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The governing board of the Virginia Port Authority should resist pressure to turn over control of the state’s most valuable asset at a discount rate.
Sunday, March 17, 2013
Two years ago, Gov. Bob McDonnell shook up the governing board of the Virginia Port Authority, replacing 10 of its 12 commissioners with members of his own choosing. Those men and women have a political fealty to the executive who appointed them. But once they took their seats on the board, their larger obligation was and is to the people of Virginia. They have a fiduciary responsibility to place the long-term interests of the commonwealth ahead of a governor whose tenure ends in 10 months.
The reason for the house-cleaning is in dispute. McDonnell said he was dissatisfied with the port’s performance, while ousted members say they refused to contribute revenue to a road project. Regardless, a larger issue now confronts board members and their chairman, Roanoke businessman William Fralin.
The group is scheduled to vote March 26 on whether to accept one of two proposals from private companies seeking to take over operations for nearly five decades.
With the state’s most valuable economic assets and billions of dollars on the table, board members must take the decision seriously. For several reasons, wisdom demands that they reject bids and retain control of the port.
First, the basis for McDonnell’s argument in favor of privatization, that the port is losing money and will continue to do so without radical change, has been largely discredited by the Joint Legislative Audit and Review Commission. While the port struggled during the recession, watchdog analysts concluded that it will generate profits during the next five years and that the facility is financially sustainable.
McDonnell’s argument assumes the primary goal of the port is to turn a handsome profit when its role as an economic development tool is more vital to the commonwealth. With control of the port, state officials can offer incentives to attract new businesses and create jobs, an option they lose if they give up management.
Second, handing control over to a single private operator could be harmful to Virginia businesses that rely on the port. Customers recognize the danger and overwhelmingly oppose the action. Privatization can be a useful means to increase competition and drive down prices, but in this instance there is a risk that the opposite will occur.
The Virginia Maritime Association notes that the facility would become the only major port in the United States controlled by a single private entity. While many major U.S. ports have signed management contracts with private firms, operational responsibilities are divided among multiple companies to avoid abuses that can crop up with a monopoly.
Finally, the timing is terrible for a deal. The two pending bids have a present value of $3.1 billion and $3.9 billion. Old Dominion University economist James Koch has estimated the port is now valued at $6 billion. Its value will increase when an expansion of the Panama Canal is completed in 2015, opening the East Coast to super-sized ships that can easily navigate Virginia 50-foot channels and giving the state an advantage over competing ports in New York and Savannah, Ga.
State lawmakers, who overwhelmingly oppose the deals now before the port board, passed legislation this year strengthening the board’s powers to reorganize operations and improve efficiencies. That’s an attractive alternative to privatization, and one board members should embrace.
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