By Henry Teitelbaum
State budget problems are a fact of life across America these days. In this regard, Arizona is no different than California, Michigan or Florida, to name just a few. It’s all just a matter of degree. But what tests the mettle of a state government most in times of fiscal stress is how creatively they go about addressing the budget shortfalls that accompany these downturns.
For Arizona, the government response has been decidedly mixed. In one month, the state governor signed well-considered legislation that could set the standard for the nation in planning for the development and long-term care of essential assets. But little more than a month later, the governor hastily approved a ruinous short-term response to the fiscal crisis that runs totally against any concept of good governance, while virtually guaranteeing that the budget crisis weighs on state finances for years to come.
In July Governor Jan Brewer in July signed into law HB 2396, a bill granting the state contractual authority to enter into virtually any project delivery arrangement with private developers and their financial backers As a result, the state will have the flexibility to choose the best model for procuring all future infrastructure assets from among a wide range of options. These include public-private partnership models that vary from granting concessions on existing assets to innovative DBFO, DBFOM, and other arrangements that ensure the selection of the most efficient long-term financing solutions while also addressing the need to repair and maintain public assets over their life-cycle. Critically at a time of economic stress and budgetary shortfalls, the government has gained the right to do procurement deals that engage private financing resources now, when they are needed most, and on terms that will ensure that repayment can be managed to coincide with a recovery in the the state’s finances as the economy recovers.
What’s more, the bill allows Arizona to introduce innovative solutions that clear away many of the issues that have hobbled PPP in other states, such as the past relinquishment of eminent domain rights over property needed for new development, concerns over “double-taxation” on existing roads, and non-compete agreements with existing privately developed roads.
But no sooner has the ink dried on this piece of innovative legislation than the state sets forth plans to sell and then lease back up to 32 properties, including state capitol buildings, on highly disadvantageous terms, to try to close a $3 billion budget deficit. Governor Brewer, who signed the bill allowing the sale of state buildings on Sept. 3, still has to decide what to sell and lease back, but it already looks like he has sent up the white flag, and is willing to surrender the keys to the state capitol to anyone with $735 million in cash to spare and a desire to double that sum over 20 years, (with no risk to principal and no responsibility for anything, not even repairs and maintenance for the buildings in question).
It wouldn’t be so galling that the government is being short-sighted with future taxpayer revenue if the sale/leaseback deal wasn’t being done for assets already purchased with taxpayer money. The fact that maintenance of the increasingly dilapidated assets will still have to come from public coffers, while the state pays $60,000 a month in rent only adds insult to the taxpayers who will have to foot the bill.
It’s a study in contrasts when one takes the time to craft intelligent PPP legislation to safeguard and respect taxpayer interests over the long-term, only to blow it on silly short-term giveaways that waste their money, invite abuse, and undermine the state’s long-term interests. Just don’t blame the private sector for what happens next.