Cronyism and the Corridor
This is a scary story. The Statesman reported yesterday that Governor Perry is removing Linus Wright, a former Dallas school superintendent, as chair of the board that oversees the $88 billion Teacher Retirement System and will replace him with a current board member who is also a member of Perry’s campaign finance team, Dallas real estate investor R. David Kelly. (Wright succeeded Jim Lee, who was one of three co-chairs of the Perry fundraising apparatus; Lee had resigned in the wake of news reports that he had run up six-figure gambling debts in Las Vegas.)
The removal of Wright occurred just a few days after Perry had announced the death of the Trans-Texas Corridor. The juxtaposition of events reminds me of the old Mark Twain line: “Reports of my death were greatly exaggerated.” The concern is that the governor’s office has installed a crony as chairman who will urge the board to invest retirement system funds in toll roads as a means to pump money into funding-starved TxDOT. Perry appointees who don’t go along–as we have learned in the case of board of regents and the Forensic Science Commission–are likely to find themselves replaced.
I’m not just being an alarmist here. Remember, in the summer of 2008, Perry, Dewhurst, and Craddick signed a letter agreeing to work together to find a way to pay for new roads. An earlier Statesman story about the agreement said:
One prong of the plan would create a Transportation Finance Corporation to allow state investment funds — including the state employee and teacher retirement systems, among others — to directly invest in state transportation projects. Combined, the two state systems manage $135 billion in assets.
But TRS and ERS officials “took a cautious view of investing in state projects in testimony this year before the Senate Finance Committee, saying a mandate to invest in Texas infrastructure could conflict with their duty to find the best return on investment for retirees.”
Toll roads are highly questionable investments. Their success depends entirely on the accuracy of traffic forecasts, which can be influenced by consultants who tell roadbuilders (and pension funds) what they want to hear. The industry newsletter TOLLROADS NEWS reported on October 9 that a major toll road in South Carolina is insolvent and about to default:
US Bank, trustees for the bondholders of Connector 2000 Association, the owner of the Southern Connector tollroad in Greenville South Carolina have issued an official notice that they expect a default Jan 1, 2010 with insufficient funds being available from the pike to make debt service that’s due.
Here’s another story of a toll road that failed to make projections, also from TOLLROADS NEWS. This one is in Jackson, MS. It never even got to the starting gate:
Mississippi DOT (MsDOT) have announced “suspension” of the procurement process for a private sector concession to build the state’s first tollroad in the modern era – Jackson Airport Parkway. The concession financing depended on federal TIFIA loan support which is only provided if the rating agencies provide an investment grade rating to senior debt.
Three shortlisted potential concessionaires told MsDOT they couldn’t get the needed investment grade ratings for their loan financing, an official told us, so they were not able to make proposals which were formally due next week – Sept 15.
A statement from MsDOT quotes Executive Director Larry L (Butch) Brown as “disappointed” but saying that the parkway “project, like many other greenfield toll road projects, is suffering from general economic weakness and tight credit markets which limit the amount of credit and capital available for new transportation projects.”
Brown is quoted further: “The private sector needs to demonstrate that it can deliver meaningful savings versus a traditional MDOT financing and delivery plan. For example, unless private sector bidders can genuinely deliver construction cost savings, operational savings, or financing savings, the numbers just don’t work. In this economy, revenue projections are under pressure and investment grade ratings for the project’s senior debt are difficult to obtain.“
Trust funds should be invested conservatively — or, at the very least, in ventures that are medium-risk, not in toll roads and startups related to the governor’s Emerging Technology Fund, which, along with the Texas Enterprise Fund, suffered a $200M decrease in funding as punishment for Perry’s questionable wheeling and dealing. It will be very tempting for the governor to get Kelly to back his pet projects from the Emerging Technology Fund. These startups are likewise high-risk.
I don’t believe for a moment that Perry or TxDOT have given up on the Corridor. This paragraph from a 2008 article in the Star-Telegram is all you need to know:
Speaking on a conference call from Iraq, where he is visiting troops with other governors, Perry said highways that would run parallel to north-south I-35 are still needed. The state’s commitment to building roads is what attracts many companies and jobs to the state, he said.
* * * *
The thing I find most interesting is that Perry removed Wright and replaced him with a crony in the middle of a governor’s race. What does that tell us? I think it says that he is supremely confident and he is going to do whatever he feels like doing and doesn’t care what the media (much less bloggers) are going to say about it. He had to know what people were going to say about his replacement of Wright, especially coming on the heels of his evisceration of the Forensics Commission, and he did not care. Rick Perry is one tough guy. Don’t think I don’t admire that.
