PERFORMANCE AUDIT REPORT

REVIEWING THE OPERATIONS OF THE KANSAS TURNPIKE AUTHORITY

A Report to the Legislative Post Audit Committee By the Legislative Division of Post Audit State of Kansas January 1994 94-30 Legislative Post Audit Committee

Legislative Division of Post Audit

The legislative Post Audit Committee and its audit members of the Legislative Post Audit Committee (in­ agency, the Legislative Division of Post Audit, are the cluding the Chairman and Vice-Chairman), the Secre­ audit arm of Kansas government. The programs and tary of Administration, and the Legislative Post Auditor. activities of State government now cost about $6 billion This audit work also meets the State's audit responsi­ a year. As legislators and administrators try increas­ bilities under the federal Single Audit Act of 1984. ingly to allocate tax dollars effectively and make gov­ Second, the Act provides for a regular audit pres­ ernment work more efficiently, they need information to ence in every State agency by requiring that audit work evaluate the work of govemment agencies. The audit be conducted at each agency at least once every three work performed by Legislative Post Audit helps provide years. Audit work done in addition to the annual finan­ that information. Cial statement audit focuses on compliance with legal We conduct our audit work in accordance with and procedural requirements and on the adequacy of applicable government auditing standards set forth by the audited agency's internal control procedures in ar­ the U. S. General Accounting Office. These standards eas not covered by the annual audit. These compli­ pertain to the auditor's professional qualifications, the ance and control audits are conducted by the Division's quality of the audit work, and the characteristics of pro­ staff under the direction of the Legislative Post Audit fessional and meaningful reports. These audit stan­ Committee. dards have been- endorsed by the American Institute of Certified Public Accountants and adopted by the Legis­ lative Post Audit Committee. LEGISLATIVE POST AUDIT COMMrrrEE The Legislative Post Audit Committee is a biparti­ san committee comprising five senators and five repre­ Representative James E. Lowther, Chairman sentatives. Of the Senate members, three are ap­ Representative Tom Bishop pointed by the President of the Senate and two are ap­ Representative Duane Goossen pointed by the Senate Minority Leader. Of the repre­ Representative Walker Hendrix sentatives, three are appointed by the Speaker of the Representative Ed McKechnie House and two are appointed by the House Minority Leader. Senator Alicia Salisbury, Vice-Chairwoman As part of its audit responsibilities, the Division is Senator Anthony Hensley charged with meeting the requirements of the Legisla­ Senator Phil Martin tive Post Audit Act which address audits of financial Senator Lana Oleen matters. Those requirements call for two major types Senator Todd Tiahrt of audit work. First, the Act requires an annual audit of the State's financial statements. Those statements, pre­ LEGISLATIVE DIVISION OF POST AUDIT pared by the Department of Administration's Division of Accounts and Reports, are audited by a certified 800 S.W. Jackson, Suite 1200 public accounting firm under contract with the Legisla­ Topeka,Kansas 66612-2212 tive Division of Post Audit. The firm is selected by the (913) 296-3792 Contract Audit Committee, which comprises three

The Legislative Division of Post Audit supports full access to the services of State government for all citizens. Upon re­ quest, Legislative Post Audit can provide its audit reports in large print, audio, or other appropriate alternative format to accommodate persons with visual impairments. Persons with hearing or speech disabilities may reach us through the Kansas Relay Center at 1-800-766-37IT. Our office hours are 8:00 a.m. to 5:00 p.m., Monday through Friday. PERFORMANCE AUDIT REPORT

REVIEWING THE OPERATIONS OF THE KANSAS TURNPIKE AUTHORITY

OBTAINING AUDIT INFORMATION

This audit was conducted by Joe Lawhon, Cindy Denton, Jim Davis, and Allan Foster, of the Division's staff. If you need any additional information about the audit's findings, please contact Mr. Lawhon at the Division's offices. TABLE OF CONTENTS

SUMMARY OF AUDIT FINDINGS

REVIEWING THE OPERATIONS OF THE KANSAS TURNPIKE AUTHORITY

An Overview of the Kansas Turnpike Authority ...... 3

',. On'a Per"'Mile Basis; How Do Staffing Levels and Operating Costs Compare for the Kansas TurnpikeAuthority and the Kansas Department of Transportation? ...... 12

How Do Salary Levels and Fringe Benefits Compare For the Kansas Turnpike Authority and the Kansas Department of Transportation ...... 19

Does the Authority Have Adequate Operational Plans, Procedures, and Controls? ...... 28

Conclusion ...... 34 . .Recommendations ...... 36

Do There Appear To Be Any Problems With the Way The Kansas Turnpike Authority Handled Its Recent Bond Issues? ...... 37

Conclusion ...... 46 Recommendations ...... 46

What Would It Cost the State to Pay Off the Authority's Bonds and Operate the Kansas Turnpike as a Toll-Free Road? ...... 47

APPENDIX A: A Comparison Between the Kansas Turnpike and Turnpikes in Other States ...... 53

APPENDIX B: Traffic Volumes for Selected Interchanges ...... 55

APPENDIX C: Underwriting Syndicate and Bond Allocation 1993 Kansas Turnpike Authority Revenue Bond ...... 57

APPENDIX D: 1992 Campaign Contributions ...... 59

APPENDIX E: Toll-Free Passes Issued By the Turnpike Authority ...... 61

APPENDIX F: AgencyResponses...... 71 REVIEWING THE OPERATIONS OF THE KANSAS TURNPIKE AUTHORITY Summary of Legislative Post Audit's Findings On a per-mile basis, how do staffing levels and operating costs compare for the Kansas Turnpike Authority and the Kansas Department of Transportation? After the exclusion of the toll collection staff, the Authority had about three more employees per 100 lane miles than the Department. In addition, it spent more on routine maintenance than the Department. However, when the total costs of boilding, reconstructing, and maihtainingsiniilar sections of highway were compared over the lives of the highways, we found the Authority spent less per lane mile than the Department. How do salary levels and fringe benefits compare for the Kansas Turnpike Authority and the' Kansas Department of Transportation? During 1993, the Authority generally paid higher salaries than the Department paid for employees in similar positions. In addition, the Authority provided its employees with a more generous fringe benefits package than the Department. It also provided additional benefits which were not available to Department employees, such as toll-free turnpike passes and paying for spouses to travel with Authority employees and Board members. Does the Kansas Turnpike Authority have adequate operational plans, procedures, and controls? Many of the Authority's practices are governed by restrictions imposed through its agreements with bondholders. In general, we found that those and other practices help ensure that the organization operates efficiently. However, we did identify a few internal control weaknesses related to competitive bidding, documentation of credit card expenditures, and the analysis of interchange feasibility. Do there appear to be any problems with the way the Kansas Turnpike Authority handled its recent bond issues? The Authority generally has done well financially in its recent bond issues. It saved money by refinancing its debt and by receiving lower-than'-average interest rates on its bonds. The Authority could improve its practices by soliciting proposals from more bond underwriters and by using a financial advisor. In addition, the Authority has signed an agreement with the federal government in which it agreed not to issue any bonds which mature after the year 2024. What would it cost the State to payoff the Authority's bonds and operate the Kansas Turnpike as a toll-free road? The State would have to retire the outstanding bonded indebtedness of the Authority. Depending on the date of the takeover, this cost could range between $72 million and $160 million. The State also would have to maintain the road and pay for capital improvements at an estimated cost of $20 million annually. In addition, if the State used federal funds to reconstruct portions of the Turnpike, it could incur millions of dollars in additional costs to bring the Turnpike into compliance with federal highway design standards.

This report includes several recommendations for improving documentation and more closely analyzing interchange feasibility. In the area of bonds, the report recommends hiring a financial advisor and soliciting proposals from more bond underwriters. We would be happy to discuss these recommendations or any other items in the report with any legislative committees, individual legislators, or other State officials. ~ro~~ Legislative Post Auditor REVIEWING THE'OPERATIONS OF THE KANSAS TURNPIKE AUTHORITY

The Kansas TumpikeAuthority was created in 1953 and given the authority to construct and operate toll roads and to issue revenue bonds, payable solely from Turnpike revenues, to finance such projects. The law says that no toll road project should be undertaken without thorough study to show that public funds for construc­ tion of a free expressway are not available, that the construction of a toll expressway can be fmanced wholly through the investments of private funds in toll road revenue bonds, and that the project and indebtedness incurred therefore will be entirely self­ liquidating through tolls and other income from the operation of the project.

I· Legislative concerns have' been raised' about'the overall costs, salaries, and benefits at the Kansas Turnpike Authority compared with the Kansas Department of Transportation, the Authority's policies, procedures, strategic plans, and controls in a number of areas, the Authority's handling of its recent bond issue, and the cost to the State of taking over the Turnpike as a toll-free road. Because of these concerns, the Legislative Post Audit Committee directed the Legislative Division of Post Audit to conduct a performance audit answering the following questions:

1. On a per-mile basis, how do staffing levels and operating costs compare for the Kansas Turnpike Authority and the Kansas., Department of Transportation?

2. How do salary levels and fringe benefits compar~ for ,the Kansas Turn­ pike Authority and the Kansas Department of Transportation?

3. Does the Kansas Turnpike Authority have adequate operational plans, procedures, and controls?

4. Do there appear to be any problems with the way the Kansas Turnpike Authority handled its recent bond issues?

5. What would it cost the State to payoff the Authority's bonds and operate the Kansas Turnpike as a toU.free road? '

To answer these questions, we reviewed State statutes, Authority Board min­ utes, and various Authority procedures and documents. We also obtained compara­ tive infonnation from the Department of Transportation and from surveys of three other turnpike authorities. We examined the Authority's salary and employee ben­ efits package and compared it to the compensation package offered by the Kansas Department of Transportation, and the turnpike authorities in other states. We gath­ ered and analyzed information about staffing levels and operating costs for the Au­ thority, the Kansas Department of Transportation and the other turnpike authorities. We conducted interviews of staff of both agencies and members of firms under con­ tract with the Authority. We gathered data about the number of lane miles of road-

1. way that these agencies maintain, and the number and type of staff employed by each agency. We reviewed Authority documentation pertaining to the evaluation of con­ structing new interchanges, and also supporting documentation for certain payments made by the Authority.

To analyze the Authority's bond issues we reviewed bond transcripts and cal­ culated ~e savings of recent Authority refunding bonds. In addition, we reviewed an evaluation of the interest rates of the Authority's 1993 bond conducted by a financial advisory fIrm. In conducting this audit, we generally followed all applicable government au­ diting standards, except that we did not verify the accuracy of information obtained through the surveys of other turnpike authorities. In addition, we did not conduct spe­ . cific testwork to determine the reliability of all computer-generated data provided by the Authority and the Department of Transportation. Both the Authority and the De­ partment have their annual fmancial statements audited by a public accounting fIrm.

In general, we found that on a per-lane-mile basis, the Authority had more staff, and spent more on maintenance, than the Department of Transportation. In 1993 the Authority's salaries were somewhat higher, and fringe benefIts were better, than the Department's. In addition, the Authority provided its employees with addi­ tional benefits which were not available to Department employees. The Authority generally has adequate plans, procedures, and controls, but we identifIed the need for improvements in several areas. The Authority has done well fInancially in its recent bond issues but we point out,ways that the Authority can improve its procedures for choosing bond professionals. Also, '.the Authority has signed an agreement with the federal government that requires it to be debt free by the end of 2024. Finally, we es­ timated it would likely cost the State hundreds of millions of dollars to retire the Authority's outstanding debt and operate the Turnpike as a toll-free road.

These and other related fIndings are discussed in more detail after a brief overview of the Kansas Turnpike Authority.

2. An Overview of the Kansas Thrnpike Authority

The Legislature Created the Kansas Turnpike Authority in 1953 To Construct, Maintain, and Operate Express Highways in Kansas

To fmance such projects, the Authority was empowered to sell revenue bonds payable from Authority revenues. The Authority has built only two toll roads in Kan­ sas. In late 1954, it sold $160 million in revenue bonds to construct the 236-mile Turnpike that runs from Kansas City, Kansas, south through Wichita, and ends at the Oklahoma border. The Turnpike was constructed in 22 months and was opened to traffic on October 25, 1956. The map on the following page shows the Kansas Turn­ pike as it existed in 1992.

The Authority sold $19.5 million in bonds in 1957 to build the 18th Street Ex­ pressway in Kansas City. From its junction with 1-70 in Kansas City, the Expressway runs southward for approximately five miles, and connects with Roe Avenue at 51st Street in the City of Roeland Park. The Expressway opened for traffic on January 2, 1959. In January 1992, the Department of Transportation assumed the responsibility for the maintenance of the 18th Street Expressway, and tolls were removed. Al­ though additional toll road proposals have been studied, no additional toll roads have been built in Kansas since then.

The Authority consists of five members. The two members appointed by . the Governor for four-year terms must be Kansas residents who own Authority rev­ enue bonds. Another member of the Authority is the Secretary of Transportation. The other two members are legislators. One is the Chairman of the Senate Com­ Past Studies Have Shown That Additional mittee on Transportation and Utilities; Toll Roads in Kansas Were Not Economically Feasible the other is a person serving on the House Committee on Transportation Over the last 37 years (1956-1993), the who is appointed by the Speaker of the Legislature has authorized and paid for nine feasibility studies for toll roads in Kansas. The House. following list shows that those studies, which were done by private consultants, included most To operate and maintain the areas of the State. 1956 - Wichita to Hays Turnpike, the Authority employs a 1966 - Kansas City to Galena staff of 410. Day-to-day operations are Wichita to Baxter Springs overseen by the Chief Engineer/Man­ Wichita to Hays 1973 - Hutchinson-Wichita-Tulsa ager. In addition, the Authority contracts 1973 - Southeast Kansas Turnpike with the State Highway Patrol for round­ 1974 - Ottawa to Oklahoma the-clock patrolling of the Turnpike. 1974 - Dodge City to Colorado Border 1979 - Leon to Fredonia Troop G of the State Highway Patrol 1986 - Southeast Kansas Turnpike/Freeway provides this service. These troopers are 1986 - Western Kansas TurnpikelFreeway under the control and supervision of the None of the proposed roads were built because the projected traffic flows were not Authority. The Authority's organiza­ sufficient to make them economically feasible. tional chart is shown on page five. State funding or bond guarantees would have been necessary to build the roads.

3. KANSAS TURNPIKE TO OMAHA LOCATION MAP

o f-

MILEAGE CHART

NO. INTERCHANGE

SOUTH HAVEN 232.6 19 WELLINGTON 217.5 33 MULVANE 203.6 39 HAYSVILLE/DERBY 197.9 42 SOUTH WICHITA 194.7 LEGEND 45 WICHITA (K-15) 192.0 Interchanges 50 EAST WICHITA 187.1 (Exit and Entry) 57 ANDOVER 179.6 Service Areas 71 EL DORADO 188.1 (Food and Car Sarvices) 76 EL. DORADO NORTH 160.6 == Turnpike 92 CASSODAY 144.1 ...!!... Mileage Between Interchanges 127 EMPORIA 109.7 ..(§- U.S. Highways 147 ADMIRE 89.9 177 SOUTH TOPEKA 59.6 -

4. Organization of the Kansas Turnpike Authority

Division I Division II Auditing and Highway Patrol Engineering Engineering Infmmation Systems TroopG and anQ Maintenance Maintenance

Communications Toll Collection

Employees Number Percent Managers 10 2A% Oerical 11 2.7% Administtalive 32 7.8% Maintenance 117 285% Engineering 4 1.0% Toll Collection 236 57.6%

Total 410 100.0%

The majority of the Authority's employees (236, or 58 percent) are toll collec­ tors stationed at the 19 toll interchanges along the Turnpike. The next largest cat­ egory of employees is maintenance staff, who perform routine maintenance in such areas as sealing cracks, mowing grass, and removing snow and ice. The Authority contracts out more substantial maintenance projects, such as overlaying roadways.

From Its Inception, the Turnpike Was Intended To Be Self·Supporting

The Turnpike's maintenance, capital improvement, and operations costs are paid for with bond proceeds, toll revenues, interest earnings, and the like. Although the entire Turnpike is designated as interstate highway, the Authority receives no funding from the federal government Instead, the Department of Transportation in­ cludes Turnpike miles in the number of Kansas interstate miles reported to the federal government This allows the State to receive additional federal funding. From fiscal year 1988 through 1992, the Department received about $232 million in federal funds for interstate construction and maintenance. The inclusion of the Turnpike as part of Kansas' interstate highway system accounted for about $42 million, or 18 percent of the total dollars received during that period. The Department uses these moneys to fund improvements to other Kansas interstate highways. (Before 1991, federal law did not allow the State to use federal dollars on the Turnpike. However, the

5. Intermodal Surface Transportation Efficiency Act of 1991, which revised the federal government's approach to funding transportation, allows the State to use federal funds to fmance construction, reconstruction, and other improvements on toll roads.)

