Ohio Gov Kasich gets legislation to lease Turnpike - RFP must be OK'd
By Peter Samuel
Ohio governor John Kasich is moving ahead with plans to lease the state Turnpike under a longterm toll concession contract. Enabling legislation passed as part of a budget House Bill 153 just ahead of the July 4 holiday. The legislation gives the state Director of Budget and Management primary responsibility for the procurement of a private concessionaire to take over control of the Turnpike from the present politically appointed Ohio Turnpike Commission.
The enabling legislation requires the budget director to submit the proposed request for proposals (RFP) and detailed terms and conditions to the state general assembly (House and Senate). The lawmakers must vote to approve the RFP by concurrent resolution within 90 days to allow the budget director to send out the RFP and to proceed with the procurement.
This veto power over the RFP was negotiated last week to allow the legislation to pass.
The rest of the enabling legislation seems conventional.
The maximum term of a toll concession is 75 years. And the concession contract can contain limits on toll rates. All the money obtained in fees from the concessionaire will be deposited into a newly created Highway Services Fund at the State Treasury.
Governor Kasich and his transport secretary have said they expect the concession to bring about $2.4 billion.
BACKGROUND: The 241 mile, 388km mostly six-lane toll road is for most of its length designated I-80 and is the main highway between the Northeastern states of New York and New Jersey and Chicago. At its east end is the Pennsylvania Turnpike (I-76) and at its west end the Indiana Toll Road (I-80/I-90). It picks up I-80 (from the Port of New York & New Jersey and George Washington Bridge at the north end of Manhattan Island NY) at MP218, just 21 miles west of the Pennsylvania line.
The coast of Lake Erie forces I-90 from Boston south through Cleveland and it converges with the Turnpike at MP142. So the Turnpike is cosigned I-80/I-90 for the remaining 142 miles, 229km westward to its end at the Indiana line.
Counting each end as an interchange there are 31 interchanges or about one every 8 miles, 12.5km.
In 2010 total vehicle trips were 49m or an average daily 134k split between trucks 10m (av daily 27.4k) and cars 39m (107k/day). Vehicle miles traveled were 1,885m for cars (68%) and 893k for trucks (32%).
see table below
Toll revenues in 2010 were $232.2m. Of that $125.2m or 54% came from trucks and $107m or 46% from cars. Vehicle classification is based on axle count and height.
Traffic was growing through 2005/6, but since then has stayed constant or fallen. Most worrisome for a concessionaire with be the drop in truck traffic which yields 2.5x car traffic. From 2006 1,077m truck-miles this has dropped 17% to 894m. Car-miles peaked in 2004 and have dropped but less sharply - from 2021m in 2004 6.7% to 1885m in 2010.
Toll rates were flat through 2008 but have been pushed up a bit since then - 50% for cars and 27% for trucks - which may account for a part of the decline.
Profit & loss account
Total revenues in 2010 were $251.7m - adding to tolls $232.2m other revenues of $23m from rest area concessions and the like.
Operating expenses before depreciation were $115.8m for EBIDTA of $135.9m. After deprecation of $55.2m and interest charges of $29.1m, so the Turnpike made a profit of $51.6m. As a government business it pays no taxes.
Bonds outstanding are $637m.
Its pavement and bridges are in excellent condition and it has a modern toll system. Ohio is part of the E-ZPass group so some 30 million transponders are accepted. Tolls are trip-based meaning that motorists are registered on entry via transponder or a paper ticket and their toll bill is computed on exit.
The Turnpike has modern service plazas offering fuel, meals and bathrooms about very 30 miles, 50km.
It has a posted speed of 70mph and actual speeds have 85% of vehicles at close to 80mph.
This is an almost pure 'brownfields' concession in the sense that almost no major investments are needed near term. The highway is wide enough for the traffic it will get in the foreseeable future.
