Friday, July 30, 2010

Pennsylvania's Privatization Train Has 75 Seats

Private equity underwriters (PEU's) posture to help stressed state governments with their infrastructure needs. New Jersey and Pennsylvania chug toward public-private partnerships. Philadelphia will host "P3 - Public/Private Partnerships for the 21st Century." The meeting description states:

Growing demands to upgrade our deteriorating public infrastructure, combined with dwindling municipal and state budgets, have led to a dramatic increase in the use of Public Private Partnerships (P3). Benefits include lower costs, improvements in the quality of public services, access to private sector capital, and professional expertise, as well as centralized management and oversight.
The list of confirmed speakers includes:

Frank Rapoport, Partner, McKenna Long & Aldridge LLP.
Dennis Martin, President, The Keating Group.

John A. Flaherty
, Principal, Global Infrastructure, The Carlyle Group (Washington DC).
The Honorable Richard A. Zimmer, Chair, New Jersey Privatization Task Force.
John Rafferty, State Senator, 44th Senatorial District, Commonwealth of Pennsylvania.
Invited: The
Honorable Edward G. Rendell, Governor, Commonwealth of Pennsylvania.

Disaster capitalism finds states selling off revenue streams for a one-time cash boost. Virginia plans to sell its ABC (alcohol) store franchise for less than 1x sales. Liquor prices are not expected to go down for consumers, despite being provided by the "more efficient" private sector. Also, Virginia hopes to sell its port operations with Carlyle Group as a bidder.

PEU's hire politically connected insiders, using them to steer government business and structure markets to their advantage. PEU's milk affiliates via annual management fees, special dividends and IPO's. They load firms with debt, dramatically increasing interest expenses. After a few years they flip them for huge profits.

Not everyone wins in a Ponzi scheme. Likewise, not everyone can attend the P3 meeting in Philadelphia. Attendance is limited to the first 75 registrants. It's an exclusive club, those selling public resources and those wishing to buy them on the cheap.