Ohio2006 Blog

News, analysis, and comments on Ohio elections.

Tuesday, August 22

Gov: Blackwell (R) Turnpike Privatization Plan Lambasted by Turnpike Commission Chair and Cleveland Area Leaders

The Chairman of the Ohio Turnpike Commission and elected officials from the Cleveland vicinity gathered last Friday for a press conference outside the Cleveland-Cuyahoga County Port Authority, at which they denounced the plan of gubernatorial candidate Secretary of State Ken Blackwell (R-Cincinnati) to privatize the Ohio Turnpike by leasing it for 99 years.

From left to right: Mayor Dean DePiero (D-Parma), State Senate Minority Leader C.J. Prentiss (D-Cleveland Heights), Ohio Turnpike Commission Chairman Joseph Balog, Cuyahoga County Treasurer Jim Rokakis, and Mayor Thomas O'Grady (D-North Olmsted).

I brought recording equipment to the press conference and focused on holding the microphone steady with one hand while taking photographs with the other. Having placed the digital recorder in my shirt pocket, however, I managed to bump it and accidentally turn off the recorder after the first speaker. Fortunately, the first speaker was Turnpike Chairman Balog, whose condemnation of the plan from an economic perpective was particularly devastating. For a full transcript of his remarks in Word format, click here. I will summarize his comments below, interspersed with photographs from the event.

Turnpike Chairman Balog said the plan would inevitably produce much higher rates and thus divert traffic to parallel roads at the expense of local communities.

Essentially, Balog said that he is against the privatization plan "from an economic standpoint," based on the Turnpike's importance as an "economic wheel for the northern Ohio area." A company that pays the 4 to 6 billion dollars projected by Blackwell to lease the Turnpike for 99 years would need to "maximize their profits." Using 5 billion as an example, a reasonable 5% rate of return would be $250 million per year. The Turnpike's annual budget, however, is only $215 million. "Where do you generate 250 million dollars for the private company that's invested five billion dollars when you only have 215 million dollars worth of income?"

Mayor O'Grady described Blackwell's plan as "reckless" and "very poorly thought out," and suggested that Blackwell drop it like he dropped his proposed TEL amendment that would have severely restricted government spending.

The only possible way to "make the Turnpike an economic, viable investment," Balog said, would be to "increase the rates," and increase them not slightly but substantially. "You have to think about something like three or four times the current rate in order for a company to get a return on their 5 billion dollar investment."

County Treasurer Rokakis predicted that the private operator of the Turnpike would provide workers with lower pay and benefits in order to try and squeeze out a profit, which would hurt the economy of the whole community.

Asked about the example of Indiana, Balog pointed out that Indiana didn't get $5 billion for privatizing their toll road. Ohio presently charges "about 13 cents per mile for trucks," he said. In two years, "Indiana will be at 20 cents per mile, and they'll ultimately be headed up." Balog said that Blackwell has talked about tolls "increasing at the rate at about 3 to 3.5 % per year." Balog pointed out that if rates had been raised by that amount over the first fifty years of the Turnpike, "a truck going all the way across the State of Ohio today would be paying $125 to use the Ohio turnpike," compared to about $30 actually charged today. "If they were paying $125 to go across the state, many of those trucks would not be using the Ohio Turnpike, they'd be on the roads that are parallel to it, they'd be on the private streets." Everyone "would be paying for the maintenance of those streets and there'd be a limited number of vehicles on the Turnpike."

Mayor DePiero pointed out the negative effects that reduced usage of the turnpike and increased use of parallel roads would have on the economy and safety of his community, which is adjacent to the Turnpike.

The "whole idea" of the Turnpike is it's "supposed to be a convenient, easy, accessible road, so that the trucks don't go ahead and use the parallel roads and cause problems in the local communities." Balog agreed with the statement that Blackwell's plan is "outsourcing run amok":
I don't think it makes any sense whatsoever. They'd have to continuously increase the rates and they'd have to increase them to the point where there would be significant traffic leaving the Ohio Turnpike and going onto the secondary roads that are running parallel.

Senator Prentiss linked Blackwell's turnpike privatization idea to his schemes for pay-to-play outsourcing of government functions in other areas, potentially including the outsourcing of non-classroom school operations under his 65% funding formula for public schools.

