KDOT/KTA merger proposal resurfaces, with Brownback's endorsement

[J N Winkler]

In his State of the State speech last night, Governor Brownback proposed merging the Kansas Turnpike Authority into the Kansas Department of Transportation, saying that "We do not need two highway departments in our state.  One is enough."

http://cjonline.com/news/state/2013-01-15/brownback-clings-higher-sales-tax-seeks-new-income-tax-rollback

This piece of legislative testimony from then KDOT secretary Deb Miller, responding to a similar proposal made in 2009 when Kathleen Sebelius was still governor, points out that the efficiency gains from such a merger are likely to be small to nonexistent because there is little duplication of functions between KDOT and KTA, and the merger might entail doing a bond buyback (involving an up-front cash payment) in order to deal with contractual obligations to existing KTA bondholders.

http://www.kspace.org/bitstream/1984/8834/1/HB+2178.pdf

My thoughts:  the reason Brownback gave in his speech for merging the two agencies is not a good one and is unlikely to be the real one.  I do think Miller's testimony ignores some efficiency gains that might be realized from having KTA resurfacing jobs designed in-house by KDOT rather than contracting them out to HNTB, but I think these are likely to be small because final design work is typically no more than 20% of total project cost (even when done by an engineering consultant) and I don't think KDOT has the personnel to take on the Turnpike's routine resurfacing design work.  Experience from Massachusetts, where MassHighway and the Massachusetts Turnpike Authority were folded into MassDOT, suggests that consolidation of functions is unlikely to extend below the executive suite.  (The last time Randy Hersh and I investigated the possibility of obtaining as-built MassPike signing plans, we discovered that MassHighway and MassPike still have separate records registries.)

Brownback does not have to explain himself because his faction of the Republican party has firm control of the Legislature (moderate Republicans were wiped out in the 2012 Republican primary) and he has legbreakers like David Kensinger who are responsible for ensuring that any Republican legislator who asks difficult questions is primaried.  Brownback is, however, thought to favor Texas as a policy model, so abolishing KTA may be a first step to a general policy of tolling new freeway capacity.  Another possibility is a Turnpike leaseback arrangement, as implemented in Indiana and considered but rejected in Pennsylvania and Ohio.

Peter Samuel (of TollRoadsNews.com) has not weighed in on this idea yet, as far as I can tell.

Edit:  In this piece of testimony in relation to the 2009 proposal, Michael Johnston (KTA CEO) echoes Miller's concerns:

http://www.ksturnpike.com/assets/uploads/media_release_02_12_2009.pdf

[WichitaRoads]

I won't get into political opinions, because I don't think it responsible. But, it does seem to me that combining might be trying to tap into Turnpike monies to fund other road projects in a deficit.

I would only go along with this with an assurance that turnpike funds are, by law, to remain only with KTA support and upkeep. Then it would just be getting rid of staff redunancy.

ICTRds

[rarnold]

Brownback should keep his hands off of a solvent entity. I would like to see KTA build more highways.

[J N Winkler]

This is the latest from the contact-tlink@ksdot.org blast email address:

Last night Gov. Brownback delivered his 2013 State of the State address in which he laid out his goals for the legislative session. I want to follow-up with you on the Governor's comments and his commitment to transportation.

First, and most important, the Governor continues to support T-WORKS. Great news! As the program moves into its third year we are ahead of schedule on many projects and, in many cases, delivering them at less cost than estimated. Thanks to continued great bids, little or no inflation, great bond refinancing opportunities and more, the 10-year cost of the program has dropped from $8.2 billion to $7.8 billion. That's good news for Kansas taxpayers and travelers.

Second, last night the Governor talked of an idea that may have caught some of you by surprise. He suggested that now is the time to consider placing KDOT and the Kansas Turnpike Authority under the same umbrella. This is something that has been mentioned off and on for some time. But now it's an idea whose time may have come. I should note that although the agencies would be under one umbrella, I envision they would remain separate entities.

The Governor's suggestion hasn't been put into legislation as of yet, and there are more questions than answers at this point. But bringing the two agencies together under the direction of the Secretary of Transportation has the potential to reduce duplicity and overall costs. As this and other proposals that affect transportation move through the legislative process over the next few months, KDOT leadership will strive to keep you informed through updates such as this.

I want to close by thanking you for your support over the past year and wishing you a Happy New Year. I'm excited about what we can do together to provide Kansans a world-class transportation system that enhances the safety of our families and helps the Kansas economy grow.

