TOLL KILLER ON THE LOOSE:Illinois Governor calls tolls "nuisance" - Looking at "creative alternatives"
By Peter Samuel
If there was some way to pay off the bonds and transfer the tollway system to the state Department of Transportation, the Gov said, Im going to do that. The state toll authority has about $890 million of bonds outstanding, almost half of them 1992 bonds due in 2017.
But that debt pales into insignificance beside the bonds that the Tollway has been planning to issue over the next ten years $8 billion worth, split about equally between reconstruction and new roads. The new roads have all been voted by the Illinois legislature and include extensions to several of the existing toll roads, especially the North-South I-355 and construction of a new north-south link west of OHare airport. Complete reconstruction of about 200 miles of the existing toll roads has been recommended by the Tollways consulting engineers. This is proposed to be from the dirt up because it is no longer cost-effective to continue overlays and sealing of 40 year old pavement. Many bridges too need major work and with this level of reconstruction it is normal to bring interchanges up to modern standards, and sometimes to add travel lanes.
In northern IL, the Tollway formally the Illinois State Toll Highway Authority (ISTHA) provides about a third of the motorway/expressway standard lane-milage. It operates four major toll roads totaling over 2,000 lane-km with a centerline 437km (273mi) two-thirds of which was built in an amazing 27 months of construction 1956 to 1958. The tollways, as they are called here, provide major north-south movement around Cook county, the inner part of the greater Chicago metropolis, which is Americas third in population (c 9m). The tollways are also main routes west (through Aurora) and northwest (to Rockford). They are the principal distributors for the large commercial area around the OHare airport and the Schaumburg center.
The IL Tollway is Americas largest toll authority in the number of its daily tolls taken just on 2 million. The Garden State Parkway NJ is the next largest by number of tolls with just over 1.5m/day. After the New York area bridge and tunnel toll authorities (Triborough and Port Auth NY & NJ, the Illinois Tollway ranks equal third with the NY State Thruway, the Pennsylvania and New Jersey Turnpikes in a cluster of toll agencies that collect between $300m and $400m/year.
Tolls this year are expected to be $370m, equivalent to a third of the amount raised by IL state gasoline and diesel taxes ($1100m), so the 19c/gal gas tax would have to rise by 6.4c to cover the toll revenue. But the Governor says he doesnt want to raise gas taxes. At the beginning of the year he took a lot of heat for raising $573m/yr extra with a 62% hike in vehicle registration fees, a 5-fold increase in title transfer fees, and the old standby of higher alcohol taxes. This was for Illinois FIRST a $12b 5-year public works program covering transit, state and local roads, schools, and local public buildings.
Its a nuisance to go through tollbooths and I agree with the public (that complains). Drastic changes are needed, the Governor told the press. It is on my scope and on my radar. If theres some way to handle the transfer (of the toll roads to the state) and pay off the bonds and work it fiscally and financially, Im going to do that. But not with a gas tax increase.
Hold ya Wallet: Creative Financing
The governor said he expects the state DOT to look at new creative financing ideas but does not appear to have anything specific in mind.
I am absolutely against any increase in tolls and my goal is to reduce the toll authority as much as I can and eliminate some of the tolls and get the (toll) price down and (eventually?) do away with it completely. We are talking about 275 miles of roads that the (state DOT) could take over and operate. (CHICAGO TRIBUNE 9/9)
A few days later at a League of Womens Voters meeting he was on the subject again: If we can eliminate (the tollways), Id like to do it, if we can figure out a way to do that. But Im practical enough to know that maybe the finances wont allow us to do that, at least now. It might take some time to get it done. Any way we can get rid of it would be OK with me. But certainly, I think it needs to be made more efficient. There should be fewer tolls that people have to go through... I dont think most people mind the 30 or 40 cents they have to throw in the basket... I think its that they have to stop every five minutes to throw it in. And we should be able to eliminate some of those tolls and make it more efficient. (CT 9/15)
Ryan, a Republican came into governors office at the beginning of this year. He had previously been secretary of state to the Gov James Edgar and was not expected to make major changes. During the election campaign an unsuccessful contender for the Democratic nomination for governor, John Schmidt, proposed eliminating tolls and Ryan ridiculed him saying it was unrealistic. He appointed the current chairman of the Tollway, Arthur Philip to that position July 23 knowing that Philip had spoken out about the need for toll increases, when when hed been a member of the board previously.
And as chairman Philip did speak out: Tolls have to be raised to maintain, to modernize, and to expand the toll road. Lets bite the bullet. It costs more money the longer you wait.
Philip said ISTHA was looking at a cash/electronic toll (ET) differential to encourage greater use of ET. The last toll increases on Illinois tollways was in Sept 1983, when tolls at the mainline plazas went from the 1958 rate of 30c to 40c A toll increase has to be done. It is inevitable, he told the CHICAGO TRIBUNE. (7/25) What better time politically will there be to increase tolls than after the election, Philip must have thought?
There were predictable reactions. One politician called the proposed hikes simply offensive. Another told a reporter: I dont know how to describe politely how I feel about this (toll increase). Others called for tighter fiscal oversight of ISTHA.
