A tale of two turnpikes

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Several times a year, I make the drive from Chicago to my parents’ house in Youngstown, Ohio. It’s a 400-mile straight shot on the Indiana and Ohio Turnpikes – I-80/-I90 – and a key section of the nation’s interstate system.

And let me tell you, the Indiana Toll Road sucks, although anecdotal evidence would indicate that you are less likely to get a ticket In Indiana than in Ohio. The Ohio Turnpike has clean bathrooms and clean restaurants. The gift shops have things you might actually buy as gifts! Meanwhile, the rest stops on the Indiana Toll Road are just sad.

No surprise, the stop at Ohio’s mile post 20.8, closest to the Indiana border, is always crowded. Whether you are entering or leaving Ohio, it’s a great place to fill up the car, buy a snack and use a clean restroom. That’s especially true because gas at the first westbound stop in Indiana – Booth Tarkington, at mile post 146 in Fremont – sells for about $0.30 per gallon more than the last stop in Ohio and more that at stops further west in Indiana. Gouge much, Hoosiers?

They have to gouge, as they are losing money. The Indiana Toll Road filed for bankruptcy in September 2014. The concession is owned by Ferrovial, a Spanish company, and Macquarie Group, an Australian investment bank. In 2013, the Indiana Toll Road took in $158 million in earnings before interest, taxes and depreciation. That sounds nice, except that the company owed $193 million in debt service on the $3.2 billion it borrowed to cover the lease. Ferrovial and Macquarie have a plan to exit bankruptcy that involves selling the lease for its remaining term. We’ll see who wants to buy it and for how much.

The Ohio Turnpike, meanwhile, is still controlled by the state. In 2013, the Ohio Turnpike took in $2.3 million from its State Fuel Tax Allocation and posted an increase in net position (profit) of $49.6 million. The taxpayers are making a profit, and the customers who ride the road are happy with the services provided.

Indiana sold a 75-year lease on its toll road for $3.8 billion in 2006, more than it was probably worth. In 2008, the City of Chicago sold a 75-year lease on its parking meters to an investor group for $1.2 billion, probably less than they were worth. In Ohio, Gov. John Kasich considered a privatization plan, but decided against it in 2010. One of the problems with privatization is that it is so new that there is not a competitive market to determine valuations. To make the cash value worthwhile, contracts tend to be set for long periods. Will we even be using cars that many years out?

Another problem is that state and municipal governments have a lot of experience operating roads and parking meters. What they don’t understand is how to manage large windfalls of cash effectively. In Indiana, the state took its $3.8 billion, paid off debt and invested in infrastructure projects. That sounds good, but now the money is gone, and the toll road won’t contribute to revenue again until 2081.

In Chicago, the funds from the parking meter sale were supposed to form a rainy-day fund to help shore up underfunded municipal pensions. The money was instead used to balance the city’s 2010 budget. At least Mayor Daley didn’t have to raise taxes while he was in office!

Ohio, meanwhile, will have steady and manageable cash flow. The Turnpike’s 2013 EBITDA of $166.9 million is comparable to the $158 million Indiana took in. The two turnpikes show a contrast between “good” privatization – having private companies compete to run the restaurants and gas stations – and “bad” privatization – turning the whole thing over to a company without much clear incentive to please customers. With 75-year leases, no one has to compete to keep either elected officials or citizens happy for a long time.

The private sector is often more efficient than the government, but some government inefficiency occurs because of the pursuit of something other than revenue. A toll road is a source of funds, but it is also a way to move people and goods from place to place, something that’s critical to a functioning economy. Likewise, parking meters are a source of revenue, but meter policies are also serve to ration scarce resources in a way that, ideally, balances the needs of merchants with the needs of residents.

Introducing competition and innovation to staid government programs can be a path toward getting the best of both worlds. But privatization initiatives must be carefully crafted to avoid tying together all the inefficiency of government with the “rational self interest” (aka, greed) of the market.

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  • Steve Doner

    If the speed limit on the turnpikes were raised to 80 or 85 mph, which would be perfectly safe and appropriate they would likely draw some traffic in from secondary roads and overall highway safety would be improved. At the same time, revenues would go up and the business model might actually work.