My translation of the paragraphs dealing with the merger proposal:  I'm doing my best to play along, but the big boss blindsided me.

The statement also hints at a MassDOT-style amalgamation (no consolidation below executive level).  Johnston's 2009 testimony also mentions that a merger will necessitate an upfront $25 million cash payment for bond defeasance, so even if we were not going into the legislative session with a budget deficit, it is difficult to see how this would be covered through employee redundancies and the like.

[situveux1]

I don't know for sure, but I imagine quite a few folks are like myself and don't come here for political commentary. However, I will point out that David Kensinger is no longer Gov. Brownback's chief of staff and is not, therefore, his "legbreaker." Any politician, regardless of left, right or middle, I'm sure has people to enforce their desires on their party members.

[J N Winkler]

Apparently savings of $15 million are projected from having KDOT take over KTA operations (though details of how this would work are still unclear):

http://www.kansas.com/2013/01/16/2638013/brownback-budget-would-eliminate.html

I can certainly understand others' wishes not to have anything to do with general political commentary, but in this case the relevant consideration is the extent of scrutiny which the merger proposal is likely to receive in the Legislature.  It is my suspicion that it will receive considerably less than it did in 2009, when we had a Democratic governor, and likely less than it would have received in 2011 and 2012, when Brownback was governor but conservative Republicans did not have a controlling majority in the Senate.  Another factor is that a suggested merger of the Turnpike and KDOT is unlikely to be a coalition-splitter, unlike other issues such as immigration.

We will just have to see how well this analysis holds up over the course of the legislative session.

[situveux1]

Brownback does not have to explain himself because his faction of the Republican party has firm control of the Legislature (moderate Republicans were wiped out in the 2012 Republican primary) and he has legbreakers like David Kensinger who are responsible for ensuring that any Republican legislator who asks difficult questions is primaried.

It is my suspicion that it will receive considerably less than it did in 2009, when we had a Democratic governor, and likely less than it would have received in 2011 and 2012, when Brownback was governor but conservative Republicans did not have a controlling majority in the Senate.

The pros and cons of a merger I can appreciate... the above commentary I can do without, especially since the facts do not support the commentary, as I've already pointed out.

[J N Winkler]

This morning's Eagle has additional coverage on the merger proposal:

http://www.kansas.com/2013/01/26/2651425/critics-caution-against-governors.html

Salient points:

*  Brownback cites the ability to stand in front of one agency's salt dome and see the other agency's own salt dome as evidence of duplication which, if eliminated, can save money.

*  Specifics of the merger proposal and the actual savings it could generate are not known since the legislation is still being drafted.

*  Current law requires that tolls be kept with the Turnpike.  Repeal of this provision could be included in the merger legislation.

*  The Turnpike has large cash reserves, apparently to keep interest rates low when bonding.  The article does not say how this squares with KTA's agreement with FHWA not to issue new debt.

*  Lack of enthusiasm for the proposal appears to be bipartisan, though for different reasons.  Donovan, the Republican mover-and-shaker on the Senate transportation committee, worries about breaking something that already works efficiently, while Hensley, the leading Democrat in the Senate, sees the proposal as a ploy to raid Turnpike funds to cover the state budget deficit.

[Revive 755]

This morning's Eagle has additional coverage on the merger proposal:

http://www.kansas.com/2013/01/26/2651425/critics-caution-against-governors.html

Where exactly is this "flyover" near Cunningham that someone with a name similar to yours is commenting on at?  All I see is one diamond interchange and a couple of overpasses.

[J N Winkler]

"JWink" (who isn't me, by the way--on the rare occasions I comment on newspaper articles, I do so as "amerikanischer_Bison") is talking about the freeway bypass to the south of Cunningham which KDOT built under contract number 54-48 K-8244-04 (chopblock date of 2010).  I don't know what he means by "unauthorized" since this project was in the pipeline for a long time, and the lede of his post looks like an attempt to take white and call it black.

Anyway, he should be happy--the way things are going, I think the Kingman bypass will be on hold for a long time.