Since its inception, the Turnpike has experienced a continual rise in the amount of vehicle traffic and toll revenues. In 1957, the Turnpike's first full year of operation, about 3.6 million vehicles used the Turnpike, driving about 215 million miles and generating toll revenues of nearly $4 million. By 1992, a total of 21.9 mil- . lion vehicles traveled nearly 950 million miles on the Turnpike, generating some $42 million in toll revenues for the Authority. The chart below shows how the number of miles traveled and toll revenues have increased over the years.

Kansas Turnpike Authority Toll Revenue and Vehicle Miles Traveled Fiscal Years 1957-1992 Millions of Miles Toll Revenue Collected Travelled (in millions) 1,000 - $50 mmm Miles Traveled

-- Toll Revenue 900 -

800 -

700 -

600 -

500 _

400 _

300 - $15

$10

$5

o $0

6. The most recent increase in toll rates took effect on January 1, 1986. Since 1986, the amount of traffic, miles traveled, and toll revenues received by the Author­ ity have each increased by more than 40 percent.

Over the past four fiscal years, the Authority has spent about $13 million more than it has collected. From fiscal year 1989 through 1992, the Authority col­ lected about $204 million, mainly from tolls, bond proceeds, and investment income. The table below shows the individual amounts collected during each year. During the same four-year period, the Authority spent about $217 million, $174 million for oper­ ating and construction costs, and about $43 million for debt service. In 1992, the Au­ thority paid about $16 million to complete the installation of the median barriers on the Turnpike. The Authority was able to spend about $13 million more than it col- , lected during the period because offunds carried forward from previous years.

Kansas Turnpike Authority Sources and Uses of cash and Investments Fiscal Years 1989 through 1992 (in thousands)

Category 1989 1990 Jm ~ Beginning Balance $ 49,526 $ 50,210 $72,056 $ 52,337

Sources of Cash and Investments: Toll Collections 36,920 37,275 40,673 42,257 Investment Income 4,085 4,827 4,127 1,923 ( Advances for Construction 0 107 0 0 Bond Proceeds 0 28,425 0 0 Other Revenues 910 868 --BZ§. ...1.2QZ Total Cash Available llJll.§. 71.502 §.§Za ~

Uses of Cash and Investments: Operating Costs 17,770 19,049 22,115 22,779 Capital Improvements 9,810 9,510 15,730 26,612 Debt Service 10,372 9,570 11,317 11,640 Payments for Construction (a) 3,279 11.527 16.233 0 Total Cash Used ~ ~ 65.395 61.031 Ending Balance S 50 2:10 S Z2056 Si 52 33Z $ 36 693

. (a). .. Includes only payments for construction made from the Construction Fund.

The 1953 Legislation Stated That the Turnpike Was to Become Part of the State Highway System Once the Bond Debt Was Paid Off

The original legislation authorizing the construction of the Turnpike stated that once the bond debt was paid off, the Turnpike was to be become part of the State highway system and be maintained by the Department of Transportation. The law also limited the maturity date of any Authority bond to 40 years. However, the law did not set a date for the Authority to become debt free, or for the Turnpike to be

7. transferred to the State. Even if that happened; the .law. authorized the Department to continue charging tolls to help finance other toll roads in the State.

The law also allowed the Authority to issue additional bonds for improve­ ments to the Turnpike (such as bridge replacements), to refund earlier bonds, or to fi­ nance additional projects. The Turnpike has had 11 bond issuances since 1954. Those bond issuances are listed in the following table.

Kansas Turnpike AuthorHy listing of Bond Issuances Since 1954 Amount Year (in Millions) Purpose

1954 $160.0 To fund construction of the Turnpike.

1957 $19.5 To fund construction of the Kansas City 18th Street Expressway.

1964 $18.7 To refund the 1957 bonds which mature after May 1,1967.

1978 $27.8 Because the 18th Street Expressway was not generating sufficient cash flow, these bonds were issued to provide moneys needed to refund the principal and interest of the 1964 bonds as they became due.

1984 $26.7 To finance a part of the cost of refunding the 1954 bonds. (Three concurrent issues.)

1984 $7.4 To finance a part of the cost •.of refunding the 1964 bonds. (Three concurrent issues.)

1984 $100.6 To refund and defease the 1954, 1964, and 1978 bonds. Financed the cost of various improvements to the Turnpike ($72 million identified in HNTB study). Funded a debt services reserve fund. Paid certain costs in connection with the issuance of the 1984 bonds. (Three concurrent issues.)

1985 $104.8 To refund and defease the Series 1984 bonds. (Authority also contributed about $15.4 million.)

·1986 $97.9 To refund all of the 1985 series bonds which were subject to redemption prior to maturity.

1990 $28.4 To pay for capital improvement projects. A portion of the proceeds was used to pay for a portion of the cost of constructing a median barrier.

1993 $105.9 To refund a portion of the Authority's outstanding indebtedness, and finance the costs of various improvements to the Turnpike.

As the table shows, after the initial bonds for the Turnpike and the 18th Street Expressway were issued, most of the Authority's bond issuances were for the purpose of refunding other bonds. Along with these refundings, major new money was raised in 1984 to fmance the costs of various improvements to the Turnpike, in 1990 to com-

8. plete the median barrier project, and in 1993 to pay for a part of the reconstruction of the Turnpike between Kansas City and Topeka.

The Turnpike Authority has not paid off its bonds, although it had paid down its debt considerably by 1983. The accompanying chart shows the Authority's outstanding bonded indebtedness at year end for fiscal years 1954 through 1992.

Kansas Turnpike Authority Outstanding Bonded Indebtedness 1954-1993 The 1957 issue provided funds to The 1993 issue The issue refunded part of construct the 18th ~990 $Million . proVlded funds the outstanding Street Expressway The 19841SSue to complete the debt and ovided refunded. all , the median barrier I money forpr Au~onty s debt and project reconstructing the ExDresswav Debt proVlded moru:y to Turnpike between upgrade the bridges. Kansas City and Topeka.

;~. '" .,' "" ~<: i V CD CO 0 N V CD CO 0 N V CD CO 0 N V CD CO 0 N LIl LIl LIl CD CD CD, CD CD ,,"" co' CO "CO CO ·"·co en en en en en en en en en en en en"" en"" en"" en"" en en en en en en en

As the chart shows, until 1967 the Authority made only small payments to re­ tire outstanding bonds, retiring about $200,000 a year. From 1968 through 1983, the Authority began retiring $6 million to $10 million in bonds a year. Its debt reached a low of $65 million in 1983. This amount consisted of $37 million for the Turnpike, and $28 million for the 18th Street Expressway. The Authority's long-term debt be­ "gaRto",increase in 1984 when it issued about $72 million in new bonds. By August 31, 1993, the Authority's outstanding bonded indebtedness was about $165 million. It is obligated to make annual debt service payments of about $12.6 million through the year 2017.

Over the Years, the Authority and the Department Have Followed Widely Different Policies

The Authority and the Department share a similar goal of providing a smooth, safe, and comfortable ride for people who use the roads they maintain. But there are three major differences between the agencies which cause them to go about their du­ ties in different ways.

9. The first difference primarily concerns sources of revenues, which im­ pacts each agency's maintenance policies. The Authority is entirely self-support­ ing. Any major expenses it incurs have to be funded either through the use of cash re­ serves or by issuing bonds and making the required debt service payments over time. As' a result; the Authority places a great deal of emphasis on maintenance to keep the Turnpike from deteriorating. In addition, because patrons must pay a toll to use the Turnpike, Authority officials say it is essential for the Turnpike to be maintained bet­ ter than State highways; otherwise customers would not pay to use the Turnpike. De­ partment of Transportation officials agree that the Authority provides the Turnpike with a higher level of service than the Department provides to State highways.

The Department is a State agency and maintains nearly 22,500 lane miles of roadway of all,diff~rent types, and with many competing needs. Its organizational chart is shown on page 11. The Department is supported through State tax revenues, and it also receives federal funding. Federal policies allow the Department to use federal funds to pay up to 90 percent of the cost of reconstructing interstate highways. This allows the Department to adopt a somewhat different outlook on maintenance than the Authority. In some cases, the Department will defer maintenance on a sec­ tion of interstate highway, because the federal funds can be used to pay for 90 percent of the reconstruction costs. Routine maintenance costs, which are funded by State revenues, generally are much lower for a newly reconstructed segment of an interstate highway.

'.,:' "; The secon4 difference"primarily concerns differences in the ways the Turnpike was constructed, when compared to Department interstate highways. With the exception of the section 'of the Turnpike extending from Kansas City to south Topeka, the Turnpike was con­ The Kansas Turnpike Authority's structed using a flexible asphaltic con­ Insurance Covers hs Lawsuits crete mixture. Authority officials con- tend that with this type of road base, the The Turnpike Authority carries general liability insurance to cover its liability up to majority of the Turnpike may never $500,000. The Kansas Supreme Court has held have to be reconstructed, if it is properly that the Turnpike is an agency of the State and is maintained. Accordingly, the Authority therefore covered under the Kansas Tort Claims Act. That means .the Authority's liability for has adopted a policy of overlaying the ':accidenLand ~personaJinjury" casesdslimitedto '''Turnpike' about every seven years. $500,000.per incident. In 1990 through 1992, 11 F 1988 thro h 1992 th A th 't lawsuits were filed against the Kansas Turnpike rom ug , e u on y Authority. As of September 1993, five of those overlayed about 85 percent of its lane suits have been resolved without liability, three miles. are still pending, and three have been settled at a total cost of $342,000 to the Authority's insurance carrier. In contrast, most Department in­ The Turnpike carries a general liability terstate highways have a concrete road insurance policy which, in the opinion of its legal base. Their base and surface are gener­ counsel, will cover any liability that might arise. The cost of the policy in 1992 was $192,053. ally thicker than the Turnpike, which When a liability suit is filed against the Turnpike, provides better load-carrying capability. it is turned over to the Authority's insurance This allows the highways to remain in company to defend because it will be responsible for paying any settlement or judgment. more stable condition during their early years, and thus require less mainte-

10. nance. While the Department may apply an asphaltic overlay to the interstate, it may also choose to provide less maintenance and later reconstruct the interstate highway, because of the availability of federal funding. Reconstruction of an interstate high­ way is more expensive than applying several asphaltic overlays, but allows the De­ partment to reduce maintenance costs. The Department has overlayed about 53 per­ cent of its interstate miles during the last five years.

A third major difference is that, although the Authority was created by statute, it has been considered a private enterprise for as long as anyone could remember. As such, the Authority has carried out its operations over the years as a private enterprise, rather than following the policies, procedures, and restrictions that would apply to a State agency.

However, some state laws treat the Authority like a State agency. First, the Authority has been ruled to be covered by the Kansas Tort Claims Act. Second, an Attorney General opinion issued in October 1993 concluded that the Authority was an agency of the State, within the context of the Kansas Open Meetings and Open Records Acts. Third, the Authority's employees participate in the Kansas Public Em­ ployees Retirement System.

Organization of the Kansas Depanment of Transponation

Govemor

Secretary of Transportation

Management Highway Advisory and Budget Commission

I I Public I Chief Ins~r Administration Aviation Counsel I I General II Affairs I I ~::!n~ II II I

IAssistant Secretary of Transportation

I I

Engineering Operations and Design

Employees Number Percent Managers 31 0.9% Clerical 235 7.2% Administrative 233 7.1% Maintenance 1,548 47.3% Engineering 1,227 37.5% Toll Collection _0 .....Q.Q22.

Total 3,274 100.0%

11. On a Per-Mile Basis, How Do Staffing Levels and Operating Costs Compare for the Kansas Thropike Authority and The Kansas Department of Transportation?

The Authority has more staff per lane mile of roadway than the Department of Transportation. Part of the difference in staffmg levels may be due to the large dif­ ference in size between the two agencies and in the number of miles of roadway each is responsible for maintaining. The Authority had fewer staff than two of the three other state turnpike authorities we surveyed.

Cost comparisons between the two agencies are influenced by the type and ,,,. tiniingof the analysis. When: we looked'attotalcostsfor 1992; the Authority spent significantly more per lane mile than the Department. The Authority also spent more per lane mile on routine road maintenance over the past five years than the Depart­ ment. However, when the total costs of building, reconstructing, and maintaining similar sections of highway were compared over the lives of the highways-which at­ tempts to capture the cost differences in the way the two entities maintain or recon­ struct their roadways-we found the Authority generally spent less per lane mile than the Department. These and related fmdings are discussed in more detail in the sec­ tions that follow.

In Fiscal Year 1992, the Authority Had·More Positions t' " . ; Per:Lane Mile:Thart· the Department, but Fewer Positions ; Than Two of Three .other Turnpike Authorities We Surveyed '

The Authority had 410 authorized positions to operate and maintain approxi­ mately 964 lane miles of toll road in fiscal year 1992. The Department had 3,274 au­ thorized positions to operate and maintain the nearly 22,500 lane miles of roadway in the State's tax-supported highway system. For comparative purposes, the following table shows the number of positions per 100 lane miles, by major categories of em­ ployees.

Comparison of Turnpike Authorhy and " ,~. .. , Department'of Transportation Staffing Levels (Number of Staff Per 100 Lane Miles)

Staff bpe Authority Pe.partment pifference

Managers 1.0 .1 .9 Clerical 1.2 1.1 .1 Administrative 3.3 1.0 2.3 Engineering .4 5.5 -5.1 Road Maintenance 12.1 6.9 5.2 Toll Collection ~ .0...0. 24.5 Total 42.5 14.6 27.9 Total without toll collection staff 18.0 14.6 3.4

12. As the table shows, the Authority had a total of 42.5 positions per 100 lane miles compared with the Department's 14.6. Most of this difference is attributable to the Authority's toll collection. staff, which the ,Department does not have or need. When toll collection staff are excluded to make the comparisons more meaningful, the Authority has 18 positions per 100 lane miles, or 3-4 more employees per 100 lane miles than the Department.

Given this audit's scope and timeframe, we could not identify all the reasons why staffing levels were different. At least part of the difference in the number of en­ gineering staff per 100 lane miles can be explained by differences in the way the two agencies operate. The Authority has chosen to employ minimal staff, and contract out a large portion of its engineering work in this .area., ,Conversely, the Department uses in"7house staff for much of its engineering work.

The difference in the number of road maintenance employees per 100 lane miles can be explained, at least partly, by the two agencies' different philosophies. It is generally agreed that the Authority provides more frequent maintenance than most State highways receive, and a higher level of service in such areas as mowing and snow removal.

Differences in the number of administrative, clerical, and managerial staff per 100 lane miles may be explained in part by the fact that the Department has so many more miles of roadway over which to spread the number of staff.

The Kansas Turnpike Authority had fewer staff per 100 lane miles of , roadway than two of the three other turnpike authorities we surveyed. We com­ pared staffmg levels for the Kansas Turnpike Authority with turnpike authorities in Ohio, Oklahoma, and Pennsylvania. The results are presented in the following table.

Comparison of Kansas Turnpike Authority and Other States' Turnpike Authorities Number of Staff Per 100 Lane Miles

Staff Turngike Authorit~ Toll Collection MaintenaOIdl All Wiler (a) Total

Oklahoma 6.2 6.2 1.2 13.6 Kansas 24.5 12.1 5.9 42.5 Ohio 30.6 29.0 25.3 84.9 Pennsylvania 44.4 31.6 20.2 96.2

(a) Includes administrative, public relations, and similar positions.

As the table shows, the Kansas Turnpike Authority had significantly fewer staff in all categories than the Ohio and Pennsylvania Turnpike Authorities, but sig­ nificantly more than the Oklahoma Turnpike Authority. The number of toll collec­ tion staff generally is influenced by the number of interchanges and traffic volume. All four turnpike authorities have about two interchanges for each 100 lane miles of roadway. However, the traffic volumes for the Ohio and Pennsylvania Turnpikes are

13. about double that of the Kansas Turnpike. Therefore, they probably need more toll collection staff at each interchange. Oklahoma has fewer toll collection staff because about 40 percent of its interchanges are partially or totally automated.

We also noted that the Ohio and Pennsylvania Turnpike Authorities have more maintenance staff than the Kansas Turnpike Authority. Possible reasons for this difference include the more severe winters and heavier traffic volumes in Ohio and Pennsylvania. Additional comparative information about the other state turnpike au­ thorities is presented in Appendix A.

The ,Difference in Operating Expenses for the Two Agencies "Depends on the Basis Used for the Comparison

As noted earlier, the Authority has emphasized continual maintenance of the Turnpike, while the Department has placed somewhat less emphasis on maintenance because of the availability of federal funding for reconstruction of highways. Also, differences in the age, size, type of roadbed, and the like for various roads make some sections. of highway incomparable with others.

We worked closely with officials from the Authority and the Department to try to make the most meaningful comparisons possible, given the differences in the two entities' maintenance'philosophies and roadways. Although everyone agreed that " ""':1' .. ,.the.. mostaccurate, comparisons, weuld take.. into. account th~Jife.,cyc1e costs (construc- , , tion, maintenance, and reconstruction)·' for all·roads, Department officials told us they could not provide that information for all Kansas highways. However, the Depart­ ment could provide that information for selected highways.

