Testimony on Public Private Partnerships by Christine Boardman, President, Service Employees International Union Local 73, to the Senate Appropriations Committee II
By Guest Author- July 20, 2006
Good afternoon, Mr. Chairman and Members of the Committee. I am Christine Boardman, and I am testifying on behalf of the Service Employees International Union Local 73 and the SEIU Illinois State Council which is the body of SEIU locals which represent more than 165,000 workers in the State of Illinois. SEIU Local 73 also proudly represents more than 800 toll collectors, money room counters and truck drivers, clerks, custodians and warehouse employees working at the Illinois State Toll Highway Authority.
I would first like to thank Senator Schoenberg and all the members of the Committee for arranging this hearing in the general vicinity of where Tollway workers live and work. This gives us a greater opportunity to feel included in the debate over the possible lease of the Illinois Tollway which would greatly affect close to 2,000 employees (both union and non-union).
Along with this testimony, I am submitting a joint position statement written by SEIU and the Teamsters. This position statement had been submitted to Governor Blagojevich in June of this year. I will not read the position statement word for word, it speaks for itself and its general thrust is covered in my remarks today. Simply put, it boils down to this:
- Don't lease the Tollway to a private entity or consortium that will only take the 2nd most profitable tollway system in the nation and rake its already hefty profits into private investors pockets. Last year alone the Illinois Tollway's profits amounted to more than 311 million out of more than 600 million dollars in revenue.
- In the event that the structural deficit that our state budget will generate persuades the General Assembly to permit such a lease of the Tollway - the State of Illinois must keep a proprietary interest in any such negotiated deal with any corporate entity or consortium that would take over the Tollway.
Let me say at the outset, that the position that we are taking today on this issue covers the interests of all the taxpayers in Illinois, as well as the interests of our members who are employees at the Illinois Tollway.
The reasons that the Illinois Tollway should remain solely in public hands include, but are not limited to the following:
Profitability
The Illinois Tollway is currently the 2nd most profitable tollway system in the United States. To give away these profits, for a one-time cash exchange which is questionable in its relative value, when measured against the potential long term profits that the private entity would make over the term of the lease. It is our primary belief that the General Assembly would be better served by amending the controlling statute that created the Illinois State Toll Highway Authority, so that the profits from the Tollway system could be used as regular general revenue for the State of Illinois.
Certainly I know that this Committee has been carefully reviewing the experience of the City of Chicago lease of the Skyway and the State of Indiana's lease of their Tollway system. One clear fact emerges in the examination of both of those leases, the private entity will profit enormously over the length of the lease while the City of Chicago and the State of Indiana will be struggling with revenue issues since they will not be sharing in any of the profits of that Macquarie Cintra make from the lease of their road.
The Indiana House Democratic Leader, Patrick Bauer, has stated that he believes that the consortium of Macquarie Cintra will earn over 133 billion over the 75 years of the Indiana lease while the State of Indiana only received 3.8 billion. And even Merill Lynch calculates that the profits from the lease of the Indiana Toll Road would conservatively fall into the range of 21 billion over the life of the contract.
The lease of the Skyway immediately impacted the public user with a 25% increase from $2.00 to $2.50 and then further allows for increases that would amount to more than 7% per year until the toll cost is $5.00 at which point their rate of return would drop to approximately 5% per year.
The Illinois Tollway is considered to be a crown jewel among Tollway systems. In recent years millions of dollars have been spent in upgrading the tollroad as well as planning for its expansion. The installation of IPASS and its integration with other IPASS systems has resulted in more than 75% of the day to day traffic on the road in moving to IPASS. In order to encourage regular Tollway users to move to IPASS, the administration increased the cash cost to double that of what an IPASS user pays.
The reason that I raise this point is because there is already a guaranteed way to increase the profits of the Illinois Tollway, and that would be to equalize the cost of moving on the Tollway by raising the cost of the tolls to what is the cash cost. Most other Tollway systems around the country charge the same amount for the toll for both the automated pass users as well as the cash customer. Certainly every private entity interested in leasing the Tollway knows this and will count on that as a quick way of returning the cost of an early return on their investment.