Tagged: emerging technology fund, linus wright, r. david kelly, rick perry, teacher retirement system, trans-texas corridor.
Anonymous says:
I agree that TTC isn’t dead, but I have no admiration whatsoever for Rick Perry. What started out as political favors/payback for the governor’s race has evolved into an effort to hide his blatant concealment of the likelihood that an innocent man was executed by the state on his watch. What better way to do it than to start appointing replacements for everyone whose term is up to make it look like the forensic evidence cover-up isn’t what it really is?
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Anonymous says:
P.S. I’m not saying he doesn’t have another agenda going as well, i.e., the TTC. If he’s going to replace someone he’s going to do it with someone who’s inclined to fulfill his next agenda item. I’m just saying the cover-up is what’s driving the boat and why this appointment is happening now.
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Anonymous says:
Texas ain’t Mississippi. In fact, Texas recently finished three highly successful procurements in the Metroplex — the LBJ project, the North Tarrant Express and the DFW Connector, at least one of which has a local pension fund investing in the project. This comes on the heels of the SH-130 segments 5 and 6 procurement. Without, private participation, the state would have had to pay $700 million to build those segments. Instead, the region was paid $25 million for the right to build.
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paulburka Reply:
October 12th, 2009 at 9:46 pm
We’ll see how that local pension fund’s investment works out.
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Bodhisattva Reply:
October 14th, 2009 at 11:15 am
What do you mean, “Texas ain’t Mississippi?” Do you mean that Texas can make toll-paying cars appear out of thin air? Do toll roads, once built in Texas, magically develop the necessary traffic intensity to sustain the investment? Do concessionaires doing toll road business in Texas feel a supernatural compulsion to hold the state harmless if they’re investment goes south?
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keenobserver says:
The reason something akin to the TTC and other major projects like it are not dead (besides the compelling fact that I-35 needs widening or replacing) is because the major urban areas of the state do or will demand it. That’s because the state’s economy depends on it and more than 85% of the state’s folks reside in or near those JOB centers.
Bidness wants it and the Farm Bureau, Cattle Raisers and similar “property rights” groups are mere temporary impediments.
Besides, Governor Perry has been taken out of the country and the country has been taken out of him. Anyone think he’ll move back to Paint Rock if he loses next year? In the redistricting that occurs in 2011, the process of further deteriorating rural political strength will be hastened.
Look for statutory funding set-asides for farm-to-market roads, off-road motor fuels tax exemptions and other rural-friendly diversions of state road funding to be put on the block.
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Kinky Casino Reply:
October 13th, 2009 at 7:40 pm
Move back to Paint Rock?….It is Paint Creek Mr. know-it-all… He was raised in Paint Creek……Senator Sims is from Paint Rock…..
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behold says:
Perry needs to keep his dirty little paws off of my retirement money!!! Get that man out of office.
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Anonymous says:
Such speculation rivals that of any black helicopter musings I’ve ever heard.
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Anonymous says:
To anonymoust at 3:58. To lump segments 5 & 6 into the “successful procurement” conversation is a laugh. Segments 5 & 6 were part of an original bid to complete SH 130 that was won by Lone Star Infrastructure. It was subsequently taken away from Lone Star Infrastructure and given to the spanish consortium of Cintra-Zachry to entice the Spanish into bidding on the Trans Texas Corridor.
I agree with your premise: Texas ain’t mississippi, if you’re talking about economic engine and opportunity for deals to succeed. If you’re talking about backroom deals being struck and political favors being made, Texas may well be worse than Mississippi cuz that deal stunk so bade the odor is still around.
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Anonymous says:
5 & 6 were never part of the original 130 procurement. Why? The state didn’t have the money to build it.
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Anonymous Reply:
October 12th, 2009 at 9:04 pm
patently false to claim 5, 6 not part of sh 130 procurement, whether the state had money or not. that only further contributes to the cronyism argument you’re attempting to counter.
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Anon says:
But…but…toll roads create jobs. Some contractor is going to use the money for payroll.
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Lake Worth Monster Reply:
October 13th, 2009 at 1:47 pm
The contractor is going to use the money for payroll whether it is a toll road or not. And as to what the gov will do after he leaves office, I would bet that he will be receiving a 7 figure annual income as a ‘consultant’ for Cintra.
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Pat says:
I’m curious…even if Perry loses–and I don’t dare bet on that–would a new Governor have even the remotest ability to stop these projects? Perry’s appointees are everywhere. I feel like there is a remote risk that in the event loses, he continues to govern through a network of personal loyalties.
