The New Jersey Turnpike is swallowing up the Garden State Parkway. New Jersey Governor James McGreevey is pushing ahead with what he calls a merger of the state's two largest toll agencies, the New Jersey Turnpike Authority (NJTA) and the New Jersey Highway Authority (NJHA) which operates the Garden State Parkway (GSP or Parkway.)
The New Jersey Turnpike is swallowing up the Garden State Parkway. New Jersey Governor James McGreevey is pushing ahead with what he calls a merger of the state's two largest toll agencies, the New Jersey Turnpike Authority (NJTA) and the New Jersey Highway Authority (NJHA) which operates the Garden State Parkway (GSP or Parkway.)
Governor McGreevey started off proposing to merge the state's three toll authorities into one new one. The South Jersey Transportation Authority which operates the Atlantic City Expressway will be left out of the merger - following strong local pressure from the south of the state to retain that organization's independence. Abolition of the SJTA was also complicated financially by its ownership of important non-road assets including regional airports and industrial estates.
Though still being called a merger, in line with the Governor's rhetoric, the takeover of the Garden State Parkway by the New Jersey Turnpike Authority makes more sense than creation of a new toll entity. It facilitates the proposed financing scheme which defeases only a portion of the Turnpike's debt, but pays off the debt of the Parkway altogether. Since the Turnpike was the contracting authority for the state's E-ZPass procurement and operations under the informal Regional Consortium its continuation as a legal entity lowers legal costs and avoids renegotiation of contracts.
The enlarged New Jersey Turnpike will be the nation's largest in daily toll transactions (NJTA 0.6m + GSP 1.6m = 2.2m/day) exceeding the present leader the Illinois Tollway (1.9m). The New Jersey Turnpike Plus (NJT+) revenues will be about $650m (NJTA $460m+ GSP $190m) putting it up there to vie with the PANYNJ as the second largest tollster after the NYC Triborough (MTA) Bridges and Tunnels which is heading for a $billion/yr.
A Toll Road Consolidation Study report claims the merger will resolve all the operational and funding issues left over from the Regional Consortium for the implementation of E-ZPass, allow capital improvements without toll increases, allow implementation of highspeed Electronic tolling (ET), achieve operational efficiencies, promote "smart growth" and result in actual savings of $198m (present value $108m). The study commission was headed up by Paul P. Josephson, chief of the Governor's Authorities Unit and was appointed by Gov McGreevey shortly after he took office a little over a year ago.
While there is skepticism in many quarters about claimed merger economies - transitional costs are substantial and the resulting larger organization will be more cumbersome to manage – the opposition Republicans have taken such a beating over the Regional Consortium penalty financing scheme, there is almost zero expressed opposition. Therefore the takeover seems likely to proceed unchallenged.
Many of the savings come from promised staff cuts, which could have been made independently of the proposed merger. The merger serves a political purpose. It will facilitate cross subsidization of much needed Parkway works with profits from the Turnpike. The Turnpike has a heavy component of commercial and interstate traffic and it is easier politically for the state to raise tolls on it. The consolidation will allow the cash-cow Turnpike to fund improvements to the Parkway. Trucks are excluded from the busiest sections of the Parkway and its tolls are politically sensitive since its operations are intra-state and the costs are important to concentrated constituencies of voters along its path, especially along the Jersey Shore where it is the local Main Street. Tolls on the Parkway, last raised in 1988 are the lowest per-mile in the country.
Legislation
Draft legislation produced by the Governor's office is called "An Act abolishing the New Jersey Highway Authority, transferring its projects and functions to the New Jersey Turnpike Authority, altering or increasing certain powers of the New Jersey Turnpike Authority..."
The legislation has the lawmakers declaring this "a more coordinated and rational organization" which will achieve the famous "economies of scale" of political imagination. It refers to "the acquisition by the Turnpike Authority of the Garden State Parkway and all other projects of the Highway Authority" and to the abolishment" (Jersey for abolition?) of the Highway Authority.
The preamble to the legislation says of E-ZPass: The abolishment and transfer will also permit implementation of effective remedies to address the financial, operational and administrative problems that have hitherto plagued the E-ZPass system (in NJ.) This enactment will stem the brewing (NJ) E-ZPass crisis threatening the very success of the E-ZPass system now enjoyed by nearly 60% of the drivers on the two roadways for its convenience and easing of congestion by permitting a repayment of over $300m in E-ZPass debt and cost overruns without a toll increase."
The draft law leaves open the "Transfer Date" when the Highway Authority will hand over its powers, responsibilities, assets and liabilities, including staff, to the Turnpike Authority but directs the two to cooperate so it occurs as soon as practicable after the enactment of the law.
