The text of the New Jersey Turnpike bill Senator Raymond Lesniak proposes to introduce in the state senate early next week is just short of 12,000 words long - 27 pages. The most controversial provision in the bill is likely to be the opportunity given to the existing Turnpike Authority to intervene with an offer of its own after a concession agreement has been reached with the preferred business team. (7f)

In Pennsylvania the Turnpike Commission is being treated like any other proposer and only gets to be considered along with the private proposers.

Proceeds to be used to retire Turnpike and state debt

Titled "An act concerning public-private partnerships..." it "(p)ermits State Treasurer to enter into a public-private partnership providing certain concession rights to private parties or a pubic-private partnership under same terms and conditions; directs that proceeds of this transaction be used for reduction of State debt and refunding of Turnpike Authority debt."

Aim of concession is enhanced efficiency and revenues for public entities

A legislative finding is that there is a trend to transfer responsibility for operating public toll roads and other facilities to private operators "with a view to increasing efficiency in operations and to providing increased revenue to public entities." (2a)

A concession agreement on the Turnpike, the bill says, "could provide needed funds to the state of New Jersey" while retaining the Turnpike Authority to monitor the public's interest. If the Authority itself submits an offer to the Treasurer and is selected then its performance will be monitored by the state DOT. (2b)

Turnpike Authority can bid

It is declared to be in the public interest for the treasurer of the state to be authorized to solicit proposals for a public-private partnership (with a private entity) or for a public-public partnership with the Turnpike if its proposal is at least as financially advantageous to the state as any private offer. (2e) also (3b)

75 years limit on a concession

The Treasurer cannot enter into a concession contract longer than 75 years. (3a)

An independent financial consultant must be appointed by the treasurer to advise on proposals before proposals are sought. (4a,b) Also a review committee will be appointed consisting of at least an engineer, a financial expert and a executive branch employee, but not from the Turnpike Authority. (5)

The request for proposals and qualifications will describe the scope of the PPP agreement. The treasurer may discuss each proposal with the proposer confidentially to gain clarification. (6a,b.c) The treasurer shall select one proposal and attempt to negotiate an agreement with that proposer. If that cannot be done then another may be selected for negotiation. (6d)

The treasurer must publish his reasons for the selection together the opinion of the in dependent financial consultant. (6d)

Factors to be considered in the selection must include: ability to perform, financial strength, experience in toll road operations, integrity, reasonableness of the lease payment, and the opinion of the financial consultant. (6e)

Public hearing on negotiated agreement

A public hearing on the proposed concession as negotiated is to follow at which the treasurer explains the proposal, then hears views on its merits.

Turnpike Authority gets chance to bid after the is concession negotiated!

Interestingly the Turnpike Authority gets to make its bid after there is a concession negotiated with an investor group. (7f)

It reads in full: "Upon preliminary approval of the negotiated proposal, the treasurer shall request the authority to analyze the proposal and advise the treasurer whether it can make a counter-proposal which is as financially advantageous to the State as the negotiated proposal, utilizing the same terms and conditions as the negotiated proposal, including but not limited to, limitations on the increase in tolls and funding of any lease payments to the State. The authority shall have no more than 180 days from the date of submission of the negotiated proposal to develop its counter-offer and arrange funding commitments. If the counter-offer is at least as financially advantageous to the State as the negotiated proposal from the firm, the treasurer shall accept the counter-offer of the authority rather than the negotiated proposal of the private firm. In that event, the treasurer shall enter into public-public partnership agreement with the authority..."

COMMENT: Private proposers are likely to be dismayed by this provision since it violates the normal rules of equal opportunity sealed bids where all parties make their proposals and negotiate their best and final offers in ignorance of other offers. It provides a huge advantage to the existing Turnpike Authority over the private sector bidders. We think this favored position for the Authority may discourage some businesses from bidding, reduce the offers, and thereby diminish the value of concession to the state, perhaps by billions of dollars.

Only if the Turnpike Authority is unable to make an acceptable counter-offer to that of the chosen private group does the concession agreement go to the governor and to the legislature for approval.

Legislature gets veto

A summary of a completed concession contract gets provided to the state legislature and goes into effect within 30 days unless a concurrent resolution of the senate and the general assembly pass a resolution rejecting it. (7h)

Concession provisions

The legislation provides for the concession to be conditional on its agency (the Authority or the state DOT) certifying each year that annual capital and maintenance expenditures are sufficient to maintain standards of safety and efficiency in effect before. (8b1)

Toll increase CPI cars, Per capita nominal GDP commercial vehicles

Toll increases in any calendar year cannot be more than the previous year's consumer price index increase although tolls for commercial vehicles can rise by the percentage increase of the per capita nominal gross domestic product in current dollars of the year before. (8b2)

Multiple public-private contracts possible

Multiple concession contracts are authorized if considered in the public interest. (8f)

Any revenues from ancillary activities (service plazas?) shall be used to lower toll rates and not be used to pay for expenses of the concessionaire or authority.

Job protection

Those employed by the Turnpike on the effective start date of the concession who work under a union contract will continue as employees of the Authority for the longer of the term of two successive agreements or six years. (9a) COMMENT: This is an odd provision since the Turnpike Authority would have no work for its 5,000 odd employees. How is it supposed to find money to pay their salaries for six years? A more reasonable provision would be modeled on the City of Chicago which found work elsewhere in city government for former toll coilectors and others at the Skyway when it was concessioned. Or it could provide them with a buy-out.

A portion of revenues would pay for monitoring of the concession. (9e)

Dispute resolution

If a dispute over performance under the concession cannot be resolved between the state treasurer and the concessionaire then either party may go to the state Superior Court for an order for relief or termination of the concession. (11) The court may order a mediation process or a financial expert.

Funds to go for debt retirement

Upfront concession fees (called a lease payment) must go into a "Indebtedness Retirement Fund" to be used for refunding, defeasing or retirement of outstanding bond debts of the Turnpike Authority ($5b as of end 2005). Remaining money in the fund will be used for "retirement of the debt of the state. (12) COMMENT: This is an excellent provision since it meets the objection that the proceeds of any concession will be "squandered" by politicians.

The Turnpike Authority will have no power over toll rates during the concession period. (13a)

Widening Exit 6 to 8A may allow toll increases higher than CPI or GDP/person

The Turnpike widening to 12 lanes Exit 6 to 8a may see toll rates increased beyond the CPI for cars, GDP/person limits. (13b)

Atlantic City Expressway to be studied for concession

The Atlantic City Expressway is to be studied for a concession by the state treasurer and transport commissioner and a report submitted within a year. (15)

COMMENT: This isn't a serious shot...

This isn't a serious shot at extracting value for New Jersey from a toll concession. It promises to leave 5,000 Turnpike employees on the toll authority's payroll for six years from the time of a concession even though there would be no work for most of them to do. That's about $3b expense (6x$350m plus $1b for benefits) to keep the unions quiet.

Then it gives the Turnpike Authority six months from the time of a concession deal being reached to conjure up money to negate the deal. Further it gives the legislature the right to veto the deal. Adding those uncertainties a Governor who has not yet mustered the courage to speak publicly on the issue, plus adverse public opinion, and you have to think this is going nowhere. It won't attract serious proposals on these terms.

TOLLROADSnews 2007-02-02