That or I’m overestimating Perry. But that’s better than underestimating him.
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slick Reply:
October 13th, 2009 at 3:55 pm
True, but keep in mind that most appointees at this level are pragmatic folks, and will want to work with and accomodate the new power structure to some degree. And the personal loyalties are more to what he in his role as governor can do, not to him personally. I’ve served in a governor’s office, and after the loss in November, its no joke that the phones don’t ring anymore. Those are the longest months, when you truly find out who your true friends are.
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paulburka says:
If you go back to Mark White, he set out to bust a number of board members who had been appointed by Bill Clements. White made senators vote to bust people like John Connally. This made senators mad at him as well as all the appointees who he busted. Hutchison, if she were to win, would be better advised to pick and choose who she embraced and who she busted. I doubt that this will ever become an issue.
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Anonymous says:
Read the letter from Perry Dewhurst and Craddick again. Dewhurst and Craddick were not for the TRS and ERS plan. Perry likes that stuff, not the other two.
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Anonymous says:
I don’t think it’s toughness, but rather hubris. And it’s not admirable.
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Anonymous says:
It’s hubris combined with an effort to save his own political hide. In the end, he has no other real choice but to give up. The media needs to make sure the Forensic Comm’n fiasco does not die until all the answers come out. It’s time that Texans acknowledge who it is they elected and have to look at it square on in the upcoming election.
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jayzee says:
One more reason to voteo for Debra Medina!
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Hooah! says:
One would be very, very, foolish to dismiss this theory. Rick Perry is not the same person who was that Rep from Haskell so long ago.
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Texas Publius says:
Even the people I know who are supporting Perry over Kay think he’s been governor too long and wish he’d move on. This drip-drip-drip of news reports on his meddling with his appointees just intensifies the sentiment.
Given that Texas is doing so much better than the rest of the US, it’s quite an indictment of Perry that he has such a huge re-election fight on his hands.
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t logan says:
Mr Perry doesn’t seem so very popular here, if folks get out and VOTE.
This whole inflated realty driven roads/developers coups d’etat is flim-flam-get-rich for the cadre of bubbas, and has run rough shod over planned, selective economic growth, natural resources, and sustainability – the message is that everything in Texas is for sale. We need to clean house if we want any remnant of Texas to be left before the bones are picked bare.
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John Johnson Reply:
October 13th, 2009 at 4:18 pm
Money passed around through lobbyists, 527’s and other conveyances that should be illegal almost always gets its way, especially when the general population has their collective heads stuck in the sand; especially when the voters listen to the words instead of closely monitoring the actions.
Do you think that Sen. Ogden should have used money specifically designated to subsidize the poors’ electricity bills to instead balance our budget? Some of these people are paying up to 18 cents per kwh and having their power cut-off when they can’t pay. Think about it. They don’t stand a chance. They will never get out of the hole they are in
A few years ago, it was discovered that money supposed to be going to Texas Parks & Wildlife from Texan’s purchase of specialty licenses plates was going everywhere but… when bathrooms in our most popular state parks were being condemned for use because they were in such bad shape; when the vehicles the park service people were driving were literally falling apart.
This goes on every day. How many know about it?
They certainly don’t broadcast it. When caught, they always have some piss poor excuse and we accept them. We are the ones to blame. We are the ones who allow them to settle in for ever and ever while we watch their egos grow larger, their debts to Big Money grow deeper, and their compassion for fellow Texans grow nil.
The prime example being our current governor.
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Anonymous says:
Hark! It sounds like the legislature is drafting another stupid divestment bill again.
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Anonymous says:
for those convinced an injustice was done in the case of Mr. Willingham based on the sensationalist reports of national pubs, I recommend they read this article from his own backyard:
http://www.corsicanadailysun.com/thewillinghamfiles/local_story_276222955.html
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Anonymous Reply:
October 13th, 2009 at 2:38 pm
It doesn’t even matter whether he was guilty (does that sound like the Guv or what?), the issue at this point is whether the Guv is using his appointment powers to cover up a potentially inconvenient truth.
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Anonymous Reply:
October 13th, 2009 at 3:20 pm
that is what is wrong with politics today. The great moral issue here is whether a man was wrongly executed. But Perry critics for various reasons — because they may be Democrats, because they may be anti-death penalty, etc — have latched on to how the issue has been handled as the greater point.
It is not. This remains about whether a man was wrongly executed. Everything else is politics.
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eyeswideopen Reply:
October 13th, 2009 at 3:52 pm
Let me get this straight…you think that analyzing the situation, and possibly insuring that innocent people are not executed in the future, is politics? Pull your head out.
