Mass Pike wants new revenue estimate - URS must redo estimates and be checked

The Massachusetts Turnpike Authority says that consultants at URS made a $6m "error" in forecasting the revenue yield of toll increases approved recently. They had said the 25c Turnpike Extension toll increases and 50c tunnel toll rises would increase revenues $24m or 16%.

URS have been asked to redo their forecasts and the Turnpike has also hired an independent reviewer, Turnpike chief executive Mary Jean O'Meara says.

Turnpike board member Mary Connaughton had challenged the $24m number. She told us she was struck by the difference between the $24m now and a $37m increase shown in the 1999 bond filings and started doing calculations. She says she couldn't see how the toll increases were going to generate less than $33m extra.

Connaughton first raised the question of $24m being too low at the September board meeting, but neither URS nor Turnpike staff seemed to have persuasive answers. A business college teacher Connaughton has an accounting degree plus a healthy intellectual curiosity.

The statement issued by the Turnpike continues:

"The traffic consultant had said the proposed toll increase now under consideration would raise $24 million. The error was discovered following an internal review prompted by questions raised by board member Mary Connaughton.

"After talking extensively over the last two days with the Turnpike’s current independent traffic consultant, URS, Turnpike officials now believe that the numbers URS provided were in error and that the amount the new tolls could raise (is) $6 million more than what was forecast."

State secretary of transport and Turnpike board chairman Bernard Cohen is quoted:

"I am distressed that erroneous data were provided to board members and the public in making their decision to move forward with the toll increase. We became aware of the discrepancy from board member Connaughton, and we thank her for her diligence."

The $24.1m figure appeared in a table in a slide prepared for presentation to the board. The slides are not numbered or well explained and they all carry the familiar black puritans hat on a blue background of the Turnpike's logo. Nowhere is URS mentioned. The presentation is called "Financial considerations for the 2008 toll structure" September 17 2007, and is obviously designed to go along with an oral presentation which we haven't heard.

The table showed the total revenue for 2008 after toll increases projected to be $175.7m. Another table shows 2007 revenue on the current toll schedule as $151.6m. That's a forecast 16% increase in revenue.

Toll increases proposed, we've calculated, are about 22% weighted average.


Elasticity of 0.23 assumed

Therefore URS assumed the toll increases would reduce traffic about 5%. That's a price elasticity of demand of 0.23 which means for each 10% increase, say, in tolls traffic will drop 2.3%.

Given the lack of competing routes that provide anything like the same level of service as the Turnpike and its tunnels, and the relatively low toll rates, 0.23 is a high elasticity number.

Mary Connaughton says she didn't get into calculating revenue based on elasticities but she noticed that in 1999 URS had used an elasticity of 0.066 for the tunnels.

She just couldn't see any rationale for the large drop in traffic implicit in the URS numbers. She says she still doesn't know if URS's error was overlarge elasticity or just a spreadsheet mistake.

Using the 1999 elasticity of 0.066 traffic would drop 1.5% rather than the 5% number apparently used by URS. Traffic at 98.5% of 2007 levels rather than 95% produces about $18m or $30m more. Add in a bit of normal year to year growth and recovery from the ceiling collapse and you've probably offset traffic losses from higher tolls completely and you've got around $185m revenue - $33m more.

Turnpike staff seem to have been persuaded the correct elasticity figure is around 0.1 which with a 22% increase in tolls would reduce traffic about 2.2% generating $181m in revenue or an increase of about $30m - $6m more than URS.

We haven't yet been able to get any comment from URS on their "error" as charged.

Actually a $6m error, or argument, is pretty small beer compared to the $100m a year extra which is needed to meet operating costs, debt service goals and to support a modest capital program. The Boston toll facilities should be generating about $253m, just over $100m more than in 2007, the presentation says. In that context the argument over $24m or $30m or $33m is almost an argument over small change.

The Turnpike statement acknowledges this in a way:

"The error will not impact the proposed toll increase, which was the lowest of several options and will require the Authority to cut expenses across the board. In addition, the Authority’s board has asked that savings be found through a combination of debt restructuring and the use of reserves. The end result of this error is that there will be more revenue available, which will allow the Authority to limit the use of debt restructuring and reserves."

Connaughton has also been promised estimates of revenue raised by putting most of the burden of increased tolls on the harbor tunnels to the airport and on commercial vehicles. She says there is no rational justification for loading the costs of the Big Dig - mostly the north-south I-93 tunnel - onto travelers on the Turnpike. She'd like to see tolls imposed on the I-93 tunnels.

"It should all be tolled," she says, "or none of it should be tolled. The worst policy is to skew all the tolls onto Turnpike motorists on I-90 when so many of the costs and improvements have been on I-93."

Putting toll increase on the harbor tunnels is a kind of second best to get something out of traffic traveling north-south from I-93.

FULL TEXT OF TURNPIKE STATEMENT

"The Massachusetts Turnpike Authority has hired an independent consultant to review toll revenue after the Authority’s traffic consultant made an error in calculating the amount of revenue predicted to be raised by the proposed toll increase.

"The traffic consultant had said the proposed toll increase now under consideration would raise $24 million. The error was discovered following an internal review prompted by questions raised by board member Mary Connaughton.

"After talking extensively over the last two days with the Turnpike’s current independent traffic consultant, URS, Turnpike officials now believe that the numbers URS provided were in error and that the amount the new tolls could raise $6 million more than what was forecast.

“ 'I am distressed that erroneous data were provided to board members and the public in making their decision to move forward with the toll increase,' said Transportation Secretary Bernard Cohen, who chairs the Authority’s board. 'We became aware of the discrepancy from board member Connaughton, and we thank her for her diligence.'

"Mary Jane O’Meara, interim executive director at the Turnpike Authority, said, 'I have asked for URS to recalculate all of its work and for that data to undergo an independent review. After this review, we’ll determine our next steps.'

"The error will not impact the proposed toll increase, which was the lowest of several options and will require the Authority to cut expenses across the board. In addition, the Authority’s board has asked that savings be found through a combination of debt restructuring and the use of reserves. The end result of this error is that there will be more revenue available, which will allow the Authority to limit the use of debt restructuring and reserves." [end text of statement]

TOLLROADSnews 2007-10-16 REVISED 2007-10-17 0855