ILLINOIS:Guv’s detoll plan gets Bronx cheer

The Governor’s plan drew an almost universally skeptical response. Its

apparent fatal flaw is that it provides no ongoing new revenue stream to support the important tollways once detolled. In the legislature the leadership have asked Tollway CEO Tom Cuculich and Illinois Sec of Transp Kirk Brown to come up with an alternative that retains tolls to assure longterm funding, but focuses on

improvements in service to customers. This would logically work on reducing toll plaza congestion by increasing ETX (electronic toll express) lanes, an ET/Cash differential to incentivize higher ET usage, and a concerted program to eliminate beyond-the-plaza capacity problems.

The Tollway system, the nation’s largest measured in daily transactions, serves the third largest (pop 9.2m) metro area in the US providing major mobility service in the western portion just beyond the city limits. The four tollways, two east-west and two north-south, centered on important O’Hare airport, are mostly 2x3-lanes and form a 2,000 lane-km (1,240 lane-mi) network, well integrated into the gas-tax financed expressways of the area. In our judgment the tollway authority ranks about average among its peers, but locally it seems to be held in rather low esteem, in part because of crimes by former ISTHA CEOs, in part because of chronic congestion at many of the 69 toll plazas. Tolls are an awkward 40c at the mainline plazas, requiring major use of nickels and dimes in the system’s many coin machines. Toll rates are among the lowest in the country (2c/km, 3.2c/mi) and clearly inadequate to finance major rehabilitation or extensions. Toll collection at $50m/yr costs about 14% of revenues.

Flip on no toll increase

Gov Ryan has said many different things about diminishing the Tollway during the past 18 months, but on one thing he had been clear: absolutely no toll increase. Until March 30 when he flipped on that!

The new Ryan scheme would increase the cash toll for cars from 40c to 75c in October 2001 at the 21 mainline plazas, and double truck tolls, whether cash or ET, from $1.25 to $2.50. I-PASS electronic toll (ET) rates for cars would stay at 40c until 2003, when they would go up to 50c. In 2007 I-PASS tolls for cars would rise to 65c. In 2010 I-PASS tolls would rise to 75c, the cash toll to 95c and truck tolls to $3.75.

In 2002 under the Ryan plan the state would begin to eliminate the 69 toll plazas in the system (21 mainline plazas, 48 ramp plazas.) The plan involves phasing out 4 to 5 plazas per year over 19 years with 16 gone by 2006, 36 by 2011, 53 by 2016 and all 69 by 2021.

Ryan said in a press statement: “Unlike previous plans to restructure the tollway, this program is realistic, financially responsible and leaves the system in better shape than it is today. This plan allows us to keep our promise to motorists in Northern Illinois. We’re going to tear down all 69 toll booths. We’re going to build the $700m southern extension of the North-South Tollway from I-55 to I-80, reducing traffic congestion in the south suburbs. And, importantly, this plan allows us to start a $2.4 billion reconstruction program on major portions of the system that are more than 40 years old and are falling apart.” The governor said his plan will merge the Illinois State Toll Authority with the Department of Transportation by 2005, “ensuring more taxpayer accountability...The toll highway system in Northeastern Illinois is very, very important to our state and our economy. The tollways carry more than 1.2 million cars every day, cars that would clog other, smaller roads and create gridlock. We have to keep the system in good shape, but we also have to keep our promises to the motorists who for years have been told that someday those highways would be free. With this plan, we can now mark that day on a calendar.”

The Governor said in his statement that the General Assembly would need to defease and refinance more than $800m in bonds, adding: “Until this debt is restructured, the bond agreements prevent major changes to the system such as the elimination of toll booths.” He also proposed another $1.2b in new borrowings, bringing tollway debt to $1.5b in order to do reconstruction of 160km (100mi) of the 438km (274mi) system, and to fund the Will County extension of the North-South Tollway (I-355) from its present terminus at I-55 near Argonne Nat Lab south to I-80 in the Joliet/New Lennox area. The Governor made no commitments to other Tollway extensions voted previously by the legislature – notably the IL-55 North from Palatine to Grayslake in Lake County, and the O’Hare Airport Bypass, some $2b worth.

