|Posted on Monday, May 08, 2006|
We Mean Business. Illinois Business.
Rahn road still raises ire in NM
Missouri Department of Transportation Director Pete Rahn and a longtime Republican state senator from New Mexico disagree on whether a $108 million highway project in New Mexico is a positive example of a public-private partnership or a negative one.
And although this road project occurred 1,000 miles away some six years ago, its relevance lies in the fact that Rahn and MoDOT are touting a public-private partnership as the answer to funding the proposed New Mississippi River Bridge.
According to a longtime state politician who was in office when Rahn and then-Gov. Gary Johnson proposed N.M. 44 - a highway widening project - the project could easily have bankrupted the state, had it not been offset by New Mexico's oil and gas revenues.
Rahn counters, saying N.M. 44 exemplifies a successful public-private partnership or PPP because it was completed on time, on budget and innovative. He adds that N.M. 44 was known by locals as "a forest of white crosses" due to the great number of fatalities along the curvy two-lane thoroughfare.
Retired Republican State Sen. Billy McKibben served 20 years in the New Mexico Legislature and was senate floor leader at the time then-Gov. Johnson, also a Republican, won the office in what McKibben calls a "freak" election due to dissention in the party.
Both McKibben and Rahn agree on one thing: What you saw was what you got with that governor, and he had no experience or desire to run government the way it is traditionally run.
Helping Johnson win the governor's seat in 1995, according to McKibben, was wealthy insurance company owner, former state senator and San Juan County, N.M. resident Raymond Kaiser. McKibben says Rahn worked for Kaiser as an insurance salesman and that opened the door, thanks to Kaiser's close relationship with Johnson, for a job offer for Rahn to become New Mexico's transportation director in 1995. And it became so.
In 1997, Gov. Johnson called in a big favor: he wanted New Mexico's two-lane highway, known as N.M. 44, widened to four lanes for 118 miles north/northwest from Albuquerque, population 448,600, to Farmington, population 41,000. The widened highway's end point was the same county in which Kaiser's business and home were located.
A long list of more-worthy, more-justifiable road projects were much higher up on the New Mexico Department of Transportation's list of priorities than was N.M. 44, according to McKibben, whose constituency hailed from southeast New Mexico. The huge contract had only one bidder: Wichita, Kan.-based Koch Industries Inc., a multi-national oil and gas conglomerate. Why was there only one bidder on such a large project?
According to Mike Gallagher, investigative reporter with the Albuquerque Journal, the city's daily newspaper, Koch Industries sent New Mexico state highway officials a proposal in April 1997 for widening N.M. 44. Koch Industries' proposal outlined how it could finance, design, build and warranty the project. At that time, according to Gallagher, Koch was the only company in the U.S. that was promoting a long-term highway warranty to highway departments around the country. In other words, Koch Industries initiated the proposal, months before the state highway department even issued a request for proposal.
Under the proposal, Koch Industries - owned by Charles and David Koch, large Republican National Party contributors - would get paid $46 million for designing and overseeing construction of the road and another $62 million for a 20-year maintenance warranty. The construction contracts totaled approximately $180 million.
"The scheme they (Johnson and Rahn) set up to finance it was to use government revenue bonds, and to set up a revenue stream that would ultimately someday pay those bonds off," McKibben said. "Basically the state of New Mexico took our future highway funds and said, 'To hell with the rural roads.'"
Rahn agrees that the project incited a "nasty fight" in the legislature.
"But the way we structured the financing on N.M. 44, it did not displace any other projects in our three-year transportation plan," Rahn said. "It was part of a $1.2 billion highway construction program proposed by Gov. Johnson that resulted in 1,200 miles of four-lane highway connecting every community of 8,000 people or more."
Koch Industries' proposal compared the N.M. 44 design and construction quality to the German autobahns, said McKibben. "They couldn't name one project in the U.S. that we could look to as an example of their work. They had no studies to show us and no credible past performances. And on top of the work, a $62 million warranty to cover the work itself? Can you fathom that?"
Rahn said at the time, there weren't any other examples because N.M. 44 was innovative, both in the way the financing was structured and in the materials used to form the road atop the uncertain soils comprising the Continental Divide - on which N.M. 44 is built.
