The Tollway lacked a comprehensive written capital plan to support the need for reconstructing and widening the toll roads.

The plan should combine projects, costs, timelines, revenues, and expenditures.

CTE informed us in March 2003 that the $5.5 billion reconstruction cost estimate was the high end cost estimate and that less costly alternatives may exist.

This was not previously disclosed by the Tollway.

The Tollway lost $11 million in 2002 mainly due to toll evasion. The toll evasion rate was three percent, which is higher than most toll roads responding to our survey.

The Tollway needs to improve its operational planning function.

Job applicants without completed reference forms were still hired by the Tollway.

The Tollway’s total revenue has exceeded expenses every year since 1992. At the end of 2001, cash and investments totaled $475 million.

The Tollway has been reimbursing the medical insurance premiums for the dependents of some retired employees.

In 2002, the Tollway did not collect $11 million in tolls, including 10% from unattended automatic lanes (without toll collectors).

The Tollway’s excess property list contained properties that were never acquired or were no longer owned by the Tollway.

The Tollway had 105 cars assigned to employees, including 12 to the Consulting Engineers.

The Tollway had $781 million in revenue bonds outstanding at the end of 2002. These bonds are scheduled to be retired by 2017.

The Tollway has issued a number of capital planning documents but they show varying cost estimates, timeframes, and priorities.

The cost estimates prepared by the Tollway’s Consulting Engineer were not reviewed by Tollway employees

States collected up to 67% of the tolls electronically.

Illinois Tollway collected 36% of its toll revenues electronically through I-PASS.

Illinois has among the lowest toll rates in the nation, and has gone the longest without raising tolls than any of the 20 states responding to our survey.

Best practices identified in other states included: cost containment; customer orientation; customer surveys; communication with stakeholders; and controlling traffic congestion

REPORT CONCLUSIONS

The Illinois State Toll Highway Authority (Tollway) is governed by the Toll Highway Act which states that it is in the public interest to provide for a toll highway system. The Act states that toll roads will become freeways when all revenue bonds have been paid (605 ILCS 10/21).

As of December 31, 2002, the Tollway had $781 million in outstanding revenue bonds and $355 million in unrestricted cash equivalents and investments. The Tollway is funded entirely by tolls and other revenues (e.g., concessions, investments) of approximately $390 million in 2001 and did not receive any federal or State tax revenues in 2002.

The Illinois State Toll Highway Authority (Tollway) operates 274 miles of toll roads used by 1.2 million vehicles per day. Many segments of the toll roads are 40 years old and, according to the Tollway’s Consulting Engineer, require frequent repairs and would be more cost-effective to reconstruct.

In March 2002, the Tollway announced a plan to increase tolls by 88 percent (i.e., increase the base toll rate for cars from 40 cents to 75 cents) to pay for reconstructing the toll roads. Tollway officials said the reconstruction would cost $5.5 billion over 15 years.

In accordance with the audit resolution, this management audit focused on reviewing the operations of the Tollway and reports the results primarily for 2002. In January 2003, a new Executive Director was appointed who began making changes that parallel some of the audit’s findings, such as reducing the number of permanent take-home vehicles, conducting employee background checks, and establishing a chief of staff.

1. Reconstruction Capital Plan. The Tollway lacked a comprehensive written capital plan to support the need for reconstructing and widening the toll roads. Many documents exist but they failed to merge the financial and engineering components into a single plan. The Tollway needs to prepare a comprehensive plan that combines projects, detailed cost estimates, timelines, revenues, and expenditures.

• The Tollway also did not review the cost estimate of the $5.5 billion reconstruction plan submitted by its Consulting Engineer, Consoer Townsend Envirodyne Engineers, Inc. (CTE).
• CTE informed us in March 2003 that the $5.5 billion reconstruction cost estimate was the high end cost estimate and that less costly alternatives may exist. This was not previously disclosed by the Tollway in its public discussions of reconstruction needs.
• Some of the supporting documentation to back up the Tollway’s 15-year, $5.5 billion reconstruction cost estimate by the Tollway in March 2002 was not prepared until after our request in September 2002.
• The cost estimation process for the $5.5 billion reconstruction plan appears to be simplified. See Appendix E for the Tollway’s Proposed Capital Program.

