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Denver City Council “Swallows the Kool Aid” – It Approves a $1.8 Billion Public-Private Partnership Agreement at Denver International Airport With Ferrovial, S. A. – Part Two

August 24, 2017

For decades the failures of water, energy, rail and health privatisations have made clear across the globe that those who promote privatisation offer false promises. Elections have been fought and won on promises to keep public services in public hands. In sectors like health, education, water, energy and transport, community attitudes strongly support public provision.

Rosa Pavanelli General Secretary of Public Services International (PSI)

The Proposed “Office of Public-Private Partnerships” – A Bad Idea For Denver. 

An article in The Denver Possupported the recent agreement between the Denver International Airport (DIA) and the leveraged Spanish firm Ferrovial that was approved by a 10-2 vote on August 14, 2017 (at 1 am – so it was, technically August 15). The same article announced that there would be more agreements like it, public-private-partnership agreements, on PPPs or “P3s,” as they are called. Unless there is public pressure to the contrary, The Post is probably right. Unfortunately.

The DIA – Ferrovial contract is a classic public-private-partnership”. Another piece in The Denverite a few days later elaborated on the city’s plans to do just that. In fact, the city wants formalize P3s, to create an “Office of Public-Private Partnerships” “to vet and coordinate such projects.” The article mentions the National Western Center and the Denver Center for the Performing Arts as two likely candidates “in the near future.”

The creation of such an office is meant to change the rules.

Presently, although much authority has been stripped from them (as evidenced in the DIA-Ferrovial decision), all such contracts involving city funding need to be approved by City Council. According to the proposal, through the creation of the Office of Public-Private Partnerships, the mayor’s office would seriously gut, if not eliminate, city council oversight in the name of [non-existent] efficiency and expediency. What is left of the oversight that the city council  – and through it the people of Denver – enjoy, would be stripped. The right and obligation of Denver’s City Council to approve, modify, reject and oversee such projects, many of them multi-billion dollar contracts, would be eliminated.

The right and obligation of Denver’s City Council to approve, modify, reject and oversee such projects, many of them multi-billion dollar contracts, would be eliminated.

Actually the issue at hand, as I see it, is just how willingly – and enthusiastically – would  Denver City Council give up this right and bow to private capital. I would be surprised if there was even much of an argument against doing so, having listened to the vapid logic of council members the night of the vote on the DIA-Ferrovial deal. It is also doubtful that except for a few more politically sensitive folk (and financial, construction and real estate elements in the city,and the politicians these interests have long run) that there would even be much of an uproar, if any. After all “P3s” don’t ring many bells with people.

What are Public-Private Partnerships anyway?

A public-private partnership (PPP) is a contract between government and a private company (or companies under which:
• A private company finances, builds, and operates some element of a public service; and
• The private company gets paid over a number of years, either through charges paid by users, or by payments from the public authority, or a combination of both.

P3s are essentially joint ventures in which public and private financing joint together to fund some kind of mega-project. As such, joint ventures are not new. Back in “the old days” these project used to be simply called “concessions.” But P3s are a certain kind of joint venture which has a new quality, in that public sector (be it local, regional or national) give up a good deal of management prerogatives to private capital and have reduced oversight in managing and intervening in the projects.  Frankly, with a little historical perspective we can see that they have a sordid history for the most part, with in the end, governments having to take over projects which the private sector botched and botched badly. In this modern period, I’ll argue in the entries that follow, given the huge amounts involved, the loss of government oversight and control, in the long run, P3s are even more cynical than they were a century ago.

As an informed friend on such matters noted, how P3s play out essentially depends on what might be referred to as “the balance of power” between the company and the public entity (city, state, nation). The negotiations leading to a contract are more or less a form of “collective bargaining between the parties. Where the social forces in the city (labor, civil rights, peace) are strong and have clout and influence it can result in contracts that are not too exploitative of public interests. But in a place like Denver where the labor movement is small and that which exists is split, between construction trades that support such arrangements for obvious reasons, and the rest of the labor movement (maintenance/concession employees at D.I.A. – and where the process as it was in Denver is shrouded in secrecy and complexity, the company enjoys the upper hand. In the end what is negotiated privatizes profit while socializing risk – the name of the game in many P3 negotiations in the U.S. of A.

As an informed friend on such matters noted, how P3s play out essentially depends on what might be referred to as “the balance of power” between the company and the public entity (city, state, nation). The negotiations leading to a contract are more or less a form of “collective bargaining between the parties. Where the social forces in the city (labor, civil rights, peace) are strong and have clout and influence it can result in contracts that are not too exploitative of public interests. But in a place like Denver where the labor movement is small and that which exists is split, between construction trades that support such arrangements for obvious reasons, and the rest of the labor movement (maintenance/concession employees at D.I.A. – and where the process as it was in Denver is shrouded in secrecy and complexity, the company enjoys the upper hand. In the end what is negotiated privatizes profit while socializing risk – the name of the game in many P3 negotiations in the U.S. of A.

