We found out this weekend that Kasich’s people chose to award a lucrative, $1.5 million consulting contract to KPMG (voted one of 2011’s “World’s Best Outsourcing Advisors”) in order “to study whether leasing the Ohio Turnpike to a private operator might be a good idea.” They have until July to come up with their recommendations.
I wish they’d asked me instead. I would have been happy to provide them some very good recommendations for half the cost. And I can provide my answer right now: Nope. Leasing the turnpike is not good idea.
That’ll be $750K please. Thank you very much.
Here’s why (feel free to take notes, KPMG)…
Kasich claims he wants to lease the turnpike to obtain some one-time money that he can spend on other transportation projects. He thinks he can get 3 Billion bucks, but that figure seems very unrealistic. Indiana got $3.8 billion for its turnpike back in 2006, a year before the recession started. The lease was for 75 years. And even after doubling tolls, the company running the Indiana turnpike still can’t make enough money to pay off the loans it took out to buy the road. The company is likely to default in the next five years, and it’s continuing to raise tolls hoping it can catch up.
Given the current state of the economy, and the recent troubles with the Indiana turnpike, it seems unlikely that anyone in their right mind is going to offer us the $3 billion Kasich expects to get for the Turnpike lease. And if he does find someone to lease it, the only way for it to be profitable is to a. double or triple the tolls on the turnpike b. fire all of the unionized Turnpike Commission employees and replace them with lower paid employees and c. lower the standard of maintenance on the road.
Here’s a thought: If all Kasich wants is cash – and a steady stream of money, not just a one-time sum – why not just keep operating the turnpike as-is, and double the tolls ourselves? The Ohio Turnpike takes in $232 million a year in tolls. Doubling the tolls would bring in an extra $3 Billion in 13 years. Triple the tolls and you could cut the time in half. And unlike the lease idea, this plan would continue funding transportation projects for the state for decades to come. We’d be bringing in $3 Billion every 13 years – not just once in 75 years. By simply raising the tolls ourselves, just like a private operator would, we could provide a steady stream of revenue for new transportation projects, maintain the current high standards for maintenance and avoid massive layoffs of Turnpike employees.
I’m not saying I support this idea, but if Kasich’s only goal is to find a source of funding for transportation projects, then this long-term solution seems like a hell of a lot better than his lousy lease idea.
If Kasich’s only goal was funding transportation projects in the state, then he wouldn’t even be talking about leasing the turnpike. There really is no upside for the state in his lease plan, but the downsides are plenty:
- The highway’s condition will not improve if we lease it – and it may get worse
- There will be no major cost savings to the state by turning the Turnpike over to a private company
- The only way to make the lease profitable for a private company is to greatly increase the tolls
- Increased tolls means drivers – especially commercial truckers – will move to other roads, increasing wear-and-tear on the highways the state still maintains, increasing traffic congestion and increasing the number of accidents that need to be handled by emergency crews
- There is no way we will get anywhere near the $2.5 to $3 billion in one-time-money Kasich claims he expects
- In order to save money the new owners will fire all of the current turnpike workers and hire back workers at a much lower salary with little or no benefits
- Other long-term lease projects, like the Chicago Skyway, end up being run by a group of foreign investors who are only interested in profits and have no interest in Ohio or its citizens.
The truth is: transportation funds are not the real purpose behind the turnpike lease idea.
Ultimately, Kasich has two goals here, and both of them are purely ideological and unrelated to budgets or funding or even transportation. The first is the privatization of public assets. The second is union busting.
Leasing the turnpike would accomplish both goals – allowing a private company to potentially profit from state-owned assets while allowing the same company to fire all of the currently-unionized employees of the Turnpike Commission, replacing them with lower-paid positions with ‘shabby’ benefits.
As a couple of pretty bright PhD’s (David Ellis and Ned Hill) said back in 2006 after analyzing Ken Blackwell and Jerome Corsi’s original turnpike lease proposal: “The only reason to lease the asset, given our analysis, is an ideological drive to shrink the size of government.”
And the same thing is true today with Kasich’s proposal. Leasing the turnpike is a bad move for the state, and Ohioans know it. The lease idea is just about as unpopular as Kasich is.
It remains to be seen what the highly-paid KPMG consultants will suggest and how the Kasich administration will respond to their recommendations. But it’s amazingly clear that Kasich’s goals are not in line with those of most Ohioans. And his true goals have nothing to do with funding transportation projects. Kasich’s policy decision are being driven by his extreme, anti-worker ideology. And his complete lack of common sense and his inability to compromise have only made things worse.
Leasing the Ohio Turnpike to a private, likely foreign operator is really bad news for Ohio’s workers and a horrible financial decision for Ohio and Ohioans. The decision to lease the turnpike might actually result in big bonuses for some foreign executives, it will also cause higher tolls for Ohioans, fewer and lower paying jobs for Ohioans and crappier roads for Ohioans.
Unfortunately, for Kasich, executive bonuses are always going to win out over good roads and jobs for Ohioans.
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