State looks at leasing Turnpike

Cash to cut $4B budget gap

Sunday, January 23, 2005
Star-Ledger Staff

Looking for solutions to the state's fiscal woes, acting Gov. Richard Codey is studying the possibility of leasing one or more toll roads, including the New Jersey Turnpike.

Intrigued by similar deals in other states, Codey has asked state Treasurer John McCormac to determine whether such a transaction is feasible as he seeks to close a $4 billion budget gap and fund long-term transportation projects.

Under such deals elsewhere, private companies offer governments a one-time cash infusion and accept responsibility for maintenance and operation of roads in exchange for keeping toll revenue.

Codey yesterday said the state's budget shortfall makes it prudent to explore ways to generate revenue.

"It makes sense that when you take over a business that's struggling you look at ways to leverage your assets. There's a lot of assets the state has," Codey said.

And repeating what has become his mantra on the budget, Codey said: "I'll look at anything."

Last year, Chicago reaped $1.8 billion for leasing the Chicago Skyway to a Spanish-Australian Consortium. Indiana Gov. Mitch Daniels also may privatize the 157-mile Indiana Toll Road to raise billions of dollars for his state.

Transportation experts say the New Jersey Turnpike, one of the best-known and heavily traveled roads in America, could fetch an even greater sum. Drivers of 247 million vehicles pay $510 million each year to travel the Turnpike's 148 miles, from the George Washington Bridge to the Delaware Memorial Bridge.

"I'd be surprised if the New Jersey Turnpike wouldn't bring $10 billion ... and it might bring $20 billion. This is one big, solid business, a good place for investors to invest," said Peter Samuel, editor of TOLLROADSnews, an industry newsletter.

The state also controls the Atlantic City Expressway and the Garden State Parkway.

That the acting governor would entertain even a study of the matter shows the extraordinary steps government agencies across the country must consider as they grapple with massive budget deficits. Nationally, other government agencies have proposed fixes that range from privatizing state pension systems to selling train stations and parking lots.

"Just when you think there's no other way to address a $5 billion to $10 billion gap -- boom, they come up with something else," said Arturo Perez, a budget analyst with the National Conference of State Legislatures.

Publicly, Codey has been guarded about his own budget plans, though he has hinted he is researching some "radical" ideas. The acting governor has not ruled out tax increases, layoffs, or reductions in rebate checks sent to homeowners to offset property taxes, although he calls such options last resorts. He also said he will likely freeze state aid to municipalities and schools, a move that could upset local officials and lead to higher property taxes.

In addition, state officials and legislative leaders have resumed talks with Horizon Blue Cross Blue Shield of New Jersey about a controversial plan that would allow the not-for-profit company to convert to a public corporation owned by its stockholders. That move would result in a massive one-shot payment to the state to help close the budget gap.

The acting governor also is considering a plan to install so-called video lottery terminals, which are similar to slot machines, at the Meadowlands Racetrack, a move he said could raise "hundreds of millions" of dollars for the state.

But the lease of state toll roads is perhaps the most unorthodox fix to capture Codey's imagination. Several administration officials, however, said time is running short to put together such a complex deal, considering that Codey will unveil his budget proposal in late February or March.

Neil Gray, a government affairs official with the International Bridge, Tunnel and Turnpike Association, said conversion of toll roads into private operations is getting more popular as budget woes linger. The practice is more common in Canada, where Ontario reaped $3.1 billion in 1999 by leasing a 68-mile toll road north of Toronto to a private consortium.

"It's a way of garnering money in the here and now," he said.

Late last year, Chicago leased the 7.8-mile Chicago Skyway to Cintra-Macquarie under a deal that would allow the consortium to double tolls from $2 to $4 over the next decade.

But not all deals work out.

Houston considered a similar proposal a few years ago, but the idea died amid lack of support.

Codey's advisers privately worry about a backlash if he embraces the idea of leasing toll roads, especially one as iconic as the Turnpike. Critics could label it a fiscal gimmick that unwisely turns a vital public resource over to a private company. The Turnpike's 1,480 full-time and 788 part-time employees may also resist privatization.

Samuel, an industry expert, said patronage politics could pose another obstacle. New Jersey elected officials have long used authorities to dole out jobs and lucrative construction and professional contracts.

"Politicians often see them as an advantageous vehicle for exercising influence and dispensing favors," he said. "It's more difficult to do this private stuff, to get investors in, where there's a large, entrenched toll authority."

If the Codey administration does seek to privatize the Turnpike or any toll road, however, it would not be the first time the state sold a highway to help balance its budget.

Then-Gov. Jim Florio netted the state $400 million when it sold a 4.2-mile stretch of Route 95 in Bergen County to the New Jersey Turnpike Authority for the 1992 budget. But that deal was different because it was between two state agencies and did not involve turning over a state resource to a private company.

In 1995, then-Gov. Christie Whitman's Advisory Commission on Privatization suggested turning over toll road operations to private firms to reduce state spending, but the idea never gained support.

Assembly Transportation Committee Chairman John Wisnewski said that as the trust fund that finances new transportation projects in New Jersey nears bankruptcy next year, the privatization of toll roads may be worth study.

"It is something we should examine to understand whether it is something that can work for New Jersey," he said. "If we're talking about making transportation better and providing more resources for transportation, and at the same time making government smaller, then lets talk about it."

Staff writer Joe Donohue contributed to this report.