2. Planning. The Tollway lacked complete information on its existing operational plans. The Tollway needs to fully complete the Annual Management Plan used by the Governor’s Office and monitor the implementation of its planning documents.
3. Management Information. The Tollway has some computerized information systems that date back to the late 1970s. These systems are not able to process data or prepare reports with the capability of current computer systems.
4. Organization Structure. The Tollway may be able to reorganize certain units performing related work into a single division, such as the various planning units.
5. Personnel. The Tollway’s personnel records contained deficiencies for 15 of the 50 employees in our sample, such as the following: missing performance evaluations, missing salary information, misfiled documentation, and not meeting the position requirements. Some interview files examined also lacked job application forms, interview evaluation forms, and reference checks.

• Since 1991, the Tollway has been reimbursing the medical insurance premiums for the dependents of retired employees who have the "High Option Indemnity" insurance. Officials at both the State Employees’ Retirement System and the Group Insurance Division of the Department of Central Management Services said they were unaware of any other State agency with a similar policy.
• In our survey of Tollway employees, respondents said the Authority needs to improve its internal management, such as supervision, training, policies, procedures, and communications.

6. Money Room. The Tollway needs to enhance security and controls over its toll collection process, including its Money Room operations.
7. Bonds. The Tollway refinanced its revenue bonds in 1998 to lower debt service. At the end of 2002, more than $330 million in bonds were callable prior to maturity and could be considered for refunding given historical low interest rates. The Tollway’s new Chief of Finance said that approximately $300 million of the callable bonds would not be economical to refund because a termination fee would have to be paid, but the Tollway plans to examine the remaining $30 million of callable bonds later this fall to determine whether savings could be achieved by refunding them prior to maturity.
8. Non-Toll Revenue. Excluding interest income from investments, the Tollway earned approximately $10.7 million in revenue (or 3%) from non-toll sources (e.g., concessions, fiber optics). Since toll revenue is projected to increase by 2 to 3 percent per year, increasing non-toll revenue could provide additional income to the Tollway. Illinois was below the median (4.5%) in our survey of states’ toll roads for collection of non-toll revenue.
9. Toll Collection. Most vehicles (90%) using the Tollway are passenger cars and they generate 75 percent of the toll revenue.

• The Tollway lost $11 million in 2002 mainly due to toll evasion. The toll evasion rate was three percent which is higher than most toll roads responding to our survey. Most of the losses were in I-PASS lanes and "unattended" ramps without toll collectors.
• The Tollway has begun to address toll evasion by implementing a Violation Enforcement System that will bill toll evaders $20 per violation. In summer 2002, the Tollway awarded a three-year $38 million contract to TransCore to develop and implement the Violation Enforcement System.

10. Toll Rates. Toll rates were last raised in 1983 and the Tollway has gone the longest of 20 respondents to our survey questionnaire without an increase in tolls. Also, the Tollway had among the lowest toll rates per mile among respondents.

• The 2001 Annual Report by the Tollway’s Consulting Engineer said the Tollway will not have sufficient funds by late 2004.

• However, as recently as June 29, 1998, the Tollway issued a press statement that said no toll increase was necessary. (pages 1 to 4)

BACKGROUND

The Illinois State Toll Highway Authority is governed by the Toll Highway Act (605 ILCS 10). The Act states that only the General Assembly can authorize building any new roads (605 ILCS 10/14.1). The Act also states that toll roads will become freeways when all bonds have been paid (605 ILCS 10/21): "When all bonds including refunding bonds and all interest thereon have been paid . . . toll highways shall become a part of the system of the State highways of the State of Illinois, and be maintained and operated free of tolls."

In 2002, the Tollway was organized into seven primary offices which report to the Executive Director. The Tollway’s organizational structure is not unusual as compared to major U.S. toll road authorities. However, there were several planning units (strategic, financial, engineering) which the Tollway could consider merging for closer coordination – a crucial component in insuring that cash flow requirements are balanced with physical roadway requirements. (pages 10 to 14)

 OPERATIONS

The Tollway is an administrative agency of the State of Illinois whose mission is to provide safe and efficient highways. The Tollway had various planning documents for internal use and for use by the Governor’s Office of Statewide Performance Review.

The Tollway has made progress in developing strategic plans and performance measures, both of which are needed to help ensure that the overall mission of the Tollway is being met. However, improvements are needed in the consistency and monitoring of the plans. In addition, once a strategic planning process has been implemented, results should be reported to the public, such as by posting on the Tollway’s web-site.

