New Jersey must learn from Indiana, Chicago toll road deals

07/22/07

BY MICHAEL PANTER, Asbury Park Press

In a normal world, it would be logical to wait for a proposal to be made before expressing support or opposition to it. When Gov. Corzine announced earlier this year that he would explore "asset monetization" strategies, ripples were sent through a political world that operates with a very different set of rules. Candidates sensed an opportunity to inject life into their campaigns by fueling speculation that the governor's plan, whatever it might be, surely would be bad for New Jersey.

A substantive discussion about the future of our toll roads was quickly buried under an avalanche of political ambition, without regard for factual information.

As a member of the Assembly Transportation Committee, which would need to approve any transaction involving the Garden State Parkway, New Jersey Turnpike or Atlantic City Expressway, I would like to shed some light on this debate.

The Chicago Skyway and Indiana Toll Road deals are our best points of reference for a transaction in New Jersey. Each was detrimental to the public and to their state treasuries.

The Indiana deal failed the public in several ways, and these same pitfalls would be unavoidable in the Garden State.

Concerns regarding a sale or lease of New Jersey's toll roads can be broken down into four categories: lack of protection against crippling toll increases, inadequate control over maintenance and improvements, proceeds that would benefit New Jersey only in the near term, and better alternatives.

Our roads are meant to serve the public in the safest, most cost-effective manner possible. If they are turned over to private companies, the new objective will be maximizing profits at the public's expense.

Protection from radical toll increases was absent from the Indiana deal. Tolls were increased by nearly 100 percent to sweeten the initial price, and increases could reach 7 percent annually during the 75-year life of the deal, with no public control.

If you examine the cost of borrowed money used to finance these deals, along with investment expectations, it's obvious that drastic toll increases are on the horizon. The people of Indiana are in for a rough ride, if they can afford to ride at all. While limits on toll increases could be demanded in any agreement, each would decrease the value of a deal considerably.

Safety on our roads could also be compromised if improvements and maintenance are controlled by any profit-driven business. Indiana has already experienced situations in which profits have overridden safety concerns, to the public's detriment. In that instance, the private operator made changes to enhance toll collections and profits, which negatively affected emergency personnel.

With respect to maintenance, the more protections demanded in a deal, the less proceeds New Jersey would realize. Again, the public's interest is at odds with that of the private investor.

Also of note is the length of the deals in Chicago (99 years) and Indiana (75 years), which would far exceed the public benefits of any proceeds from a sale or lease.

In Indiana, proceeds are being used to fund a 10-year transportation program, but they have given away revenues for 75 years to come. This is the type of financial planning that has lifted New Jersey out of short-term messes, but then haunted us for decades.

It is encouraging that Corzine has pledged to avoid a sale or lease of our toll roads, which I and others have pledged to oppose, yet the guiding principles he has promised to abide by leave few options.

If tax-free bonds were sold through a new entity controlling the toll roads, New Jersey could retain control over maintenance and toll amounts, while potentially retiring more expensive outstanding debt. Proceeds could also be earmarked for transportation projects, so they are not siphoned away into the black hole known as the general fund.

The governor might also attempt to tie asset monetization to the under-funding of our state pension plan in an effort to accomplish these same objectives. Under this strategy, partial ownership of the toll roads could be placed in the pension via a bond issue, perhaps at a discount to satisfy part of our pension funding obligation, in essence, reducing our debt.

However, I would not support any plan that involved a net increase in our state debt, which would be unavoidable under any of these scenarios. The public deserves answers on the governor's plan but should also be wary of candidates whose knee-jerk reactions are to spread false information for political gain.

Michael Panter is a Democratic member of the Assembly from the 12th Legislative District, which includes portions of Monmouth and Mercer counties. He is a former vice president in investment banking with Salomon Smith Barney.

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