FLORIDA:KPMG urges separate Turnpike Authority

KPMG do not comment separately on privatization of the turnpike but simply report the IMG consultants claim (see p22) that privatization is unacceptable because under investor ownership there would less potential for supporting the state’s capital program for new road construction. KPMG say the separation of toll operations from the turnpike district limits customer service and marketing.

KPMG are very forceful in urging the establishment of an independent Turnpike Authority: “Continued control of the Turnpike under FDOT acts to perpetuate current business practices, where lack of incentives lead to risk averse behavior... Under the Authority model (by contrast) human resources and staff salaries, corporate culture and incentive systems would be designed to support the needs of the (Turnpike) and not the general requirements of FDOT...Solving the human resources issues sets the framework for engaging in innovative business practices.”

KPMG suggest that the three metropolitan toll authorities (Orlando, Miami and Tampa) have shown the way with lean and nimble organizations, privatizing most of their operations. They suggest the salaried staff of a Florida Turnpike Authority (FTA) could be 20 to 25 people versus about 1,100 now. It would manage contractors. (5.11)

“A Turnpike Authority with a small internal staff of key personnel provides the flexibility and agility to adapt and change culture within the agency more effectively than the current FDOT structure.” (p5.12) “The (FTA) would have greater flexibility to provide enhanced level of service.” It would be better positioned to address regional issues transcending jurisdictional boundaries than FDOT. It says that a specific purpose agency is likely to be “more efficient in delivery of public goods” than a departmental unit.

Variable toll rates

KPMG are enthusiastic about the potential for variable toll rates with an independent authority: “The (FTA) would be able to apply innovative toll pricing strategies to increase patronage and customer satisfaction. Variable toll pricing could control the level of service provided to toll facility users, which would also lead toward revenue maximization... The combination of variable pricing to control the level of service that leads toward revenue maximization could be the goal of the Authority. The higher level of service could generate additional revenues which can be applied for rapid expansion of toll facilities to counter the projected shortfall for funding the Florida Intrastate Highway System.” (p5.13)

An Authority will have a “better ability to control costs” generally than FDOT and have a greater ability to enter into innovative procurements and “entertain a broad menu of public-private partnerships.”

The proposed Turnpike Authority is characterized as being a self-funded entity which could therefore “discontinue the FDOT practice of complying with applicable FHWA regulations” avoiding many delays, procurement complexities and extra requirements that add to project costs without providing any extra value. (5.14)

KPMG proposes that the Authority be answerable to its board of directors only, thereby freeing it of the need to get specific legislative authority for each new project, as is required under FDOT. The “independent authority structure” would encourage the use of contracting out and partnerships, KPMG says, that would encourage more investor-owned groups to enter the toll business and provide more competition for work among all the different toll authorities in Florida, resulting in “greater flexibility and additional cost savings.” (5.15)

FDOT presently adds nothing to the capability of the Turnpike to raise money in the capital markets since it makes no pledges to ‘backstop’ loans.

“The Authority would be in a much better position to encourage and entertain private sector initiatives for system expansion. This would allow (it) to both solicit private sector proposals for project implementation and private sector proffers in the form of voluntary impact fees to assist in project financing. The Authority could accelerate the toll program through the privatization of express lanes. This would add capacity in urban corridors and not require public funding (or) Turnpike debt” (5.16)

An Authority might pursue a “slightly more aggressive investment program” than FDOT. Life-cycle contracts in which the contractor takes responsibility for both construction and also, say, 20 years of maintenance, could be entered into by the Turnpike Authority. Such package deals are not open to FDOT. (5.16) Combined design/build/asset-preservation contracts would effectively farm out to the private sector the responsibility for providing roadway, leaving the authority with traffic and revenue risk.

An authority would be better placed than FDOT to enter into finance sharing arrangements in which local counties pledge some fuel tax revenues or developer impact fees in case of toll shortfalls, KPMG say. (5.17) The authority would be freer to enter into equipment lease and commission arrangements with suppliers of ITS equipment: “The flexibility to enter into partnerships with private sector firms allows the Authority to tap into the latest technological resources.” FDOT do some of this but are handicapped by “layers of bureaucratic hurdles” (Layered hurdles, eh? An obstacle that boggles the mind!)

KPMG one-ups the IMG report suggesting that a Turnpike Authority could support $7.0b capital program vs Enhancement’s $6.5b, the present arrangements’ $5.1b, the non-profit’s $4.5b and the taxable-investor privatization’s $2.9b. (5.18)

In a separate chapter KPMG suggest better utilization could be made of the Turnpike mainline North Miami (FL-826) to the Orlando/Daytona Beach area where it closely parallels I-95. KPMG propose that a motorist information system be established to provide warnings of congestion on I-95, estimated travel times on the two routes and directions for switching I-95 to the Mainline, or Mainline to I-95 over this 400km (250mi) stretch. (8.3)

Fuel taxes erode

KPMG in their study of state transport needs estimate that over the next 20 years 17% of state fuel tax revenues or $3b will be lost due to greater fuel efficiency and use of alternative less-taxed fuels. (p3.13) “Systematic expansion of toll facilities and periodic toll rate increases” are suggested as the principal means for offsetting the tax losses. (3.14) The report endorses expansion of the turnpike system by 36% at a cost of $6.5b taking it from 2,722 lane-km (1,701 lane-mi) to 3,737 lane-km (2,321 lane-mi) A second source of new finance is seen to be conversion of HOV lanes to HOT or toll express lanes: “HOT lanes utilize the excess capacity of HOV lanes and variable pricing controls traffic volume to maintain acceptable service levels. The HOT lane thus serves a three-fold purpose: (1) preserving preferred travel facilities for HOVs (2) generating additional revenue from tolls (3) variable toll structure can serve as a travel demand management tool.”

Appendix C of the KPMG report outlines the likely erosion of fuel tax revenues from improved energy efficiency of motor vehicles. This work elaborates and updates work done at USDOE (A “quality Metrics” report) and applies it to the state. Hybrid gasoline/electric or diesel/electric engines (2006 introduction) are expected to be 1.4 times the efficiency of straight internal combustion engines (ICEs) and fuel cell engines (2007 introduction) promise about twice the efficiency, but the greatest fuel economies will come in improvements to the efficiency of ICEs which are projected to remain the dominant automobile powerplant at least through 2020. These include advanced diesels (2003 introduction) and direct-injection gasoline engines (2004 introduction). Advanced ICEs are projected to have a 40% share of sales and to be 17% of the vehicle population by 2010 while hybrids, fuel-cells and electric vehicles will be 16% of sales and less than 5% of the vehicle population. By 2020 the advanced ICEs will be 35% of the vehicle pop and the hybrids, fuel-cells and electrics will be 17%. Petroleum products displaced will be about 6% by 2010 and 11% by 2020, the simplest measure of the likely reduction in fuel usage and the fuel tax base as compared to a simple forward projection of present usage patterns. (C-10) (Florida Transp Commission 850 414 4105 www.ftc.state.fl.us)