Quote:
Originally Posted by bunt_q
I'll add, let's not forget that the entire reason Colorado is at the forefront of these public-private partnerships is not a mystery - it's TABOR. We need a private player to bond for us because for the public to do it would require a costly election; one that is, based on all polling on the question, unlikely to be successful. And TABOR - or at least, the portion of it that requires an referendum for taxes and multi-fiscal year obligations of governments - remains very popular among the electorate.
If we don't trust our government to provide our services for us, then we are going to have to trust the private sector to do it.
Wizened - I am speculating here, so I could be wrong. But based on some of the things you say (mostly about distrust of folks in power), I assume you probably voted in favor of TABOR back in the day. At the time, did you think this would be the outcome of it - the privatization of government? I assume probably not. But I am curious.
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I am a fiscal conservative. But, I also realize that TABOR has flexibility when the people start to really squeal. That, Bunt, IMO, is the key here.
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Government bureaucracies rationalize their existence by the size of the budget they can get. Unlike private business which looks at the bottom line and tries to maximize profit, government bureaucracies try to increase approved budgets and spend more money.
Government bureaucracies tend to exaggerate public need to increase budgets that are then spent on employees, managers, and, most importantly, on projects given out to a tightly knit group of private vendors.
The Greater CDOT (and RTD too) is a collection of employees, managers, and, contractors. CDOT, by it's very nature as a general contractor to a network of private businesses, is very concerned with the welfare of businesses with whom CDOT has done businesses for years.
Consider the CDOT US 36 improvement package as an extremely expensive way to feed road construction companies with which CDOT has decades of shared experience, i.e., it became more important for CDOT to feed it's contracting businesses than being upfront with the public.
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I thought about this yesterday, and, was struck by what this might be. The company names I use and the countries are for illustrative purposes:
A) Part of Goldman Sachs is a business which connects sources of money with those who can afford to service acquired debt. GS makes it's money in this business silo by charging a fee for connecting supplier with user. As such, over the years, tens of thousands of man hours have been spent writing contracts that protect whomever provides the money.
B) GS has sources and the skills to manage money, either through money management partnerships, or banks. This 'portfolio' is then marketed by GS to companies looking to privatize, to LLCs that want to spend money on capital construction, to companies that want to buy another company, and
to US state government bureaucracies.
Let's do some assumptions here about how CDOTs partners look at GS.
GS might have money from China that passes through Singapore that desires the combination of the best rate of interest payout, and the lowest risk.
GS, having sold the idea to CDOT about international financing, then goes to "X" international companies and shows them how they can make a profit after paying the interest on Chinese money.
When the contracts are finalized, GS no longer has any responsibility legally, as GS was a broker to, not a party to, the transaction.
With GS out of picture, having made, say, $40 or $50 million, those that borrowed the money have to service the debt. There basically are two ways to do this: first, pay interest costs until cash flow exceeds operating expenses via a second high interest loan, or 2nd by having the cash assets to pay debt service until cash flow exceeds operating expense.
We do not have any idea about what these conditions are because the contract does not apply to the Australian companies borrowing money, but, to how CDOT interacts with them on US 36.
Do we know, for example, at what interest rate this loan has? We can tell a bit by what the conditions of the contract are, indirectly. For example, say the money is at 6%, and, the companies borrow $500,000,000. So $30,000,000 per year might be the annual cost, per year, for the length of the contract (assuming that the note for the Australian contractors is both unchangeable and for 50 years). Without adjustment then the loan payoff would then be $1,500,000,000. However, money lenders are not fools, and, inflation has to be written into the loan, as a 5% real inflation rate divides money in half about every 14 years. Over the life of the contract, then, that $30,000,000 loses approximately 7/8ths of it's value. Unquestionably there are built in escalators independent of published, US CPI on the loaned money.
We, IMO, can also assume that these companies request a profit margin equal to the REAL CPI + a margin which escalates over the course of 50 years.
We just do not know what is really going on and IMO while the creditors have protection from CDOT via contract, CDOT does not have protection from uncontrollable financial manipulation abroad.
At least when money is borrowed by US corporations for such projects, such as the Greater DUS project, money conditions are fairly visible, and, the sources of money are (theoretically) subject to US law.
This, IMO, is likely not true here.
Oh yes, a side bet for $1.00, Bunt. Bet most of the steel is Chinese.
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thanks.
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