Last December, I testified at a joint House-Senate Transportation Committee hearing in Massachusetts on the potential opportunities for the state in transportation public-private partnerships. In my testimony, I cited data from a 2008 Reason Foundation study indicating that:
The Massachusetts Turnpike Authority’s present level of operating cost leaves plenty of scope for a private operator to add value by means of increased efficiencies. An excellent measure of efficiency is the fraction of toll revenues consumed by operating and maintenance costs, known as the “cost-take.” Earlier this year, one of my colleagues at Reason Foundation analyzed cost data on some 35 toll facilities, mostly U.S. public toll facilities, but also a number of privately-operated and overseas toll roads. Collectively, they had an average cost take of 39.4 percent. Breaking that down further, domestic public toll authorities had an average cost-take of 42.6 percent, while private concessionaires had a far lower average of 23.4 percent.
In our analysis, the Massachusetts Turnpike Authority ranked first among all facilities with the highest cost take—a whopping 79 percent ($203 million in costs out of $253 million revenue). That’s double the average for all 35 facilities and over triple the average for private concessionaires. If the Turnpike Authority’s cost-take were the average for public and private toll facilities, its costs would be $100 million instead of $203 million, an annual savings of $103 million (50.7 percent). If its cost-take were the same as the sample of private toll roads, then its annual costs would be $59 million, a savings of $144 million (70.9 percent).
Today on the Boston Herald's blog, Massachusetts Turnpike Authority board member Mary Connaughton writes that my testimony on the MTA's cost-take percentage numbers may have been subsequently interpreted by media as a comment on overhead (administrative costs), and I agree with her that overhead and cost-take should not be confused. However, she goes on to suggest that a more accurate measure of efficiency would be to focus on the MTA's toll collection costs ($52 million out of a total FY 2010 budget of $283 million, or roughly 18 percent).
I have to respectfully disagree with Ms. Connaughton on this, and I must admit that the notion strikes me as a bit of goalpost shifting. In fact, one commenter to her post (using the name "k mc") had the same reaction I did—how is that a meaningful measure of overall MTA efficiency?
You can’t look at the data this way. The original way is correct. To focus on toll collection is misleading. In total the authority spends 79% on what it collects. If the turnpike is suppose to produce revenue for the state highway system, (toll taking was suppose to stop a long time ago but politicians don’t ever let a revenue source go away) then that # needs to get lower. Getting rid of most toll takers will get the 52mil number down. [...] Not sure why HR # is so high if the toll takers are included in collections. If not what makes up collections #
Narrowly focusing on toll collection costs as a percentage of total revenues does indeed yield a certain measure of efficiency, but unfortunately it's not a very useful one. All that tells you is how efficient MTA is at collecting tolls, not how efficient it is in terms of overall costs vs. revenues, which is indeed the central question here.
The bottom line, according to the figures cited in Ms. Connaughton's blog post, is that the MTA's next budget plans to spend $204 million of an estimated $283 million in revenues in FY 2010, representing over 72 percent of revenues. As I indicated in my testimony, this is far higher than the average 39.4 percent cost-take among U.S. public toll authorities and 23.4 percent for private sector concessionaires.
In effect, there's a black hole within the MTA that's absorbing $80-140 million more every year than it would if it were to operate at the average level of efficiency of its peers.
And the commenter raised a good point. If $52 million represents the true, all-in costs of toll collection, then what on earth are they spending $36 million on in their HR budget? In an era of electronic toll collection, there's no reason (aside from union politics, but that's another story) to perpetuate staff-heavy toll authorities.
Selective slicing of the budget data is not the answer here. The MTA spends far more money to run itself than most of its peers, representing a deadweight loss that deserves close scrutiny.