A bill was subsequently introduced into the state legislature by the Governor’s allies (Amendment to HB-1492, 31 pages) to implement the phase-out of the toll system. It provides for the state DOT to take over all the powers and responsibilities of the Illinois State Toll Highway Authority (ISTHA or ‘Tollway’) July 1, 2005. It would establish a Tollway Bond Retirement and Interest Fund to be administered by the state Treasury to pay debt service on bonds used to refund the present debt and up to $1.2b of new bonds to be sold for reconstruction and extensions. Fuel tax monies attributable to counties in the Tollway area would be deposited in the Bond Retirement Fund to meet any deficiencies from toll revenues. The proposed bill “irrevocably covenants” with the bondholders that it will not limit or alter the way funds are raised to support debt service. [8.25.g (g)]

The amendment gives the Governor authority to allow or disallow all bond issues and their uses [14.1 c] together with all remaining annual budgets, which would have to be submitted containing information and details as requested by the governor. [17 (b)] The Authority is restrained from any pledges to continue tolls or to refrain from reducing or eliminating tolls in any bonds it issues [17 (j)] As long as the Tollway Authority continues, the amendment requires that it submit for approval details of bond issues and their uses. Sec 19 states: “(a) It is the intention of this Amendatory Act ... to enable the Authority to implement a program of gradual reduction and elimination of tolls and toll plazas, with the ultimate goal of fully incorporating the toll highway system into the system of free state highways on or before Jan 1, 2021.”

The Amendment continues saying the Authority “shall endeavor to reduce and eliminate tolls and toll plazas as quickly as may be consistent” with (1) efficient and safe operations and repairs, (2) the construction of new authorized toll highways, (3) the plan for retiring the debt.

The legislation provides (Sec 33.1) under the heading “Authority abolished; transfer to Illinois Department of Transportation (IDOT)” that on July 1, 2005 the terms of directors of the Authority will expire “and the Illinois State Toll Highway Authority is abolished.” On that date all employees become IDOT employees and all assets, and rights and responsibilities of ISTHA are transferred to IDOT.

As we go to press there has been no action on the legislation beyond its formal introduction into the General Assembly, and there seems little prospect of serious action on the plan as-is. Rick Pearson the CHICAGO TRIBUNE’s political reporter wrote 2 weeks after the Governor’s announcement that the plan “has met with almost universal disfavor among Republicans and Democrats.” (4/15/01) Jim LaBelle head of Business Leaders for Transportation hit the plan for lacking any funding to replace tolls. Tolls as user fees, he said were “a sound way to fund transport improvements, much preferred over general taxes.” (CHICAGO TRIB 4/19/01) Indeed some political observers in the capital Spingfield say flatly the Governor’s plan has “no chance” of being adopted by the legislature.

Senate President James Pate Philip (Repub) has said he doesn’t think the Governor’s plan would get more than four or five votes in the assembly, adding: “They are not going to call it (up).”

In abolition of tolls there is nothing but the prospect of higher taxes for people outside far northern Illinois where the Tollway is located. The promise of phasing out tolls has little credibility given that it extends over two decades, and starts with increasing toll rates. The arithmetic of the plan, its income streams and outlays simply don’t compute, they say, and after just a few years it would require major new tax monies, or a severe squeeze on needed highway projects, neither of which is acceptable. Trucking groups are steamed over the plan’s discriminatory hit on them and the lack of discount relief for I-Pass for trucks. Politicians in the area see potential anger over heavy trucks clogging free arterials and expressways.

Legislators foresee great controversy around the phasing of the toll plaza demolitions. Just as some motorists were facing increased tolls, other motorists on the same system would be see their tolls ended altogether – a nightmare scenario in which to construct some semblance of fairness. In the first years of the Governor’s plan there would be several times more losers (those still paying tolls, and higher tolls) than gainers (motorists not paying tolls). Not very smart politics!

The plan makes no provision for any new revenue stream to take the place of tolls in supporting and operating the system. The state would have to raise fuel taxes by 5 or 6 cents/gallon, find new sales or income tax support, or heavily cut roads expenditures to make up for the loss of some $320m/year in toll revenues net of collection costs. The Governor’s plan is deathly silent on this key issue.