The legislation makes few changes in the way the Turnpike Authority is constituted. There is an Authority consisting of the state Commissioner of Transportation (or his designee) plus five members appointed by the Governor with the consent of the state senate. The five are appointed for five year terms – except for the first two appointments, one of which is for two years, the other for three years in order to stagger expiries – and they can only be removed short of their term with cause, and after a public hearing. The governor has the power not only to appoint members but to designate the chairman and vice-chairman of the authority. The chairman and vice-chair serve in those positions at the pleasure of the governor.
The authority itself elects a secretary and treasurer and, it appears, formally, the executive director. Governor McGreevey personally announced the appointment of the existing executive-director, Michael Lapolla and the existing commission of the Turnpike which by law had that power, rubberstamped the Governor's decision.
The members of the authority get no pay but can claim expenses. Interestingly under the proposed law each member must execute a surety bond of $25k, and the treasurer $50k, to be forfeited against anything less than "the faithful performance of the duties of the office."
The Turnpike Authority remains subordinate to the Governor and his administration in important matters such as bond issuance, toll rates and other decisions. Authority minutes containing decisions can be vetoed by the Governor in a 10-day period after receipt. The law explicitly requires all decisions - by the turnpike and the state – to respect the rights of bondholders.
Financing recommended
Apparently the financing of the parkway takeover and the handling of the E-ZPass debt will be decided by the Turnpike Authority with teh concurrence of the
Independently Morgan Stanley and UBS Paine Webber report looked at debt aspects of the merger. The Turnpike has $3.3b of outstanding debt versus the Parkway's $551m, which generate annual debt service of $300m and $50m/year. A lot of the two tollsters' debt is not tax-exempt and they propose refinancing with a larger proportion of tax-exempt paper to keep interest costs down.
The financiers propose restructuring $1,851m or close to half of the combined $3.9b debt of the two toll businesses. $308m of this is E-ZPass debt. They expect to refinance at about 5% using average 15-year paper. Even so the whole financing is estimated to cost about $32m net.
Besides the costs and revenues of the agencies even the claimed overall savings are small change - $42m over six years or "rising to $9.8m/year in 2008" in the Governor's words.
Consultant cautious
A report for the Toll Road Consolidation Commission by the Hay group, consultants, (Hay) reports it found "no internal (or) organizational constraints that could not be overcome." It says that while consolidation has advantages it, also, is risky because the two organizations are "very different." The major potential benefit Hay sees is in "leveraging a consolidation to unfreeze historical thought patterns, habits, and practices." Gawd!
As well as thawed brains, it speaks of "strategic planning better integrated with and driven by state and regional transportation and economic development needs", an "integrated capital planning process," "modern management practices," and "a new performance and customer oriented culture."
Despite this clearly implied indictment of the existing toll agencies, Hay finds each organization already has "sound management practices" which could be "leveraged to the benefit of the other."
And there's more leveraging yet!
"Increased purchasing leverage." Hopefully not as practiced by giants like United Airlines or the Pentagon? Or indeed the purchasing leverage achieved in the recent joint contracting of the Regional Consortium for for E-ZPass implementation which the Governor has noted as a "fiasco," a "disaster" etc.
The two toll organizations have "very different and strong cultures," says Hay. The consultant report calls the Parkway culture "collaborative and analytical" which apparently leave the Turnpike culture as being formal, hierarchical, and commanding, like say the US Marine Corps. This "clash of cultures" – military and progessivist – could, the consultant says "render the new agency ineffective." The two organizations might be, shall we say, leveraged into civil war? Hopefully management would "embrace the best of each culture" and be tolerant of the "uniqueness of each," Hay proposes.
No Saddam on the Raritan.
"Leadership" would need to "address culture considerations." "Consolidation-specific human resource policies" are recommended and a "detailed employee communications plan."
Hay suggests basically what they call a "roadway operations structure" that leaves most of the staff reporting a either a Parkway boss or a Turnpike boss, and - dare it be said lest the Governor hear - minimal real consolidation.
The report envisages an executive director for the consolidated New Jersey Turnpike & Parkway with three Deputy Executive Directors (DEDs). DED-1 will be Administration, DED-2 the Parkway boss, DED-3 the Turnpike boss. The tollroad bosses will each have directly under them separate (1) traffic operations (2) toll collection but excluding electronic tolls (3) maintenance and (4) engineering. DED-2 (Parkway) will also administer the New Jersey Arts Center, probably – we surmise – on account of its strong artistic culture, which Hay no doubt hopes will be "leveraged" into and "embraced" by the Turnpike also. Should we anticipate the Turnpike division, following the Hay doctrine, sponsoring mass outdoor rock events against the dramatic fire, steam and industrially perfumed backdrop of oil refineries and petrochemical works near Exit 12 in Carteret or Linden. This would put to shame the tame indoor pop groups of the Parkway's arts center, and, in consultantese, incentivize it to greater artistic achievements!
