You knew that, of course. The people who take the tollroad pay for it. The rest of us who don't want to pay take free roads. It's win-win for everyone. It's the free market at work. It's almost a free lunch. It's magic.
All this is true only if you have no ability to see beyond economic fundamentalist theoretical rhetoric, buy promises made by people who are self-interested and stand to make the big bucks if they get that road built, and refuse to trust what is in front of your own nose. Today's story in the Denver Post series builds on yesterday's story.
Today's Denver Post story tells us a sordid story that explains why so many tollroads are in trouble. Link.
Bias, Prejudice, Bad Judgment
People have known for thousands of years that money and bias warp judgment. Just pull down your Bible, blow off the dust, and you'll find injunctions about how judges are to behave so they issue just rulings. What warps judgment is money, self-interest, and sympathy for one side. Same goes whenever anyone has to make any decision. It doesn't apply just to court cases.
That's why there are so many rules that are supposed to keep government workers and thus government honest.
The process by which tollroads are built is a classic case of lots of money to be made warping judgment. When the trough is full the pigs come running.
Types of Self-interest
Chuck Plunkett of the Denver Post dissects the ways that self-interest led to bad outcomes. Read the article for the full story, but here I'm going to list the types of opportunities for corruption. File them under lessons [that should be] learned.
1. Consultants knew that if their studies came out one way, they would get paid for the study. If they came out another way, they would be paid for the study and reap additional millions. Faced with that choice, who wouldn't be tempted? Who wouldn't shade their judgment just a bit when there was doubt?
From that $200 million, Wilbur Smith collected more than $12 million for a pair of contracts the authority promised the company if the bonds were sold - even as the company prepared the revenue projections that justified the loan.
2. People with important political connections but with no expertise in highways were given important - and lucrative - jobs. These jobs involved getting those tollroads built.
3. People were involved in the process who had been busted before for things like "improperly accepting money." In plain English, taking a bribe. Crooks into the process, corruption out.
These guys are so used to corruption, bias, and hanky-panky as the norm, they don't see it when they've stepped in it. They are deep into denial. Here's Exhibit A.
In an interview at his Greenville home, Farris defended the arrangements. He said that Thrift Brothers was well- regarded and did excellent work. He said Wilbur Smith - as well as Vollmer and URS - were excellent companies with enough professional integrity to resist any external pressure.
"I would not want to be party to any charge of an ... optimism bias," Farris said, adding that researching such arrangements was "a waste of time."
The financing system, he said, is filled with checks and balances, chief among them the bond-rating agencies, which scrutinize the projections carefully.
Here's Exhibit B.
Asked about the dual roles URS assumed on the Polk Parkway, Seminole Parkway and Western Beltway, Ely dismissed any questions about possible conflicts of interest.
"This notion that URS, if they do a traffic and revenue study, might be more liberal if they might get work, I don't buy that," he said.
Ely also said that URS got its estimates "on the money," until asked about several misses documented in this series.
In contrast to the opinions of several Wall Street analysts, Ely said, "I think it's shortsighted to look at its projections in its first years."
There are more examples in the story.
4. People covered up for their and their buddies' errors. They excuse it in a million ways. "No one could have predicted this" "Be patient. If you wait long enough, you'll see. The money will come rolling in." "These guys are experts. No one could have done better."
Who paid for the free lunch?
Everyone has ended up paying. For some it's easy to see, for the rest of us, we don't even know that we've been shelling out. We're the worst patsies. We've been conned, but we think we won the big one.
So here's how you're paying.
When the tollroad projections were not met, the tollroad authorities still had to pay the debt. They could refinance, but now they will find it hard to get a good rate. Everyone knows this is a bad deal. They could look for other ways to pay, but in the end it means the taxpayers pay. It may be a mere penny here or there, or it may be public needs not met, but in the end you pay.
Some roads were built with loans from life-insurance and investment companies. What happens when they do not get a return on that investment? Insurance rates go up. Noticed anything happening lately with the cost of insurance for homes, for malpractice insurance? There's a bigger story there than a litigation explosion.
You may have paid when your property was condemned and taken, and you got less than it was worth. And it may not have been just property. It may have been your home, the place full of dreams and memories. Gone and buried under asphalt. The Post story has lots of examples.
Some people drank the Kool-Aid and invested in the highway bonds. Bonds rated at junk bond rates, such as E-470, now have no value. The investors have been Enroned. Among the investors are lots of people who thought this was a great way to invest for a secure retirement. Now they know better. And we taxpayers may be picking up the tab.
"Something as major as the traffic study being done by a company maybe having a conflict of interest is pretty significant," said John Macko, who bought $20,000 of Greenville's uninsured bonds as part of his private retirement account and has since watched the value of that investment drop to nothing on the secondary market, where he has failed to find bidders.
The upstate New York bankruptcy lawyer says he read the Southern Connector's "official statement" sent to prospective investors. Though it discloses Wilbur Smith's various roles, it does not specifically spell out that the dual roles might be considered a conflict.
Macko didn't connect the dots until asked about the arrangements in a recent interview.
The revelation left Macko feeling betrayed.
"I thought they were objective," he said. "I certainly would have taken that with several grains of salt."
Now he's hoping the authority can sell new bonds - and pay him off.
If even a bankruptcy lawyer, someone educated and familiar with the law and the language of money, cannot understand the conflicts of interest involved, who among the general public can?
Connect the D.O.T.s
What lessons were missed?
Thanks, again to Rob Dougherty of StupidSlab for keeping on this story.
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