The number of Tollway employees has remained relatively stable over the past ten years. In 2002, the Tollway had 1,927 employees. This headcount does not include District 15 State Police troopers, which numbered 159 in 2002, because the Tollway considers them to be contractual employees. The headcount for 2003 is budgeted to be 1,854.

• The Tollway’s personnel records contained deficiencies for 15 of the 50 employees in our sample, such as the following: missing performance evaluations, missing salary information, misfiled documentation, and not meeting the position requirements. Interview files examined also lacked job application forms, interview evaluation forms, and reference checks.

• The Tollway does not conduct its own reference checks but relies on the applicant to have a previous employer complete the reference form. Applicants without completed reference forms were still hired.

• Tollway staff said fingerprints are taken from all employees although they were not checked prior to 1999 but were just kept in storage. (pages 19 to 46)

REVENUES, EXPENDITURES, AND CONTRACTS

The Tollway’s budget for Fiscal Year 2002 was $379 million. Approximately one-half of the budget ($180 million) was for maintenance and operations, including $115 million for payroll.

• The Tollway’s revenue has exceeded expenses every year since 1992. At the end of 2001, cash and investments totaled $475 million.

• The Tollway has earned interest income between $20.8 million and $27.6 million during 1997-2001, but that is expected to decline to $10 million by 2006.

• The Tollway has not finalized its projected cash flow for the 15-year time period during which the toll roads are expected to be reconstructed. Cash flow projections were labeled "draft" and lacked support to explain changes by a precise amount (e.g., cash was forecasted to vary from negative 1.3% to positive 4.7% per year).

• The Tollway earned approximately $10.7 million in 2001 from non-toll revenue sources (e.g., concessions, fiber optics) which was approximately three percent of its operating revenue; Illinois was below the median (4.5%) in non-toll revenue collection of our survey respondents.

• The Tollway did not have a centralized listing of contracts which could assist management in monitoring contracts.

• Since 1991, the Tollway has been reimbursing the medical insurance premiums for the dependents of retired employees who worked for the Tollway for at least five years. It has reimbursed 80 percent of the premium cost for dependents of retirees who have the "High Option Indemnity" insurance. The cost of this benefit was $24,000 in 2002 and can be expected to increase in future years due to the State’s Early Retirement Incentive. Officials at both the State Employees’ Retirement System and the Group Insurance Division of the Department of Central Management Services said they were not aware of any other State agency with a similar policy.

• Illinois’ toll rates for passenger vehicles and trucks were among the lowest of the respondents to our survey of states’ toll roads. See Digest Exhibit 1. (pages 47 to 70)

TOLL COLLECTION

The collection of tolls needs to be improved as the Tollway did not collect over $11 million in tolls in 2002. Tollway officials attributed most of the uncollected tolls to motorists who did not pay the required toll. The Tollway’s three percent uncollected toll rate was the third highest of the 12 toll roads that provided this information in our survey.

• In December 2002, six percent of tolls at I-PASS only lanes were not collected and nearly 10 percent of the tolls were not collected at the "unattended" automatic lanes. Comparatively, at manual lanes (which have toll collectors), only 0.3 percent of expected cash revenue was not collected in December 2002. See Digest Exhibit 2.

• The Tollway did not effectively collect from motorists who did not pay tolls and reported collecting only $214,923 from toll evaders for 2002. The Tollway entered into a $38 million contract with TransCore in summer 2002 to develop and implement a system to collect from toll evaders. The system was being developed during our audit fieldwork.

The toll collection and cash counting processes can be improved in areas that included limiting access to the Money Room; improving surveillance over the handling of toll collections; and improving other operational controls. In addition, some recommendations from prior reviews (e.g., Illinois State Police, Arthur Andersen) of the Tollway’s toll collection and cash handling practices still have not been implemented. (pages 71 to 92)

REAL ESTATE

The Property Management Division does not have controls in place to adequately track all property parcels acquired by the Tollway. There is no single comprehensive listing of all Tollway property.

The Tollway cannot easily identify potential excess real estate because it has to use both electronic and manual processes. Staff cannot readily determine whether the Tollway actually acquired each property initially identified, its current use, whether the property is excess and not needed by the Tollway, or whether ownership has been sold or otherwise conveyed to another party.

As an example of the limitations of the Tollway’s real property information systems, the excess property list contained properties that were never acquired or that were no longer owned by the Tollway.

