saythat even the name is a misnomer. “They’renot public-private partnerships,” he argues.“They’re public, private, political, publicity-type partnerships. We don’t have any public-relations arm that’s strong enough to dealwith what we’re facing.”

That’s why Kinn recently hired a politicaloperator and an old friend, Rick McGeorge,whose main job is to go from town to townand make sure Virginia’s local officials andopinion leaders are aware of potential public-private infrastructure projects in their areas.The worst thing the deal-makers can do to acity is blindside it, even if the projects on tapwould be a boon to residents.

Kinn and McGeorge spend a lot of timeon the road, glad-handing. “We’ve gottento know the mayors. We’ve got to know the[metropolitan planning organizations],” Kinnsays. “I’ve taken Rick on one of these junkets.It’s tiring for Rick, and its tiring for me. Butwe don’t walk in there as unknowns. Everykey person is there. We’ve worked to earn thatright, and now we’ve got to stay there.”

These “junkets” seem more like politi-cal tours than business trips, but Kinn un-derstands they are just as critical to a well-crafted deal as the final signatures in a CEO’sconference room. Like politics, all business ispersonal. Local champions are essential whenyou blend government with business, becausethe agreements look smarmy and opportunis-tic without them.

The rules are simple: Get the mayor andcity council on board; show the neighbor-ing mayors and city councils that you haveideas for them, too; treat cities like equalswith your private-sector partners; above all,do not underestimate the people by keepingthem in the dark. Kinn’s team is comfort-able presenting at churches, county fairs, 4-Hclubs, and any other community group thatwill have them. Still, it doesn’t always work.They did all of this outreach for the HamptonRoads tunnel and still met considerable op-position in Portsmouth.

Even so, it’s hard to imagine a transporta-tion network operating in this budget climatewithout the influx of private-sector cash. Thepeople who protest that investment, such asPortsmouth lawyer McSweeney, acknowledgethat the government has its back up againsta wall, that choices have to be made. “Maybeit’s better,” he says, “just to recognize we’vebumped up against the debt limits.” P

“Twenty yearsfrom now, let’ssay, people maybe cursing howhigh these tollsare. The peoplewho put down theHampton Roadsproject nowwon’t get theblame for that.”Phineas Baxandall, analyst for U.S. PIRG

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