Gov Ryan told reporters immediately after this I am not for higher tolls and said that he would let Philip know how I feel. But he then said ISTHA was pretty much an autonomous board. He went on: I want to make sure that ISTHA keeps the toll roads running and operating efficiently. Part of the reason that you appoint boards is that you let them kind of do their own thing. You dont dictate to them what they should and shouldnt do.
So why did Ryan start dictating to ISHTA? One explanation may be that two of the staff in his former office of secretary of State had just been indicted on felony charges in a long smoldering campaign funds extortion scandal. Ryan had controlled the motor vehicle registry. It turned out that vehicle defects would be overlooked for those making political campaign contributions, while non-contributors got harassed for questionable defects. Any politician worth the label knows the golden rule of dealing with the media: when youre being burned by one fire, start another fire to distract them. Tolls always make a good fire in Chicago.
Larry Horist of the Illinois Public Policy Caucuses, a close follower of the Chicago scene, says he wouldnt be surprised if there is some of this. He says trading in favors is heavily entrenched in state and local government. Politicians become successful through patronage and those patronized are expected to raise considerable amounts of money for their patrons. Politics in Chicago is not philosophical or partisan, or even very competitive, because there are tacit agreements about turf. Democrats dont seriously go after the state governorship and in return the Republicans dont go seriously after Cook County, the heart of Chicago. Ryan a Republican has endorsed and appeared at fundraisers for Democrats.
But Horist thinks that Ryan is also tapping a deep pool of popular dislike of the Tollway: I think he sees this as a big political winner for him. Horist and other Chicago observers like Joseph Bast, president of the Heartland Institute, say that the Tollway is an inefficient, uncompetitive and self-perpetuating institution. The first head of ISTHA Austin Wyman is frequently quoted as having said in a speech back in 1956 when work was starting on the original 299km (182mi) of the system that the roads would be made free when the bonds were paid off in 1984. That was hokum. Its a charming thought that a road can be built and paid for and enjoyed cost-free for ever after. Its a politicians fairytale, a little story they like to tell at the outset to make listeners feel good. In fact a road is never ever paid for. It continues to cost money to be maintained and its entire physical structure of bridges and pavement needs to be completely rebuilt every few decades. Roads are being worn out from the moment they open by traffic and the weather, especially the winters and their ice and salt in the mid-west.
Despite the 1956 nonsense put out by Wyman, successive governors and legislatures in Illinois have voted for the continuation of tolls to pay for operations and maintenance, and to underwrite tollway extensions. In the 1970s it was the East-West extensions, in the 1980s the North-South, and in the 1990s more N-S extensions. ISTHA was given its instructions by successive legislatures. But often that did not help ISTHAs image as a self-serving, self-perpetuating clique. Skeptics saw the legislature as manipulated by the tollway, or as all part of a corrupt power structure.
The current chairman Arthur Philip recently acknowledged to the CHICAGO TRIBUNE that not many years ago jobs at ISTHA including most toll collector jobs were given by political patronage, but says most of that ended with legal changes, adding: You cant do that kind of stuff anymore. Everything is so far above board now, its really straight, and you dont have to worry about (political) fiefdoms anymore.
Under the current executive director, Ralph Wehner, ISTHA has been scandal-free, but as recently as April 1997 his predecessor Robert Hickman was convicted of a $240k fraud in a sale of tollway land. Hickman had been a campaign fundraiser for the then governor, Jim Edgar. In June 1994 the state auditor general had attacked a confidential pension scheme for top ISTHA employees including Hickman, as improper. The ISTHA board did not defend the scheme, and discontinued it after the auditors criticism, apparently conceding that it had been an indefensible perk.
Institutional reputations once badly damaged are difficult to repair. Fair or not, there are influential people around Chicago who say that the present ISTHA regime is not really reformed, but just better at concealing its inefficiencies and self-indulgences than its predecessor. All this weakens the position of the tollway in defending itself against a governor on a populist campaign against it. Some at ISTHA simply arent combative. They feel misunderstood and are hurt. But they regard the governor as their ultimate boss. He appoints the board of directors, theyll say, and as employees of a state owned agency they work for him, and want to serve him as the peoples choice, whatever he wants.
Foot in mouth disease?
Others think Gov Ryan has had an attack of foot in mouth disease that hes been talking foolish anti-tolls/kill-the-Tollway talk without thinking through the consequences, and that once he has had a chance to hear the real-world options laid out for him that hell reconsider and back away from them.
ISTHAs chairman Arthur Philip was simply stating financial fact when he said a toll increase was unavoidable if the authority is to finance rebuilding of the 41-year old existing roadway and the already decided extensions. The alternative will be to abandon them, and to live and increasingly worn out and congested system that costs more each year in thousands upon thousands of patchup jobs.