The Tollway should consider using the Geographic Information System to maintain complete information on all its real estate, including how each property is being used, such as for roads, oases, maintenance facilities, easements, utilities, fiber optic lines, and rental property. (pages 93 to 108)

VEHICLES

The Tollway had a total of 693 vehicles as of December 2002 (see Digest Exhibit 3). The total expenditures of the Vehicle Fleet Unit were $11,240,814 in 2002 -- $4,541,380 for new vehicle purchases and $6,699,434 for labor, fuel, maintenance, repair, and other costs.

• Of the Tollway’s 693 vehicles, 105 were take-home vehicles that were permanently assigned to employees, including 12 for its Consulting Engineers (Consoer Townsend Envirodyne).

• The purchase price of take home vehicles was $1.75 million. Their operating cost – gas, maintenance, repairs, insurance – was $245,189 in 2001.

• The Tollway’s computerized management information system for the vehicle fleet is outdated and does not generate reports which would allow management to better monitor vehicle costs.

• Some of the vehicles were used more for commuting than for Tollway business.

• Of the 18 Tollway employees sampled who were assigned a permanent vehicle, 16 either did not complete the required vehicle usage logs or did not complete them correctly.

After our audit period, which ended in 2002, the Tollway changed its policy on assigning vehicles to employees and reduced the number of take home vehicles from 105 to 48 in February 2003. The 12 vehicles assigned to the Tollway’s Consulting Engineer Consoer Townsend Envirodyne Engineers, Inc. (CTE) were also returned to the Tollway and now the Authority pays $36 per day per vehicle to CTE. Tollway officials said that by May 14, 2003, they had completed marking vehicles with the Tollway logo and number, as well as an I-PASS decal. (pages 109 to 118)

BONDS

The Tollway had $781 million in revenue bonds outstanding at the end of 2002. These bonds are scheduled to be retired by 2017. The revenue bonds are governed by a Trust Indenture that establishes the requirements and guidelines for the Tollway to follow. The Trust Indenture was established in 1985.

According to the Tollway, it has realized $98 million in reductions in debt service due to refunding bond issues since 1987. Given historical low interest rates, the Tollway needs to examine if it could realize savings by additional refunding of outstanding bonds prior to their maturity. At the end of 2002, more than $330 million of the remaining bonds were eligible for refunding prior to maturity because the bonds are callable.

However, the Tollway’s new Chief of Finance said that approximately $300 million of the callable bonds would not be economical to refund because a termination fee would have to be paid. The Tollway plans to examine the remaining $30 million of callable bonds later this fall to determine whether savings could be achieved by refunding them prior to maturity. (pages 119 to 125)

TOLL ROAD RECONSTRUCTION

The Tollway did not have a comprehensive written plan that supports the need for reconstructing the toll roads, some of which were constructed 40 years ago (Digest Exhibit 4 shows the pavement condition). The Tollway has issued a number of capital planning documents but they show varying cost estimates, timeframes, and priorities. A comprehensive plan that combines project types and descriptions, detailed cost estimates, timelines, revenues, and expenditures is necessary.

• In March 2002, the Tollway proposed a $5.5 billion reconstruction plan which would be paid by a 35 cent toll increase to its current base rate of 40 cents for passenger vehicles. However, some of the supporting documentation for the $5.5 billion cost estimate was not prepared until after our request. Further, the cost estimates prepared by the Tollway’s Consulting Engineer (CTE) were not subject to review by the Tollway’s own employees.

• CTE said to us in March 2003 that the $5.5 billion reconstruction cost estimate was the high end cost estimate and that less costly alternatives may exist. This information was not noted by the Tollway when the reconstruction plan was announced in March 2002 nor was it disclosed in other Tollway reports. CTE assumed that most Tollway roads would require full reconstruction and built this assumption into their $5.5 billion cost estimate. There are, however, less expensive alternatives to a complete reconstruction and the cost estimation process for the $5.5 billion reconstruction plan appears to be simplified.

• According to the 2001 Annual Report by CTE, the Tollway will not have sufficient funds to pay for the reconstruction. However, as recently as 1998, the Tollway publicly stated that no toll rate increase was required. The Tollway needs to establish a written financial plan for the reconstruction and retained the firm of RBC Dain Rauscher in summer 2002 to develop a financing plan by fall 2002, but no financing plan was issued as of May 1, 2003. (pages 127 to 138)

SURVEY OF STATE TOLL SYSTEMS

We mailed a survey questionnaire to 32 toll roads or turnpike organizations in the United States and in Canada. Including the Illinois Tollway, we received responses from 20 toll systems located in 14 states. Like the Illinois Tollway, many survey respondents have a mix of rural and urban roadways.