While P3s have a certain popularity, a number of serious academic studies over the past few decades show that they are expensive and inefficient ways of financing infrastructure and divert government spending away from other public services. They conceal public borrowing, while providing long-term state guarantees for profits to private companies. The current hype and rhetoric aside, there are public sector options that are more efficient, less expensive, while maintaining public sector control of mega projects.

A 2015 British study – that I will refer to more in future commentaries – describes P3s as entailing “shadowy processes, most of which hide behind confidential negotiations to protect commercial secrecy. There are no public consultations, lots of false promises, and incredibly complex contracts, all designed to protect corporate profits. There is also a fair amount of bribery, as privatization contracts can be extremely valuable.” More and more studies suggest a fundamental problem with them. Put simply: PPPs are an expensive and inefficient way of financing infrastructure and services. More often than not, they don’t work.

In the D.I.A.-Ferrovial case, although bribery is yet to be proven – there is talk of junkets, the nature and funding source of which remain unclear – the rest of this description sounds, word for word what happened with the Denver City Council: “confidential negotiations to protect commercial secrecy” “no public consultations” “incredibly complex contracts”…sound about right. One can’t help also noting that, to date, the Denver city auditor has given little indication about his office’s responsibilities to oversee the DIA-Ferrovial deal.

In the D.I.A.-Ferrovial case, although bribery is yet to be proven – there is talk of junkets, the nature and funding source of which remain unclear – the rest of this description sounds, word for word what happened with the Denver City Council: “confidential negotiations to protect commercial secrecy” “no public consultations” “incredibly complex contracts”…sound about right. One can’t help also noting that, to date, the Denver city auditor has given little indication about his office’s responsibilities to oversee the DIA-Ferrovial deal.

For P3s, Denver is far from an exception; they are springing up the world over; P3s are becoming more and more common here in the United States and elsewhere. Governments are turning to P3s hoping that private sector finance will finance public infrastructure and public services which have been savagely hit by the 2008 financial crisis. The World Bank and OECD – supporters of long discredited structural adjustment programs, are enthusiastic backers of P3s but more recently their popularity has extended to the G-20 and the United Nations. It is possible that privatization could become official UN policy. Explaining this latest financing fad, Rosa Pavanelli (quoted above) notes:

Explaining this latest financing fad, Rosa Pavanelli (quoted above) note:  In the context of the economic crisis, governments are under increased pressure to find quick answers to hard questions about maintaining public services and funding infrastructure. The longer the crisis extends the more pressure mounts to find answers, but so do the risks of forgetting the root causes: greed, deregulation, and excessive faith in private corporations.

In the context of the economic crisis, governments are under increased pressure to find quick answers to hard questions about maintaining public services and funding infrastructure. The longer the crisis extends the more pressure mounts to find answers, but so do the risks of forgetting the root causes: greed, deregulation, and excessive faith in private corporations.

Books, Covers and Brand Names.

P3s are the brand name of financial deals these days.

As Naomi Klein points out, and Donald Trump well understood, when a company or a type of agreement, has gotten to the point where it can sell its brand name, the content seems to matter less and less. P3s have become a bit of a rage – kind of like paisley shirts and hoola hoops in the old days, Nike sneakers and Starbucks more recently. But you know the saying about all that glitters not being gold, todo lo que brilla no es oro, you can’t tell a book by its cover, clothes don’t make the man and all that stuff.

So it is with P3s.

They exist the world over – yet another creative mechanism for the expansion of private capital at the expense of the public. Still, they are, more often than not, little more than a scam way of transferring wealth from taxpayers to business interests, especially those who have over the years specialized in government contracts. But, just scratching the surface makes one wonder why it is that Denver’s current mayor, Michael Hancock (and several who preceded him (Pena, Hickenlooper) has gone bananas over what is little more than a public give away to the private sector in the name of a “partnership. Hmmm. Have to wonder the voices he is listening to?

They (public, private partnerships) exist the world over, and are more often than not, little more than a scam way of transferring wealth from taxpayers to business interests, more often than not, those who have over the years specialized in government contracts

But not only do public sector entities surrender control and management to the private sector in P3s. The World Bank OECD and others are encouraging pension funds, insurance companies and other institutional investors to participate in these projects. Will PERA, Colorado’s relatively efficient state employee pension fund be pressed into cooperation? There have been a series of previous efforts on the part of state Republicans (with the support of some Democrats) to get at the $44.5 billion assets in the fund. It would be naive to think “it wouldn’t happen here,” in Denver.

to be continued

Links:

Part One of the series

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