Robert says:
“I’m not just being an alarmist here.” No, you’ve just joined the loony crowd.
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WUSRPH says:
Have you noticed that when Karl R. and company created Rick as a candidate for ag commissioner his pictures in blue jeans by the fence made him look young, fresh and even a little handsome BUT today he justs looks craggy and MEAN? Seems like more than the passage of time has affected him.
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slick says:
If someone out there has the Governor’s ear — please tell him to put away his tailored french cuff shirts and his fancy suits. It shows his personal arrogance and vanity. It would be one thing if he was a self-made man, making his fortune before coming to office — but he’s not, and he didn’t. It sends the subtle signal to folks that he’s a showboat, outta touch, and he thinks he’s better than the average Texan. Just buy him some off-the-rack blue and white dress shirts to wear thru November, than he can go back to his fancy duds.
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Terri h says:
Anonymous at 3:58 PM said the state is only on the hook for $25 million…think again. Just the LBJ and Tarrant I-820 project will suck-up $1 BILLION in gas taxes…
http://www.dallasnews.com/sharedcontent/dws/news/localnews/transportation/stories/DN-tollroads_12met.ART.State.Edition1.50efe30.html
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Anonymous says:
I guess Terri h can’t read. The state is getting $25 million for segments 5 and 6. Not paying $25 million, receiving $25 million in addition to a billion plus dollar piece of infrastructure. On LBJ and NTE, the state is paying about one billion in exchange for receiving two infrastructure projects valued at about $5 billion. More untruths but that’s what Terri hall peddles.
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Rumble Strip says:
Frankly, it appears to me that Terri Hall wrote Paul Burka’s blog posting. It is that same level of bizarre, hysterical, shrill, improbable, boogeyman blather that’s eroding her sanity and polluting an otherwise healthy public discussion about transportation. Have you seen the absolute weirdness she and her fantasy grassroots coalition are trying to foist on San Antonio? She and her faux organization are arrogant, delusional, fact-free, and headline hungry. I’ve got to give the Legislature a little credit here—more and more of them are seeing her for what she is: nothing. One other thing: She’s trying to pawn herself off as a reporter now, so just add that to the heartbreaking saga of the demise of quality journalism.
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paulburka says:
Terri was busy, so I had to write it myself. My post made the following points:
(1) Toll roads are risky investments.
(2) Perry has already indicated his intention to use state pension funds to invest in toll roads.
(3) Perry has now installed a political crony to head the Teacher Retirement System.
Which of these statements does Rumble Strip disagree with? What evidence does he offer to support his argument other than rhetoric? It is that same level of bizarre, hysterical, shrill, improbable bogeyman blather that he complains about.
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Rumble Strip says:
Thanks for reading my response to your posting.
1. All investments have a level of risk associated with them. Your posting deliberately cherry-picked one that didn’t go particularly well and then tried to build a case that all toll road investments are dangerously risky. On the contrary, most are solid if rather unglamorous investments. I will be happy to post evidence to support that if you’d like. And BTW, scratch the surface of many instances of “risky” toll roads and you’ll find over-prescriptive meddling by the political anti-toll crowd was the root cause.
2. Rick Perry has not stated his intention to use pension funds for toll roads. Either you have not followed this issue (the Statesman’s on and off again coverage does not qualify as following the issue) or you’re not painting the entire picture on purpose. Hearings on this in the Texas Senate last session boiled down to this: infrastructure investments are generally stable investments. If Texas pension funds want to invest in projects then they should be able to and if a particular Texas project looked like it would be a good investment, the Texas pension funds should be given right of first refusal before, say, the California pension fund jumps in. Not one single person in the discussion was ever (and I mean ever) going to require any pension fund to invest in a toll road. Ever. Politically-required investments are always a bad idea and everyone seriously in the discussion acknowledged that.
The Mississippi example points to a process that protected taxpayers and investors because the financing plug was pulled because they showed themselves it wouldn’t work. That’s what prudent public stewards do. To somehow paint that as a failure that would apply to states with congested metropolitan areas is just beyond me.
3. Every governor installs his or her own people in commission and board posts and they have to conduct their business in public. I’m not sure what’s particularly newsworthy here. Or even blog-worthy.
You hate toll roads, I get that. However, please stick to facts and painting balanced pictures for your readers. You’re one of the best in the business but postings like this need more than speculation and selective facts.
And for the record, the Governor didn’t announce the death of the Trans-Texas Corridor. The Texas Department of Transportation did, which leads me to wonder what this means: “I don’t believe for a moment that Perry or TxDOT have given up on the Corridor.”