Tidal wave of transponder demand

Gov Ryan called it an ‘Incentive Toll Rate Schedule’ and it makes eminent good sense as a principle to “encourage the use of I-Pass.” But the enormous initial differential proposed to start Oct 1, 2001 between the cash toll (75c) and the ET I-Pass toll (40c) would likely produce a tough-to-handle surge of demand for transponders and ET lanes. There are presently 580k transponders on issue and they do 38% of the system’s 2m transactions/day. That is with the same toll (40c).

About a year ago the North Texas Tollway Authority needed to increase throughput at overcrowded toll plazas on the Dallas North Tollway and wanted to drive up transponder usage. Beforehand car tolls at the mainline plazas were 50c, regardless of how the toll was paid. To boost transponder use cash tolls were raised to 75c but transponder tolls to 60c. The 15c difference drove ET usage up from about 49% to 67% in less than 12 months. A differential of 35c as proposed for Illinois – 47% vs 20% as in Dallas – seems likely to create a huge call for transponders with demand for perhaps a million extra needed in 6 or 8 months, and the ET mode share trending to an equilibrium 75 to 80% or so of transactions. A transition to ET this big and this quick could create a major customer service and management crisis. There could be a waiting list of people wanting transponders but not being able to get them, telephone lines tied up and customers angry because they have to pay the 75c tolls because they cannot get their transponders.

A rapid switchover to ET from cash could also be difficult for ISTHA to manage at the toll plazas. The transition to the present 38% usage was spread over about 6 years, but the addition of another 40%+ will have to be managed in less than 6 months, making it quite likely there will be major mismatches occurring between customer demand for ET-lanes and lanes provided.

Rather than risk a tidal wave of demand for transponders Oct 1, it would have been more prudent to increase the cash toll to 50c Oct 1, for a 10c differential, then increasing the ET to 50c and the cash toll to 75c for a 25c differential perhaps in the summer of 2002.

Politics

Gov Ryan is still dogged by a fund raising scandal involving sale of truck drivers licenses in return for Ryan-for-Governor campaign contributions. The scandal has seen several of his associates go to jail. A family of six perished in a fire after their van was hit by an unqualified truck driver who had bought his license with a contribution to fund Ryan’s campaign. A thousand or more truck licenses were corruptly sold in this manner, and a federal probe is ongoing.

One observer in the state capital told us the whole plan for ending the Tollway is just a giant political distraction by Ryan, something designed to prevent the media and political elites from focussing on other more damaging issues. He said the Ryan plan has at most 15 supporters in the 118 person lower house and probably even less support in the Senate.

“Ryan doesn’t expect this to happen. This Tollway scheme is just a great big political club which he can use to beat his critics with. He’ll say: ‘I produced the plan to end tolls and you stopped it.’ And: ‘I did my bit. I produced the plan. You blocked it. You perpetuated the tolls.’ ”

The politics of the Tollway is especially complex this year because following the US Census there is a redistricting of state legislative districts. Many politicians don’t know their district’s future boundaries, or even if they will have a district. Outside the outer half ring of Chicago suburbs served by the Tollway, politicians have every reason to oppose the phase-out of tolls. That includes the City of Chicago and most of Cook County and ‘downstate.’ These constituents hardly use the Tollway and can only look forward to paying higher taxes to substitute for tolls. As for politicians whose constituents are within reach of the Tollway it isn’t clear they see abolition of tolls as advantageous. Traditionally the Authority has been “their” agency, a patronage haven especially for Gov Ryan’s Republican Party. But even among tollpaying voters it isn’t clear they are strongly in favor of detolling. Media reports have publicized the forecasts of major increases and traffic and congestion with abolition of tolls. Estimates of a one-third increase in traffic on an already heavily stressed system have been repeatedly cited. The expert projections (from WSA) are for more than doubling of the length of highways congested. Most voters know there are no free rides, that if they don’t pay in tolls, they’ll end up paying in higher taxes. 5 to 6c/gal.

I-PASS electronic tolling is already making toll payment itself less onerous. Congestion at the toll plazas themselves is down, though this often highlights a beyond-the-toll plaza capacity problem.