Because of this limitation, we worked with agency officials to identify the fol­ lowing ways to compare the two agencies' costs:

-Total agency expenses jor one year. This is a very broad look at agency cost differences at a single point in time .

.-Total road maintenance costs over five years. This comparison should provide some insight .' "into differences resulting from the maintenance philosophies'used by each agency.

-Costs jor building, maintaining, and reconstructing similar roadways. This comparison shows the long-term costs incurred by the two agencies over the life-cycle of these roads, and should provide the most accurate comparison of costs.

Total agency expenditures per lane mile for the Authority were about two and one· half times what the Department spent in fiscal year 1992. We compared fiscal year 1992 costs because it was the most recently completed fiscal year for both agencies. As the top section of the table on the facing page shows, the Authority spent nearly $63,000 per lane mile during fiscal year 1992, compared with slightly more than $25,000 for the Department. Several basic differences between the two agencies appear to account for this spread:

14. Comparison of Kansas Turnpike Authority and Kansas Department of Transportation Road Maintenance Costs KD.QI Difference 1992 Agency Expenditures per Lane Mile

Operations $ 23,128 $ 6,798 $16,330 Capital Improvements 27,776 13,227 14,549 Debt Service 12,024 5,170 6854 Total $ 62,928 $ 25,195 $37,733

Total Routine Maintenance Costs 1988-1992

Turnpike compared to all KDOT roads

Staff $ 2,941 $ 2,441 $ 500 Contracted ~ --2..ill 1,491 Total $ 6,843 $4,852 $ 1,991

Turnpike compared to KDOT Interstate system

Staff $ 2,941 $2,362 $ 579 Contracted ~ ~ 1,959 Total $ 6,843 $4,305 $ 2,538

Construction and Maintenance On Similar Stretches of Road ,,'Since the Date ..Originally Constructed

Date Constructed

1956 59 miles of Turnpike (Topeka to Kansas City) Turnpike Authority

Original Construction $ 9,307 Staff Maintenance 2,807 Contracted Maintenance 2,793 Total $14,907

1959 7 miles of Interstate 70 Auburn Road to Western Edge of Shawnee County Department Highway

Original Construction $ 9,587 Staff Maintenance 1,848 Contracted Maintenance 3,630 Total $15,065

1959 50 miles of Interstate 35 from Franklin County to Johnson County and Department Highway 1973

Original Construction $12,552 Staff Maintenance 1,693 Contracted Maintenance 7,424 Total $ 21,669

15. • The Authority incurs some operating costs the Department does not have. For example, the Authority has toll collection employees and costs, and it pays the Highway Patrol to police the Turnpike. The Department incurs no similar costs. If these costs (about $10,250 per lane mile) are excluded, the Authority's operations cost figure drops by nearly 45 percent, to about $12,900.

• The timing of the comparison can significantly affect capital improvement cost figures. Agencies periodically incur major capital improvement costs, and including these costs may make one agency appear disproportionate to the other. For example, the Authority spent about $16 million to fmish the instal­ lation of its median barrier project in 1992. These costs would disappear in fiscal year 1993. If this expense is removed (about $16,417 per lane mile), the Authority's capital improvement cost figure would drop to $11,359, or lower than the Department. Likewise in 1992, the Department paid about $93 mil­ lion to retire outstanding bonds. In previous years, the Department's debt ser­ vice was about $1,000 per lane mile.

• The Department is responsible for maintaining significantly more lane miles of roadway than the Authority. As such, the Department can spread its basic costs over a larger number of lane miles and achieve some economies of scale not available to the Authority.

In general, the Authority spends more on road maintenance than the De­ partment. For fiscal years 1988 through 1992, we'compared the Authority's road maintenance costs with the Department's road maintenance costs for all Kansas roads and the interstate highway system. Examples of the types of costs included are pave­ ment patching, crack sealing, mowing, snow and ice removal, and asphalt overlays of road surfaces •.,Overlay'work is performed by contractors, but the rest of the mainte­ nance work is performed by agency staff.

These cost comparisons are shown in the middle section of the table on page 15. It is important to note that, because of differences in the way each agency ac- ",',c .' counts for..its:costs,

As the middle part of the table shows, over the past five years the Authority spent an average of $6,844 per lane mile. This figure was about 41 percent higher than the Department's average cost of $4,853 per lane mile for all Kansas roads, and about 59 percent higher than the Department's $4,304 per lane mile cost for the Kan­ sas interstate highway system.

Most of these cost differences are attributable to the amounts spent per lane mile on contracted maintenance. The Authority generally overlays its road surface

16. aboutevery seven-:-years; the Department does not have such a practice. During these five years, the Authority overlayed 85 percent of its road surface, while the Depart­ ment overlayed only 62 percent of the lane miles included in all Kansas roads, and 53 percent of the lane miles included in the interstate highway system. Department offi­ cials said a lack of funding precluded them from overlaying more lane miles.

Officials from both agencies said they expected to see such differences in this comparison. Authority officials assert that the Turnpike must be in better shape than tax-supported roads, otherwise customers will not be willing to pay to use it. In addi­ tion, because the State is able to receive federal funding for the reconstruction of por­ tions of the interstate highway system, Department officials said they will occasion­ ally defer maintenance on a stretch of interstate highway that has been designated for major reconstruction. Department officials said it would be wasteful to spend mainte­ nance money on a particular stretch of highway that will be tom up and reconstructed within a few years.

When the total cost of constructing, maintaining, and reconstructing similar road sections are compared, the Department spends more per lane mile than the Authority. We compared lifetime costs for a 59-mile stretch of the Turn­ pike between Topeka and Kansas City, with two stretches of Department-maintained interstate highway totaling 57 miles. These comparisons included all costs from the time the roads were constructed. To make these comparisons, we had to convert all prior-year expenses to 1992 dollars. We also had to estimate staff maintenance ex- . penses. for the ,Department, because it could provide actual costs only back to fiscal year 1988. These comparisons are shown in the third section of the table on page 15.

The table shows that the Authority has spent almost $15,000 per lane mile for its stretch of interstate highway, while the"Department has spent slightly more than $15,000 for one stretch, and about $21,700 per lane mile for the other.

The Department's costs for this last comparison are particularly high in two areas: original construction and contracted maintenance. Regarding original con­ struction costs, Department officials told us that this 50-mile stretch of highway has more than twice as many interchanges as the Turnpike's comparable stretch. Infor­ mation, we ,gathered during this.caudit shows it would be reasonable to estimate the construction costs for each interchange at $2 million in 1992 dollars. If the costs for the eight "extra" interchanges are subtracted from the total, the original construction cost would drop to $9,837 per lane-mile, which would be in-line with the original construction costs for the other sections of highway for both the Authority and the Department.

The Department's contracted maintenance costs may be higher for at least three reasons. First, they include about $2,000 per lane mile for reconstructing a por­ tion of the roadway in Johnson County. Second, the Department's 50-mile stretch of "road has more traffic than the comparable portion of the Turnpike. Third, Depart­ ment officials told us the road had deteriorated rapidly, some preventive maintenance was deferred, and this later caused the Department to contract for much overlay and repair work.

17. The Turnpike Requires As noted at the start of this ques­ Simpler and Less Expensive tioli,' all these cost comparisons should Interchanges be viewed with great caution because of In general, because of their larger size .the differences in the ways the two agen­ and complexity, the Department's construction cies build, maintain, operate, and fund costs for interchanges tended to be higher than their roads. However, the comparisons the Authority's. Both agencies build interchanges to allow vehicles to enter and exit a did produce results that are consistent particular stretch of highway. Beyond that, with what the agency managers said they many factors influence the type and cost of a would have expected. The Authority has proposed interchanges. Some examples include traffic volume, intended traffic flow, and terrain. not reconstructed the Turnpike to date, Through our review we determined that the in large part, officials say, because of the ,Authority's interchanges generally were smaller 'extra maintenance the Authority pro­ and simpler indesign.,Frequently the on-and - r· off-ramps for the Turnpike contained single-lane vides to keep its road in good shape. ramps, while the Department's had multiple Thus, when maintenance costs only are lanes. considered, the Authority's costs are We compared the construction costs for the four most recently built turnpike interchanges higher. But when reconstruction costs with construction costs for six interchanges built are considered as well, the Department's by the Department since 1986. The costs are higher because of its policy to Department's costs ranged from slightly more than $1 million to about $10 million. The maintain interstate highways less and re­ Authority'S costs' ranged from about $1.2 million construct them more often. to about $1.5 million.

18. How Do Salary Levels and Fringe Benefits Compare For the Kansas Turnpike Authority and The Kansas Department of Transportation?

During fiscal year 1993, the Authority generally paid higher salaries than the Department of Transportation paid for employees in similar positions. The Authority has upgraded its salary structure since 1988, when its salaries generally were lower than the Department's. In addition, in fiscal year 1993 the Authority provided its em­ ployees with a more generous fringe .benefits.package. than the, Department. The I", .... ,Authority,'s .. health insurance, life insurance, .. and,annual bonuses .were clearly better than the Department's. We estimated it cost the Authority about $1.2 million in fiscal year 1993 to provide a higher level of benefits than the Department. In addition, the Authority provided its employees with other benefits that are not common among public agencies, including paying for spouse trips and providing a country club mem­ bership. These and related findings are discussed in more detail below.

In Fiscal Year 1993, the Authority's Salaries Generally Were Higher Than the Department's

. " " . ·To compare,;salaryJevels at the·two,agencies,we selected a sample of 12 posi- tion classifications from the Authority 'and the Department. We worked with officials from both agencies to select positions that corresponded as nearly as possible in terms of duties performed and levels of responsibility. Employees in the selected categories account for about 20 percent of the Authority's total employees (excluding toll collec­ tion staff), and about 38 percent of the Department's total employees in fiscal year 1993. The percentages are not closer because of the difference in the number of em­ ployees in those positions at the two agencies. The table on the following page shows the positions we compared, along with the salary ranges for fiscal years 1993 and 1988 for both agencies .

.,: . . . .', .,'"', (. " ,i "As'the '.table:, shows;, for ,.fiscalyear,1993 :the •Authority's salary ranges were higher than the Department's for nine of 12 classifications, and lower for two. For fiscal year 1988, the Authority's salary ranges were higher for only two classifica­ tions, and lower for five. (Not all classifications we selected existed in 1988.)

In 1989, Authority officials conducted a salary study comparing Authority employees' salaries with the Department's. Officials found that the Authority's sala­ ries for "work force" employees were from 12 to 15 percent lower than the Department's at that time. The study made recommendations to enhance Authority salaries for employees below management level. As a result, during the last few years the Authority increased its salary ranges more than the State. Between 1988 and 1993, the Authority's salary ranges increased between 21 and 37 percent, while

19. 1993 Salary Ranges for the Kansas Turnpike Authority and The Kansas Department of Transportation

Annual Annual Authority Salary Department Salary Position Range Posit jon Range

The Turnpike AuthoritY had higher ranges for 9 of the 12oositions. Accountant I $23,028-33,924 Accountant I $21,168-29,760 Programmer Analyst $37,164-55,584 Computer Sys. Analyst III $31,260-43,992 Engineering Technician $28,404-42,660 Engineering Technician $21,168-29,760 Equipment Operator II $18,840-27,216 Equipment Operator II $18,288-25,728 Hwy Shop Superintendent $28,404-42,660 Hwy Shop Superintendent $28,356-39,912 Hwy Maint. Foreman $25,068-37,164. Hwy Maint.. Supervisor $24,504-34,452 . Sign Shop Worker III .$20;400-29;628 Sign Shop'Supervisor $18,288-25,728 Secretary II $21,192-30,972 Executive Secretary $21,168-29,760 Director of Purchasing $37,164-55,584 Director of Purchasing $31,260-43,992

The Department had higher ranges for 2 of the 12 positions. Construction Engineer $37,164-55,584 Professional Civil Engineer I $41,892-58,944 Auto Mechanic I $20,400-29,628 Equipment Mechanic I $21,168-29,760

The Department's entrv-Ievel salaty was higher while Authoritv's maximum salaty was higher. Accounting Systems Mgr. $40,704-60,804 Chief of Fiscal Services $ 41,892-58,944

1988 Salary Ranges for the Kansas Turnpike AuthOrity and The .Kansas Department of Transportation

Annual Annual Authority Salary Department Salary Position Range Position Ranae

The Department had higher ranges for 5 of the 8oositions. Equipment Operator II $14,832-22,008 Equipment Operator II $17,232-23,088 Hwy Shop Superintendent $23,016-34,728 Hwy Shop Superintendent $26,724-35,808 Hwy Maint Foreman $20,160-30,264 Hwy Maint. Supervisor $23,088-30,936 Secretary II $16,860-25,212 Executive Secretary $19,944-26,724 Auto Mechanic I $14,832-22,008 Equipment Mechanic I $19,944-26,724

The Turnpike Authoritv had higher ranges for 2 of the 8 positions. Programmer Analyst $30,264-45,252 Computer Sys. Analyst III $29,448-39,480 Director of Purchasing . $30,264-45,252 Director of Purchasing $29,448-39,480

Department's entey-Ievel salarY Was higher while Authoritv's maximum salalY was higher. Sign Shop Worker III $16,164-24,072 Sign Shop Supervisor $17,232-23,088

the Department's salary ranges increased only by about 6 to 11 percent. From July 1988 to July 1993 the Consumer Price Index increased about 22 percent.

The following table shows both agencies' average actual salaries as of August 1993 for the 12 position classifications we reviewed.

20. Comparison of 1993 Average Actual. Annual Salaries for the Turnpike Authority and the Depanment 01 Transponation

Actual Actual Authority Annual Filled Department Annual Filled Position §!!m Positions Position Salary Positions

The Tumpike Authoritv had higher actual salaries for 8 of the 12 positions. Programmer Analyst $55,584 1 Comp Sys .. Analyst III $34,522 4 Engineering Tech $38,940 1 Engineering Tech $25,380 465 Equip Op II $23,676 13 Equip Operator II $21,480 469 Hwy Shop Supt $40,704 1 Hwy Shop Supt $33,142 5 Hwy Maint. Foreman $34,692 9 Hwy Maint.. Sup $29,253 153 Sign Shop Wkr III $26,064 2 Sign Shop Sup $21,696 1 Secretary II $28,464 3 Executive Secretary $26,189 8 Dir of Purchasing $55,584 1 Dir of Purchasing $35,328 1

",The Department had higher actual salaries for 4 of the· 12 oositjons. Accountant I $24,012 1 Accountant I $26,592 8 Const Engineer $44,640 1 Prof Civil Engineer I $45,636 76 Auto Mechanic I $24,012 1 Equip Mechanic I $24,134 66 Acctg Systems Mgr. $46,644 ....1 Chief of Fiscal Svs $56,479 __1 Total 35 1,257 As the table shows, the Authority's average actual salaries were higher than the Department's for eight of the position categories we compared. The accompany­ ing box also compares salaries for the highest-paid employees in both agencies, and for the chief operating officers for the Kansas, Ohio, Pennsylvania, and Oklahoma Turnpike Authorities.

Salaries for the Highest Paid Employees

The table below shows the annual salary and the number of years of service for the nine highest paid employees of each agency, as of August 1993.

Il.!mgike Aulbg[Hy DiRlrtmeDt of Tran§RgdmlgO Years of Years of !iloblille §l11[Y ServiG! JobIHle §l11[Y ~rvice

Chief Engineer/Mgr. $ 96,468 27 Assistant Secretary $ 80,568 30 Div. I Engineer 79,656 13 Secretary of Trans. 78,132 2 Div. II Engineer 79,656 14 Dir. Eng. & Design 70,260 34 Controller 76,116 16 Dir. of Operations 70,104 27 Dir. of Audit Info. 72,744 14 Chief of Design 66,624 26 Dir, of Public ReI. 69,504 16 Chief of Const. 66,624 28 Dir. of Toll Operations 69,504 13 Chief of Trans. Plan. 63,444 26 Dir. of Communications 60,804 35 Dir. of Admin. 63,096 13 Design Const. Eng. 60,804 10 Chief Counsel 61,764 9 Average $ 73,917 17.6 $ 68,957 21.7 Salaries of Turnpike Chief Operating Officers In Other States

State Salary

Ohio $ 106,584 Pennsylvania $ 101,294 Kansas* $ 96,468 Oklahoma* $ 87,000

* Chief Operating Officer also gets a car

21. In Fiscal Year 1993, the Authority Provided Its Employees With a More Generous Package Of Fringe Benefits Than the Department Provided

Both the Authority and the Department provide their employees with health insurance, life insurance, annual bonuses, and leave time. Some of the regular fringe benefits provided are shown in the table on the facing page.

The monetary effect of the differences in the agencies' benefit packages can be seen in the following table.

