The Pew Center on the States has decided to get into the business of opining on highway privatization, most recently with a report that uses the Pennsylvania Turnpike privatization process as a lens to assess highway privatization in general.
So how did it do on its assessment of assessment?
I've always had a generalized view of Pew as good guy, more or less neutral. In fact, that's what Pew says of its Pew Center on the States.
Pew's Center on the States (PCS) works to advance state policies that serve the public interest. PCS conducts credible research, brings together diverse perspectives, and analyzes states’ experiences to determine what works and what does not. We work with a wide variety of partners to identify and advance nonpartisan, pragmatic solutions for pressing problems affecting Americans.
. . .
Pew applies a rigorous, analytical approach to improve public policy, inform the public and stimulate civic life.
The Pennsylvania Turnpike Privatization
For those who don't know, and to put this very complex story in the simplest way possible, Governor Rendell decided to put the Pennsylvania Turnpike up for bid roughly a year ago. This decision was very controversial, first, because highway privatization is always controversial and, second, because the state had just created the Pennsylvania Turnpike Commission and the legislature had recently approved Act 44 as a way to fund infrastructure improvements and maintenance. The decision to privatize the Turnpike, therefore, seemed to undermine these efforts.
At the end of the bidding process, Abertis / Citi were the winners with a bid of $12.8 billion in May 2008. For a number of reasons, the Pennsylvania legislature did not approve the bid, and in October 2008, Abertis / Citi let the bid expire.
So using their standard of "conducting credible research", "bringing together diverse perspectives", and "applying a rigorous, analytical approach" how does this report stack up?
I'm afraid, I would have to give it a pretty low score on each of those metrics. Here are the reasons.
"conducting credible research"
My definition of conducting credible research means doing in-depth analysis, using first hand sources and documents as opposed to second hand opinions or analyses, and making rigorous evaluations of all evidence. However, here, Pew failed to do these basic elements of research.
Turning to the citations in the report, the PCS relies primarily on individuals who were involved in the process of the Pennsylvania Turnpike privatization and its larger context; government reports; and experts. The odd thing is that it never cites to the privatization contract. Instead, it simply accepts statements that others made about what is in the contract.
The PCS also summarizes other privatization contracts, but, oddly enough, never cites to those contracts.
Finally, it briefly discusses European experiences with highway privatization with strong approval. Here, again, its understanding of those arrangements is, at best, superficial. It never considers whether comparing what happens in Europe versus what happens in the US is comparing apples to apples. This failure is on a par with those who compare US auto manufacturers with European or Japanese auto manufacturers without ever considering the role national healthcare and retirement systems play in a company's costs.
One of the areas where it especially falls down is in its failure to consider the impact of the US tax code on highway privatization. It never cites to the US tax code provisions that drive highway privatization and, in the view of many, makes it at all attractive to private companies. Here is an example:
The concession agreements seen to date in the United States stretch over a longer time frame— generally 75 or 99 years—than in Europe, where they tend to last 20 or 30 years. The principal reason for the difference is the desire in the American deals to attract the highest possible upfront payments. The concessionaires are more willing to offer higher bids if they will have a longer term over which they can collect— and raise— toll revenue. Some experts also believe that other factors, such as tax laws, drive American concession lengths. If the concessionaire is deemed the “constructive owner” of the highway by virtue of controlling the road beyond its usable life, depreciation expenses from the highway can be written off on federal income taxes.71
In other words, PCS assumes that the only the market controls these very long contracts. It dismisses the role of the tax code by saying "Some experts believe". Here is an example of Senator Jeff Bingaman commenting on testimony by Peter Orszag before Congress.
I would like to say how troubled I am that a desire to derive generous federal tax benefits is driving exceedingly long lease lengths. As our tax attorney witnesses will explain, in order to take advantage of the tax code’s 15-year cost recovery period, a lessor must have constructive ownership of the road. Constructive ownership is generally attained by having a lease that exceeds the 45-year period that the Bureau of Economic Analysis says is a road’s “useful life.” And so parties will not enter these deals unless they are at least 45 years in length – and often longer, to follow tax advisors’ guidance to be cautious. What we have, then, is the tax tail wagging the dog: Exceptionally long leases in order to recover capital outlays on an accelerated schedule. In essence, today’s tax code provides a taxpayer subsidy for these companies that far exceeds what economic reality would dictate.