Gov Ryan may have been too smart for his own good – appearing to some to be floundering around, not knowing what to do with the Tollway, and to others to be cynically using it as a political tool, but with hardly anyone persuaded he has formulated a credible comprehensive plan. Ryan’s own party in the legislature appears to have deserted the Governor. Reports are that within two days of the Ryan plan being announced, the Republicans in the general assembly met with IDOT secretary Kirk Brown and Tollway CEO Tom Cuculich and that not a single legislator voiced support for the Ryan legislation. Ryan gave lipservice to making the Tollway “accountable” to the legislature, which has been a frequent refrain of critics. But Ryan’s bill makes it subject to detailed control by the Governor, not the legislature, and reduces the board to a rubberstamp.

The CHICAGO TRIBUNE reported: “Republican lawmakers said they had become reconciled to the notion that tollways must be a permanent fixture of the northern Illinois highway network. And they asked transportation officials to find ways to make tollway traffic more efficient, such as greater use of the I-PASS electronic toll-collection system. They also said they asked state officials for suggestions on how to improve government oversight of the toll roads and how to explain to the public that higher tolls were needed to maintain better quality roads. In justifying a continued existence for the tollway system, suburban Republicans also noted that as the Chicago metropolitan population spreads even farther west, additional interstate highway quality roads will be needed. The easiest way to finance such highways is to have them be toll roads, they said. Also, they said the per-mile costs for operating the tollway in Illinois were now among the lowest for toll roads in the nation. One major critique of Ryan’s plan is its failure to provide a steady funding source for the tollways once they became freeways and became part of the highway system maintained by the Illinois Dept of Transp.” (3/31/01)

The president of the Illinois Senate and GOP leader James ‘Pate’ Philip is openly hostile to Ryan’s plan: “The problem is, if you abolished it ... it’d cost to run the toll system about $350 million a year. So, where does the money come from? License fees or increasing gas taxes. You think anybody’s going to like that?”

Democrats are no keener on the Ryan plan, though one, Rep Frank Mautino, a downstate Dem said jokingly he’d sponsor the plan because that way he’d be sure to kill it.

What next?

Cuculich and Brown, Ryan’s top two officials (at the Tollway and IDOT) are now trying to find some way to salvage some of Gov Ryan’s plan while producing something that will gain legislative support. That seems to kill the plan to phase out tolls. By saying that tolls will, realistically, have to be a permanent means of funding the system they can establish some credibility. Abandonment of the plaza phaseout scheme will avoid the need for such big toll rate increases to support the rehab and extension plan. Ryan’s plan made no provision for more electronic toll express (ETX) lanes at toll plazas, so these could be added at the 17 mainline plazas lacking them.

The Tollway Authority may well be abolished. One logical alternative would be selling off or franchising the system, but this has not been seriously discussed in Illinois. A further alternative would be the Florida/Texas approach of regionalizing the tollway system and establishing an agency answerable to regional officials as in Orlando, Tampa, Miami, Houston, Dallas, Denver and Orange Co CA. Illinois however seems disinclined to such regionalism. Most likely the legislature will endorse the Governor’s proposal to abolish the authority as a separate state agency with its own board and roll it into the state DOT where a separate division would operate the tollways. This has occured previously in New Hampshire, Indiana, Virginia, Delaware, Texas and Florida, though in Florida there is a move to get the tollroads out of the state DOT again (see separate reports.)

BACKGROUND: Governor George Ryan (Repub) elected to office late 1998 set the tollway rollercoaster going in the summer of 1999 after his own new appointee as chairman of the Tollway board, Arthur (Art) Philip said in his first public statement as chairman that tolls would have to rise. During the election campaign an unsuccessful contender for the Democratic nomination for governor, John Schmidt, proposed eliminating tolls and Ryan, the Republican candidate, then ridiculed detolling saying it was quite unrealistic. He appointed the current chairman of the Tollway, Arthur Philip to that position July 1999 knowing that Philip had spoken out about the need for toll increases, when he’d been an ordinary member of the board previously. In his first public statement (7/24/99) as chairman Philip said: “Tolls have to be raised to maintain, to modernize, and to expand the toll road. Let’s bite the bullet. It costs more money the longer you wait.”

