Governor John Kasich recently announced his plans for the Ohio Turnpike, which include adding $1.5 billion more in debt to help fund non-Turnpike transportation projects around the state.
While the Governor didn’t pursue the very unpopular and politically toxic option of leasing the 58 year old toll road to a private operator, the long-term results of his borrowing plan could be nearly as disastrous for Ohio’s Turnpike Commission.
As Peter Samuel, author of Toll Road News, points out: Governor Kasich’s decision to increase the debt burden of the Turnpike to over $2.2 Billion, while tying the hands of the Turnpike Commission to cut costs or raise revenue, is a “Poisonous Political Pander” that could have dire financial consequences for the Turnpike.
According to Samuel, yearly interest payments on the increased debt will be more than the annual profit of the Turnpike and could drive the value of the Turnpike into negative territory. “Interest expense on Turnpike debt will go from about $30m to $100m a year at the current interest rate of 5%,” says Samuel. “That’s $70m extra annual cost. The increase in interest expense is greater than the current annual profit of the Turnpike ($58m.)”
Samuel outlines the problems with Kasich’s plan:
- triples Turnpike debt
- turns the Turnpike’s net worth from +$800m to negative worth (liabilities exceeding assets) of $700m
- adds annual interest expense greater than the current annual profit
- commits to limit toll rate hikes to less than inflation over the next ten years
- finances improvement in competitive untolled roads
Earlier this month we warned that Kasich’s plans were putting the Turnpike in a risky financial situation, noting the similarities between Kasich’s plan and a program in Pennsylvania that is on its way to bankrupting that state’s toll road. Samuel’s analysis shows our concerns were well-founded.
As usual, some have dismissed our criticism of Kasich as too political, but it’s hard to look past this scathing review by Peter Samuel, a veteran journalist who has been writing almost exclusively about the Toll Road industry since 1996.
When Samuel says “Every single aspect of the Kasich plan, everything, is negative for the Turnpike’s finances” – we should all be very concerned.