Congressional leaders ask for more oversight of PPPs

With 30 of the nation’s transit agencies at risk of bankruptcy due to AIG-guaranteed bank loans, some members of Congress are beginning to ask for stronger oversight of PPP financings to make sure they don’t cause similar troubles for the public sector.

US Congressional leaders have asked the government to enhance scrutiny over public private partnerships amid growing concern that many of the nation’s largest transit agencies that relied on AIG-insured bank financing could go bankrupt.

James Oberstar

In a letter addressed to Mary Peters, the US Secretary of Transportation, James Oberstar and Peter DeFazio, Democratic leaders of the House Committee on Transportation and Infrastructure, urge the Department of Transportation to forge stronger guidelines on PPP arrangements in the US “to ensure the priority in these arrangements is on generating public value, not private profit”.

Oberstar and DeFazio were motivated to send the letter because the looming threat of defaults by transit agencies that relied on AIG-insured bank financing called into question whether private operators of public infrastructure assets were putting the nation’s transportation system in peril, said a spokesman for the committee.

Some 30 of the nation's largest transit agencies are at risk of default and financial collapse due to some $1.5 billion to $4 billion of financing for which, in many cases, AIG acted as the guarantor. Among them are well-known urban transportation authorities such as Philadelphia’s SEPTA, Boston’s MBTA and New York’s MTA.

When AIG lost its AAA credit rating, the agencies technically were in default on their bank financing, prompting calls from the banks for penalties and payments that threaten to bankrupt many of them.

“Similarly, the financial crisis and the tightening of credit markets have raised serious questions over the governance structure and financial viability of firms involved in a number of PPPs”, the Congressmen wrote.

“The lack of transparency and unacceptable level of risk assumed by these firms underscores the need for strong public interest protections to ensure that the public partner to these deals is not left responsible for bad business decisions, or that roadway users are not forced to pay artificially high tolls to meet investor revenue expectations,” the letter continues.

Congress’ upcoming transportation bill will likely contain some PPP language that may address these concerns, the spokesman said. In the meanwhile, Oberstar and DeFazio hope that Secretary Peters will take action to address their concerns, he added.

Oberstar and DeFazio also urged US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to make some of the $700 billion emergency bailout package available to the struggling transit agencies.