The letter of the law
Budget bill as passed - section bearing on lease of Turnpike:
Sec. 126.60. As used in sections 126.60 to 126.605 of the Revised Code:
(A) "Contract" means any purchase and sale agreement, lease, service agreement, franchise agreement, concession agreement, or other written agreement entered into under sections 126.60 to 126.605 of the Revised Code with respect to the provision of highway services and any project related thereto.
(B) "Highway services" means the operation or maintenance of any highway in this state, the construction of which was funded by proceeds from state revenue bonds that are to be repaid primarily from revenues derived from the operation of the highway and any related facilities and not primarily from the tax that is subject to the limitations of Article XII, Section 5a of the Ohio Constitution.
(C) "Improvement" means any construction, reconstruction, rehabilitation, renovation, installation, improvement, enlargement, or extension of property or improvements to property.
(D) "Private sector entity" means any corporation, whether for profit or not for profit, limited liability company, partnership, limited liability partnership, sole proprietorship, business trust, joint venture or other entity, but shall not mean the state, a political subdivision of the state, or a public or governmental entity, agency, or instrumentality of the state.
(E) "Project" means real or personal property, or both, and improvements thereto or in support thereof, including undivided and other interests therein, used for or in the provision of highway services.
(F) "Proposer" means a private sector entity, local or regional public entity or agency, or any group or combination thereof, in collaboration or cooperation with other private sector entities, local or regional public entities, submitting qualifications or a proposal for providing highway services.
Sec. 126.601. Notwithstanding any provision of the Revised Code to the contrary, the director of budget and management and the director of transportation may, in accordance with sections 126.60 to 126.605 of the Revised Code, take any action and execute any contract for the provision of highway services in order to more efficiently and effectively provide those services, including by generating additional resources in support of those services and related projects. Any such contract may contain the terms and conditions established by the director of budget and management and the director of transportation to carry out and effect the purposes of sections 126.60 to 126.605 of the Revised Code. The director of budget and management is hereby authorized to receive and deposit, consistent with section 126.603 of the Revised Code, any money received under the contract. Any such contract shall be sufficient to effect its purpose, notwithstanding any provision of the Revised Code to the contrary, including other laws governing the sale, lease or other disposition of property or interests therein, service contracts, or financial transactions by or for the state. The director of transportation may exercise all powers of the Ohio turnpike commission for purposes of sections 126.60 to 126.605 of the Revised Code, and may take any action and, with the director of budget and management, execute any contract necessary to effect the purposes of sections 126.60 to 126.605 of the Revised Code, notwithstanding any provision of Chapter 5537. of the Revised Code to the contrary.
Sec. 126.602. (A)(1) Before releasing any invitation for qualifications or for proposals, the director of budget and management shall submit the material terms and conditions of that invitation to the general assembly, which shall include a draft of the invitation document. If within ninety days of the receipt of the director's submission the general assembly acts by concurrent resolution to approve the invitation, the director of budget and management may proceed to release the invitation.
(2) Before entering into a contract for the provision of highway services, the director of budget and management shall publish notice of its intent to enter into a contract for the highway services and any related project. The notice shall notify interested parties of the opportunity to submit their qualifications or proposals, or both, for consideration and shall be published at least thirty days prior to the deadline for submitting those qualifications or proposals. The director also may advertise the information contained in the notice in appropriate trade journals and otherwise notify parties believed to be interested in providing the highway services and in any related project. The notice shall include a general description of the highway services to be provided and any related project and of the qualifications or proposals being sought and instructions for obtaining the invitation.
(B) After inviting qualifications, the director of budget and management, in consultation with the department of transportation, shall evaluate the qualifications submitted and may hold discussions with proposers to further explore their qualifications. Following this evaluation, the director, in consultation with the department, may determine a list of qualified proposers based on criteria in the invitation and invite only those proposers to submit a proposal for the provision of the highway services and any related project.