"New Mexico was the first in the country to use the GARVEE or Grant Anticipation Revenue Vehicle bonds, which are future federal revenue bonds with no state guarantee," said Rahn. "Now everyone is using GARVEEs, but back then, we were the first."
McKibben said one end of the widened roadway improvement began buckling in 2000, before the other end of the project had even been completed.
Rahn says the road's buckling points to the uncertainty of building on top of the Continental Divide, and underscores the thinking behind investing in the $62 million warranty with Koch Industries. "And although Koch Industries' materials subsidiary - the one spearheading N.M. 44 - is no longer in existence, Koch is making good on its warranty. At the time, we got a $50 million commitment of the company's corporate resources to ensure that happened," he said.
The retired senate floor leader says if it weren't for the oil and gas boom New Mexico has enjoyed for several years running, the N.M. 44 widening project, all on its own, would have bankrupt the entire state for years to come.
"In New Mexico, most of the oil and gas rights are owned by the state," he said. "The state not only gets the severance tax, but it also reaps the royalty money. The N.M. 44 debacle would have been a wreck of major proportions if it hadn't been offset by the revenues from our abundant natural resources. Johnson and Rahn could easily have bankrupted the entire state over this and put the whole roads system in jeopardy with this giant project sucking up revenue. We just borrowed ourselves into oblivion over it."
Why were legislators opposed to the little-known, little-justified pet project of the governor powerless to prevent the state of New Mexico's governor and its transportation department exec from spending hundreds of millions of dollars to satisfy a wealthy political supporter?
McKibben says even for the staunch and the unwavering politicians who did their best to fight it, to say they were outnumbered and outlobbied is an understatement.
"The legislature had 42 senators and 80 state representatives," he said. "But there are 800 registered lobbyists in the state of New Mexico. We were completely outgunned."
Also, the way in which New Mexico's state government is structured allowed Rahn and Johnson a way to move their project through the state department of finance and administration and the investment council, McKibben said, which has the power to issue bonds - provided they have revenue streams attached to them. Rahn disagrees, citing the GARVEE bonds concept as the means of propelling the N.M. 44 project forward.
The retired senator is quick to offer his support to U.S. Rep. Jerry Costello, a Democrat representing Illinois, who has worked years to successfully garner the largest portion of federal transportation bill dollars of any project in the country. Like Costello, McKibben doesn't want to see a repeat in Illinois and Missouri of what he endured in New Mexico with N.M. 44.
"In my opinion, Pete Rahn is a guy who really needs to be watched," said McKibben. "Look at what he did to New Mexico. The whole legislature was against it, but it happened all the same. I want to warn business and government leaders in Illinois and Missouri: Be very, very cautious about turning your money over Koch Industries or to Pete Rahn."
Rahn's response to McKibben's and others' criticism of him and of N.M. 44 is simple: He is proud of what he made happen and he says the New Mexico politicians were fickle with regard to complaining about large-scale transportation projects, particularly ones that did not occur in their own district.
"N.M. was a great project," Rahn said. "The warranty was not popular politically. Politicians would much rather see the money spent on today's projects than as a preventive measure to preserve a project through future years. It was state politics at the highest levels in New Mexico at that time. Gov. Johnson's highway construction program passed overwhelmingly in the legislature (in 1998), but once a particular legislator's project was built, he began protesting the expenditures toward road projects not in his voting district."
In 2000, the New Mexico Attorney General's Office ordered a review of the N.M. 44 project, specifically looking at two concerns. One was the fact that a project this size and magnitude had only one bidder and that the state highway department may have violated procurement laws. The second concern was over the $62 million warranty; legislators told the AG they felt they were misled in approving the $62 million as actual maintenance costs rather than as a warranty to cover future repairs of the roadway. Chris Coppin, special counsel to the AG, said his office did not find any non-compliance with state law.
Rahn says if Illinois would ever agree to tolling the New Mississippi River Bridge to pay for its creation, he would then recommend seeking patient capital - investor groups who, unlike venture capitalists, expect a lower rate of return and are willing to give an investment, such as a new toll bridge, more time than usual to make a profit.
"These are popular in Europe and in Australia," he said. "With construction of a new roadway, it gives the project a longer time frame - 40 or 50 years, for example, rather than 25 to 30 - to collect the money back. Obviously, Illinois and Missouri would have to come to agreement on tolling the new bridge before we would move forward and investigate patient capital opportunities."