The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.
Once upon a time, in a city far away, all the people were clamouring for a new urban expressway. The old road Ñ full of potholes and always congested Ñ caused much misery and suffering among the people. ÒWe should talk to Bob the Builder and get him to build us a new road,Ó the people said. And so they did. Bob went to talk to the mayor. ÒWe donÕt have money for that, Bob,Ó said the mayor. ÒProperty tax hikes are unpopular and the province wonÕt cough up the grants.Ó So Bob told all the people they couldnÕt afford a new expressway. At that, they all cried. But then something wonderful happened! At a highly publicized press conference, the mayor said that Bob and his buddies won the right through an RFP process to form a special purpose vehicle (SPV) in partnership with the city that would be at the centre of a P3 deal to build a new expressway through a DFBOOT concession contract. ÒHuh?Ó murmured the people. Bob the Builder explained that a new expressway needs three things: financing, funding, and someone to deliver it. Bob said the expressway would be financed with an equity investment by his buddies in the SPV along with bonds issued in international capital markets. These revenue bonds would be funded by future toll revenues. The designer, financier, builder, owner, and operator of the asset will be the SPV, which will deliver the infrastructure. Because the SPV is the owner of the asset, the debt will go on the SPVÕs books, not the cityÕs books. After an agreed upon return for the equity investment has been received, and the bonds fully repaid, the expressway will transfer to the city. ÒItÕs the best way to do this,Ó said Bob. ÒThe city is broke. We have to innovate. The expressway is a great candidate for P3. And not one tax dollar is needed.Ó With that, the people cheered! Bob explained that a new expressway for the city would be a very large project. Because a lot of stuff was needed to build the road, it would require significant upfront capital. But, the complex web of supports, rails, signs, bridges, interchanges, and lighting for the expressway would also have a long asset life. We should borrow to do this,Ó said Bob. ÒIf we wait and save, itÕll never get done. WhatÕs more, inflation will make the project more expensive each year that we wait. Sure, weÕll have to pay interest on the debt, but a lot of that interest will be offset by the price inflation that we avoid. WhatÕs more, itÕs fair. The expressway will last a long time. Our kids and grandkids will be using it. So will others who move into the city after itÕs built. Borrowing and then paying it back over time is one way they can help pay too.Ó With that, the people agreed. Bob went on to explain that because the city had grown so much and there were so many wonderful things to see and do, there would be strong demand for the new route. Bob had also read about intelligent transportation systems (ITS) and electronic toll collection (ETC) that would allow individual drivers to be identified when they used the expressway. ÒFrom a demand and user point of view,Ó intoned Bob, Òthe expressway is a marketable asset and can be funded through user fees.Ó But now some of the people got angry at Bob. ÒWe already pay taxes and shouldnÕt have to pay fees,Ó they said. ÒWell,Ó Bob answered, Òthe taxes you pay are not paying for this because itÕs a new asset and it needs new funding. Either your taxes go up, you suffer with the old road, or you pay fees.Ó ÒBut before you answer, consider this,Ó challenged Bob. The expressway is a hard economic infrastructure asset. While it will benefit the entire city, it will also benefit people individually, particularly the businesses that export the little widgets made in our shops. It will also benefit the travelers and commuters who come into the city but pay their property taxes somewhere else. User fees are fair because they allow all those who benefit from the expressway to pay for it.Ó ÒBut the roads have always been free,Ó someone piped up. ÒNot so, said Bob. ÒNothing is free. If you ever get something for which you did not pay, then someone else has paid for you. Those who canÕt afford the toll or do not want to pay it can continue using the old road or ride the bus,Ó said Bob. And, the SPV has promised the Mayor that some of the toll revenue will actually be used to fill the potholes in the old road, too.Ó