Estimated 1993 Fringe Benefit Costs For an Employee Making $30,000, With 13 Years of Service I' Authority Department Benefit Employee Employee Difference (a)

Health Insurance (b) $ 6,468 $ 4,161 $ 2,307 Life Insurance 328 180 148 Annual Bonus 1,154 520 634 Paid Holidays 1,154 1,269 (115) Vacation 1,875 2,077 (202) Sick Leave 1,500 1,385 115 Retirement (c) 390 930 (540) Totals $ 12,869 $ 10,522 $ 2,347

(a) If positive, Authority is higher; if (negative), Department is higher. ,«b) Family'coverage .. ;Fig u res shown are for non,tobaccousers. Department employees who use tobacco pay $10 more per month, with the State paying $10 less. (c) Both agencies are members of the Kansas Public Employees Retirement System, making retire­ ment benefits the same for retirees of both agencies. However employer contributions are different for each agency because of different actuarial ratings.

As the table shows, we estimated that it costs the Authority $2,347 more than it costs the Department to provide benefits to an employee making $30,000 with 13 years of service. Overall for 1993, we estimated it cost the Authority about $1.2 mil­ lion to provide benefits over and above what Department employees receive in three areas. Health insurance accounts for nearly $770,000 of that amount, annual bonuses account for about $320,000, and life insurance for about $67,000.

The Kansas Turnpike Authority's benefits generally·appear to be in-line with or somewhat better than benefits provided in other states. Officials in two of the other three states we contacted-Ohio and Pennsylvania-indicated that their authorities paid 100 percent of employee health insurance costs, including family coverage, as does the Kansas Turnpike Authority. Officials in Oklahoma said that their health plan pays for health insurance for the employee only and not for the employee's family. Additional premiums for family coverage must be paid by the employee.

Oklahoma and Ohio Turnpike Authorities pay annual bonuses to their em­ ployees, but Pennsylvania does not. Officials in Oklahoma and Ohio said their bonus payments are capped at $4,000 and 10 percent of annual salary, respectively. Under

22. the Kansas Turnpike Authority's bonus plan, each employee receives one twenty­ sixth of his or her annual salary, or about four percent. In addition, the Kansas Authority's plan does not have a cap. In 1992, the largest bonus paid was about $3,600.

Comparison of Fringe Benefits Provided by the Kansas Turnpike AuthorHy and the Depanment of Transponation

Benefit D:![Dgll!e Aut!]Q[iJ;3l Dem. of TransgQnmlQD Health Insurance Employee-Only Agency pays 100% Dept. pays a maximum Turnpike -Blue Select of employee premiums of just under two-thirds Authority -HMO-KS under all plans, of premiums for single r '. Full,Family for.both single and or family coverage. In -Blue Select family coverage.' no case does the Dept. -HMO-KS The average paid pay more than $361 per was $483 per employee per month. month per Employees pay $5-29 employee, for for single coverage, and 1992. $219-358 for family coverage, depending upon salary and whether they use tobacco.

Life Insurance 1.5x annual salary 1.5x annual salary Turnpike through KPERS through KPERS Authority membership, plus membership. 1x annual salary.

AoouaIBooyse§(~) About 4% of annual . Employees with at least Turnpike salary with one year 1 o years with the State Authority of service. No receive $40 for each maximum. In 1992, year, up to a maximum 173 employees, including of $1,000. members of Highway Patrol Troop G, received a bonus in excess of $1,000.

Paid Holidays 9 10 Dept. of Trans.

Vacation -less than 5 years 1 04 hours per year 96 hours per year Turnpike -more than 5, but 130 hours per year 120 hours per year Authority for less than 10 years less than 10 -more than 10, but 130 hours per year 144 hours per year years; Dept. less than 15 years for more than -more than 15 years 156 hours per year 168 hours per year 10 years

Sick Leave 104 hours per year 96 hours per year Turnpike Authority

Retirement Employees belong Employees belong Same to the Kansas Public to the Kansas Public Employees Employees Retirement System Retirement System

(a) Members of Highway Patrol Troop G participate in both bonus programs.

23. Life insurance benefits provided by the Kansas Turnpike Authority were bet­ ter than those provided by the other states ' turnpike authorities. The Kansas Author­ ity provides life insurance coverage equal to two-and-one-half times each employee's annual salary. Oldahoma and Pennsylvania provide life insurance coverage equal to an employee's annual salary, and Ohio provides life insurance coverage equal to double the employee's annual salary. But all three other states limit the amount of life insurance coverage provided to a maximum of $50,000.

The Authority Provides Additional Benefits to its Employees Which Are Not Available to Department of Transportation Employees

'. '0:Authority,officials. contend the Legislature:,intended to. create an agency that operated like a private business, and not a governmental agency. They also have said that because Authority revenues principally come from tolls collected from Turnpike users, the Authority was not subject to many of the constraints of a tax-supported government agency. As such, the Authority provides its employees with some addi­ tional benefits that a government agency normally would not provide.

The Authority issues passes to all current employees allowing them to drive the Turnpike toll-free. Employees who work for the Authority are issued a temporary pass throughout the duration of their employment Employees who resign from the Authority"after five or more years are allowed to keep their toll-free passes , . • ,::;. 'i.• ; forJife~ ... Authority.officials. said: that issuing 'lifetime,.turnpike .passes to employees is a reward for their years of service. The Authority also issues lifetime passes to all current and former Board members, their spouses, and all cutTent and former gover­ nors. Officials said that those passes were issued as a courtesy.

In addition, the Authority provides temporary passes to employees of service plazas, highway patrol officers, sheriff officers, contractors who work on the Turn­ pike, and others. The Authority does not have written procedures spelling out who will receive a free pass or for how long, but Authority officials indicated the current distribution has been the Authority's practice since the Turnpike opened. (A com­ plete list of the people and companies who currently have Turnpike passes is shown in Appendix E.)

All holders of toll-free permanent passes and current employees with tempo­ rary passes are allowed to use their passes for personal trips, but not for any private­ business-related purposes. Other holders of temporary passes are not allowed to use those passes for personal travel. Pass-holders caught violating Authority policies are subject to having their cards revoked.

As part of the toll auditing function, the number and length of toll-free trips is maintained in the Authority's computer system. However, officials said that the Au­ thority performs no analysis of this data. Authority officials stated that they were un­ able' to provide this data without time-consuming, special computer programming. We did not request such programming.

24. ,Through our survey of other state turnpike authorities, we learned that all three issue toll-free passes to their current employees. None of the states we con­ tacted allowed former employees or other individuals to have free passes for life. All three states allow members of their governing boards to have passes, but do not issue them to members' spouses. Like Kansas, the other turnpike authorities also provide free passes to employees of service plazas and highway patrol officers while actually on patrol in their official vehicles.

The Authority assigns some officials vehicles as part of their compensa­ tion package, and it allows some employees to drive their Turnpike vehicles to and from work when their job duties would not appear to require it. The Au­ thorityhas assigned vehicles permanently to ,77 employees, about 19 percent of its " .staff; ,.In ,contrast, lthe"Departmentof Transportation ,has; assigned vehicles perma­ nently to 185 employees, about six percent of its staff.

All 77 Authority employees who have a permanently assigned vehicle are al­ lowed to drive their assigned vehicles home. Some of these employees are depart­ ment heads and assistant department heads who are assigned a vehicle as part of their compensation package, while others drive an assigned vehicle because it carries spe­ cialized equipment which may be needed in an emergency situation.

While all 410 Authority employees are subject to,24 hour call-out, some are certainly more susceptible to call-out than others. For example, some Authority em- , ' •. 1,. ",,ployees,areresponsible forrmaintenance -of..the roadway,. while others are responsible for the maintenance of-toll collection' equipment~ Most of the 77 employees who drive a permanently assigned vehicle have specific responsibilities in one of these two areas. However, we identified 8 employees whose daily duties do not fall into one of these areas, and whose daily duties, in our opinion, do not seem to require the need for a permanently assigned vehicle. The estimated number of miles driven by those employees during 1992 are shown in the table below.

Miles Driven by Selected Authority Employees Whose Daily Duties Would Not Seem to Require the Need For a Permanently Assigned Vehicle

Estimated Estimated Commuting Miles , . Commuting Total As a Percentage Position Miles Miles of Total Miles

Director of Audit & Info. Systems 4,950 20,381 24% Controller 4,500 13,950 32% Assistant Director of Audits 2,025 5,393 38% Accounting Credit Manager 3,600 8,789 41% Purchasing Director 10,350 29,148 36% Administrative Services Director 7,425 12,272 60% Director of Communications 5,400 13,492 40% Computer Systems Analyst 5.400 1~,2ao 38% Total 43,650 117,705 37%

25. Using the distances between the employees' homes and the Authority's head­ quarters in Wichita-,as reported by Authority officials---we estimated that during fiscal year 1992, approximately 37 percent of the total miles traveled by these 8 ve­ hicles were spent commuting to and from work. At the rate of 26 cents per mile, the cost of these commuting miles was about $11,300.

Department employees in the equivalent positions are not allowed to use agency vehicles for commuting to and from work. Commuting is allowed for those subject to 24-hour call-out.

The Authority has provided country club memberships in the names of its Chief Engineer/Manager and Public Relations Director. In 1988, the Author-

.f. ity paid.$.12,OOO Jor,-a. Crestview"CoimtryCluh:.membership;in the ,name of the Chief Engineer/Manager. Membership has monthly dues of $185. Before that time, the Authority had a membership at a different country club. In 1991, the Authority added a second Crestview Country Club membership. This associate membership was in the name of the Public Relations Director. It initially cost about $3,900 and had monthly dues of $210. This second membership was canceled in November 1993.

Authority officials said the Country Club facilities were used to host em­ ployee functions and entertain commercial clients of the TurIlpike. Th~y said the sec­ ond membership was added as a matter of convenience, because the member must be ~ .. ,·:present ,to ..sign. for, the ,use'· of club facilities •. , .The, Authority allowed both the Chief Engineer/Manager and the Public Relations Director .010 incur personal expenditures at . the Country Club, such as food, golf carts, and the like, but they were expected to make the proper reimbursements to the Authority. We noted several such reimburse­ ments during our voucher review.

The Authority has purchased four Royal's season tickets for employee use since 1992. According to Authority officials, the tickets are divided among de­ partment heads, who distribute the tickets to employees as they see fit. One depart­ ment head said he rotated the distribution of tickets so that each employee had the op- . portunity to receive tickets. Another department head said he used the tickets as a re­ ,.',-' ',., "';'. ,-.; ~'.f·,,_

The Authority has had a long-standing practice of allowing spouses to travel with Authority employees and Board members at the Authority's expense. Authority officials told us this practice was in effect for many years, but was never formalized in writing. The Authority paid transportation, lodging, and meal costs for spouses who accompanied Authority members or employees on out-of-state trips. In August 1993, the Authority's Board discontinued the practice of paying spouse travel costs, but continued to allow the payment of spouse lodging or meal costs.

26. As part of our review of Authority travel expenses for 1990 and 1992, we at­ tempted to determine the number of times a spouse accompanied an Authority Board member or employee. Because of the way the Authority keeps its records, we could not make this determination with any certainty. We estimate that spouses traveled on 50 of the 122 trips we could identify (41 percent) from 1990, and on 35 of the 117 trips we could identify (30 percent) from 1992.

Legislators also raised questions about the amount spent by the Authority on travel and entertainment expenses. Weaknesses in the Authority's accounting sys­ tem, as described on page 30, prevented us from determining the total amount spent by the Authority for out-of-State travel and entertainment.

., For .the. trips., we could identify, we noted.costs,of .approximately $126,000 in fiscal year 1990, and $121,000 in 1992. In 1990,21 percent of the trips were taken by Board members, while in 1992 fewer than 10 percent of the trips were taken by Board members. Trips were most frequently taken by department heads and other upper-level managers. Our review showed that these trips generally were for profes­ sional meetings and seminars, such as attending conferences sponsored by the Inter­ national Bridge, Tunnel, and Turnpike Association.

We did not attempt to summarize Authority entertainment expenditures be­ cause of the amount of time this task would require. Lis~ below, ho:wever, are four examples of the·,types of entertainment expenses the Authority incurred.

• The cost for the hospitality reception in 1993 at the Kansas Motor Carriers Association's Convention in Wichita was about $12,000.. Authority offi­ cials said that over 600 Association Members visited the reception.

• The Authority frequently incurs a large expenditure for meals and drink: after Authority Board meetings. Authority officials told us those expendi­ tures were for dinners hosted after Authority Board meetings for individu­ als attending those meetings. Authority officials estimated that those din­ ners cost about $16,000 per year (between $500-$800 per dinner for 24 meetings) for food and drink. For example, after the February 20, 1992, .,Board meeting. 'in Topeka,the Authority.incurredan.expense of $511 for food and a $439 bar tab at the Top of the Tower restaurant.

• The Authority spent more than $2,000 for a 1992 Christmas dinner party for Board members and department heads at the Crestview County Club. The food bill was $1,132 and the bar tab was $906.

• Luncheon expenditures for two to six clients usually ranged between $100 and $200.

27. Does the Authority Have Adequate Operational Plans, Procedures, and Controls?

The Kansas Turnpike Authority. generally has .. adequate practices to help ensure that the organization operates efficiently. Many of the Authority's practices are governed by restrictions imposed through its agreements with bond holders. However, we identified a few internal control weaknesses related to issues such as competitive bidding and documentation of credit card purchases. In addition, we found that the Authority recovered its costs related to service plaza vendors. These and other related finding are discussed below.

With Some Exceptions, the Authority Generally Has Adequate Plans, Procedures, and Controls In the Areas We Reviewed

For any agency to operate efficiently, it needs to develop plans and procedures for controlling costs and accomplishing certain objectives. It also needs to implement control mechanisms that allow its progress to be regularly monitored. In this regard, we would expect the Kansas Turnpike Authority to have budgets, expenditure controls, competitive bidding procedures, and the like. In general, we found the Authority had developed ~d esU;!,blished plans, procedures,' and controls to help it operate efficiently; However, we found a few internal control weaknesses the Authority may. wish to address.

The trust agreement with the Authority's bondholders mandates actions which help ensure the Turnpike is properly maintained and the Authority remains financially sound. The trust agreement that was in effect in December 1993 originally became effective on June 15, 1985, and has been amended three times since that date. Not only does the agreement dictate how Authority revenues will be distributed and used, it also requires the adoption of an annual operations budget, and an annual audit of the Authority's financial records to assure that revenues received have been applied in accordance with the terms of the agreement. We reviewed the audit reports for the last five years and spoke with the Authority's . . ., ,.. r-'-..-....;..--...... ;.....;..;.....;....;, ....; ....,;;...;...:.------.;;.--;'O ~ auditors~·. Through this work we learned Turnpike Accounting Practices the Authority's auditors have not identified any material weaknesses In the preparation of its financial statements, the Turnpike Authority does not which would impact the Authority's always follow generally accepted accounting fmancial statements. principles. For example, the Authority does not provide for depreciation on Turnpike assets and does not capitalize the costs of improvements, To help ensure the Turnpike is replacements, and betterments that are financed properly maintained, the trust agreement by other than bond proceeds. We discussed the requires consulting engineers to perform effect of these practices with the Authority's staff and its independent auditors, and determined the an annual inspection of the Turnpike to, Authority's practice had no significant effect on among other things, assess whether it net revenues because of the consistency of has been properly maintained, and to capital expenditures over time. identify any items needing repair or

28. .replacement. The engineering firm Howard Needles Tammen Bergendoff has performed all of these inspections. We reviewed those reports for the last five years and spoke with representatives of the frrm. In its most recent report, the engineering firm concluded "that the Turnpike and its facilities have been effectively administered by the Authority."

The Authority plans for long-term capital expenditures. In 1984, the Authority contracted for a comprehensive long-term needs study from its consulting engineers (Howard, Needles, Tammen, and Bergendoff) which investigated the existing and future requirements of the Turnpike with respect to operations, maintenance, safety upgrades, and capital improvements. This study assessed the Turnpike's needs through 1995, identified over $72 million of needed improvements, and made various recommendations.

Over the years, all of the identified road and bridge improvements have been made, and the Authority has internally updated this needs study. Authority management say they have contracted for a similar long-term study in the near future.

The Authority generally seeks competitive bids on contracts. The Authority has written procedures which clearly set forth the guidelines to be followed when goods or services are acquired from an outside vendor. For example, all contracts for amounts greater than $10,000 require written competitive bids and must be approved by the Board before they can be officially awarded. Contracts for , amounts between $2,000 and $10,000 require obtaining bids or quotes and must be approved' by the Chief Engineer/Manager. However, the procedures further state that there may bea few:·.occasions when good judgment and common ;.sense may dictate reasonable exceptions to the Authority's purchasing policies.

We selected a sample of purchases awarded to 15 vendors who received the highest dollar volumes of business from the Authority during fiscal year 1992. For each of the purchases in our sample, we determined whether the Authority consistently sought competitive bids when these firms were awarded contracts. We found the Authority used the competitive bid process, and awarded the contracts to the low bidder in all but one instance.

The exception we identified was when the Authority did not obtain written bids for a contract to purchase and deliver gasoline to nine Turnpike maintenance areas in May 1992. The Authority spent $210,000 under this contract in 1992. According to the Authority's Director of Purchasing, he contacted three oil refmeries (Phillips, Coastal, and Texaco) to determine whether any would be willing to sell directly to the Authority at wholesale or "rack" prices, thus allowing the Authority to get the lowest available prices. According to the Director, only Coastal refinery was willing to deliver to all nine road-maintenance areas.