This aspect of the tax code is of interest not just because the Finance Committee must prudently shepherd our nation’s tax revenues, but also because there are considerable transportation policy dangers to these very long-term leases. Chicago signed a 99-year lease for the Skyway, a road that, at the time of the lease, had only a 47 operating history. Indiana signed a 75-year lease for its Toll Road, a highway that, at the time of the lease, had only a 49-year history. I question how, with respect to a critical artery of interstate transportation, a state can possibly predict its future needs for a period that is twice that artery’s operating history. It is impossible to envision how transportation will change in the next hundred years. As a point of reference, the Model T is 100 years old this year – can we even pretend to imagine what the next century will bring? These very long lease lengths are all the more troubling because these deals often contain non-compete clauses, which make it difficult for public transportation agencies to address safety and congestion problems on highways and adjacent streets.
I, for one, think we ought to reconsider the perverse incentive that the tax code creates for such long leases – which now come at considerable expense to the nation’s taxpayers. I appreciate that these infrastructure firms are merely following the letter of the law. But if depreciation rules lead to forms of investment that we judge to contravene public policy, then the Finance Committee should consider changing those rules, so that companies can write-off their investments on a timeline that more closely mirrors economic reality.
more here
Were the PCS actually to have conducted credible research, it would have checked out the competing claims. It would also have used original sources. But it did not.
It did apparently did not read the Pennsylvania Turnpike contract, the very document it purported to critique.
Now for an organization that deigns to give advice to others about something this important, you would expect they would go to the sources and also check out statements. Certainly, before it claims the right to make recommendations about issues of this importance and complexity, it really ought to do its basic homework.
"bringing together diverse perspectives"
The PCS report claims to be unbiased and to listen to all players. However, when one examines those whose work it relies on and the ideas it promots, it is clear that the report is highly biased toward privatization as the only solution, as long as it is done right, even though it tries to keep an even tone.
Indeed, the report raises concepts I have only heard from the Reason folks, for example, that one of the benefits of privatization is that you get standards and oversight, something that doesn't exist in the public sector. In this case, the standards are for highway maintenance.
It assumes that the private and public sectors are the same, thus ignoring critical differences. For example, it says at one point that it is reasonable for there to be tax breaks for private companies because they pay taxes but not for the public sector because they do not pay taxes. That would seem to be putting things in a tivialized and a posteriori position. This sort of "reasoning" is more or less what I would expect to hear from the Reason folks.
They do also cite to Reason a few times as one of their sources and also to C. Kenneth Orski, who has done work with the Reason folks as a Reason Contributing writer and co-author with Robert Poole. link
Most of their interviewees and citations are to people who played a role in the PA privatization or government documents. However, where they cite to experts, it is to people in Reason's orbit. Examples include:
Sujit M. CanagaRetna, Senior Fiscal Analyst, Southern Legislative Conference, Testimony before the Idaho Senate Task Force on Treasure Valley Transportation Issues (December 4, 2007). link Council of State Governments’ Southern office is the Southern Legislative Conference - pro-coal, pro-privatization but not as overtly dogmatic as Reason.
Some other experts it cites include Deloitte and the Commonwealth Foundation Sr. Fellow Richard C. Dreyfuss. The Commonwealth Foundation says of itself:
The Commonwealth Foundation’s research and educational efforts are firmly established on several core values that form the basis of a “civil society.” The activities of the Foundation are therefore committed to:
o Respecting and protecting the lives and property of others.
o Recognizing the inseparability of personal and economic freedom.
o Upholding personal responsibility and accountability for one’s actions.
o Challenging the general perception that government intervention is the most appropriate and most efficient means of solving societal problems.
o Demonstrating the power of private institutions—both for-profit and non-profit—to create a good and civil society.
o Promoting the use of economic reasoning to understand a world of scarcity, trade-offs, and the unseen consequences of governmental solutions to societal problems.
In short, the PCS draws on a range of experts that range from the far right to close to neutral. Not one liberal source is cited.
"applying a rigorous, analytical approach"
Rather than analyze, the report gives space to silly statements of little value. For example, the PCS includes a statement from an interview with Republican Pennsylvania state Representative Richard Geist:
“There was fuzzy math; there was misinformation; and there was pure spin,” says Representative Rick Geist, Republican co-chair of the House Transportation Committee and a proponent of the deal. “The misinformation was almost to the point that people thought the Spaniards were going to take the highway and move it back to Spain.
Is this the sort of material that belons in a rigorous, analytical approach? This is the sort of information that most courts would refuse to admit because of its low probative value. Wouldn't citations to actual misinformation be what is appropriate?
The US PIRG reports on highway privatization are far superior. One short piece on the states' capacity to do due diligence on highway privatization may be found here. Its longer analysis Private Roads, Public Costs - The Facts About Toll Road Privatization and How to Protect the Public (Spring 2009) does a very good job of exploring financing. PIRG and its reports are obviously liberal, but tend to rely on neutral reports, in particular from the GAO.
Past unbossed posts on highway privatization may be found here.
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