(C) After inviting proposals, the director of budget and management, in consultation with the department of transportation, shall evaluate the proposals submitted and may hold discussions with proposers to further explore their proposals, the scope and nature of the highway services they would provide, and the various technical approaches they may take regarding the highway services and any related project. Following this evaluation, the director, in consultation with the department, shall:
(1) Select and rank no fewer than three proposers that the director considers to be the most qualified to enter into the contract, except when the director determines that fewer than three qualified proposers are available, in which case the director shall select and rank them;
(2) Negotiate a contract with the proposer ranked most qualified to provide the highway services at a compensation determined in writing to be fair and reasonable, and to purchase, lease or otherwise take a legal interest in the project.
(D)(1) Upon failure to negotiate a contract with the proposer ranked most qualified, the director shall inform the proposer in writing of the termination of negotiations and may enter into negotiations with the proposer ranked next most qualified. If negotiations again fail, the same procedure may be followed with each next most qualified proposer selected and ranked, in order of ranking, until a contract is negotiated.
(2) If the director, in consultation with the department, fails to negotiate a contract with any of the ranked proposers, the director, in consultation with the department, may terminate the process or select and rank additional proposers, based on their qualifications or proposals, and negotiations shall continue as with the proposers selected and ranked initially until a contract is negotiated.
(E) Any contract entered into under this section may contain terms, as deemed appropriate by the director, in consultation with the department, including the duration of the contract, which shall not exceed seventy-five years, rates or fees for the highway services to be provided or methods or procedures for the determination of such rates or fees, standards for the highway services to be provided, responsibilities and standards for operation and maintenance of any related project, required financial assurances, financial and other data reporting requirements, bases and procedures for termination of the contract and retaking of possession or title to the project, and events of default and remedies upon default, including mandamus, a suit in equity, an action at law, or any combination of those remedial actions.
(F) Chapter 4117. of the Revised Code shall not apply to any employees working at or on a project to provide highway services.
(G) The director of budget and management may reject any and all submissions of qualifications or proposals.
(H) The director may provide compensation for the preparation of a responsive proposal from unsuccessful bidders for a proposal to lease the turnpike under sections 126.60 to 126.605 of the Revised Code. The director may establish policies or procedures necessary to determine the amount of compensation to be provided for each project and the method of evaluating the value of the preliminary proposal submitted, but in no instance may the compensation exceed the value of such proposal.
Sec. 126.603. All money received by the director of budget and management under a contract executed pursuant to sections 126.60 to 126.605 of the Revised Code shall be deposited into the state treasury to the credit of the highway services fund, which is hereby created. Any interest earned on money in the fund shall be credited to the fund. Any transfer of money or appropriations necessary to support highway services is subject to the approval of the controlling board.
Sec. 126.604. The exercise of the powers granted by sections 126.60 to 126.605 of the Revised Code will be for the benefit of the people of the state and shall be liberally construed to effect the purposes thereof. Any project or part thereof owned by the state and used for performing any highway services pursuant to a contract entered into under sections 126.60 to 126.605 of the Revised Code that would be exempt from real property taxes or assessments in the absence of such contract shall remain exempt from real property taxes and assessments levied by the state and its subdivisions to the same extent as if not subject to that contract. The gross receipts and income of a successful proposer derived from providing highway services under a contract through a project owned by the state shall be exempt from gross receipts and income taxes levied by the state and its subdivisions, including the tax levied pursuant to Chapter 5751. of the Revised Code. Any transfer or lease between a successful proposer and the state of a project or part thereof, or item included or to be included in the project, shall be exempt from the taxes levied pursuant to Chapters 5739. and 5741. of the Revised Code if the state is retaining ownership of the project or part thereof that is being transferred or leased.
Sec. 126.605. The director of budget and management, in consultation with the department of transportation, may retain or contract for the services of commercial appraisers, engineers, investment bankers, financial advisers, accounting experts, and other consultants, independent contractors or providers of professional services as are necessary in the judgment of the director to carry out the director's powers and duties under sections 126.60 to 126.605 of the Revised Code, including the identification of highway services and any related projects to be subject to invitations for qualifications or proposals under sections 126.60 to 126.605 of the Revised Code, the development of those invitations and related evaluation criteria, the evaluation of those invitations, and negotiation of any contract under sections 126.60 to 126.605 of the Revised Code.