Are you saying that no one should ever consider a parallel corridor to IH-35? What are the other options? There may be some good ones and a lot of people are willing to hear them.
Thank you for the opportunity to comment in your blog. At least you’re putting yourself out there.
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Jeff Crosby says:
Rumble Strip,
You say that “Perry has not stated his intention to use pension funds for toll roads.”
However, the 3rd graf, second bullet of the Perry-Dewhurst-Craddick letter to Deirdre Delisi(dated August 8, 2008)stated they would work together to:
” Create a Transportation Finance Corporation or similar entity that will allow Texas-based investment funds to invest directly in Texas transportation projects that offer a solid long-term return.”
If it wasn’t his intention to use the pensions to shore up his toll road funding, why did he advocate giving them the authority to do so?
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Rumble Strip Reply:
October 14th, 2009 at 5:13 pm
Hi Jeff: Thanks for pointing that out. The word in that sentence is “allow.” “Require” isn’t in there. The letter was a part of a longer series of discussions and hearings before it and after it. Taking out one sentence and building an entire case on it doesn’t capture what was going on. Thanks, RS
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Anonymous Reply:
October 14th, 2009 at 5:25 pm
Are you saying that Perry actually has the power to “require” such investments? Or that “allow” is somehow different because the Tri-fecta could have agreed to try to pass legislation that “required” it and they didn’t?
Either way, your just playing word games in an effort to cover over Paul’s assessment of a very real future possibility.
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Rumble Strip Reply:
October 14th, 2009 at 6:25 pm
Se ha descifrado el código secreto. Hay que empacar nuestras maletas y regresar a España. Anonymous at 5:25 p.m. es demasiado inteligente para nosotros.
Jeff Crosby says:
Rumble Strip,
At the risk of belaboring this point, the question is not about “require” or “allow.” The question is whether Perry (and Craddick and Dewhurst) thought it was a good idea to invest pension money in toll roads. The answer is obviously yes. Otherwise, he wouldn’t have advocated giving them the pensions the power to do so.
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Rumble Strip Reply:
October 20th, 2009 at 7:28 pm
Jeff:
I’m glad someone is belaboring the point. It’s kind of a policy dork thing but it seems to keep popping up and no one ever finishes a complete thought.
I think most people in the pension fund world think that toll roads are generally a sound investment. I suspect the three that signed the letter would agree with that. I also believe they would all agree to a person that to require it would be financial suicide. Portfolio managers need to balance out their investments.
The long long narrative before the letter was a discussion among some in the state and legislative leadership to create a state corporation that would build and run toll roads. It would operate like a private company in that it would have to attract investors into projects, compete for them, and then if they won the concession then they’d have to build and operate it. If it did a really good job, it would expand to other states to build other projects.
The legislature was under attack by opponents of privately run infrastructure (generally in that charming xenophobic way) and those attacks generally went like this: “If these projects are so good, why are we letting foreign companies run them? Texans should!”
Well, if Texas formed its own corporation and gave Texans the right of first refusal to invest, then Texans could benefit. If you invest and it worked, then Texans saw a nice rate of return over the long haul. Take that pesky foreigners. If this corporation did a good job, especially expanding to other states (and maybe into—gasp—foreign countries), then these same Texas investors would be extremely pleased. Or extremely disappointed if something tanked.
But never did anyone suggest that Texas public pension funds be required to invest. Give them first shot and if they didn’t want to, they didn’t have to.
Do the three who sign the letter think toll roads are a good investment? It looks like they do. But we all have ideas about what a good investment is but we can’t force anyone to invest in something. (The Texas School Land Board and the Teacher Retirement System thought it was a pretty good idea to invest in infrastructure funds, but I honestly can’t tell you if it has paid off for them or not.)
I haven’t seen any evidence of the Governor, Lt. Governor or the former Speaker directing that any pension funds make any specific investments, including toll roads. This could have been done in the absence of legislation. Maybe they have but I’ve missed it.
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Jeff Crosby says:
Drat. It appears I left behind an extra “them.” In politics, it’s always them, isn’t it?
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Paul Davis says:
How in the world does this crook / Bilderberg group boy keep getting away with this crap? Can we please get his butt out of there?
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Christiansopposewar says:
Let’s face it, when was the last time you saw a bank robber that really proceeded in a logical manner? LOL when tensions are running high, cool heads will prevail. Don’t think for a minute that the crooks in government aren’t eying other heists like the banker bailout and thinking; what one crook can do, another governor can do!
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