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Paving the Way to Prosperity, or a Slush Fund?
By Geoffrey Segal
More and more states are looking to innovative partnerships with the private sector to improve and expand their transportation networks. Secretary of State J. Kenneth Blackwell is the latest public official to understand the promise these partnerships can bring. As his proposal now stands, however, it may squander some of the more important benefits of using the private sector.
Secretary Blackwell wants to better realize the full potential and value of an underutilized state asset—the Ohio Turnpike. A public-private partnership would allow the state to lease the turnpike to a private company using what is called a "concession agreement." Experience in other states, and around the world, suggests that an agreement could generate between $4 and $6 billion in new revenues for Ohio. Even after the state pays off existing debt on the turnpike, it would still have at least $3.3 billion to invest in new projects.
Blackwell's plan is similar in scope to Indiana Gov. Mitch Daniels' transportation plan known as "Major Moves." Daniels proposes a 75-year concession agreement for the Indiana Toll Road, which would net the state just over $3.8 billion.
For Blackwell's plan to work, the Ohio General Assembly would have to enact legislation authorizing public-private partnerships—something that at least 20 states have already done. A handful of others, including Illinois and Indiana, as well as Virginia and Utah, are considering similar legislation this year.
The Indiana and Ohio plans are part of a larger trend in highway financing. In the last 12 months, global capital markets have discovered the U.S. highway market. So far, more than $20 billion worth of proposals are pending approval in four states—Indiana, Texas, Virginia, and Oregon. The value of current plans is rapidly approaching the $35 billion in federal highway gas tax funds that Congress allocated nationwide in 2004. Using the new financing model would let states get more projects done, in less time, for less money.
Thus, the Blackwell transportation plan holds a lot of promise. Any concession agreement would bring massive amounts of capital to Ohio. It would also get new transportation projects up and running more quickly, and bring a more professional, customer centered service to Ohio's turnpike.
The money that could be obtained is certainly alluring; however, the critical piece of these plans is how the proceeds are invested. This is where Blackwell's plan diverges from Daniels' plan, and from today's best practices. As a result, it runs a serious risk of diluting the potential benefits for Ohio taxpayers.
While ambitious, Indiana's Major Moves lays out a detailed plan for expanding and modernizing that state's transportation network. What's more, all of the proceeds from the concession agreement will be dedicated to transportation projects and one time capital expenditures.
The Blackwell transportation plan, on the other hand, proposes a slew of projects and initiatives, broadly called the JOB Fund, which are unrelated to transportation improvements. The plan earmarks concession revenues for all sorts of activities, including universal broadband access, job training, and an Ohio Venture Capital Fund. In fact, 7 of the 9 components of the JOB Fund have nothing to do with transportation or capital projects. The JOB Fund initiative creates nothing more than a slush fund for elected officials to spend on pet projects.
In a state facing rising congestion and economically damaging bottlenecks in its transportation system, using new money to build a slush fund is not the wisest decision. Projects that reduce traffic chokepoints along I-75, I-70, and I 71, however, are critical to Ohio's economic competitiveness. Rising congestion in each of the state's major metropolitan areas also threatens the quality of life for millions of people.
Dedicating all the new revenue to one-time capital expenditures, especially projects that expand and modernize Ohio's transportation network, would have a significant impact on the economy, unlocking new investment and long-term growth. Furthermore, transportation activities are proven job creators—the U.S. Department of Transportation estimates that 47,000 new jobs are created with every $1 billion investment in the transportation network.
There is little doubt that Ohio's transportation system needs improvement. Blackwell's plan holds a lot of promise and could prove vital its overall success and development. Unfortunately the potential for economic growth and successful transportation management will be muted if the new money is stuffed away into a slush fund rather than invested in one-time capital projects or transportation upgrades. Until changes to the Blackwell plan are made, it deserves only modest support.
Geoffrey F. Segal is the director of government reform at Reason Foundation. This column was originally written for the Buckeye Institute. An archive of Segal's work is available here and Reason's transportation research and commentary is here.
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