Edit:  Many of the comments are so uninformed that if I were so inclined, I could easily spend at least an hour writing around 12 posts in refutation.  In addition to this guy who apparently thinks the US 54 widening is "unauthorized" (despite being on the books as a "Southern Kansas Corridor" in one form or another since the 1950's), we have others who think the Turnpike is one of the best roads in the country (it actually has one of the highest death rates among public-authority turnpikes because of the too-sharp curves), that guide signs actually use paint, that US 54 can't be a Mexico connector (Hey!  It goes to El Paso!), that the Turnpike was supposed to be turned over to the feds and that there is a "Federal Safety Code" (wot?), and so on.  Most of these people won't follow up on their own comments because the commenting architecture is not set up to make that easy, so it isn't worth it to school them.

Edit II:  The portion of the article which hints at the possibility of Turnpike revenues or cash reserves being used to cross-subsidize new toll road developments or other state highways points toward a NTTA-style revenue-sharing arrangement.

[situveux1]

Unless the merger includes the eventual elimination of tolls, I wouldn't be in favor of this. The majority of people I know around the Emporia/El Dorado area are still resentful of the tolls in general because they were supposed to be temporary when the turnpike was built. (They tend to have a long memory!) If there's no elimination of tolls, then I'd actually be in favor of expanding the KTA, perhaps over a K-10 expansion between Lawrence and Kansas City? Now with several exits being completely unmanned, they wouldn't necessarily have to eliminate interchanges to toll the road. On the other hand, if we still lived in Lawrence, I'd be somewhat resentful of being forced to pay a toll to go to KC when the rest of the state doesn't have to.

[J N Winkler]

I don't think toll abolition is seriously being considered, and an impending budget deficit creates the worst possible climate for promoting an abolition proposal.  At the moment, the Turnpike is a self-financing entity off the state's balance sheet.  If tolls were abolished, the state would have to own the Turnpike and find money for routine maintenance plus the ongoing modest level of capital renewal and improvement, which is going to include a lot of bridges in the future since the original 1956 bridges have been dropping concrete.  Absorbing these costs would add pennies to the state gas tax and end any net subsidy that we presently receive from out-of-state drivers who choose to use the Turnpike (with its steep charges for multiple-axle vehicles) rather than untolled state highways.

There are some arguments that can be made in favor of tolling the SLT.  It apparently has the highest benefit-to-cost ratio of any major capital improvement on the state highway network currently being designed.  This means that its economic case is the least likely to be threatened through its being operated as a toll road.  On the other hand, I think it is unlikely that tolls will in fact be applied to K-10.  It has been in final design for the past couple of years and is now about to undergo value engineering.  The requirement to add tolling infrastructure would hike the cost, which is precisely the opposite of what VE is supposed to do.  It would also pose a major disruption to the VE process, which relies on a reasonably complete set of construction plans to which minor changes can be made to reduce the cost.  In Kansas the consumer expectation is still tilted strongly in favor of manual toll payment and the environmentalists who have always opposed the SLT would use the added land cover of toll booths, toll plaza approaches and exits, etc. to re-open the environmental process.  Depending on where the eastern terminus of the tolled length of K-10 was, there might be metropolitan CMAQ issues as well from traffic queuing to collect a toll ticket or pay a gate toll.

I would expect tolls, however, to be seriously considered for something like a dualization of the present Oakland Expressway in east Topeka (two-lane freeway on four-lane right-of-way), or a US 24 freeway corridor in north Topeka.

[Brandon]

This morning's Eagle has additional coverage on the merger proposal:

http://www.kansas.com/2013/01/26/2651425/critics-caution-against-governors.html

Salient points:

*  Brownback cites the ability to stand in front of one agency's salt dome and see the other agency's own salt dome as evidence of duplication which, if eliminated, can save money.

More of a saline point, but they can work together to save money here without combining the agencies.

*  Specifics of the merger proposal and the actual savings it could generate are not known since the legislation is still being drafted.

Because there probably aren't any savings in what appears to be more of a power grab.

*  Current law requires that tolls be kept with the Turnpike.  Repeal of this provision could be included in the merger legislation.

*  The Turnpike has large cash reserves, apparently to keep interest rates low when bonding.  The article does not say how this squares with KTA's agreement with FHWA not to issue new debt.

Looks more like a raid to me.  If there's financial trouble, sell some of the KDOT non-interstate freeways to the KTA instead a la the Elgin-O'Hare Expressway here in Illinois.

*  Lack of enthusiasm for the proposal appears to be bipartisan, though for different reasons.  Donovan, the Republican mover-and-shaker on the Senate transportation committee, worries about breaking something that already works efficiently, while Hensley, the leading Democrat in the Senate, sees the proposal as a ploy to raid Turnpike funds to cover the state budget deficit.