  • Steve Doner

    For those who think a speed limit that starts with an eight is crazy, look at what the real experts say (those who are not in the ticket revenue stream). There are hardly any interstates in North America (or the world) where a speed limit of 80 or 85 would not be proper. North America has some of the lowest speed limits in the world and we have the most lenient drunk driving cutoff in the world. If safety were the goal, the situation would be reversed. Note that nationally and in most states only about 5% of all fatalities occur on rural interstates. Higher limits draw traffic away from the other roads and improve overall highway safety. Pay a toll and go 70? Most drivers will take US 30 or I-94 instead of the Turnpike. Bump the limit to 85 and there might be a change.
    Testimony for the Illinois Tollway Board Meeting December 18, 2014

    Madam Chairman and members of the board,

    My name is Thad Peterson, and I retired from the Michigan Department of State Police in early 2013, after 25 years of service to the citizens of Michigan.

    During the last 10 years of my career with the State Police I served as the commanding officer of the Traffic Services Section, where one of our main focus areas together with the
    Department of Transportation, County Road Commissions, and elected officials of
    all levels, was to correct hundreds of artificially low speed limits across the
    state.

    The speed limit corrections implemented during my tenure in traffic services (mostly increases of up to 15 miles per hour) impacted millions of vehicle miles traveled per day. Over that same time frame, Michigan’s traffic fatality numbers plummeted, by about a third.
    In conjunction with my counterparts, I was recognized for those efforts
    with two Governor’s Traffic Safety Awards for Outstanding Contributions to
    Traffic Safety.

    Many of these corrections were on urban freeways, typically correcting under-posted speed limits of 55 miles per hour to 70 miles per hour. 70 was the
    nearest multiple of 5 miles per hour to the 85th percentile speed,
    and closely matched the prevailing, safe traffic speeds on these freeways.

    In all cases, we conducted after-studies to determine the effect of the changes, and to see if we needed to revise or reverse them. Safety was our overriding concern.

    Despite our openness to adjusting our engineering changes or even completely reversing them if necessary, we found that our results were consistent with the long standing national studies on speed limit establishment:

    No 85th percentile speeds increased by any significant amount, and some actually
    decreased after increasing the speed limit 15 MPH.

    Overall, the crash rates on the freeways in question trended downward, and our fatality rate declined strongly statewide.

    Rush hour traffic congestion on the urban freeway segments we corrected by speed limit increases, was dramatically reduced or eliminated.

    Reduced statistical variance measured in the traffic speeds, matched the overall impression of greater vehicle speed uniformity, with reduced conflicts between vehicles and a
    more pleasant driving environment as a result.

    The ONLY empirical measure that changed dramatically was a huge increase in compliance with the new speed limits.

    As you would expect from these results, we never had to roll back any of the speed limit changes we made. With continued after-studies now many years
    after the changes, the results remain the same.

    To summarize the dilemma related to speed limit changes, perceptions and expectation simply don’t match with the results.

    People worry that vehicles/drivers will increase travel speeds by the amount of the speed limit increase. The best research solidly
    refutes this assertion, and in the hundreds of the road segments where we
    increased the speed limit up to 15 miles per hour, traffic travel speeds never
    increased significantly.

    Travel speeds are made more CONSISTENT across
    the board, which is why crashes are normally reduced, and the crashes that do
    occur, do NOT tend to involve higher speeds than they did prior to the speed
    limit increase. The result is INCREASED
    SAFETY.

    Road authorities are often concerned about an engineering factor called “Design Speed.” Interestingly, when citing this concern, they
    miss the point that if the speed limit is far below normal travel speeds for
    that segment of the roadway, they have usually already failed to design for the
    prevailing speeds at which traffic is traveling SAFELY. Design speed is a highly misused and
    misunderstood topic that should not deter road authorities from maximizing
    traffic safety through the use of optimal speed limits.

    Upward speed limit corrections open the door
    for posting ADVISORY signs where road conditions warrant them, while increasing
    compliance with the speed limit.

    Artificially low speed limits, on the other hand, incite disregard for
    traffic controls as a whole, and DON’T allow for some advisory signs that
    drivers may really need in some cases to alert them to potentially hazardous
    design features of the roadway.

    As you can see, there is much more to this extremely important, and somewhat counter-intuitive topic than time allows in this forum. I am more
    than happy to answer any questions you have of me, and I thank you very much
    for your time and your consideration of this topic that is of such great
    importance to the safety of your constituents and road users.

    Respectfully submitted,
    Thad V. Peterson, F/Lt., Retired
    Michigan Department of State Police

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