Merger of Mass Turnpike and Mass Highways January 22, 2004

2 Assessment process for considering a merger between the Mass Turnpike and Mass Highways  Do functional duplications exist within both organizations?  Are MassHighway operations more efficient than Turnpike operations?  Can equipment and facilities be be shared?  Can restricted reserves be liberated?  Can outstanding debt be refinanced?  Can redundant land and facilities be sold?  Is it prudent for the Commonwealth to absorb $2.5 billion in existing Turnpike debt? Quantify on-going operating savings Identify one-time revenues liberated by merger Assess budgetary and debt service implications

3 The Turnpike generates a loss from its core operations, thereby requiring the on-going use of one-timers to meet its obligations

4 The Turnpike is an expensive road to run… All state lane milesInterstate lane miles Interstate lane miles and Western Turnpike

5 …yet, the Turnpike is not a “better road” Centerline miles of Interstate Highway Source: Pavement Management Data report

6 Specific MTA and MHD operating costs have been reviewed  Administration Executive, planning, development, HQ supplies & general expense, custodial, HQ utilities Overhead O&M Excluded Costs  Finance CFO, budget, audit (non-toll), purchasing, insurance admin, cash mgt., credit union mgt.  HR Civil rights, personnel admin, employ. relations, benefits, training, worker’s comp admin, pension admin, payroll, occupational safety, T-passes, credit union  IT IT services, information systems, computer aided design  Legal Legal  Marketing Community relations, advertising, tourism and marketing, community services, patron services,  Engineering  Maintenance  Tolls  Police  Special projects  Parking  Snow & Ice Field engineering, engineering services, communications, environment engineering, highway engineering, research and materials, construction engineering, right of way Field personnel and OT, facilities mgt., highway operations, maintenance admin., district utilities, fleet mgt. and maintenance, service area maintenance, signage, carpentry, striping, litter, landscaping, machine shop Toll collection, toll equipment, toll audit, toll training and logistics, ETC enforcement Public safety administration, police patrol, special details All CA/T related costs, tunnel utilities, tunnel maintenance, Route 3 north project Parking operations All snow and ice operations

7 Scale drives significant overhead productivity advantages at MHD MHD MHD I-state Turnpike Mass Highways Overhead cost per lane-mileLane-miles per FTE

8 Administrative productivity (detail) Turnpike Mass Highways Total FTE

9 Benchmarking toll productivity highlights inefficiency Required toll collector FTE’sMTA FTE reductions Assumptions: 3.3 FTE’s per 16 hour lane and 4.96 per 24 hour lane; fully loaded employee cost of $70.7K; 7.5 working hours per day, 5 weeks annual vacation.

10 Savings are generated by eliminating duplicate overhead, not by lower the quality of the road ~$1M

11 Other sources of value  Closure and sale of overlapping facilities and depots  $1-2 million  Capital avoidance for Research and Materials Lab  $5 million  Equipment and machine shop sharing  $3-5 million

12 Up to $300M in funds could be liberated by a merger of the Turnpike and Mass Highways

13 Summary  Cash flow negative  Non-strategic, short- term decision making to address financial problems -Risky financial transactions -Disposition of critical infrastructure assets  Ratings downgrades Merger Rationale Financial Distress$20M Annual Savings Insufficient Accountability  Eliminating duplicate overhead -HR, finance, Admin, legal  Toll collection optimization -Staffing levels -Complete the transition to electronic collection  Increasing facility and equipment utilization  Critical transportation assets are not controlled by the Commonwealth  Capital spending and asset management is outside of Commonwealth control -The state needs to control transportation infrastructure  Surface artery park restoration is too important to be built and run by an independent authority