Although the Authority's purchasing procedures allow exemptions from normal practices, there was no written documentation to support the Authority's explanation in this case. Such documentation would allow the Authority to demonstrate .that procedures were circumvented for legitimate reasons.

29. The Authority has not established specific procedures to ensure that it does not contract with its employees or Board members. State law prohibits the Authority from contracting with its employees or Board members. We found the Authority has no systematic way of ensuring that it complies with this requirement. As a result of an October 1993 Attorney General's opinion, the Authority recently began requiring Board members and key employees to report outside business interests to the Secretary of State's Office.

To determine whether the Authority was in compliance with the law, we reviewed a listing of all the Authority's payments to vendors in 1992 to identify whether any were made to employees, Board members, or their immediate families. The only exception we identified was a series of payments totalling about $9,000 to Badwey Oil Company. Badwey Oil is owned by Mr. Nick Badwey, who is a current Board member and has served several tenns on the Authority Board. In this case, the contract was competitively bid, and was not awarded while Mr. Badwey was serving on the Board.

Although the Authority complied with the law in this area, this practice can raise questions about the appearance of a possible conflict of interest: Such concerns could be minimized by restricting dealings with Board members or employees for a period of time after their employment or tenure on the Board has been terminated, and ensuring that all contracts involving former Board members are awarded through the competitive bid process.

Several internal control weaknesses exist in the Authority's procedures for accounting for employee expenses. The Authority has issued credit cards in its name to about 25 employees and Board members. These persons can use their credit cards to pay for various Turnpike-related expenses, including travel, meals, and miscellaneous supplies.

Through our review of Authority payment vouchers, we noted that the Authority does not require each person to provide receipts or other supporting documentation for expenses charged to these credit cards. In addition, we noted that one person may charge airline tickets, hotels, or meals for several employees or spouses on a single Turnpike credit card, making it very difficult to determine who incurred those charges. Without documentation, there was no way for us to determine whether all expenses were appropriately related to Turnpike business, or whether any personal charges that may have been made were properly reimbursed.

The Chief Engineer/Manager said that he reviews and approves all credit card statements before payment is made, and would ask for documentation of any expenses he had reason to question.

We also found that similar expenses are not consistently charged to the same activity codes in the Authority's accounting system. Thus, expenses for activities related to out-of-State conferences or entertaining clients might inadvertently be charged to any of three different accounting codes.

30. These weaknesses present at least two problems for the Authority. First, without supporting documentation, it is possible that the Authority might incur expenses which it did not intend to pay for. Second, without accurate and consistent coding of expenses, Authority management cannot truly know the amount of money spent on any specific activity.

The Authority Recoups the Vendor-Related Costs For Its Service Areas

The Turnpike has six service plazas along its length, which serve as a rest area for customers. Each service plaza has a gas station and restaurant, which Authority officials said provides an incentive for customers to remain on the Turnpike. The basic costs of providing a rest area includes items such as lighting, grounds maintenance, and maintenance of the acceleration/deceleration lanes.

Because these costs would be present regardless of the presence of restaurants or gas stations, the Authority has chosen not to try to recover these basic costs through service plaza vendor rents. Authority officials told us 'that they intended for the rents for these facilities to cover only the Authority's vendor-related costs. In fact, during fiscal year 1992 the Authority collected revenues from service area contracts that were about $400,000 greater than the costs associated with those contracts.

Revenues ,generated from the "Authority's contract with Hardee's have exceeded the Authority's, costs by about $144,000 per year. In 1982, Hardee's contracted for a five-year lease em five' restaurant facilitieS'~ with 'the right to renew for three additional five-year leases. Hardee's pays fixed rent for the five restaurants of $150,000 in total per year. (Hardee's did not bid on the Emporia plaza location because of past low patronage.) An official told us that the Authority incurs minimal expenses for these facilities. The Authority's maintenance staff estimated that over the last five years total maintenance costs have been less than $6,000 per year, which allows the Authority a profit of more than $144,000 each year. (The Authority is not trying to recover "replacement" costs for these facilities because they have been fully depreciated.)

In 1988, the Authority accepted the McDonald's Corporation's bid for the restaurant facility at the Emporia service plaza. McDonald's contracted for a lO-year lease with the right to renew for three additional five-year leases and agreed to construct a new building. Rent was deferred until annual revenues at the new facility reached $1.2 million. Once at that point, the rent is equal to five percent of all revenues exceeding $1.2 million. In 1992, the Emporia McDonald's had revenues of less than $1 million. McDonald's is responsible for the maintenance of its facility; thus, the Authority incurs no maintenance costs in this area.

Revenues generated from the Authority's contract with Coastal Mart have exceeded the Authority's costs by about $260,000 per year. In 1991, the Authority awarded a five-year contract for the operation of the Turnpike's gas

31. stations to Coastal Mart Corporation from a field of three bidders. The Authority receives an annual rent of $432,000 per year from the six. stations. The Authority's total annual vendor-related costs are about $172,000. This amount includes $164,000 a year for depreciation and about $8,000 a year for insurance

The Authority Hires Consultants to Study the Feasibility Of Proposed New Interchanges Before Constructing Them

When the Turnpike was constructed in 1956, it had 16 interchanges. With the addition of five and elimination of two over the years, it now has a total of 19 .

I" . ,,' , The "process of determining, whether to add"an interchange begins when a political body (such as the Legislature) or a county commission asks the Authority to consider building one. In response, the Authority contracts for two studies. It uses the firm of Howard Needles Tammen & Bergendoff to prepare a construction engineering study, which considers and makes recommendations about such things as locations, configurations, and estimated construction costs for the proposed new interchange. The Authority uses Vollmer Associates (fonnerly Vollmer-Wemple Consulting Engineers) to prepare a traffic engineering study, which looks at such .. things as probable traffic volumes for the proposed interchange, and revenue estimates for the anticipated traffic.

" ' The ,countj:.in .. which,the,:proposedjnterchange is, to be built reimburses the Authority for the coSts of these feasibility studies, or such costs are covered by a Legislative appropriation. If the proposed interchange'isbuilt, the county provides the up-front money for constructing the interchange, which the Authority later reimburses according to the tenns of a contract between the county and the Authority. The Authority pays the cost of operating the interchange. According to Authority staff, with the exception of the Perry-Lecompton interchange near Lawrence, all formally proposed interchanges for which feasibility studies have been conducted have been built

Authority staff do not perform two important analyses that would help ~',' y" : , .~.".;:",,:theBoard evaluate;.ani interchange's· feasibility. According-,to:Authority staff, the ,Board "s primary considerations in deciding the feasibility of an interchange is determining whether it will generate sufficient toll revenues to pay for its operation. However, Authority staff does not provide the Board with a break-even analysis showing the minimum traffic volume and toll revenue needed to cover expected operating costs for a proposed interchange.

Cost and revenue information are provided separately in the two reports the Authority commissions, but are not pulled together and analyzed in a single document , or report. 'By performing this analysis and providing it to Board members, Authority staff would ensure that the Board has the best and most complete information 'available in making its decisions. For example, Board members might view a

32. projection of 700,000 vehicles differently if they knew whether 200,000 or 650,000 vehicles were needed to cover operating costs.

In addition, Authority staff told us they do not perform. a formal analysis after an interchange has been constructed to determine whether projected costs, traffic volumes and revenues are actually being met. Rather, they said they study traffic volumes and toll revenues for the Turnpike as a whole to determine whether revenues are increasing overall.

Comparisons of projected versus actual costs, traffic volume, and revenues would provide Board members with information about how close the Authority's consultants were with their projections. Such information could be used to assess the reliability of.future projections made by the Arithority'.s consultants.

To determine how closely the consultant's projections came to actual traffic volumes and revenues, we reviewed traffic data for the Authority's two most recently constructed interchanges. The EI Dorado North and Haysville-Derby interchanges opened for traffic in July 1986 and September 1989, respectively. In the early 1980s, the Legislature had asked for feasibility studies of interchanges at EI Dorado North and three other locations, and appropriated $90,000 to pay for those studies. Sedgwick County requested and paid for the Haysville-Derby feasibility study.

Although the EI Dorado North interchange has fallen far short of ...... "., .:,'projected'4raftic.;,vulume.and:.revenues, .. botb:itand .. the Haysville-Derby inter­ changes' are generating sufficient toll revenues to cover, their direct operating costs. The El Dorado North interchange was projectoo to 'have a traffic volume (vehicles entering and exiting the Turnpike) of about 628,000 vehicles in 1986, growing to nearly 790,000 vehicles by 1992. We found that actual traffic volume consistently has fallen about 500,000 vehicles short of those projections. The Haysville-Derby Interchange generally has met or come close to its projected volume of about 850,000 vehicles per year.

We also compared the construction costs and direct operating costs for both interchanges in 1992 with their actual 1992 toll collections and found that, in both

<' .. ! . ·.··i··'· i>;.instances,net..revenues were,more.than.:enoughto,cover operating and construction costs. This information is shown in the table below.

Net Revenues Generated in 1992 by The EI Dorado North and Haysville-Derby Interchanges

Toll Depreciation Direct Costs Interchange Collections Allowance (a) To Operate (b) Net Revenues

EI Dorado North $ 302,945 $ 59,911 $ 113,758 $ 129,276 Haysville-Derby $ 240,622 $ 51,617 $ 115,783 $ 73,222

(a) Includes total construction and right-of-way costs, with an estimated useful life of 30 years. (b) Includes salaries, fringe benefits, and utilities.

33. As the table shows, 1992 net revenue from the El Dorado North interchange was almost $130,000 and from the Haysville-Derby interchange was just over $73,000. The contracts between Butler and Sedgwick Counties and the Authority provide for the counties to pay the construction costs for the interchange in their county, and for the Authority to repay such costs over time. According to Authority staff, both have been paid in full.

The EI Dorado North interchange has increased Turnpike traffic in the interchange's geographic area beyond what would have been expected without the new interchange. To determine whether the new interchanges brought new traffic to the Turnpike, or were merely siphoning traffic from existing interchanges, we analyzed the effect the El Dorado North and Haysville-Derby interchanges had on ,traffic volumes at the already-efdsting interchanges to their immediate north and south.

The interchanges to either side of El Dorado North are Cassoday and El Dorado. Traffic volumes for these interchanges, both before and after the opening of El Dorado North, are shown in the chart on page 35. As the chart shows, in the years following the opening of the El Dorado North interchange, traffic volumes at the two previously existing interchanges increased more than would have been expected if El Dorado North had not been built. Therefore, it appears that adding the El Dorado North interchange actually increased Turnpike traffic in this area.

" We ,were unable to construct ,a. similar, graph for Haysville-Derby and its " surrounding interchanges, because not enough historical information existed to project expected growth. However, in.looking at the traffic volumes"for the years available, it appeared to us that Haysville-Derby had siphoned off traffic from interchanges to its immediate north and south. Nonetheless, the combined traffic for these three interchanges .continued ·to grow at rates that generally were consistent with the Turnpike's overall growth. (See Appendix B.)

Conclusion

'" '" " ">" """,Both'public" and·'privateagendes-,\need.' plans' and, -operational con­ trols to ensure that they have clearly stated their goals, and to assess how they are doing at accomplishing those goals. Based on our review, we concluded that the Turnpike Authority has established adequate planning and operational controls in many areas of its operation, but that it needs to improve its procedures for accounting for employee expenses. Recent scrutiny of the Turnpike has raised questions about whether there was any favoritism or undue influence exerted with regard to the selection of ven­ dors who provided services to the Turnpike Authority. Nothing we saw during the audit indicated this was the case. However, the Turnpike Au­ thority could strengthen some of its policies and procedures to help ensure this does not occur and to protect itself from accusations of impropriety.

34. Traffic On the EI Dorado and Cassoday Interchanges Continued to Increase Even After the Opening of the EI Dorado North Interchange in 1986

2.1

2.0 .!: ~ 1.9 ~---+----+----+----~.----+---~----~--~~~--~--~ 8 CD C) c: (1$ I I I 1.8 ...... ···············15············· ...... I ... I I I I I ~ I .£:: ...as t:: Q) 1.7 ...>- ~--~----~----4-----~----+---~ Q) 0- j m Q) 8 1.6 !--~--+--4---iIi -...... J;..lI!IjYl!!4--4L....-i----I---+---! .S:2 J: Q) > --0 1.5 m s::: .Q ·e I I I 1.4 I I I I I I I 1.3

1.1

1.0 ~ __~ ____~ __-L __ ~~ __~ __~ ____~ __-J ____ ~ __~ 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

This graph shows that even after the EI Dorado North interchange was opened to traffic in 1986, the traffic on the interchanges on either side of the new exit continued to increase. Between 1982 and 1992, combined annual traffic on the EI Dorado and Cassoday interchanges increased from 1.1 million vehicles to 2.0 million vehicles. The dashed line shows projected traffic growth from 1987 to 1992 for the Cassoday and EI Dorado interchanges, and the solid line shows actual annual traffic growth. Not only did the EI Dorado North interchange not siphon off traffic from its neighboring interchanges, but may have actually contributed to an increase in their.traffic.

35. Recommendations

1. To ensure that the Kansas Turnpike Authority does not pay for ex­ penses it did not intend to incur, it should require receipts or other forms of documentation for expenses employees and Board mem­ bers charge on credit cards issued in the Authority's name.

2. To avoid the appearance of impropriety in any of the Turnpike Authority's purchases, the Kansas Turnpike Authority should con­ sider doing the following:

a. Developing a procedure to review Statements of Substan­ tial Interest submitted by Board members and employees to ensure that purchases are not made from businesses listed on those forms.

b. Providing written documentation stating the circumstances and any reasons for deviating from the Authority'S policy of seeking written bids on purchases exceeding $10,000.

c. Establishing a policy that would prohibit the Turnpike Au­ thority from doing business with former 'Board' members Jor a specified period of time after they are no longer on the Board; or at'least ensure thatany'such transactions are done on a competitive-bid basis.

3. To ensure that the Turnpike Authority's Board has all the informa­ tion it needs to make good decisions about constructing new inter­ changes, and to assess whether decisions to construct interchanges made economic sense for the Turnpike, the Authority's staff should do the following:

a. Perform a break-even analysis that pulls together for Board ,members the, anticipated costs of any proposed inter­ changes,the minimum level of ti'affic that is anticipated to be needed to cover those costs, and the projected level of traffic that is anticipated for the interchange.

b. Conduct a follow-up analysis of traffic flows and revenues generated by new interchanges after they have been built to determine whether they are meeting projections and cover­ ing their costs.

36. Do There Appear To Be Any Problems With the Way The Kansas Turnpike Authority Handled Its Recent Bond Issues?

In its recent bond dealings, the Authority saved money by refmancing its debt and by receiving lower-than-average interest rates on its bonds. We found that the Authority could improve its practices in selecting bond professionals by soliciting proposals from more underwriters and by using a financial advisor. We also found that the Authority has signed an agreement with the federal government that requires it to become debt free by the end of the year 2024.

The Authority Genenilly Has Done Well Financially In Its Recent Bond Issuances

To detennine how well the Authority has done fmancially in its bond issues, we analyzed the savings the Authority achieved in its last three bond issues that refinanced earlier bonds. We also reviewed an analysis of the interest rates for the 1993 bond issue, conducted by a consulting fIrm hired by the Authority, and attempted to compare the costs of issuance for the 1993 bond issue with issuance costs for the Department of Transportation's recent bond issues. The 1993 bond issue is described in detail in the box on pages 42-43.

The 'Authority has ··achieved a present-value savings of more than $17 million since 1985 by refinancing its bonds. The most common reason for refInancing bonds is to take advantage of lower interest rates. Just as homeowners may be able to reduce their monthly mortgage payment by refmancing their mortgages, municipal bond issuers can take advantage of lower interest rates to reduce their debt payments. Bonds also may be refmanced so that restrictive requirements that applied to the old bonds, but are no longer needed, can be removed.

To determine whether the Authority saved money by issuing bonds to refinance existing bonds, we reviewed the 1985, 1986, and 1993 bond issues. The following table shows the results of our analyses.

Kansas Turnpike Authority Savings from Refunding Bonds (Savings Shown Are .AIle!: Expenses) Savings Adjusted for Amount of Savings Over the the Time-Value Refunding Issue Life of the Bond of Money

1985 $104,760,000 $146,612,710 $ 8,503,283 1986 97,890,000 2,718,213 2,048,282 1993 105,865,000 10,016,563 6,882,208 Total $308,515,000 $ 159,347,486 $17,433,773

37. The Authority obtained favorable interest rates on its recent bond issues. By far the largest factor influencing the cost of bonds is the interest rate the issuer must pay. The lower the interest rate, the lower the bond issuer's cost of borrowing money.

In September 1993, the Authority contracted with Public Financial Management, Inc., a nationally recognized fmancial advising firm, to conduct a study of its 1993 bond issue. The Authority asked the fIrm to determine how the interest rates of the bond issue compared with the market and with comparable bonds.

