Remember when Dave Crebo, the PABster speaking for the Ministry of Transportation, insisted to Laila Yuile we pay no shadow tolls to ease the passage of snow bunnies headed for Whistler? I am not aware if they ever apologized to Laila for serving up bull crap when accurate information should have been forthcoming. I suppose if being untruthful is one of your regular duties, it comes easier than it would otherwise.
Regardless, shadow tolls are well understood by money people as evidenced by this recent publication issued by the Boston office of RBC Global Asset Management (of course, the initials stand for Royal Bank of Canada). It discusses the appeal of very low risk, long term investments to institutional investors who seek assets to match their long term liabilities. The document also covers different repayment methods.
“Shadow tolls – With a shadow toll, the government makes a payment to the investor at a rate based on the number of cars travelled, but there is no physical toll booth on the road. Motorists avoid congestion, and there is no collection cost of operating the booth. Often the government funds the payment through fuel taxes, vehicle registration fees or other charges not directly based on who actually uses the road. In some cases, the government is willing to provide a floor of how much it will pay, so there are characteristics similar to an availability payment and revenue, therefore, is not purely driven by the number of cars.”
Of course, this is exactly the kind of investing in infrastructure that institutions have always done. Government bonds, largely sold to institutional investors, funded projects including roads, bridges, schools, hospitals and other capital work that served the public over long terms. Government employed its own professional staff who supervising capital projects, arranged construction through competitive bidding by private contractors and financed the projects through direct government debt.
The difference today is the insertion of a layer of shadowy matchmakers. Their main skill is in gaining influence over decision makers, convincing them to discard competitive bidding in return for the RFPs (Requests for Proposals), followed by negotiated design-build contracts. Whether a project is a formalized Public Private Partnership or an extended term operating agreement, government takes almost all risk and financing sits ultimately in the hands of long term investors.
Costs of projects rise of course so that dealmakers, who no longer work for government, take large profits out early. Political operators get rewarded financially. Public information about deals and details is minimized because of ‘privacy concerns’ for private companies. Government exchanges direct debt for future payment commitments and they can more easily mislead voters about real financial positions. Institutional investors do what they have always done which is to minimize risk.
The reality is that dealmakers are allied closely with decision makers and profit shares always find the proper home. That is the attraction to a very small group who set self interest above public interest.
Categories: Laila Yuile