I agree with both.  If it's not broken, don't fix it, and that it does look like a raid.

[J N Winkler]

There is another factor which I think requires elucidation--the status of KTA's bonded debt, both in general and as it relates to a merger proposal.

*  KTA apparently agreed with FHWA several years ago that it would issue no new bonds.  This information is about a decade old (it was on the KTA's website around the time the East Topeka Interchange was being rebuilt, around 2000).  My recollection is that since the last new bonds were issued around 1997 with thirty-year maturity, this means the Turnpike should be free of toll around 2027.  However, KTA apparently has issued new debt in the last few years for major improvements like the Emporia interchange renovation, Kansas River bridges replacement, etc.  Is this new debt issue covered by a carve-out in the FHWA agreement, or is it now null and void?  What gave FHWA the authority to demand such an agreement in the first place, and why did KTA provide it?

*  Johnston's 2009 testimony mentioned that merger would probably result in a $25 million bill for bond defeasance.  Is that factor being considered as the current proposal is developed?

[kphoger]

quote]Donovan . . . worries about breaking something that already works efficiently.

I agree with both.  If it's not broken, don't fix it.

Count me in agreement as well.  If it ain't broke, don't fix it.  And, if someone says it needs to be fixed, then you have cause for suspicion.

[route56]

[Applies defibrillation to this thread - CLEAR!]

The KDOT/KTA merger proposal emerged in the house as HB 2334. This version actually maintains some separation between the two agencies.

The initial version of the bill would have made the Secretary of Transportation ex officio the KTA chairman and CEO. The version that came out of committee removed this provision.

[route56]

UPDATE! 3/9/12

HB 2234 has made it through the "Committee of the Whole," and is ready for final passage before moving on to the senate

http://www2.ljworld.com/news/2013/mar/08/house-gives-preliminary-ok-bill-requiring-cooperat/

Full text of each version of the bills can be found here:
http://kslegislature.org/li/b2013_14/measures/hb2234/

[Scott5114]

If this isn't a full merger of KDOT and KTA, what exactly is being proposed?

[route56]

Basically, legislation that authorizes and requires the two agencies to work together to avoid needless duplication of resources.

[J N Winkler]

Basically, legislation that authorizes and requires the two agencies to work together to avoid needless duplication of resources.

I think Scott's real question was how this changes the position under existing legislation.  As a legislator spins it in the Wichita Eagle's write-up:  "[This bill] does not change a lot."

Wichita Eagle:  bill gets watered down

That said, I have had a look at the supplemental note on the latest version of the bill, which tries to explain how existing law is changed but in some respects is frustratingly vague.  I gather, however, that the new legislation is designed to facilitate transfer of certain classes of assets (personnel and equipment) between the two agencies, and to limit contracting between the two agencies in respect of construction, maintenance, and operation of roads to state highways within ten miles of the Turnpike.

The point on which the supplemental note is vague is on how these changes augment or limit the agencies' existing powers to contract with each other.  They do already have such powers.  One example frequently quoted in this debate is the Turnpike laying fiber optic cable for KDOT at cost, which implies that both agencies have contracting authority of some kind.  There is already a cross-pledging ban (dating from 1975, per the Eagle article--I suspect the ban has something to do with the failure of the Eastern Kansas Turnpike, which KDOT eventually built as the untolled Super Two relocation of US 69 which has now been redeveloped to full four-lane freeway between Johnson County and Pittsburg).  The supplemental note says King attributes the $15 million estimated annual savings to asset transfer and consolidation of office functions, which runs contrary to previous newspaper reporting (and a Reason Foundation piece which I think later made its way into testimony on this bill) which implied that the $15 million figure had been snatched out of thin air.

I have to say some of the contrary testimony rubbed me the wrong way, even though I was in general agreement with its aim.  "State bureaucracy" is not really a compelling argument when it can be countered by references to toll authority overheads, free spending at IBTTA conventions, etc.  In Kansas it is KDOT, not KTA, which makes construction plans electronically available on the Web, so this is an efficiency I would have wanted to see from the KTA whether the merger went forward or not.  It is all well and good to talk about KTA maintaining its investment-grade rating (as the private citizen who walked the Reason Foundation piece to the legislators did), but my comparative experience of state DOTs and turnpike authorities is that the former usually do a better job of disseminating construction plans and other project-specific information.  The main reason for this is that the economies of scale in doing so are more readily accessible to them, but I think it must help that there are fewer business-related reasons for erring on the side of limited dissemination.