I raise this point to stress the value factor at the Illinois Tollway. If it is the 2nd most profitable Tollway system now, with a large differential in cost between the use of cash or IPASS, imagine how much more it would generate when there is a planned reasonable equalization of the toll cost. If the Tollway remains in the hands of the public through additional amendments in the Authority's structure, then the results of that profitability can continue to be utilized year after year by the State of Illinois as part of its revenue after the meeting all of the capital, human resource and bondholder needs on an annual basis.
Accountability
We know that you as public officials all understand and deeply believe in your mission to manage the affairs of the State of Illinois by balancing the interests of all of the stakeholders and not just the "shareholders" to which a private entity must answer.
These stakeholders include the everyday users of the Tollway system who are residents of Illinois, the businesses who rely on the Tollway's well kept roadways and quick connections to other interstates, as well as the employees who have devoted their careers to making the Illinois Tollway what it is today.
The simple fact of the matter is that government must answer to all, whereas a private corporation has a much more narrow set of interests and one of those major interests is the rate of return or profit that they can reap from the investment which they made. Certainly we know that care would be taken in crafting a contract that should control and enforce the administration of standards, however that is more easily said then done.
There are already public examples of where private contractors of tollroads have failed the public and resulted in major disgruntlement of the citizens. Ontario, Canada is one such example where the private entity caused major public protests over their exorbitant and uncontrolled increases in toll rates.
Recently Governor Blagojevich has added his opposition to the lease of the Tollway and has specifically cited that his principle reasons for his opposition rest on the amount of investment made in recent Tollway operations as well as the fact that the State ultimately runs the Tollroad.
Effect on employees
I cannot end my remarks without citing the human factor of the effect of privatization on Tollroad employees. And at the outset, I must commend Senator Schoenberg and the entire committee for its sensitivity to this factor by including a requirement of the independent consultant to make their projections without harming the wages, benefits and pensions of the current workforce.
The tale of the Chicago Skyway must be put onto the record. After the conclusion of the lease, Macquarie Cintra immediately subcontracted the management of the employees to another subcontractor. The jobs at the Skyway had previously paid approximately $15 per hour along with the City of Chicago defined benefit pension and insurance. The wages of the contractor's employees were reduced to $11 per hour, no participation in a defined benefit plan and significantly different health insurance.
Of the 860 members that we represent on the Tollway, the median seniority for this group is just over 10 years. If the Tollway is leased to a private entity and if the State of Illinois does not retain a proprietary interest, all employees on the Tollway will lose their ability to retain participation in the State Employee Retirement System. This would be a significant blow to all of the employees on the Illinois Tollway. As you probably know, Illinois is one of 13 states that was dramatically impacted by the 1983 Reagan passage of the Windfall Elimination provision to Social Security. It means that even if our member get a job that is covered by Social Security, their Social Security benefit will be offset by almost the same amount as what they would earn from their SERS pension.
In the last 15 years, Illinois has lost more than 222,000 manufacturing jobs or 24.3% of the manufacturing industry as a result of the trade agreements such as NAFTA, CAFTA and the FTAA. Service jobs paying more than 1/3 less than those former manufacturing jobs has been the only growth in Illinois . Let us not add to the general decline of the working man and woman in this state by privatizing the Tollway.
But in the event that the General Assembly does go that route, it is important that we retain the proprietary interest of the State in that venture. This would allow the State to share in the profits as well as the quick influx of capital that it is seeking. It would also lend itself to forcing accountability into all of the actions of the private entity and lastly it would also allow the employees to retain their public status and participation in the public retirement system.
I would like to end with the comparison that John Adler from SEIU made in our previous presentation on May 31, 2006 which compared governments that sign long term concession agreements for essential infrastructure assets like the Tollway without retaining an ongoing interest in those assets risk being perceived as the equivalent of the Native Americans who sold Manhattan Island to Peter Minuit for $24 in beads and trinkets. At the time it seemed like a good deal, but history tells the rest of the tale. Please don't let the State of Illinois be compared to exploitation of the Manhattan Indians. The Illinois Tollway currently gives you good value, let us keep that and expand it in a rational manner. Thank you for your time and attention.