DE-TOLLING:Butler Co OH pike aborted by DOT

The proposal was that in exchange for dropping tolls on the Butler Regional Highway (BRHwy) the state would come up with money for maintenance of the BRHwy, and for the $12m widening of OH-747, projects that previously it had been adamant it could not fund.

“It was an offer we couldn’t refuse. They were now saying that they found the funds for these projects that we had told the local people they had to pay tolls in order to fund. Our board discussed it. There was no way we could refuse to go along with it. Anyone who went against it would have been politically dead,” said Gregory Wilkens, BCTID exec-director.

So the first new toll road in Ohio since the Ohio Turnpike was aborted. It will be born as a tax road. The politics of the deal are unclear but obviously burgeoning state govt revenues and TEA21$$$s facilitated it. The official statement (6/14/99) said: “Collaborating with ODOT the TID was able to strike a deal that will allow Butler County residents, and many others, to drive on the new highway without paying a toll.” In the press statement Wilkens calls it an “incredible deal.”

Wilkens told us in a telephone talk that he personally had some qualms and regrets. He believes electronic toll roads are “the way of the future” and was looking forward to being part of that. He seemed to wonder if the assurances of financial support for county road projects from state officials were as solid as county toll revenues. But he said the decision to go with the deal was unanimous and that what killed the hwy as a toll road was the Wilbur Smith estimate that as a toll road the BRHwy would only carry about half the traffic it would carry as a free road.

Maximization of road use the aim

Gordon Proctor, director of ODOT said at the time of the no-tolls deal: “By avoiding the necessity of tolls, we will maximize the use of the new freeway and better serve the overall highway network.” BCTID chair Mike Samoviski also called it “a win-win situation for all involved” since the citizens get their access to the interstate system earlier and at no charge while “ODOT gets a better return on their investment with increased usage of the highway.”

BCHwy is a 17km (11mi) 2x2-lane motorway standard west-heading spur off I-75 30km north of central Cincinnati to serve the old industrial town of Hamilton plus burgeoning northern fringe residential and commercial developments between Hamilton and I-75. It will have four ICs and cost $100m to build. Work started May 98 and the road is due to open by year’s end. In the 1970s and 80s opponents of the road had prevented even a reservation but congestion in the area got so tedious that public support developed for drastic measures to build the highway.

Construction of the highway required acquisition of 240 private properties and demolition of 109 houses, many of them quite new. In addition there were extensive sound and wetlands mitigation measures, and land swaps with aggrieved property-owners.

The highway is a true example of so-called ‘innovatory’ (bizarre) financing. The state of Ohio was unable to itself borrow for the project but BCTID raised $158m in bonds secured against a lease agreement under which the state would then pay an annual lease fee of $12.9m to BCTID geared to the amount BCTID needed to service the bonds. (The bonds were sold via Smith Barney at 5.3%.) In effect the county BCTID was acting as a financial front for the state to raise the money and get the road built. The BCTID would maintain the road for the period of the lease and was able to levy tolls. The tolls would help cover costs of maintenance of the road, but since all capital costs were being covered by the state’s lease payments it would make good profits. The toll profits would be used to build an industrial development oriented Union Centre IC on I-75, widen OH-747 a major north-south commuter arterial into Cincinnati, and improve other arterials.

Under the terms of the June 99 agreement just reached ODOT agrees to (1) continue the debt-service geared ‘lease’ payments to (2) take over maintenance of the road, to (3) provide funds for the first section of OH-747 and (4) to use its best efforts with a state transp review advisory council to have the 2nd phase of 747 funded. The county has no hard assurances on a number of smaller projects, but in return for the extra state assistance, agrees to drop tolls.

WSA modelled a flat rate 75c toll for cars for the full 17km length of the highway, and 50c and 35c ramp tolls for an average toll rate of 5c/km. It projected 17k tolls/day (2000), 18k (2005) and 26k (2020) from estimates of 35k, 38k, 49k trips in the absence of tolls. Toll revenues were projected: $3.9m, $4.9m, $8.6m. All pretty modest traffic!

But the tolls died under the doctrine of maximum usage. (See TRnl#25 Mar 98 p7, TRnl#31 Sept 98 p6 Gregory Wilkens 513 942 4700x20)

COMMENT: Maximizing the use of the road is asserted as the proper policy objective. On this kind of logic we should abolish all prices for everything. You’d get increased usage of supermarkets if you put farmers and food distributors on the government payroll and gave the food away for free. And why not cars? Give the cars away and those factories in Detroit would really hum. And with air travel free, those planes would be mighty full. No “wasted” empty seats.

ODOT maximizing its return on investment, we were told. Normally by “return on investment” is meant revenue less costs over capital. But ODOT like other DOTs is all costs and capital and earns no revenues so gets zero return on investment regardless of traffic.

If ODOT’s director posits maximizing use of a road as the proper social objective of his agency, interestingly the Virginia DOT finance chief Jim Atwell suggested the precise opposite as desirable in a discussion in Richmond in April centering on I-81. He said the more truck traffic that the railroads could gain from I-81 the better: “They’re welcome to it.” Though of course losing trucks to rail would reduce the utilization of I-81, and by ODOT’s guideline be bad.

So in the absence of prices and a bottom-line the state DOTs objectives are so vague they can be completely contradictory and vary at whim from project to project, or issue to issue. The DOTs are intellectually floundering giants with no coherent rationale for serving the public.

If a road were costless to build and maintain then, sure, travel would be all benefit and no cost and maximizing use would be a legitimate aim. But given that roads are expensive and constantly deteriorating from weather and traffic, then to price them at zero and to maximize traffic on the road is to waste the road. It is being used for many trips which users value at less than the cost of the trip.

Maximization is NOT a legitimate objective; optimum utilization is. And optimum utilization is when a resource is used up to the point where costs exceed the willingness to pay of the user. Given that a day’s trips could be ranked by value starting at the top with the guy who’s been told he’s won the lottery but absolutely must show up at the lottery office today to be presented with the million dollar check, at one end, to the guy thinking about going for a drive because he couldn’t think of anything better to do. The first would value the trip at hundreds of ks, the last maybe a quarter and the rest would be in between. The case for tolls is that they are proxies for cost on the grounds that equilibrium market prices tend to approximate costs (when those include a normal return on investment). So a toll road tends to provide trips for those who value the road more than cost, and to cause those who value it at less than cost to forgo the trip. Which is the way it should be.

Little Rock Dodges

The BRHwy “lease” agreement seems to be a dodgy way for the state to borrow money by using the county BCTID as a front. They’ll probably both get a splashy award from the Clinton Admin for this and be praised at USDOT shows when the road opens. Highly “Innovatory financing methods.” Smart, brilliant stuff we’re told by bright eyed neatly besuited 30 year olds. And a few years later after things go bad and people ask where the real risk lay and whose security was pledged and whose paper was subordinated to whose, it’ll all look like old-fashioned fraud. Old as heck. But one piece of good news – the State Infrastructure Banks the subject of extraordinary Clinton admin USDOT hype in 1997, and with the “Made in Little Rock” stamp all over them, are going absolutely nowhere, the real bankers tell us. Dead in the water. The states have given them much lipservice, but sensibly no serious money.