Ohio is trying to become the first state to sell road and bridge naming rights and commercialize rest stops, as Republican Governor John Kasich addresses a $1.6 billion transportation funding shortfall.
The Ohio Transportation Department plans to find more money in highway facilities, including interchanges and rest-stop toilets and snack machines, to produce as much as $27 million a year in revenue and savings. The agency also wants to add restaurants, gas stations and hotels at highway pull-offs.
“When the money’s getting tight, you’ve got to get creative,” said Guy Davidson, who oversees $31 billion as director of municipal investments at AllianceBernstein LP in New York. “State and local governments have assets that are off the balance sheet that they can draw on and monetize.”
Besides the naming rights and commercialization, Ohio is considering so-called public-private partnerships to reduce operating costs and help pay for projects such as a new $2.4 billion Brent Spence Bridge across the Ohio River, said James P. Riley, deputy director of the state’s Division of Innovative Delivery, created in January. That includes studying whether to lease or issue bonds against the 241-mile (388-kilometer) Ohio Turnpike at a time of record low yields, he said.
States need every dollar; 30 of them have projected or filled budget gaps totaling $54 billion for fiscal 2013, the Washington-based Center on Budget and Policy Priorities said in a May 24 report. Ohio’s revenue from state and federal gasoline taxes has declined by $328 million since 2007 as construction costs have increased, delaying $1.6 billion of major highway projects for lack of funding, according to the Transportation Department.
The Buckeye State and Virginia are vying to become the first U.S. states to generate money from naming highways and bridges, and Iowa is considering sponsorships of rest stops, according to the American Association of State Highway and Transportation Officials in Washington.
States must seek alternative ways to pay for maintenance and construction, agency Director Jerry Wray said.
“If we want to continue our recovery, we need to think differently,” Wray said during a May 29 speech in Columbus. “And we cannot wait for Washington to send more money.”
The federal tax on gasoline and diesel fuel to help pay for highway projects hasn’t risen since 1993. With tax increases at both the state and federal levels “radioactive,” businesses must be involved, said Robert Poole, director of transportation studies at the Los Angeles-based Reason Foundation, which advocates free markets and limited government. It’s also a good time to secure financing for projects with “rock-bottom” interest rates, he said.
An Ohio bond issued in 2008 for new street infrastructure traded June 12 at an average yield of 1.67 percent, the lowest ever, according to data compiled by Bloomberg. The difference in yield from top-grade debt decreased to about 0.28 percentage point this month, the narrowest in close to a year.
An initiative such as naming rights may not generate enough to influence the state’s second-highest AA+ bond rating from Fitch Ratings, said Laura Porter, a managing director for the company in New York. However, “there’s always interest in revenue-generating things that aren’t tax increases,” she said.
Public-private partnerships are “a foregone conclusion,” said Michael Underhill, chief investment officer at Capital Innovations LLC in Pewaukee, Wisconsin.
The state is soliciting proposals to generate about $25 million a year in revenue and saved money by selling naming and sponsorship rights for transportation assets, plus $2 million for an initiative to sponsor interstate rest areas, Riley said in an interview. Companies that win the naming rights for interchanges will help maintain them and offset costs.
Ohio also intends to have 26 noninterstate rest stops developed, financed and operated through a lease agreement and is seeking proposals for the first five, Riley said. While Virginia has explored expanding rest-stop vending machines, Ohio would be the first to commercialize rest areas on state highways because such development on federal highways isn’t allowed, Riley said.
While the naming-rights program might be attractive to less-established companies, it may not appeal to firms that have many advertising options, said Jim Andrews, senior vice president at IEG, a sponsorship consulting and research firm in Chicago. Sponsorships of a service, such as a traffic- information system, are more meaningful and memorable, Andrews said.
“You’ve got to offer more than just a visibility opportunity,” Andrews said in a telephone interview. “They need to go out with an offer that says we’re going to give you more than just signs.”
Signs must also conform to federal rules that prescribe their size, color and even font, according to the Federal Highway Administration.
The Ohio Transportation Department will “pursue as aggressive of a plan as we possibly can” and anticipates a market for it, said Steve Faulkner, a spokesman.
Subway Restaurants of Milford, Connecticut, and Panera Bread Co. (PNRA:US) of St. Louis, are among companies expressing interest in locating outlets in rest areas, he said. Cindy Carrasquilla, a spokeswoman for Subway, and Linn Parrish, a spokeswoman for Panera, had no immediate comment.
Even so, the Ohio Restaurant Association opposes rest-stop development because it would hurt businesses at nearby exits, Jarrod Clabaugh, a spokesman for the Columbus-based trade group, said in an e-mail.
The state has tried to be sensitive to those concerns and identified locations where the market can absorb more development, Riley said.
“A lot of these programs, initiatives, thoughts and concerns get squelched elsewhere as soon as there’s a political ripple from some interested party,” Riley said. “But I do believe there’s political courage available here.”
Following are pending sales:
NEW YORK CITY MUNICIPAL WATER FINANCE AUTHORITY is set to borrow $450 million of revenue bonds as soon as this week, according to bond documents. (Added June 15)
LOUISIANA plans to sell about $581 million in general- obligation bonds as soon as this week, according to an offering document. About $144 million will be taxable debt, with the rest tax-free. The proceeds will be used for refunding. Moody’s rates the debt Aa2, third-highest. (Added June 14)
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