We reviewed the methodology used by Public Financial Management, and concluded that its fmdings were reliable. The report concluded· that the interest rates r . for the, Authority~;s

In conducting its analysis and reaching its conclusions, Public Financial Management took into account the "original issue discount" on the longer-term bonds in the 1993 issue. An original issue discount is the difference between the redemption value at maturity and the issue price. For example, the $104.2 million in bonds maturing after 1998 were. sold f!;>r about $4 million less than, their redemption (face) value. This $4 million is ncit a cost of issuance or a fee paid to the ;underwriters,.;but is·an,actualdiscount~~in the purchase price paid by those who buy the bonds. Generally, bonds are discounted by issuers when the interest rates set on the bonds are less than the gomg rate at the time the bonds are sold. '

An analyst from Public Financial Management told us that discounting longer­ term bonds is a common sales technique and is helpful to issuers. He explained that discounting the bonds instead of changing their interest rates allows the issuer to get a slightly lower interest rate because discounted bonds are valued by bond holders. The bonds are valued because they have a lower risk of early redemption.

During its analysis of the 1993 bond issue, Public Financial Management also li",~ ' .. "'·.;i';i·,:·collected -information on:the·Authority's4990 and;1986.bond issues. Those bonds received very favorable interest rates as well. In fact, interest rates on the 1990 bond issue were signifIcantly lower than would have been expected for bonds with similar ratings.

Our examination of cost of issuance was inconclusive. Costs of issuance consist of fees and charges for underwriters, bond counsels and other attorneys, rating agencies, trustees, paying agents, printing, and the like. The Authority's bond issuance costs since 1984 have varied considerably, as noted in the table on the following page.

38. Costs of Bonds Issued by the AuthorHy Since 1984

Cost of Issuance Amount of Bond Total Cost Per $1.000

1985 $104,760,000 $2,461,429(a) $23.50 1986 97,890,000 2,136,645(a) 21.83 1990 28,425,000 n3,667 27.22 1993 105,865,000 1,188,488 (b) 11.22

(a) Costs of issuance of bonds issued before the tax laws changed in 1986 were allowed to be recovered through increased earnings in the escrow accounts set up for the refunded bonds. (b) This cost of issuance is smaller than the estimate in the original proposal because the size of the final issue was much smaller than originally proposed by the underwriter.

Municipal Bond Professionals' Roles and Responsibilities

Bond Counsel - In general, bond counsel prepare pertinent legal documents and ensure that the proposed sale is in accordance with local, state, and federal laws and regulations. Their role is to ensure the legal integrity of the bonds. This involves such things as certifying that the issuer has the legal authority to issue bonds; drafting a bond ordinance, resolution, trust indenture, and other legal documents; and providing a legal opinion that the securities are exempt from federal, state, and local income taxes.

Financial, Advisor - Financial advisors can assist issuers in determining the size of a bond issae, the bond's ma~ty.~and,the security pledged for payment of the debt They also may assist the issuer in determining the best method of selling the bond. A financial advisor can provide on,going financial assistance.or just help in,a single bond transaction. A financial advisor may take on some or all of the following responsibilities:

evaluating funding alternatives evaluating the fairness of a bond's pricing, terms, and ratings • reviewing proposals submitted by underwriters and negotiate fees designing the bond structure • determining the most advantageous time to sell the bonds evaluating bids in a competitive sale • overseeing pricing and ordering activity in a negotiated sale closing the transaction

Underwriter - The primary function of the underwriter is to purchase bonds from the issuer and sell-or remarket-them to investors. The underwriter may acquire the securities either by winning a competitive bid, or through negotiation with the issuer. In both competitive and negotiated sales, underwriters may join together and form a syndicate, consisting of a senior managing underwriter and several co-managers, to buy the bonds. By forming syndicates, underwriters spread the risk of selling an issuer's bonds and ensure broad market distribution. In a negotiated sale, the senior manager will be responsible for coordinating information between the issuer and other members of the flnance team, coordinating meetings and document review, overseeing the development of presentations to rating agencies and application for insurance, and pre­ marketing the bonds.

39. We attempted to compare the Authority's bond issuance costs with costs for bonds issued by the Department of Transportation. In 1992 and 1993, the Department issued four bonds ranging in size from $125 million to $250 million. During a recent audit we conducted of bond practices in Kansas City and Wyandotte County, bond professionals told us that in order to compare costs, bonds must be similar in several areas. Only one of the Department's bonds was similar to any of the Authority bonds. The $125 million 1992A Department bond issue was similar in most areas to the 1993 Authority bond issue.

The cost of issuance of the 1992 Department bond was $8.10 per $1,000. The cost of issuance for the 1993 Authority bond issue was $11.22 per $1,000, or 39 percent higher. Two factors that may explain why the Authority's issuance costs I ' w~C( higher:

• The complexity of the Authority's bond issue. Initially the Authority's bond issue was designed to be a complex issue combining taxable and non­ taxable bonds. Bond experts say that complexity increases both underwriter fees and attorney fees. The Department's bond issue was a new money issue without any of the complexity of the Authority bond issue.

• The average maturity of the Authority's bonds. The Authority's bonds had an average life of 20.2 years~ much longer th~ the 13.9 year avex;age life of the Department's bond. According to bond experts, bonds with longer

~I ' . .·average)ife'are hardeFto sell, result4tgin higher underwriter fees.

Unfortunately, there is no way to measure the dollar impact these two factors have on bond issuance costs. In addition, because bonds-and bond issuance costs­ are so variable, comparisons using a single comparison bond are inconclusive.

The Turnpike Authority Can Improve Its Business Practices In Choosing Bond Professionals

Bond literature we reviewed and knowledgeable professionals we contacted r" .", '.. .,. ; suggest a ,number of. good business' practicesthat,issuers should follow when contracting with bond professionals. Several of the more frequently mentioned practices are as follows:

• issuers should use requests for proposals for underwriting services on negotiated bond sales

• issuers should use requests for proposals, or should solicit recommendations from several other issuers, in choosing bond counsel

• issuers should have an independent fmancial advisor for complex bond issues, and should use requests for proposals in acquiring an advisor's services

40. If such practices are not followed, issuers cannot be sure they are acquiring bond services at the least cost, or that the bond issues are in their best interests.

We found that the Authority does not have any official policies addressing the selection of bond principals. However, Authority staff told us they generally use requests for proposals in selecting bond underwriters. They also said they generally ask underwriters to recommend a bond counsel, because the bonds the Authority issues usually are complex and they want to ensure they have a good bond counsel. (The Authority retains the right to reject the underwriter's recommendation.)

Finally, Authority staff told us they do not use an independent financial advisor. They indicated that, between the Authority members and staff, they think

I' they have. enough expertise and experience. with bonds to properly ·manage a bond issue without requiring a fmancial advisor.

To determine its actual practices and experiences in this area, we reviewed documents related to the Authority's 1993 bond issue in considerable detail. That bond issuance is described in the box on the following pages. Based on our review of this transaction, we noted areas where the Authority could improve its practices.

The Authority should consider broadening its search for underwriting services. The Authority solicited requests for proposal from six firms; three local underwriters that had submitted proposals in the past, and three national firms that . had submitted~proposals to .the·. Department of Transportation in the past. The Authority reviewed each proposal and conducted a detailed interview with each firm. After the proposals were presented to the Board, it voted to award the project to the firm with the highest projected savings. The Authority staff then negotiated the underwriter fees with the winning firm.

The Authority followed the accepted practice of using a request for proposal. However, by limiting its solicitations to six firms, the Authority may have excluded firms that might have submitted better proposals.

When the Department of Transportation chooses an underwriter, it sends ~. requests for proposalS! to. alarge number .of fmns, and also advertises the request for proposals in The Bond Buyer. the main bond industry publication. According to the Secretary of Transportation, however, soliciting and analyzing proposals from a large number of fmns can be time consuming and expensive. The Authority may be able to increase the number of bidders without significantly increasing the time and cost involved by limiting its interviews only to those firms that submit the top-ranked proposals.

The Authority did not use a financial advisor. The Authority chose B.C. Christopher as the lead underwriter on the basis of its higher projected savings. B.C. Christopher's complex strategy for achieving those savings ultimately was not used and the projected savings ultimately were not achieved.. In a number of areas, an independent financial advisor may have been able to help the Authority ensure that it

41. A Description of the Process of Issuing the 1993 Kansas Turnpike Authority Revenue Bond

The 1993 bond issue originated from a proposal from an underwriting flrm. In early 1992, one of the underwriters that worked on the 1990 Authority bond issue-Ranson Capital Corporation-approached the Authority's Chief Engineer/ Manager with a proposal for refunding the Authority's 1990 bond issue to take advantage of lower interest rates. Because the projected savings from refmancing were only about $1 million, the Authority decided it was not worth the trouble of issuing a bond.

,,:,.' In May 1993. another"underwriter. that had.workedon.the 1990 bond issue­ B. C. Christopher-approached the Authority with a more sweeping proposal to refund all the Authority's debt for a substantial savings. The Authority was receptive to this idea, and directed staff to send requests for proposals to the three flrms that had previously expressed an interest in restructuring the Authority's debt, plus and three flrms that had submitted proposals to the Department of Transportation in its bond dealings. These six frrms were: Ranson Capital Corporation, George K. Baum & Company, Smith Barney, Lehman Brothers, A. G. Edwards & Sons, and B. C. Christopher.

All six fIrms submitted proposals. B.C. Christopher's proposal projected a \ 0; . '.~ 1".$lO.inillion savingS; .the :nextJrighestproposal,.from Lehman Brothers, projected $6.9 million in savings. B.C. Christopher's proposal consisted of issuing a mix of taxable and non-taxable bonds to refuridthe 1986 and 1990 bonds, and to restructure the escrow account that had been set up to refund the 1985 bonds. This proposal was to issue a total of $194.3 million in bonds, $59.7 million in taxable bonds, and $134.6 million in non-taxable bonds. To ensure that their proposal met legal requirements, they had obtained a legal opinion in advance from the Washington D.C. law fIrm of Ritter and Eichner. B. C. Christopher estimated total fees and expenses would be $2.1 million ($11 per $1,000). Lehman Brothers' proposal was less complex. It involved refunding the 1986 and 1990 bonds with $73.5 million in non-taxable bonds.. Lehman Brothers estimated total fees and expenses would be about $735,000 . ($10 per $1,000).

Mter reviewing the proposals, the Authority chose B.C. Christopher as the lead underwriter on the basis of the higher projected savings. The Authority also asked the firm to recommend an underwriting team, and encouraged it to include all the fIrms that had submitted proposals. B. C. Christopher set up an underwriting syndicate that included the five other fIrms that had submitted proposals, as well as several other fmns. It also recommended the legal fIrm of Gilmore and Bell to act as bond counsel and Gates and Clyde, Chartered to act as disclosure counsel. (A complete list of the bond syndicate and the allocation of bonds to the members can be found in Appendix C.)

42. At the following Board meeting, the Secretary of Transportation, as a member of the Authority, indicated he thought the underwriter's fee was too high. He also proposed hiring an independent financial advisor to represent the Authority's interests. That motion failed. Also at this meeting the Authority voted to include an additional $20 million in the bond issue to fund improvement projects.

Because of concerns about issuing taxable bonds, Smith Barney, one of the underwriters in the syndicate, asked B. C. Christopher to get a second opinion on the legality of the plan. When B. C. Christopher did not get a second opinion, two of the underwriting frrms-Smith Barney and Lehman Brothers-dropped out of the syndicate.

..... -, .' As' thetitnefot' the 'boIid sale . approached; the lead underwriter, the bond counsel, and the other tax attorneys had discussions about the legality of using taxable bonds. These discussions occurred because the Internal Revenue Service was in the process of changing the bond laws. They decided that the proposed plan probably complied with the current tax laws, but because of the uncertainty involved in the changing laws, it would be more prudent to scale back the plan.

In the fmal plan, the taxable bonds and the restructuring of the escrow account were eliminated. Instead of refunding, all the Authority's outstanding debt, the revised bond issue refunded onlythe'J990 bonds,:and about $45 million of the 1986 bonds. B. C. Christopher estimated the savings of the revised bond issue would be . :about $6.8 "inilli6iv 'In the end, '$105.9 n:ill1i6ninnon-~able revenue bonds were issued. The total cost of issuance was about $1.2 million ($11.22 per $1,000). The savings in the final bond issue were similar to the estiniated savings in Lehman 'Brothers' original proposal. However, because the fmal bond issue was restructured, it is not proper to compare the fmal issue with Lehman Brothers' original proposal. In addition, Authority officials told us they would have made changes to Lehman Brothers proposal. Therefore, it is difficult to determine what the fmal savings and costs would have been had the Authority chosen Lehman Brothers as the lead underwriter.

Officials of the Authority told· us they decided not to stop the bond deal and , change 'underwriterswhenB. C.Christopher's original plan fell through because of the time and expense involved in starting over again. Interest rates were low, and Turnpike officials said they were afraid that interest rates would be higher if they started over with a different underwriter. By the conclusion of the bond deal, the underwriter fee (one of the components of cost of issuance) dropped from $8.50 per $1,000, to $8.10 per $1,000. had made a sound decision in selecting a proposal for issuing these bonds. These include:

• identifying potential problems with the risks associated with B.C. Christopher'S proposal to use a combination of taxable and non-taxable bonds

43. • helping the Authority determine whether underwriter fees were too high, as one Authority member had expressed concerns about

A f'mancial advisor also could have helped the Authority conduct its own search for a bond counsel. Authority officials told us they asked for a recommendation from the underwriter because they wanted to be sure to get a good counsel. Before recommending a bond counsel, B. C. Christopher apparently asked for price quotes from the two major bond counsel fIrms in the Kansas City area, and recommended the fum giving the lowest price. The bond counsel recommended by B. C. Christopher has a good reputation, and if the Authority had conducted its own search, it may have chosen the same fum. However, a f'mancial advisor may have been.able to advise the Authority about independently selecting its bond counsel.

Financial advisors are very expensive and may not be cost effective on straight-forward bond issues. However, they appear to be used fairly often on large, complex bond issues like the 1993, $105.9 million Authority bond issue. A study we obtained from Securities Data Corporation, a fum that collects data on municipal bond issues, showed that in the fIrst nine months of 1993, 61 percent of issuers of municipal revenue bonds between $100 million and $150 million used financial advisors.

Currently, the Authority Plans To Be Debt Free; by. 2024

When people talk about 'the Kansas Turnpike Authority, one of the commonly discussed topics is debt. In 1954, the Authority issued $160 million of bonds to construct the Turnpike. Mter the July 1993 bond issue, the Authority had $165 million of bonds outstanding. So, after nearly 40 years of operation, the Authority still has a large outstanding debt on the Turnpike. Some people's expectations were that the Turnpike would be paid off by now. However, there is no statutory requirement that the Turnpike be paid off by any certain time, and we did not locate any other documents which specifIcally address this subject.

.... The"Authority· has published'several different .. documents which attempt to explain the reasons why it still owes over $160 million. The following paragraphs summarize two of the more pertinent reasons.

• The Turnpike revenues were less than expected because the original traffic projections were too high. For example, almost 7.2 million vehicles were projected to use the Turnpike in 1957, its fIrst full year of operation, yet only 3.6 million vehicles actually used the Turnpike. The number of vehicles actually using the Turnpike fell short of the original projections in every year until 1992. At the end of 1992, the accumulated shortfall of vehicles was nearly 129 million vehicles. Reasons for fewer vehicles using the Turnpike than projected include: the construction of Interstate Highway 1-35 and State Highway K-10 diverted traffIc from the Turnpike; toll rates were relatively

44. high in the early years and potential customers chose to use the "free" state highways; and the Oklahoma Interstate highway system did not connect with the Kansas Turnpike until seven years later than anticipated.

Despite the effects of inflation, it was not until 1980 that the Authority began to collect toll revenues greater than projected revenues.

• The Turnpike made significant capital improvements that had not been included in early projections. In 1984 the Authority hired Howard Needles Tammen & Bergendoff to conduct the 1984 Long-Term Needs Study. Based on recommendations from that study, the Authority made $60 million in improvements, such as replacing the decks of someiof the bridges on the Turnpike. Other major improvements have been undertaken since then, such as the median barrier project. (The laws creating the Authority authorized it to incur new debt.)

A contract between the Authority and the federal government requires the Authority to become debt free by the end of 2024. In 1984, the Authority signed an agreement with the Department of Transportation and the Federal Highway Administration in which it agreed not to issue any bonds which mature after the year 2024. As a requirement of the contract, the federal government required the Authority to become debt free by the end of 2024.

. The Authority entered into this agreement because doing so allowed the State to include the Turnpike as part of Kansas' interstate highway system, thereby increasing the amount of federal funding available to the Department for use on other interstate highways in Kansas. The increase in highway miles allowed the Department to receive approximately $7 million more in highway repair funds per year than it had received in the past. While this agreement is in effect now, it could change in the future. Authority officials told us several other states have rescinded similar agreements, but they have no immediate plans to do so.

