Oklahoma can make a game-changing improvement in the quality of its roads, highways, and other transportation infrastructure, and in short order. Here’s how.
Back in January, I proposed monetizing large state-owned assets and using the proceeds to fund long-term budgetary needs, like underfunded pensions and transportation infrastructure. A prime candidate for monetization is the turnpike system, which I proposed leasing to private investors on a long-term basis and using the substantial windfall to improve other transportation infrastructure. Other states (most notably, Indiana) have pursued this strategy to great success, with the result being not just a financial boon to road funding but also improved management and quality of the privately operated toll roads. I conservatively estimated leasing the turnpikes would generate north of a billion dollars.
A new study indicates it would probably generate more like four times that. The Reason Foundation released a study last month proposing nine states’ toll road systems as great candidates for private leasing, including Oklahoma’s. The study illustrates just how lucrative such a transaction would be to the state. Using data from similar transactions in the US and abroad (where private leasing is more common), the study estimated the “gross valuation” of Oklahoma’s turnpikes at between $4.3 billion and $6.4 billion.
After paying off all debt (the Oklahoma Turnpike Authority has inexplicably racked up extensive bonded indebtedness to continue building lightly-used toll roads to nowhere), the state would net an estimated $2.3 billion to $4.5 billion. Looking closely at the methodology, the low end estimates in this study were extremely conservative when compared to real-world transactions. The study points out that the few private toll road leases that have been put out to bid in the US in recent years have generated substantially more revenue than was estimated. So the actual figure for Oklahoma would likely be closer to the high end $4.5 billion estimate than the low end.
To put this in perspective, consider the following. Oklahoma’s “CIRB” (County Improvement for Roads and Bridges fund) has a 5-year plan that constitutes the state’s entire contribution to improving local roads and bridges, and the cost of every project on the 5-year plan totals less than $1 billion. The highest priority local road and bridge projects are on the CIRB plan, including 313 bridges and nearly 600 miles of roads. Leasing the turnpike system would fund CIRB four times over.
The Oklahoma Department of Transportation’s 8-year plan—the plan for all the critical highway and bridge projects ODOT intends to fund over the next 8 years—assumes a TOTAL expenditure of around $6 billion, including federal funds. A private lease of the turnpikes would fund nearly the entire 8-year plan, and would easily cover the state’s contribution. This is something the state could never otherwise hope to accomplish a single year, even with a massive tax increase or drastic shift in spending priorities. It would also annually free up state resources for other infrastructure projects or other spending priorities.
Leasing the turnpike system would generate massive funding for a core function of state government, improve the quality and operation of the turnpike itself for Oklahoma drivers, and offload state maintenance responsibilities. By my lights, that’s about as close to a win-win as we could hope for in state government.
Benjamin Lepak is Legal Fellow at the 1889 Institute. He can be reached at blepak@1889institute.org.