Kolluri says key to unlocking value of New Jersey pikes is ending political veto power over tolls

New Jersey transportation commissioner Kris Kolluri said today that the key to unlocking the value of the state's tollroads is a realistic and predictable future toll rate regime free of political interference. Kolluri was speaking on a panel at the "Transportation Finance Summit" of the toll industry's International Bridge Tunnel and Turnpike Association in Washington DC today.

He said details of Corzine administration's proposal will be released in 40 days, referring to the Governor's state of the state address Jan 8, 2008. But he made it clear that tolls will be raised significantly and the new structure of what he called a "hybrid" public-private arrangement will guarantee that politicians can't simply veto planned toll increases.  On the other hand the state will retain ownership and day to day control of the roads.

His theme was that key to getting value from tollroad assets is assurance of future revenue streams.

"It did not take us long to discover that to get value (from the tollroads) investors ask for an ironclad guarantee of toll rates," said Kolluri.

The transport commissioner who is also chairman of the board of the NJ Turnpike and the Atlantic City Expressway said New Jersey tolls are low because the "present construct" gives politicians complete veto power to prevent needed toll increases.

Tolls "the lowest in the country"

The Garden State Parkway's toll of 2.2c/mile (1.4c/km) was the lowest in the country and had only been increased once in 50 years, Kolluri said, in 1989, and even then the then governor (Thomas) Kean had intervened. A proposed 50c toll had been reduced to 35c, according to Kolluri.

The New Jersey Turnpike had had four or five toll increases but the tolls there at about 5.5c/mile (3.4c/km) are also very low.

"We have managed to persuade the public," said Kolluri, "that almost everything we buy, everything is subject to inflationary cost increases, but not toll roads."

As a result of these low toll rates there is "enormous value locked in these assets," Kolluri said. The "imperative" given the financial state of New Jersey was to realize the value of the toll road assets with a new public benefit corporation structured to scrutinize operating costs and having a "predictable toll schedule" into the future.

Other states handling of tollroads "interesting" but not for NJ

Kolluri said they had looked at what other states have done. He mentioned Chicago, Indiana and Pennsylvania. He said these were "interesting" but not suited to New Jersey. The governor (Jon Corzine) had said that state oversight and a list of other issues were "non-negotiable."

He went through the list of eight principles laid down by the governor and added: "We'll put out our proposal and (our stance will be) we'll let the market respond."

In answer to a question from the audience - about a hundred toll industry professionals - Kolluri again honed in on the impossibility of "unlocking value" so long as the governor can arbitrarily intervene in toll rate setting, emphasizing: "The governor has absolute veto power over toll rates. There is no guarantee that a toll increase (promised by this administration) won't be vetoed by another governor."

Another panelist, Susan Buse, chief financial officer of the North Texas Tollway Authority chimed in to say that in Dallas they have the advantage over New Jersey in that "Our board (of directors) is completely independent with full toll rate setting policy."

Kolluri said the Turnpike Authority under a previous administration had begun the expensive job of widening the Turnpike between exits 6 and 8A "without having any idea how they were going to raise the funds to complete the job."

He said they have now calculated (in the Corzine administration) that simply funding the widening will require a 45% increase in Turnpike tolls. The tollroads of the state have $7b of unfunded capital needs and the state has to spend $13b to get its bridges into an acceptable state of repair.

Previous administrations, he said, have been "monetizing every asset they can lay their hands on to raise capital" which they then went on to spend to cover operating costs. As a result the transportation trust fund will be "broke" in 2011.

"We have to change the paradigm" he said.

Arcane tax rules delaying NJ

Separately from this speech, a financial expert has told us recently that New Jersey has been delayed by uncertainties over the federal tax treatment of defeasing the existing tollroads and placing their assets in a new public benefit corporation. He says tax law on such acquisitions involved "many arcane rules" the application of which could affect the value of the new tollroad holding company to the extent of hundreds of millions of dollars.

TOLLROADSnews 2007-11-04