NJBIA Economic Development Council Chairman Tim Carden recently authored an op-ed supporting the privatization of toll roads (an issue under strong consideration by the Corzine Administration). See Tim’s op-ed below.
On December 8th, the Economic Development Association – New Jersey (EDA-NJ) is holding its Annual Meeting/Holiday Luncheon at 11am-2pm (Forsgate Country Club), where Hartz Mountain Industries’ Allen Magrini will be honored with the 2006 “Excellence in Economic Development Award” and NJBIA’s Art Maurice will be installed as EDA-NJ President for 2007. For more information call 908-303-0907 or admin@edanj.com.
There will be lots of great networking at the event with public economic development officials. Please plan to attend.
Good reasons for taking toll roads private
Thursday, November 16, 2006
BY TIM CARDEN
More than 50 years ago, New Jersey pioneered financing of highways with toll-backed debt with the construction of the Turnpike (1951) and Garden State Parkway (1955), followed by the Atlantic City Expressway (1964). Today, New Jersey may again play a pioneering role as it explores transferring control and operation of these toll roads to the private sector. This idea offers New Jersey the prospect of a windfall of much-needed capital funds, which must not be compromised by diverting these resources to reduce the state's operating deficit. The success of similar public-private partnerships operating roads, bridges and tunnels in other countries suggests that the long-run benefit could be better and more efficient operation of the highways.
Opponents of this approach argue that it is wrong to place valuable public assets in private hands, to allow private firms to establish toll rates and, as this newspaper has warned repeatedly, to give the Legislature a pot of money to squander.
Having spent eight years in New Jersey government and 20 years providing financial services to state governments, I offer several reasons the state should fully explore this innovative opportunity.
In evaluating this proposal, New Jersey's financial condition has to be considered. The state is up to its ears in debt because it reduced taxes but not spending during prosperous times, relied on one- time revenues to fund ongoing obligations and endured reduced federal support for a broad array of programs and services.
The volume of capital projects and the cost of construction continue to grow, widening the gap between capital needs and capital resources. Fundamental state goals, from economic development to open space preservation, from improving services for disabled citizens to advancing research and education, are unattainable without substantial capital investments that the state has not been making.
In short, New Jersey has urgent capital needs and insufficient sources of capital.
In any toll road lease, the state would retain authority regarding the use and expansion of the roads to ensure they continue to fulfill their essential public purpose. The private company would be responsible for operations, upkeep, financing and constructing improvements. It would be compensated or penalized for its performance and for the associated risks it assumes.
Pork barrel spending of these funds can be avoided by defining in advance the appropriate capital purposes and by listing all projects to be funded before soliciting any bids.
The state has failed repeatedly to raise the gasoline tax or other recurring revenues to meet increasing transportation needs. The transportation trust fund, created in 1985 as an ongoing source of capital, will, in three years, have to dedicate its entire $1 billion in annual revenues to pay debt service on existing projects, with no money for the next generation of projects. Leasing a toll road is no substitute for permanent funding, but it would alleviate capital budgetary pressure and facilitate state investment in critical projects.
Since the Turnpike and Parkway were built, private toll road operators have grown in number and capacity and now run highways around the world. New Jersey should explore the potential benefits these enterprises offer.
New Jersey's toll roads are valuable assets, but the state cannot realize their value on its own. A long-term lease of the Turnpike and Parkway would generate far more capital funds than the state can derive from siphoning off excess toll revenues from the two roads. The recent long-term leases of the Chicago Skyway and the Indiana toll road demonstrate that private investors will pay dearly for the opportunity to own and operate U.S. toll roads.
The state can impose greater accountability for performance through a competitive procurement and long-term contract with a private operator than it can today. The successful bidder would have a profit opportunity offset by stiff economic sanctions, including the state's right to reclaim the road for delinquent performance. Those are powerful incentives for meeting strict standards of maintenance, service, traffic management and construction.
The state, not the operator, should set toll policy and spell it out in the contract. Toll rates that conform to that policy would be based on the cost of operating the road and on the value of the service provided, not political grandstanding or budgetary gimmickry
Change is often hard to embrace, particularly for government, and the associated short-term dislocation often obscures long-term benefits. New Jersey has large and growing capital needs, and leasing its toll roads would provide capital funding and introduce new operating ideas to an established state service. New Jersey should explore this opportunity carefully and move ahead if it meets the tests of good business and good governance.
Tim Carden served in the Cabinet of Gov. Brendan Byrne. He is a member of the board of directors of the New Jersey Economic Development Authority and a founding partner of the Public Private Strategy Group, a financial and management advisory firm.
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