Horist and other critics see padding in the Authoritys costs and in its accounts. Its accounts show provision of $126m for depreciation and amortization. ISTHA depreciates its roadway and bridges like a business assuming a life of 20 to 40 years, so its depreciation charges are high. Some criticize that and point out that other toll authorities, like the New Jersey Turnpike do cash accounting without any depreciation. But to ignore depreciation of capital overstates net revenues and sees assets run down. The NJ pike will pay a price for its accounting in its bond rating. Financial analysts at the bond rating agencies have been scathing about NJs financial policies and accounting practices. It will pay a higher interest rate to sell bonds than ISTHA or other authorities with a sound treatment of depreciation.
But accepted business standards of accounting are under fire from those who want to do innovative financing and build more debt on less of a revenue stream, often with a hokey state infrastructure bank at the bottom of the creditor heap carrying risk that investors wont touch. There will be pressures to bring Little Rock type banking practices to Chicago. The tollway is currently quite flush with funds, mainly because its extension projects have been delayed. It gets accused of having high costs of operations. Quite likely, but who really knows? Only by calling for competitive bids from outside for its operations could you find out.
Toll collection costs are over $50m or 13% of revenue. With more electronic toll (ET) collection and higher tolls that proportion should come down substantially. Tax collection costs money too, a recent study showing for example that sales tax collection typically costs 7% of revenue. There are other problems. Gas taxes hugely enrich organized crime, which specializes in transforming untaxed tankerloads of fuel into tax-paid fuel, by fiddling with dyes and tax payment certificates. A gas tax hike is great for the mafias. It is pure profit for them.
Gov Ryan speaks as if everybody has to stop at toll plazas. The ISTHA system is now fully wired for ET which currently accounts for 22% of transactions. Dedicated lanes operate at 1800 veh/hr with a posted speed of 30mph (compared to 1400 before at 15mph). Two plazas are operating with full highway speed ET, and another three are in construction. 240,000 ET tags are in use with an average 800 added each day so 300k seem likely to be in use by years end. All this is happening without an active marketing campaign to push toll tags or any break in the toll rate.
ET users make big time savings but the improvements have not noticably reduced delays for cash payers. Moreover in some places improved toll plaza throughput has been offset by non-toll related delays downstream in an area of heavy weaving. At times whole stretches of toll road are simply overloaded.
The Tollway is 6 months into a $30m contract with TransCore to upgrade the lane controllers, signals and manual toll collector registers at all the 53 toll plazas. That work may have to be put on hold, given the Governors desire for radical changes to the system, including progressive removal of tolling.
To support a fully modernized system something like $1.00 is probably needed in place of the present 40c toll so for the average 20km (13mi) trip the cost would be 5c/km (7.5c/mi). If the Gov thinks any toll increase is unacceptable then the present system could be put in a care and maintenance mode with the present toll rates continued. Extensions and widenings could be concessioned out to separate entities with the toll rates needed to support the new works. The extra lanes might function as express lanes with a higher toll rate than the old care-&-maintenance lanes beside them.
Proposals for Gov George Ryan:
1. Its time to give taxpayers of Illinois a break. Theyre already paying much higher registration charges for the IL FIRST projects. Let the private sector take the bulk of the burden for the Tollway.
2. Call for private sector proposals to take responsibility for the design, financing, reconstruction and future operations of the tollways different private sector operators operating different sections of the system, with a single toll system.
3. Double-taxation ended by rebating against monthly tollway bills an amount equivalent to the gas/diesel fuel tax of 1c/mile and correspondingly larger rebates for higher fuel consumption (and hence higher taxed) classes of vehicles [IL gasoline tax is 19c/gallon and the average private automobile gets about 19 miles per gallon, so the gas tax is effectively on vehicles traveling the tollways is around 1c/mile] Take a lead by rebating the tax and urge the federal government to do the same with its gas tax (18.3c) which could provide a similar 1c/mile rebate against tolls. The approx 2c/mile which motorists pay in fuel taxes compares with 3c/mile which is the average 13 mile trip on the Illinois Tollway for the present toll of 40c.
4. A detailed program for accelerated installation of highway speed electronic tolling throughout the tollway system so it becomes available for all trips within say 4 years.
5. A more sweeping option would be a commitment to end all cash toll collection by a date certain and rely entirely on remote billing like I-PASS so that all toll plazas are demolished.
6. The tollway system of the future will guarantee free flowing traffic (except in cases of a major accident) in return for tolls. With toll rates that vary by time of day it is possible to match the traffic to the road and to guarantee free-flowing traffic.
7. Toll rates on most modern newly built toll highways are in the range of 8c to 15c/mile, three to five times the rates in effect presently on Illinois tollways. A competitive process should ensure that users of the tollways get the best possible deal, but higher toll rates seem unavoidable. In return for this however they will gain smooth solid roads and a quick safe ride to their destination.
8. On the matter of oversight by the legislature, no problem. Tollway operations must be fully open to public scrutiny. If you favor complete control, and responsibility, for the Tollway within the executive arm then abolish the Tollway Authority and put its operations within the DOT. Otherwise leave the Board to do their job, and quit their turf. (Contacts Dennis Culotten Govs Office 312 814 3158, Kirk Brown IDOT 217 782 5597, Don OToole ISTHA 630 241 6800x2380, Larry Horist IL Policy Caucuses 312 565 4499)