[route56]

http://www2.ljworld.com/weblogs/capitol-report/2013/mar/11/appropriations-chairman-alleges-that-hea/

In this latest blog post from Lawrence Journal-World Statehouse Reporter Scott Rothschild, there's a report that the CEO of the Kansas Turnpike Authority offered the Governor $25 million to back off of his KDOT/KTA merger proposal.

Needless to say, KTA President/CEO Michael Johnston (who also happens to be a former Transportation Secretary) is denying the allegation.

HB 2334 passed on final action in the house 81-41, and now goes over to the Senate.

[J N Winkler]

http://www2.ljworld.com/weblogs/capitol-report/2013/mar/11/appropriations-chairman-alleges-that-hea/

In this latest blog post from Lawrence Journal-World Statehouse Reporter Scott Rothschild, there's a report that the CEO of the Kansas Turnpike Authority offered the Governor $25 million to back off of his KDOT/KTA merger proposal.

Needless to say, KTA President/CEO Michael Johnston (who also happens to be a former Transportation Secretary) is denying the allegation.

His denial, as quoted, has a rather equivocal quality and does not exclude the possibility that Johnston approached Brownback with a suggestion that he would pitch a $25 million ex gratia payment for board approval if Brownback abandoned the merger plan.  A promise to propose (subject to certain conditions) is not quite the same as an offer.

A cash payment would make sense if (1) it were less than the additional borrowing costs KTA would incur as a result of a downgraded bond rating and (2) the deal could be structured so that it was, in fact, a one-time cash payment, rather than continuing greenmail.  Since (2) does not apply because of legislative sovereignty, I think it would be a major strategic error to propose a cash payment and thereby underline the fact that there is enough loose cash lying around to cover it.  This is the main reason I doubt an offer was made, as such.

[route56]

In any case, the legislator who suggested that the KTA made the offer has recanted and apologized:

http://www2.ljworld.com/news/2013/mar/12/rhoades-apologizes-allegation-against-kta-chief-sa/

[route56]

HB 2234 Status: Referred to Senate Committee on Ways and Means, hearing scheduled for Wednesday morning.

[J N Winkler]

Representative Mark Hutton's op-ed piece in the Wichita Eagle:  Pay off the turnpike debt

Mr. Hutton, as it happens, is the (Republican) representative for my district.  His piece is less than clear on several points (witness him saying in one paragraph that the original intention was to pay off the Turnpike, and in the next that there is nothing in the law mandating full liquidation of Turnpike indebtedness and its conversion into a free road).  The gist I get is that he wants the bonds paid off, if necessary by staging a bond buyback when the cash reserves get large enough.  Beyond that it is unclear to me whether he is suggesting that KDOT should continue to collect tolls and if so, whether that toll collection should be in support of a cross-pledging system, which he seems to endorse in principle.

The possibility of cross-pledging is one issue that so far seems to have gotten lost in the discussion over whether the $15 million annual savings are real and whether the bill in its current form is just a face-saver for Brownback.  I don't see a lot of support in Kansas for cross-pledging as practiced by NTTA, largely because no-one seems to have any concept of the KTA as a present or potential urban toll-road operator.  However, if it could be convincingly shown that the Turnpike's out-of-state/in-state revenue mix were more favorable to Kansas than current federal-aid funding formulas, I can see a lot of Kansans thinking it is a great idea to milk people from Missouri and Oklahoma for capital improvements in Kansas.  (I don't think that is actually true--the last figures I remember seeing on this topic were about 15 years old and suggested that 44% of the Turnpike's traffic is from out of state.  I don't remember if the basis was total tickets handed in or total money paid in at tollbooths.)

I also think Hutton underestimates the pressure Topeka and Wichita would apply to KDOT to have the Turnpike integrated into their urban freeway networks if the tolls were removed.  At present, in Topeka there is talk of K-Tag-only exits for places like Auburn while Wichita just gets the cold shoulder (not unreasonably, it has to be said, since the one-exit-per-mile spacing that would be needed to match the other Wichita freeways is not compatible with rural 70 MPH operation), but I think KDOT would find it harder to say No.