DED-1 (Administration) will control six departments: finance, human resources, purchasing and administrative services, technology and electronic toll operations. Two other divisions (1) law and (2) strategic transportation planning and policy would answer directly to the Executive Director.
There is "transformational change potential" the report declares - several times, for emphasis (cool phrase that!)
Different accounts
The Parkway uses Oracle accounting and PeopleSoft payroll systems and the Turnpike is in the midst of a changeover to new but different systems, Lawson ERP and the Lawson HRIS. Hay suggests at one point that each be evaluated and the best chosen for scale-up to cater to the whole new consolidated organization. At another point the report seems to dismiss the Turnpike's Lawson systems and suggests the Parkway Oracle accounting and the Turnpike's toll audit methods could be shared by the other agency, come division.
Another Hay theme is the need for more "role clarity" in the consolidated toll authority, specifically between toll collection and toll audit, but also between finance and engineering.
There is an opportunity to "redesign and standardize work processes and to end paper pushing and Excel gymnastics" at both authorities the consultant reports. Excel gymnastics? They'll need some alternative workout to keep in shape?
The turnpike uses cash accounting, the parkway accrual, and they even have different days. A turnpike "day" begins at 0630 one day and ends at 0629 the next day, while the parkway has a conventional midnight to midnight day.
The consultant notes that "systems migration could be very expensive" especially if outside IT specialists need to be hired to implement standardization. Short-term the two might have to work with their different systems in parallel.
The "ultimate organization" should be centralized but for the time being there might have to be an overarching Financial Systems Manager with a small staff, who would do joint training, manage software upgrades and act as liaison to the separate Parkway and Turnpike financial departments.
Personnel or "human resources" need to be completely centralized and consolidated, the report says at one point. However it then says that retaining key employees will be difficult if staff lose benefits. Benefits and pay levels in the two authorities are different, Hay notes, in part the product of separate labor contracts, suggesting the need to renegotiate some. Easy to do if the lower paid are just being raised but tough to do if others are being lowered - necessary if the standardization is not to simply increase overall costs.
A single legal department is proposed by Hay, based on the Parkway's model of "significant in-house legal resources" rather than the Turnpike's use of outside counsel. At the same time the report suggests there could be lawyers specializing in representing the Parkway and others representing the Turnpike.
In purchasing the two agencies already do about half their business through state contracts. Hay suggests a merged agency could drive costs down 5% on the remaining business bought directly.
The two authorities have very different financial control, the Parkway vesting much power in departmental heads, while the Turnpike runs a system with purchase orders requiring multiple sign-offs. They have different vendor policies with the Turnpike requiring much higher insurance cover.
While purchasing and administrative services would be mostly centralized the report says some decentralization will continue in order to ensure speed and effectiveness. The Turnpike-specific staff would apparently mostly remain at the New Brunswick offices and the Parkway staff at the Woodbridge offices, about 15km (9mi) away from one another.
Hay suggests that an integrated fiber loop statewide be developed by linking fiber backbones owned by the Turnpike, the Parkway, and NJDOT. It says that all the fiber needed is in the ground except for a 5km (3mi) gap between the Turnpike and I-80. Savings of $200k to $600k/year can be gotten by cancelling lease of data lines, cancelling software licensing, using surplus capacity of Turnpike VAX Alphas and merging data centers and disaster recovery sites.
At the technician level a problem is that the Turnpike is fully union, while the Parkway is non-union. No prize for guessing which model a Dem admin will follow, and whether this will save or cost money.
On electronic toll (ET) collection the report suggests "consolidating" front-end equipment. (The back-end is already a single operation of ACS, formerly MFS-Chase Manhattan.) It suggests immediate and full intergration of ET, but does not address the question of how separate cash collection and plaza managements can be made to mesh with joint ET management.
Engineering is to be left at the separate roads, though it will lose longterm planning including capital budgeting to a new Strategic Policy and Planning division over both roads. Maintenance too remains split. Hay criticizes both authorities for a large amount of lost time from accidents during maintenance work, saying it is 8-times the national average for all trades and 4-times the average for construction work. Last year the Turnpike lost 560 days and the Parkway 385 days. Operations will stay split too.
Labor unions are going along with the plan. Local 194 of the International
Brotherhood of Professional & Technical Engineers (IBPTE) represents 1,500
turnpike workers, and the International Federation of Professional and Technical Engineers (IFPTE) Local 196 represents 650 parkway workers. Both unions are negotiating to replace labor contracts expiring June 30, at the end of the state's current fiscal year.
It is unclear whether the state will retain Michael Lapolla the Turnpike executive-director or Tim McDonough the parkway director. The Turnpike has far larger offices in New Brunswick than the parkway at Woodbridge, so headquarters staff seem almost certain to be in New Brunswick - unless a new building was initiated, which seems unlikely in the present fiscal climate. TRnews 2003-06-15
