Commentary

Merging the Kansas Turnpike Authority Into the State DOT Is a Bad Idea

Gov. Brownback's proposal is far from fiscally conservative

Mergers of government entities are often proposed in an effort to reduce costs. In many cases, however, cost savings are illusory and can be greatly outweighed by costly unintended consequences. That is very likely to be the case with Gov. Sam Brownback’s recent proposal to have the Kansas Department of Transportation (KDOT) take over the Kansas Turnpike Authority.

By all accounts, the Kansas Turnpike Authority (KTA) is a well-run, efficient provider of the principal super-highway in the state. The 236-mile Kansas Turnpike is entirely self-supporting from toll revenues paid by cars and trucks that choose to use it. It generates about $90 million a year, from which it makes payments on $264 million worth of toll revenue bonds, makes capital improvements (such as repaving and bridge replacements), and pays all operating and maintenance costs.

Gov. Brownback’s proposal suggests that merging the Turnpike into KDOT would generate $15 million per year in operating cost savings, presumably by taking advantages of economies of scale. When pressed by reporters, neither KDOT nor the governor’s office could produce any justification for this number, which appears to have been pulled out of the air.

Last year I researched a toll road consolidation proposal in Florida. An ad-hoc Government Efficiency Taskforce had estimated that consolidating several toll agencies would yield $24 million in annual savings-and actually produced a list itemizing those savings. But when my co-author, tolling expert Daryl Fleming (PhD, PE) analyzed that list he found many of the alleged savings were from having the bigger agency carry out various services for the smaller agencies. But it turned out that most of those services were already being outsourced, either by competitively selected private contractors or by inter-agency contracting. Thus, we found the savings were likely to be just $3.5 million per year, not $24 million.

Thus, if there are such economies to be had in Kansas, there is nothing to prevent KTA offering such services to KDOT and vice-versa, depending on which agency is the lower-cost provider of a specific function (e.g., snow plowing) in a specific part of the state. No merger is needed to achieve this kind of cost savings.

Our Florida study also looked at consolidations carried out in Massachusetts and New Jersey. In the former, alleged cost savings of $31 million per year turned out to be actually just $12 million, a mere 2.8% of the operating budget. In New Jersey, projected annual cost savings of $9.8 million turned out to be $4.1 million, less than 1% of the operating budget.

The assumption that creating a larger, merged organization means lower overall costs is also open to question. Toll Roads News reports that when the North Carolina Turnpike was merged into the North Carolina Department of Transportation several years ago, decisions that had formerly taken about a week at the 30-person Turnpike agency took the huge NCDOT about six months to achieve.

In the Florida example, there was strong circumstantial evidence that the legislators who supported consolidation had an ulterior motive: gaining control of consolidated toll revenue to use for projects in other parts of the state.

Siphoning off toll revenue to use for non-toll projects undercuts the basic principle on which toll agencies are based: that their toll charges are pure user fees, to be used for the sole benefit of those who pay the tolls. If a portion of the toll revenues is diverted to other uses, that portion becomes a tax, not a user fee. Fiscal conservatives should oppose such diversions on principle.

Alas, although Gov. Brownback has a well-deserved reputation as a fiscal conservative, the unintended consequences of his proposal could be very damaging to the users-pay principle.

To begin with, his proposal would divert the assumed $15 million annual cost savings to the state general fund, already violating the users-pay principle. Brownback won’t be the governor of Kansas forever. Once the principle of diverting money from toll-payers to other parts of the government has been established, there’s no telling what future governors and legislators might do.

Just six years ago, then-Gov. Kathleen Sebelius proposed a toll increase to fund improvements to the facilities of state universities. In Ohio, otherwise fiscally conservative Gov. John Kasich has proposed that the Ohio Turnpike issue $1.5 billion in additional bonds, the proceeds of which would be used for non-toll transportation projects elsewhere in the state. And in 2007, the legislature in Pennsylvania forced that state’s turnpike authority to divert $450 million per year to the state Department of Transportation, for use on transit and highway projects statewide. The Pennsylvania Turnpike had to issue new bonds and massively increase tolls in order to comply, pushing it to the brink of insolvency, according to the state auditor-general.

In all of these cases, increasing tolls to fund non-toll projects constitutes taxing toll-road users to pay for state projects that benefit non-users. If those projects are desirable, the honest way to pay for them is out of general taxes on all taxpayers rather than singling out toll road users as sitting ducks. Fiscal conservatives are the last ones who should be proposing such policies.

In addition, imposing new financial burdens on toll agencies threatens their financial viability. A well-run toll agency, like KTA, follows conservative accounting and management practices, such as maintaining a good-sized cash reserve and making sure that new projects are cost-effective (i.e., that they add enough value that toll-payers will pay the costs involved). These practices enable KTA to achieve an investment-grade rating on its bonds, which keeps interest rates low and affordable.