Philip said ISTHA was looking at a cash/electronic toll (ET) differential to encourage greater use of ET. The last toll increases on Illinois tollways was in Sept 1983, when tolls at the mainline plazas went from the 1958 rate of 30c to the present 40c. “A toll increase has to be done. It is inevitable,” Philip told the CHICAGO TRIBUNE. (7/25/99) What better time politically will there be to increase tolls than after the election, Philip must have thought?

Ryan then amazed everyone when he declared in an apparently impromptu press conference that he was “absolutely against any increase in tolls.” He said “it’s a nuisance” to go through toll plazas. He said “drastic changes” were needed at the Tollway authority ISTHA. His goal was “to reduce the toll authority as much as I can.” The Gov said the bonds should be paid off and the roads transferred to the state DOT. (TRnl#42 Sept 99 p1) He repeated these kinds of statements in the following weeks and 10/9/99 announced he was appointing a longtime personal aide and senior civil servant, Tom Cuculich, then 39, to be the new executive-director. He also appointed two new board members. The three were under instructions to help implement his decision to phase-out the toll system.

Cuculich pressed ahead with a report of the future of the tollway which was complete by end-Jan 2000. The report was greatly assisted by a strategy study by Wilbur Smith Assoc already well underway when Cuculich arrived, which examined the whole gamut of options and their costs and benefits. Ryan sat on Cuculich’s report for two months. Mar 30, 2000 ISTHA released “Alternatives for Restructuring the Tollway System: a Report for the Governor” a 115p report which suggested there was no simple way of lifting the burden of tolls and congestion in the Chicago area. The report, signed by exec-dir Cuculich, made no formal recommendations, but the numbers it generated for 22 different policy options pointed strongly toward reform and modernization of tolling as the best course. An end to tolling would be very expensive, take several years to accomplish, be disruptive, and require substantial new, unidentified sources of revenue to handle a bloated traffic load.

“Alternatives...” simply avoided the key hot-button issue of toll increases or taxes required as a substitute for tolls, Cuculich’s position on that being that this was a political decision for the governor and the legislature. The legislature meanwhile held hearings and argued the issues. A report by Sen Kathy Parker who chaired a state Senate committee on tollway refinancing forcefully rejected the Governor’s proposal for defeasing the Tollway’s debt saying this would be giving him a “blank check.” Parker criticized the lack of financial planning and the lack of any detailed proposal from the Ryan administration.

Ryan’s “No More Tolls!” plan of March 30 this year was an effort to answer that criticism, but apparently not an effort with much credibility by now. Tolls are currently raising $370m, equivalent to a third of the amount raised by Illinois’ state gasoline and diesel taxes ($1100m), so the 19c/gal gas tax would have to rise by about 6c to cover the lost toll revenue.

“They’ll be free...”

The first head of ISTHA Austin Wyman is frequently quoted as having said in a speech back in 1956 when work was starting on the original 299km (182mi) of the system that the roads would be made “free” when the bonds were paid off in 1984. That was hokum. It’s a charming thought that a road can be built and paid for and enjoyed cost-free for ever after. In fact a road is never ever paid for. It continues to cost money to be maintained and its entire physical structure of bridges and pavement needs to be completely rebuilt every several decades – indeed often about the time the first bonds are paid off and new ones are needed. Roads are being worn out from the moment they open, by traffic and by the weather, especially the winters and their ice and salt in the mid-west.

Despite the 1956 nonsense put out by Wyman, and used as a political weapon against the system ever since by anti-toll groups, successive governors and legislatures in Illinois have voted for the continuation of tolls to pay for operations and maintenance, and to underwrite tollway extensions. In the 1970s it was the East-West extensions, in the 1980s the North-South, and in the 1990s more N-S extensions. ISTHA was given its instructions by successive legislatures. But often that did not help ISTHA’s image as a self-serving, self-perpetuating clique. Opponents saw the legislature as manipulated by the tollway, or as all part of a corrupt power structure. (www.illinoistollway.com www.state.il.us/gov for Ryan’s “No More Tolls!”)