Authority officials told us that if the Turnpike revenues continue growing at the current rate, they may be able to begin setting money aside to save for future . capital.improvements and avoid issuing new bonds. (Before 1984, restrictive bond covenants did not allow the Authority to save money for future repairs or improvements.)

45. Conclusion

The Authority has fared well financially in its recent bond dealings. It saved money through its refmancings, and it obtained very good interest rates on its bonds. By hiring a financial advisor in the future, the Authority would increase its chances of continuing to do well in future bond issues. A financial. advisor could assist the Authority in evaluating fmancing proposals, choosing its own bond professionals, and ensuring that fees and interest rates were as low as possible.

Recommendations

1. When working on a complex bond issue, the Authority should use a fmancial advisor to assist it in selecting its underwriter and bond counsel, in planning the bond issue, and in otherwise protecting the Authority's interests. The Authority should use a request-for­ proposal process to choose the financial advisor.

2. To ensure that the Authority obtains the best possible services at the lowestprice, the Authority should consider soliciting proposals from more than six underwriting ftrms for bond issues.

46. What Would It Cost the State to Pay OfT the Authority's Bonds and Operate the Kansas Turnpike as a Toll-Free Road?

The State would incur costs in at least three major areas for it to take over the Turnpike. First, the State would have to retire the outstanding bonded indebtedness of the Authority. We estimate it would cost the State between $72 million and $160 million to retire the Authority's outstanding bonded indebtedness, depending on the date of the takeover. Second, the State would have to pay for maintenance and capital improvements to operate the Turnpike. We estimate that over the next 10 .years, these costs will be about $20 million annually. Third, if the State uses federal funds to reconstruct portions of the Turnpike, the State could incur many millions of dollars in additional costs to bring the Turnpike into compliance with existing federal roadway standards.

The Cost of Retiring the Turnpike's Outstanding Bonds Would Depend on When Any Takeover Occurred

As of September 2, 1993, the Authority had a total of $162.4 million of bonds outstanding. This amount comprises bonds outstanding from three bonds issues, as shown in the table below.

Kansas Turnpike Authority Bonds Outstanding as of September 2, 1993

Scheduled Year of Year of Issue Amount Final Maturity

1985 $ 4,310,000 1995 1986 52,255,000 2007 1993 105,865,000 2017 Total $ 162,430,000 Because the outstanding bonds have restrictions stipulating when they can be paid 9ff (called), we developed three different scenarios to determine how much it would cost the State to retire.these bonds. All three alternatives assume that the State would deposit in an escrow account a sufficient amount of cash to "defease" (or pay off) the bonds outstanding as they become due. Each alternative uses September 2 as the date when the State would assume liability for the outstanding debt. This date was chosen because, on September 1 each year, the Authority makes debt service payments to retire some outstanding bonds and makes its fmal interest payment to bond holders for that calendar year.

The table on the following page shows the amount of cash required to payoff the Authority's outstanding bonds on the three alternative dates, assuming that no additional bonds are issued. The table also shows the increase in motor fuel taxes that would be needed to payoff these bonds.

47. Amount of cash Needed to Establish An Escrow Account Sufficient to Pay Off The Kansas Turnpike Authority's Outstanding Bonds

The amount the If all The total State would Estimated outstanding amount have to put increase in the bonds were of bonded in escrow motor fuel tax paid off Indebtedness to payoff to meet as of at that time those bonds those costs Effective September 2. would be ... would be ... ($ per gallon) Date

1995 $ 278.0 million $ 159.5 million $ 0.12 7/1/94 2000 204.6 million 134.5 million 0.02 7/1/95 2010 88.5 million 71.9 million 0.01 7/1/95

As the table shows, the amount of cash the State would need would depend on which of these (or any other) alternatives were selected. If the Legislature decided to operate the Turnpike as a toll-free road beginning in September 1995, for example, it would need about $160 million to payoff the outstanding bonded indebtedness. Taking over the Turnpike in 2010 would decrease the State's bond retirement costs to about $72 million, because the Authority would continue to make its scheduled debt­ service payments until then.

We, discussed the notion of having the: State take over the Authority's bonds with 'the bond counsel for the' 1993 bond issue. The bond counsel could see no apparent reason why the State could not defease the Authority's existing bonds using tax revenues. However, defeasing the bonds through other means---such as bonds--­ would· require considerable legal analysis. In addition, through our discussions with Authority staff, and our review of the trust agreement, we learned that a different source of revenues cannot be substituted to make the scheduled debt service payments. Once the collection of toll revenues stops, all outstanding bonds become due.

One way to raise State funds to payoff the Turnpike Authority's bonds would .be to increase the motor fuel tax. ,To estimate· the amount of tax that would be needed , we used the Department of Transportation's model for forecasting motor fuel taxes. We assumed that all revenues would flow to the Department, the tax increase would go into effect July 1, 1994 or 1995, and that interest earnings on the new revenues would accumulate with the new revenue.

This analysis showed that to raise all the needed funds in fiscal year 1995, the motor fuel tax would have to be increased by about 12 cents per gallon in fiscal year 1995. A two-cent-per-gallon increase in the motor fuel tax from July 1, 1995, through the year 2000 would provide the funds needed to payoff the Turnpike Authority's bonds in 2000. Finally, a one-cent tax from July 1, 1995, through June 30, 1999, would provide the funds needed in the year 2010, as the interest earned : during the remaining 11 years would generate the additional funds needed.

48. Maintenance and .Capital Improvements on. the Turnpike Would Cost the State an Estimated $20 Million Annually

If the State took over the Turnpike and began to operate it as a toll-free road, the Department of Transportation would be responsible for maintaining it. Under this scenario, some costs of operating the Turnpike would completely disappear, while others would partially disappear. For example, toll collection costs would be eliminated, while almost all administrative costs and most of the Authority's insurance and outside consultants' costs would be substantially reduced. We estimate that about $12 million of the Authority's fiscal year 1992 costs would remain. In performing this analysis, we assumed the Department would continue to provide the Turnpike with the same level of maintenance that it received in 1992. Our estimates are shown in the accompanying table.

Estimated Costs That Would Remain if the State Maintained the Turnpike at the Same Level as It Has Been Maintained (Using Fiscal Year 1992 COsts)

Description Amount Rationale

Engineering $ 200,000 Retention of some staff familiar with Turnpike Consultants 50,000 Some specialized work may be needed Insurance 500,000 Employee health and other insurance Maintenance 3,100,000 Continue same level Capital Improvements 6,000,000 Continue same level Highway Patrol 2.500.000 Highway Patrol Troop G Subtotal 12,350,000 Reconstruction 7.500.000 Reconstruction of Topeka to Kansas City Total $ 19,850,000

The table shows that the Department's estimated maintenance costs would be about $3 million a year, and another $6 million would be needed for capital improvements such as road overlays, equipment, and other improvements. The Highway Patrol costs are the same as reported in the Authority's 1992 audited financial statements. We also made some assumptions about what other expenses might be reasonably expected in such areas as engineering, consultants, and insurance. In addition, the Authority estimated it would spend about $75 million over the next 10 years to reconstruct the Turnpike from Topeka to Kansas City, and we spread this cost over 10 years in our analysis. However, Department officials estimate the reconstruction cost could be as high as $200 million.

It is important to remember that the costs we present here are estimates; actual costs could be higher or lower. It is also important to note that the State would need to make periodic, major capital improvements on the Turnpike over the years, just as it does on other State-owned highways. For example, the Turnpike's bridges will continue their natural deterioration, and the costs to rehabilitate them will be substantial. A 1992 report issued by the Department of Transportation cited 25 bridges passing over the Turnpike as being structurally deficient. In addition, the removal of tolls would likely cause the volume of traffic using the Turnpike to increase. Increased truck traffic would cause increased wear and tear on the Turnpike, and would likely lead to increased maintenance and capital improvement costs. 49. The Legislature would have to decide whether to provide additional funding for the Department of Transportation to pay for the Turnpike's costs. We estimated it would cost about $20 million a year for each of the next 10 years to maintain the Turnpike as it has been maintained in the past. The Legislature may decide to fully fund those costs, or to fund them only partially. In addition, in an era of tight financial resources it is conceivable the Legislature might ask the Department to maintain the Turnpike without additional funding. In essence, the Department would have to absorb the additional costs of the Turnpike, and reallocate its resources accordingly. In that case, the short-term additional cost to the State would be zero. Over the long-term, however, the quality of the Turnpike roadway and other State roadways may deteriorate because some of the routine. repairs needed to:extend their useful life might not occur. The cost to reconstruct a road generally is much higher than the cost of routine, preventive maintenance.

If the State Wanted to Use Federal Funds for Reconstruction, Modification, or Enhancement of the Turnpike, It Could Incur Multi-Million Dollar Costs to Bring the Turnpike into Compliance with Federal Guidelines

The Department of Transportation receives money from the Federal Highway Administration that is intended to fund improvements to Kansas interstate highways. From fiscal year 1988 through '1992, the Department received about $232 million. The inclusion of the Turnpike as part of Kansas' interstate highway system accounted for about $42 million, or'-18'percentof the total dollars received, during the past five fiscal years.

Department officials said that if the Turnpike was transferred to the Department, the amount of federal funding received would not change. Turnpike miles are already counted as part of the State system. However, those officials said that if the Department used federal funds on the Turnpike, it likely would have to .------...., spend millions of dollars to bring the Toll Roads Across the United States Turnpike into compliance with federal standards. ,As· of January 1993, there were about 4,600 miles of toll roads in the United States. The Department attempts to Approximately 240 miles, or five percent, are in Kansas. The number of toll road miles increased design and maintain Kansas interstate 200 miles between January 1991 and January highways in compliance with federal 1993. These figures were reported by states to guidelines. The Federal Highway the Federal Highway Administration. Kansas Turnpike officials said the Administration's guidelines are popularity of toll roads was increasing because: developed by the American Association infrastructures are deteriorating nationwide of State Highway Transportation government funding is inadequate the 1991 adoption of the Intermodal Surface Officials (AASHTO). In general, when Transportation Efficiency Act by Congress the Department uses federal funds to allows states to use federal funds to build fmance all or part of a resurfacing, toll roads rehabilitation, or reconstruction project ~------~

50. for the State's interstate highways, the Department also must upgrade any other aspects of that roadway section which fall short of the federal guidelines, or request a waiver from the Highway Administration. Department officials acknowledge that not all interstate highway miles they maintain are currently in total compliance with AASHTO standards.

When the Kansas Turnpike was constructed in 1955 and 1956, it was built in compliance with then-current requirements and guidelines for four-lane highways. However, federal highway standards have changed considerably since then. Turnpike Authority officials say they keep abreast of the changing guidelines suggested by AASHTO, but because the Authority receives no federal funding, Turnpike repair and maintenance work does not have to comply with the AASlp'O standards.

If the Department of Transportation became responsible for the care and upkeep of the Turnpike, eventually it would have to perform certain work on the Turnpike which is now, at least partially, funded on other Kansas interstate highways using federal funds. If federal funds were used on the Turnpike, Department officials cite at least three major conditions that likely would require attention:

• The Turnpike has an embankment which, in some places, is too steep. AASHTO guidelines require an embankment which slopes downward at a rate of one foot for every six feet of side area. When the,Turnpike was originally constructed, a steeper slope requiring only three feet of side area for each one foot drop was used.

• Some of the Turnpike's original interchange acceleration/deceleration lanes are shorter than AASHTO design standards.

• Some of the Turnpike's bridges do not provide "full shoulder width," as current AASHTO guidelines require.

Authority officials agree that if federal funding were used on the Turnpike, it is likely that some of. these conditions would have to be corrected. Although a reasonable estimate could not be developed within the scope of this audit, representatives of both agencies. concur that the costs to bring the Turnpike into compliance with current federal guidelines would be many millions of dollars.

51.

APPENDIX A A Comparison Between the Kansas Turnpike And Turnpikes in Other States

Following is a comparison of turnpikes in Kansas, Oklahoma, Ohio, and Pennsylvania. We surveyed the three out-of-state turnpike authorities and found that their organizational structure is similar to ours. However, they are dissimilar in other respects such as traffic volume, tolls charged, the amount of debt, and the like.

Kansas Oklahoma Pennsylvania Quasi-Governmental Organization Yes Yes Yes Yes

Board has Fiduciary Responsibility Yes Yes Yes Yes

Board Members Appointed By: Governor 2 6 4 4 Legislature 2 na na na Ex Officio Member Sec of T@nsportation ~ Dir of Transportation Sec of Transportation Total # of Board Members =5 Z: =5 Number of Lane Miles 964 3,325 1,037 2,301

Daily Number of Vehicles Driving Each Lane Mile 2,696 1,386 5,904 4,995

Number of Employees 410 452 880 2,214

Number of Employees per 100 Lane Miles: Maintenance 12 6 29 32 Toll Collection 24 6 31 44 Other J.. 2 25 ..2Q Total # of Emp'/100 Lane Miles 43 ==14 85 ==96 Number of Interchanges 19 59(a) 22 43

Passenger Car Toll per Mile 3.3¢ 3.1¢ 2.2¢ 4.6¢

Commercial Vehicle Toll per Mile 9.1¢ 8.5¢ 7.5¢ 14.0¢

Debt/Revenue (ratio) 2.9 9.2 0.002 4.0 (A measure of long-term bond indebtedness)

Debt Service/Revenue (ratio) .26 .58 .05 .31 (The larger the ratio, the more the orjlanization's revenues are committed to debt-servIce requirements) (a) Only 35 of Oklahoma'S interchanges are staffed.

The table shows the Kansas Turnpike has the fewest number of lane miles and relatively low usage compared to eastern states. The daily number of vehicles driving each lane mile in Kansas is affected by the State's population and its rural location. Kansas is not heavily indebted like Oklahoma, nor is it practically debt free like Ohio. The Kansas Turnpike has the second highest toll charges of the states we contacted, and the majority of its employees are dedicated to toll collection.

53.

APPENDIX B Traffic Volumes for Selected Interchanges To determine whether the E1 Dorado North and Haysville-Derby interchanges brought new traffic to the Turnpike, or siphoned traffic from existing interchanges to their immediate north and south, we reviewed traffic volumes at the existing inter­ changes before and after the opening of the El Dorado North and Haysville-Derby inter­ changes. The first table shows that percentage increases in traffic were about the same or higher after the opening of the E1 Dorado North interchange, indicting El Dorado North brought additional traffic to the Turnpike.

The second table shows that, in the first two years after the opening of the Haysville-Derby interchange, the traffic volumes at the two surrounding interchanges were below the 1989 level. However, traffic volumes increased for the three inter­ changes combined, indicating the new interchange brought new traffic to the Turnpike.

Traffic Volumes For the EI Dorado, EI Dorado North And Cassoday Interchanges

The EI Dorado North Interchange opened July 3, 1986. Turnpike The first full year of operation is 1987. Asa Whole Vehicles Percent ElDorado Percent Percent Year ElDorado Cassoday Subtotal Increase North Total Increase Increase

1982 994,184 116,462 1,110,646 0 1,110,646 1983 1,040,847 120,874 1,161,721 4.6% 0 1,161,721 4.6% 3.9% 1984 1,129,683 135,887 . 1,265,570 8.9% 0 1,265,570 8.9% 5.7% 1985 1,196,622 135,663 1,332,285 5.3% 0 1,332,285 5.3% 5.5% 1986 1,264,320 152,927 1,417,247 6.4% 75,408 1,492,655 12.0% 4.8%

1987 1,320,415 178,862 1,499,277 5.8% 171,174 1,670,451 11.9% 7.0% 1988 1,449,941 189,090 1,639,031 9.3% 215,537 1,854,568 11.0% 7.7% 1989 1,567,586 193,252 1,760,838 7.4% 236,634 1,997,472 7.7% 5.8% 1990 1,571,277 288,757 1,860,034 5.6% 273,474 2,133,508 6.8% 7.4% 1991 1,696,219 308,308 2,004,527 7.8% 274,012 2,278,539 6.8% 3.6% 1992 1,788,900 225,554 2,014,454 0.5% 296,572 2,311,026 1.4% 5.7%

Traffic Volumes For the Mulvane, Haysville-Derby And South Wichita· Interchanges

The Haysville-Derby Interchange opened September 1, 1989. Turnpike The first full year of operation is 1990. Asa Whole Vehicles PercentHaysville-Derby- Percent Percent Year Mulvane S. Wichita Subtotal Increase Derby Total Increase Increase

1986 690,668 3,443,509 4,134,177 0 4,134,177 1987 632,686 3,461,854 4,094,540 -1.0% 0 4,094,540 -1.0% 7.0% 1988 684,286 3,707,112 4,391,398 7.3% 0 4,391,398 7.3% 7.7% 1989 717,576 3,908,859 4,626,435 5.4% 165,138 4,791,573 9.1% 5.8%

1990 724,015 3,850,906 4,574,921 -1.1% 747,938 5,322,859 11.1% 7.4% 1991 668,914 3,940,550 4,609,464 0.8% 853,334 5,462,798 2.6% 3.6% 1992 754,536 4,596,412 5,350,948 16.1% 807,664 6,158,612 12.7% 5.7%

55,

APPENDIX C

Underwriting Syndicate and Bond Allocation 1993 Kansas Turnpike Authority Revenue Bond

The following is a list of the underwriting firms that participated in selling the 1993 Kansas Turnpike Authority Revenue bonds and the allocation of bonds to each finn. B. C. Christopher acted as the lead underwriter.