Merging KTA into KDOT would be seen by investors as politicizing the Kansas Turnpike, since KDOT is ultimately answerable to elected officials in the legislature and the governor’s office. Its toll revenues would no longer be dedicated solely to the Turnpike, but would be a target for future politicians to use for various other purposes. That could easily cost the Turnpike its investment-grade rating, increasing its borrowing costs.

In short, the proposed takeover of the Kansas Turnpike is a bad idea. Its costs very likely would far outweigh any minor cost savings that might be achieved in the short term. Kansas would be wise to leave well enough alone, preserving this jewel of an efficient provider of users-pay mobility.

Robert Poole is director of transportation policy at Reason Foundation.

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. Poole, an MIT-trained engineer, has advised the Ronald Reagan, the George H.W. Bush, the Clinton, and the George W. Bush administrations.

Surface Transportation

In the field of surface transportation, Poole has advised the Federal Highway Administration, the Federal Transit Administration, the White House Office of Policy Development, National Economic Council, Government Accountability Office, and state DOTs in numerous states.

Poole's 1988 policy paper proposing privately financed toll lanes to relieve congestion directly inspired California's landmark private tollway law (AB 680), which authorized four pilot toll projects including the successful 91 Express Lanes in Orange County. More than 20 other states and the federal government have since enacted similar public-private partnership legislation. In 1993, Poole oversaw a study that coined the term HOT (high-occupancy toll) Lanes, a term which has become widely accepted since.

California Gov. Pete Wilson appointed Poole to the California's Commission on Transportation Investment and he also served on the Caltrans Privatization Advisory Steering Committee, where he helped oversee the implementation of AB 680.

From 2003 to 2005, he was a member of the Transportation Research Board's special committee on the long-term viability of the fuel tax for highway finance. In 2008 he served as a member of the Texas Study Committee on Private Participation in Toll Roads, appointed by Gov. Rick Perry. In 2009, he was a member of an Expert Review Panel for Washington State DOT, advising on a $1.5 billion toll mega-project. In 2010, he was a member of the transportation transition team for Florida's Governor-elect Rick Scott. He is a member of two TRB standing committees: Congestion Pricing and Managed Lanes.

Aviation

Poole is a member of the Government Accountability Office's National Aviation Studies Advisory Panel and he has testified before the House and Senate's aviation subcommittees on numerous occasions. Following the terrorist attacks of Sept. 11, 2001, Poole consulted the White House Domestic Policy Council and the leadership of the House Transportation & Infrastructure Committee.

He has also advised the Federal Aviation Administration, Office of the Secretary of Transportation, White House Office of Policy Development, National Performance Review, National Economic Council, and the National Civil Aviation Review Commission on aviation issues. Poole is a member of the Critical Infrastructure Council of the Los Angeles Economic Development Corporation and of the Air Traffic Control Association.

Poole was among the first to propose the commercialization of the U.S. air traffic control system, and his work in this field has helped shape proposals for a U.S. air traffic control corporation. A version of his corporation concept was implemented in Canada in 1996 and was more recently endorsed by several former top FAA administrators.

Poole's studies also launched a national debate on airport privatization in the United States. He advised both the FAA and local officials during the 1989-90 controversy over the proposed privatization of Albany (NY) Airport. His policy research on this issue helped inspire Congress' 1996 enactment of the Airport Privatization Pilot Program and the privatization of Indianapolis' airport management under Mayor Steve Goldsmith.

General Background

Robert Poole co-founded the Reason Foundation with Manny Klausner and Tibor Machan in 1978, and served as its president and CEO from then until the end of 2000. He was a member of the Bush-Cheney transition team in 2000. Over the years, he has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy.

Poole is credited as the first person to use the term "privatization" to refer to the contracting-out of public services and is the author of the first-ever book on privatization, Cutting Back City Hall, published by Universe Books in 1980. He is also editor of the books Instead of Regulation: Alternatives to Federal Regulatory Agencies (Lexington Books, 1981), Defending a Free Society (Lexington Books, 1984), and Unnatural Monopolies (Lexington Books, 1985). He also co-edited the book Free Minds & Free Markets: 25 Years of Reason (Pacific Research Institute, 1993).

Poole has written hundreds of articles, papers, and policy studies on privatization and transportation issues. His popular writings have appeared in national newspapers, including The New York Times, The Wall Street Journal, USA Today, Forbes, and numerous other publications. He has also been a guest on network television programs such as Good Morning America, NBC's Nightly News, ABC's World News Tonight, and the CBS Evening News. Poole writes a monthly column on transportation issues for Public Works Financing.

Poole earned his B.S. and M.S. in mechanical engineering at Massachusetts Institute of Technology (MIT) and did graduate work in operations research at New York University.