The criticism of Blackwell's plan by these officials finds ample support in a study called "An Analysis of the Proposed Lease of the Ohio Turnpike," prepared in June for The Center for Community Solutions by David A. Ellis, Ph.D., of CCS and Edward W. (Ned) Hill, Ph.D., the Vice President for Economic Development at Cleveland State University. That study found that contrary to Blackwell's prediction, "the market price of the lease should be in the $2 to $3 billion range," which after the state pays off the nearly three quarters of a billion dollars of outstanding debt of the Turnpike Commission would yield "cash available to Ohio for capital investments" only in the "$1 to $2 billion range," and that's without taking into account the cost of rebuilding the turnpike two to three times over the life of the lease. In their conclusion, the authors state:
[T]the only way that a private firm can operate the highway and make a profit while improving the economic returns for Ohio's citizens is if the turnpike authority makes extremely high profits, operates extremely inefficiently, or is loaded with inefficient patronage. The private firm would make its money by getting rid of these inefficiencies. If the turnpike is well run, a private vendor will have difficulty squeezing a profit out of the lease. Unless the private company sees an opportunity to charge monopoly rents through ever‐increasing tolls. Even if the vendor increased tolls at the maximum allowable rate, required maintenance of the road will erode any potential benefit. It would seem the only reason to lease the asset, given our analysis, is an ideological drive to shrink the size of government.

2 Comments:

At 9:29 AM, Anonymous Anonymous said...

I read in a Toledo Blade article ( http://toledoblade.com/apps/pbcs.dll/article?AID=/20060818/NEWS11/608180408&SearchID=73254140312503 )
that some lawmakers consider paying off the Turnpike Bonds and making the Turnpike a free way a good idea. The problem I see with that is that when the Turnpike is no longer supported by toll revenue, it becomes a burden on all taxpayers in the state. Since much (if not most) of the traffic on the Turnpike is from Illinois, Indiana, Pennsylvania, New York, New Jersey and so forth, we would pay a hefty price for the right to supply a free road to those who are using it most.

The toll road concept is fairer to the taxpayers of the state than one that keeps taking their tax dollars for a road that most of the people in Ohio will only use a few times in their lifetime, if at all. What is wrong with a road being supported by the people who use it, and not making a profit (as Mr. Blackwell would have done)? When bad weather hits Northern Ohio, the Turnpike is the one road that is usually passable, because the Turnpike maintains dedicated road crews to keep it open. If you can get to the Turnpike, you can get across Ohio. That's not an accident, it is a fact, but it would not happen that way if the Turnpike was subjected to local or state agencies to maintain.

I-75, I-80, I-70, etc. all are left to dilapidate before any major work is done and then the construction zones go for miles. At least the Turnpike only closes down the area that is being worked on and the Turnpike does not compete with the other roads in the area for it's repair costs.

By the same token, to privatize the road would make it a "for profit" business and frankly, any business will make no bones about their priorities; They are in business to enrich their share holders, not to benefit their customers, the community, or to provide fair wage employment for their employees. In most cases they don't even pretend that they have any social responsibility to their customers or to the community where they are located. Selling Ohio's infrastructures makes no sense, but selling it to a "foreign investor" invites profiteering.

The Turnpike as it is now provides a well maintained avenue for travelers to cross Ohio, employs local people at a good wage, and those folks in turn pay taxes, buy products from the local business, build homes in the communities and are an asset to Ohio. The money paid in tolls comes back to Ohio and the local communities through these folks. And, unlike a private industry, the Officers of the State, and the people who they represent, have at least some control over the operation. In Mr. Blackwell's world, the control would be in a board room in a foreign country (the Indiana "Lawmakers" had to put a special provision in their "Lease" agreement to force the company that owned the lease to fly the U.S. flag at all facilities).


An interesting news site about the Australian company that bought the Indiana Toll Road Lease is at:

http://www.theaustralian.news.com.au/story/0,20867,20242809-643,00.html

It seems now that Macquarie Infrastructure Group may have to sell part of the toll road lease to a third party - that could be a sticky wicket (remember the Dubai Ports World deal this year?)! Indiana's governor may know who he sold the road to, but he may not know who is going to own it. The same thing could happen to the Ohio Turnpike if Ken Blackwell has his way.

 
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