With its last toll increase in 1983, the Illinois Tollway has gone the longest of any of the survey respondents without an increase in tolls.

Among the respondents, the Illinois Tollway has one of the lowest toll rates for commercial vehicles at an average of just over nine cents a mile.

• The percentage of tolls collected electronically among survey respondents was as high as 67 percent. The Illinois Tollway collected 36 percent of its toll revenues electronically. See Digest Exhibit 5.

• Among survey respondents, the Illinois Tollway’s capital plan was the longest at 20 years.

• Most respondents, including the Illinois Tollway, do not receive funding from governmental bodies – i.e., federal, state, or local. (pages 153 to 169)

BENCHMARKING

The Office of the Auditor General compared the Illinois State Toll Highway Authority with the toll roads in other states that responded to our mail survey questionnaire. We compared the Illinois Tollway’s performance in selected areas against the performance of 13 other toll roads, a process which is referred to as benchmarking. Conclusions reached as a result of the benchmarking comparisons included:

• The Illinois Tollway is one of the largest toll systems in the United States, both in terms of lane miles and vehicle miles traveled.

• The Illinois Tollway had the second lowest toll rate at three cents per mile for passenger vehicles (New Jersey’s Garden State Parkway reported two cents per mile). Along with Indiana, the Illinois Tollway had the lowest toll rate for a 5-axle commercial vehicle at nine cents per mile.

• The Illinois Tollway reported the third highest number of staff at 1,926 after the New York State Thruway Authority (3,212 staff) and the Pennsylvania Turnpike Commission (2,390 staff).

• The Illinois Tollway’s administration and operations costs fall in the middle compared to other large toll systems, including the New York State Thruway Authority, New Jersey Highway Authority (Garden State Parkway), Florida Turnpike Enterprise, and Ohio Turnpike Commission.

• Several other toll roads reported offering motorists a toll discount for using electronic toll collection (e.g., I-PASS); the Illinois Tollway does not offer such a discount.

The Illinois Tollway had more staff per lane mile than the median of the other toll roads: 1.17 versus 0.90. As shown in Digest Exhibit 6, Illinois Tollway’s staff/lane mile is higher than the other large toll roads: Ohio, New York, Pennsylvania, Florida, and New Jersey Garden State Parkway.

However, as shown by Digest Exhibit 7, on a Vehicle Miles Traveled (VMT) basis, Illinois Tollway had fewer staff (0.25 per VMT) than the median (0.33 per VMT). VMT data was only available for the larger roads; therefore, the median may actually be lower. Illinois Tollway’s ratio of 0.25 staff per VMT is lower than the other large toll roads, except for the Florida Turnpike Enterprise (0.11 per VMT) and the Garden State Parkway (0.20 per VMT).

The Illinois Tollway’s average staff cost per position at $59,438 compares to the sample median of $53,055 (see Digest Exhibit 8). Staff cost includes both salaries and fringe benefits. The Illinois Tollway’s staff cost per position was higher than four of the other larger toll roads (Florida, Pennsylvania, New York, and Ohio) and lower than one (Garden State Parkway). (pages 171 to 187)

BEST PRACTICES

We surveyed states’ toll road systems and conducted detailed interviews with officials from three toll roads in other states to identify "best practices."

Best practices can be defined as the processes, practices, and systems identified in public and private organizations that performed exceptionally well and are widely recognized as improving an organization's performance and efficiency in specific areas. Successfully identifying and applying best practices can reduce business expenses and improve organizational efficiency.

Best practices identified in other states included: implementing cost containment initiatives; improving employees’ customer orientation; conducting customer surveys; improving communication with stakeholders; and better controlling the traffic congestion on their roads. (pages 189 to 194)

RECOMMENDATIONS

The audit made 23 recommendations to improve the management of the Illinois State Toll Highway Authority. The Tollway generally agreed with the recommendations. The Tollway’s responses are provided after each recommendation in the report and the complete written responses are reproduced in Appendix F (see page 239). The Office of the Auditor General will follow up on the status of each recommendation in next year’s financial and compliance audit.

                                                         
___________________________
                                                          WILLIAM G. HOLLAND
                                                           Auditor General

WGH\AD
May 2003