Add one more investment to the list of CalPERS’ controversial investments: a privately run state highway.
The retirement fund recently purchased 10 percent of Indiana Toll Road Concession Co. The firm runs a 157-mile stretch of highway that runs across northern Indiana from Illinois to Ohio. California’s state engineers’ union says it’s a horrible investment that sinks government employees’ money into a project that, ironically, is hostile to government employees.
The toll-road company is the first of what fund managers anticipate will be more investments in infrastructure and transportation projects as the $291 billion system broadens its reach into those sectors.
Indiana Gov. Mitch Daniels thought a public-private highway partnership would be a win-win for the state and the private sector when he proposed it in 2005. A year later, Indiana Toll Road Concession Co. won the contract with a bid that included $3.8 billion up front. The money was earmarked for highway construction and maintenance projects statewide. Meanwhile, the 75-year deal gave the firm responsibility to manage the state-owned road in exchange for keeping collected tolls.
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Then the recession hit. Traffic volumes fell. The company’s debt reportedly grew from $3.4 billion to $6 billion eight years later. It went bankrupt in 2014. (Indiana got to keep the up-front money.)
IFM Investors bought the company for an undisclosed sum last year. Then last week CalPERS announced its stake, the fund’s first U.S. transportation purchase in a new program emphasizing infrastructure investments. CalPERS didn’t say how much it paid.
The deal gives Professional Engineers in California Government a heaping helping of heartburn, however. The union has fought public-private partnerships for years. Handing over what should be government work to profit-driven firms invites cost-cutting for profit, the union says, which hurts projects’ quality and compromises safety. Such agreements also shift work from the public-sector servants to the private-sector mercenaries, PECG has said. The bulk of its 13,000 members are Caltrans employees.
“Public-private partnerships are risky investments for anyone, but it is particularly troubling when you’re investing the hard-earned money of public employees,” said union spokesman Ryan Endean, noting that a Texas toll-road partnership recently failed. “CalPERS members would be better served by putting money in investments with a proven record of strong returns, not speculative deals like public-private partnerships.”
CalPERS spokeswoman Rosanna Westmoreland countered with an emailed statement that said, in essence, get over it.
Such investments, she wrote, will “provide predictable returns with moderate long-term inflation protection.”
CalPERS has always occupied a shifting space between the private sector and government. It’s a state agency that operates like a Wall Street firm but hews to transparency and listens to dissent.
In this case, even from the members it serves.