Underwriting Firm Bond Allocation

B. C. Christopher $30,780,000 A. G. Edwards & Sons 20,740,000 Lehman Brothers 8,055,000 Ranson Capital Corporation 2,715,000 George K. Baum & Company 11,645,000 American Discount Securities 850,000 Edward D. Jones & Company 10,750,000 Piper Jaffray, Inc. 6,025,000 Stifel Nicolaus 3,770,000 Printon Kane Group, Inc 3,760,000 Cooper Malone & McClain, Inc. 900,000 J. O. Davidson & Associates, Inc. 2,085,000 First Securities Company 1,080,000 Kemper Securities 975,000 Riedl & Company 905,000 Raymond James & Company 385,000 United Missouri Bank 350,000 Commerce Bank: 50,000 Country Club Bank 25,000 Boatmen's Bank 20.000

Total $105,865,000

57.

APPENDIX D 1992 Campaign Contributions

Legislators raised questions about campaign contributions made to Authority Board members. In response to this request, we reviewed the 1992 campaign contributions made to legislators who were either on the Authority Board at that time, or had been associated with the Authority over a number of years. Using this criteria, we identified four people: Representatives Rex Crowell and Herman Dillon, and Senators Bill Morris and Richard Rock. Senator Morris was serving on the Board in 1992, but did not run for re-election that year; and therefore had no campaign contributions. Senator Rock and Representative Crowell were not serving on the Board in 1992, but both have a long association with, the Authority. (Both Senator . Rock and Representative, Crowell were appointed to the Board again in 1993.) Finally, Representative Dillon Was a member of the 1992 Board. These three legislators ran for re-election and accepted contributions. The following list shows campaign contributions made to these individuals by vendors who have done business with the Turnpike Authority, or by Authority employees.

Contributor Amount Possible Association with KIA

Representative Herman Dillon: Nick Badwey Authority Board Member

.. Representative' Rex Crowell: Nick Badwey $100 Authority Board Member Coastal States 150 Turnpike Service Station Rod Fogo 100 Chief Engineer/Manager of the KTA K.A. Keane 50 B.C. Christopher, KTA Bond Underwriter Ira Parsons 100 B.C. Christopher, KTA Bond Underwriter Will Tschudy 1.QQ Smith Barney, KTA Bond Underwriter TOTAL $600

Senator Richard Rock: Nick Badwey $100 Authority Board Member Jerome Butler 200 HNT &B Engineering Consultants Coastal States 300 Turnpike Service Station Rod Fogo 100 Chief Engineer/Manager of the KTA Gates & Clyde 500 Disclosure Counsel for the KTA Bond John Holland 500 B.C. Christopher, KTABondUnderwriter Rick Worner ~ B.C. Christopher, KTABondUnderwriter TOTAL $2,200

59.

APPENDIX E Toll-Free Passes Issued By the Turnpike Authority

This appendix contains a listing of individuals with permanent and temporary toll-free passes, as provided by the Authority. Permanent passes are issued by the Authority to Governors and their spouses, Board members and their spouses, and former employees with five or more years of service. Temporary passes are issued to current employees, law enforcement officials, vendors, and contractors. The Authority allows permanent passholders and current employees to use their passes for personal travel. All other temporary passes may only be used for work-related purposes.

61. Individuals with Permanent Passes Governors & Their Spouses Number Granted By the KTA Number Former Employees with Number with Permanent Passes of Passes Including Board Members of Passes Permanent Passes of Passes

Anderson, Arlene Hicks, Gene A. G. Brickell Anderson, Gov. John Jr. Hubbard, R.D. A. H. Seibel Am, Gov. Edward F. Hubbard, Joan Dale Adams, Jack R. Am, Mrs. Ed F. Hults, Donald S. Mtho1der, Capt. Elmer Avery, Gov. Wm. H. Hults, Jan Mtho1der, Terry J. Avery, Hazel Ivy, John T. Ailstock, Thomas L Bennett, Gov. Robt. F. Ivy, Pauline Alvord, Ronald Bennett, Olivia Johnson, Margaret Anderson, Mary S. Carlin, Diana Johnson, Walter Anderson, Virgil L. Carlin, Gov. John Johnston, Cindy Andrews, Dwayne Carlin, Karen Johnston, Michael L Arb, Louis Finney, Gov. Joan Kemp,Joan Armstrong, Robert D, Finney, Spencer Kemp, John B. Armstrong, Tammy L Hayden, Gov. Mike Martin, Maurice Ayala, Mary Louise Hayden, Pattie 2 Martin, Mrs. Maurice Aylor, Erlene M. Govemors Office Security 8 McGill, Duane S. Bailey, Elden M TOTAL 24 McGill, Mrs. Duane S. Bailey, Harold Meschke, Addison 1 Bailey, Mrs. Everett Individuals with Meschke, Mrs. Addison 1 Baker, Rhonda J. Permanent Passes Mills, David M. Barbosa, Elsie V. Granted By the KTA Number Mills, Mrs. David M. Barland, Raymond F. Including Board Members of Passes Morris, Bill Bartkoski, E. L. Morris, Dorothy Beamer, Edwin C. Badwey, Judy Ogan, Janet Beamer, John H. Badwey, Nick Ogan,W.H. Beaumont, L.K. Barr, Debbie Ranson, Patricia Becker Jr., Oscar Barr,H.J. Rock, Richard Beecher, Carroll Biles, Dan Rock, Rosalee Bell, Elmer R. Blake, John Scanlon, Doris J. Belt, Kenneth D. Blake, Mrs. John Sneed,Diane Billings, Harry W. Bur.ke Jr., Paul Sneed, William W. Blake, Clarence E. Bulke, Debra K. Storey, Kerry Blankenship, H. P. Bulke, Pat Storey, Robert Blex, Donald L Crowell, Donald Rex Stotts, Gary Blow, Sr., Robert W. Crowell, Nancy Stotts, Joyce Borman, Larry W. Dlerdorff, Arden Talkington, Donna Boyns, Frank D. Dierdorff, Fran Talkington, Robert V. Branstetter, Jack R. Dillon, Betty Timmerman, Mrs. Wm.P Brent, Harold M. Dillon, Herman Timmerman, Wm. P. Brockman, Bill Docking, Meredith Townsley, Ii1llian Bronw, Norman Docking, Virginia Townsley, William Brown, Kenneth T. Dugan, Paul Tumer, Mrs. O.D. Brown, Steve Duncan, Mrs. Robert F. Tumer,O.D. Bruhns, Ed Edwards, Horace B. Vidricksen, Ben Brumm, Caryl E. Fogo, Rada Walters, John R. Buckbee, William W. Gates, Jean Wassburg, Mrs. Ivan Buckner, LN. Gates, Lawrence G. Weaver, Leadall Bultmann, Morris K. Gray, Georgia Williams, John Burchill, W.W. Gray,A.H. Williams, Mary Burdorff, Victor Griffith, Mrs. Thomas Woodbury, Emestine Butcher, Mary E. Hedberg, Sherri Woodbury, Phillip Byers, Karen S. Hewitt, Don W. TOTAL 82 Callen, Jon M. Hewitt, Mrs. Don W. Campbell, Robert H. Hicks, Dr. Arland Carey, Wm. E. Continued Continued

62. Former Employees with Number Former Employees with Number Former Employees with Number Permanent Passes of Passes Permanent Passes of Passes Permanent Passes of Passes

Carlisle, Bryan A. Greene, Donald J. Klassen, J. Herschel Carlson, Nonnan Griffith, Arthur E. Klingenberg, Elmo M. Carter, James M. Groves, Donald Knox, Everett Carver, Phyllis Hall, Donald L. Kohler, Charles L. Chandler, Ernest G. Hall, lloyd H. Kroeger, Verlyn Chappell, Gordon D. Hall, Oran Kuehn, Raymond Clark, Alfred B. Hampton, Marie A. Laffere, Vernon Collins, Looney Hancock, Orval Lampe, Lynda Colyer, John B. Hansen, Jerry Landreth, Richard R. Cook, Connie S. Harldns, Shirley E. Lane, Melvin L. Cooper, Doris E. Harrison, Edward D. Lank, Marietta A. Cooper, Virgil E. Harsh,Neal Larue, Howard B. Core, Jay Hartley, Robert W. Lattie, Arnrnere Cott, Ruth W. Hartung, Ruth F. Lawyer, Ruby Cox, WalterG. Hase, Luther D. Lee,Mary A. Criss, Verlin J. Hastings, Kenneth J. Lefert, Harold A. Critchfield, Carroll B. Hawkins, Charley F. Lehr, Terri A. Danielson, John A. Hawkins, Larry Leiker, Irma M. Davis,Roy Haynes, James D. Lenoir, C. C Jr. Day, Virginia Heinrichs, Beth M. LeRoy, Sally J. Decker, Glenn Hellman, Dale Lindensmith, Don Demint, Kathryn Henderson, Almeda M. Logue,E. E. Dempsey, John Henderson, lloyd Lohmann, Edmund W. Dennis, W.R. Herron, Alva D. Lowe, Clifford J. Diller, Robert N. Hess, Chester W. Lusk, Keith N. Dinkel, Marvin Hill, Delores Marr, Donald W. Disque, Chester L. Hill, Mary Jean Marten, Capt. John S. Dougan, John J. 1 Hinnen, Richard L. Mashke, Lynne Draper, Angelika B. 1 Hodge, Richard H. Mauldin, Vernon L Dmper, Eurlonda Holmberg, Calvin Maulin, Gary E. Dukes, Gracie Hoover, Newell B. McDonald, Carl Duncan, Duane E. Horalek, James McDonnell, Charles V. DuIkes, Andrew L. Howland, Nonnan McGlasson, D. E. Edmunds, Leroy Huerter, Leonard G. McHenry, Harold H. Egger, Howard E. Hughes, John R. Jr. McIntyre, Martin S. Elliott, Martha E. Hull, George Melvin McLaughlin, Joan D. Ellison, James C. Hunter, Violet J. McLeod, Anna Mae Enloe, Eugene W. Hurlbut, Kenneth H. Sr. 1 McLeod, Donald 1 Ensminger, Howard E. Irvin, Dorothy M. 1 Megonigle, Carman 1 Fair, Dennis A. Irving, George D. Meinhardt, Rita Farran, Joe Jackson, William E. 1 Miller, Charles D. Fink, Clarence G. Jaenson, Ernest Miller, Clarence Fisher, Larence L. Jamison, Virgil Miller, Roland J. Flattery, Dorothy Glee Johnson, Harold T. Miller, Victor L. Foster, Walter Johnson, Harvcey J. Mollohan, Ronald P. Freeman, Roy Johnson, Jerry L. Monroe, Delores J. Gaskill, Clarence A. Johnson, Nathaniel Moore, Delbert G. Gavin, David J. Johnson, Wilber Moore, George C. German, Sharon Johnston, J. V. Morrison, Bettie Ghrist, George N. Jones, Karen B. Morrow, Capt. Cleo Giesen, Jane A. Jordan, Charley S. Mosier, Daryl E. Gillies, Howard G. Kearns, Donald Mossman, Florence V. Gillis, Gary W. Keffer, Floyd Motes, Virgie L Goddard, Della M. Kelly, M.G. Murphy, Dallas K. Grahan, Ralph Kimberlin, Loy Lee Nace, Mrs. T.E. Gmy, John W. King, Rodney G. Nelson, Jerry Gmy,Ross K1.arnm, Paul Nelson, Ted E. CcmliImed ecmliImed Continued

63. Former Employees with Number Former Employees with Number Former Employees with Number Permanent Passes of Passes Permanent Passes of Passes Permanent Passes of Passes

Nickel, Helen M. Simpson, Dorotha Whitbeck, Harry C. Nixon, James Edward Siwek, Alicia J. White, William H. Norris, Gerald K. Smith, Leland E. Widick, Cecil V. Ott, Morris Smith, Merrill J. Wilkerson, Dale M. Pantoja, Michael R. Smith, Thomas C. Wilkes, Loran A. Parry, Floyd J. Smith,W.W, Wilkes, Shirley J. Patterson, Arthur R. Snyder, James A. Williams, David R. Patty, Brenda K. Snyder, Loren B. Williams, James D. Perry, Juanita M. Spade, Warren L. Williams, Rodney S. Peterson, Merle R. Stade, Ed C. Williams, Sharon Pfannenstiel,~ph Stade, Roy E. Willis, Robert J. Phillips, Harold Starr, Helen Wilson, Freddy Phillips, Russell D. Startz, Charles K. Wilson, John W. Philo, Denzel W. Stein, Robert E. Wilson, Richard Pierce, Dale Stephens, Max L. Wimegarne~~ph Pim,Nonnan Stone, T.W. Windsor, Carl W. Pittman, Jack M. Storey, Brad L. Winzer, Robert L Poe, Sameul D. Stouder, James H. Woolery, Donald P. Pooler, Charles G. Strege, Clarnece E. Worden, Albert C. Popplewell, Jimmie L. Strickland, C. E. Wyrick, Arthur M. Powell, Robert Suluki, Ameesah A. Yoder, Edna F. Preisner, Robert E. Sutton, Mary V. Young, J. Orville Prewitt, Ralph Sweigart, John B. Zimmennan, W.K. Proehl, Jesse J. Templeton, Edgar TOTAL 354 Pugh, Mrs. Emmett Templeton, John C. Purdin, Elizabeth A. Teter, James M. Pude, Gary R. Thomas, John E. Ramsey, Billy L. Thomas, Sharon L. Rawlings, Ray H. Thomas, William E. Reardon, Edward J. Thornton,Wanda Richards, Con Traylor, Allen Ridgway, Vergil V Trueblood,Martin Rockers, Dana Tucker, Alice Rockers, Leon F. Tuggle, Kenneth R. Rodina, Stephen C. Turpin, Willam C. Roewert, Eldon H. Tuttle, Harold Rowsey, Cecil M. Urich, Sr., Walter T. Russell, Keith Jr. Vail, Claude M. Sample, Robert G. VeWarren, Sharon Scanlan,Richard Waetzig, Valerie Schaeffer, Wm. R. Wakeman, John G. Schenck, Kenneth H. Walters, Thomas W. Schiesser, D. Glenn Walton, Glenda Schneider, Elmer D. Watridge, Robert E. Schnittker, Caren S. Waugh, Lee E. Schwinn, Francis W. Webb, John J. Jr. Scott, Clifford B. Webb, Laverne B. Scott, Patricia Weber, John H. Sellers, Doris L. Weddle, William V. Sheets, Dale D. Welcher, Cecil E. Sherrer, D. Gene Wessel, Henry Shoulders, Jack West, Lawrence B. Shults, Clarence A. Jr. Westgate, Robert ContimJed ContimJed

64. Current Employees with Number Current Employees with Number Current Employees with Number Temporary Passes of Passes Temporary Passes of Passes Temporary Passes of Passes

Aitken, Lorraine E. Byers, Dean A. Dunham, Brian D. Allen, Donald L. Callahan, lisa Dunn, Larry C. Allen, Gena D. Callender, Raymond D. Durham, Orval Allen, Lester W. Campbell, Gary M. Durst, Enna O. Allison, Sidney O. Cannella, Dorothy M. Easterly, Kenneth G. Amirault, Mary Jo Carpenter, Larry Eaton, Chuck W. Anderson, Douglas Carter, Richard Ebberts, Bret W. Andrews, Kathryn Ann Castaneda, Pete Edgin, Debra K. Arsenault, Charles Paul Caudillo, Patricia Edwards, Preston Asbridge, Suzanne B. Chamness, James Eldringhoff, Charles J. Bachelder, Greta A. Chapman, Sheree M. Emig, Erica L. Bailey, Robert M. Cherveny, Waynne L. Endicott, Deedee L. Baker, Gayla J. Church, Carrie L. Ensign, Darren D. Ball, Daryl K. Cillessen, John E. Ensign, Diana C. Ballard, Susan E. ClaIk, James L. Ensign, Pearl Barley, Rhonda CIarl<:, Larry L. Eskridge, Judy L. Barnes, Lee R. Colburn, Darlene R. Estes, Tracy A. Barngrover, Deborah K. Collins, Jerry L. Evans, Bettie B. Barr, Bradley C. Colwell, Jenifer L. Evans, Ralph Barraclough, Markita S. Compton, Carl W. Fay, John J. Bartlow, Todd R. Converse, Robert C. Ferren, Judy A. Batemon, Ricky E. Cook, Darlene Fisher, Carl A. Bates, Deborah A. Cook, Donna L. Flowers, Robert D. Bathurst, Ronald Cook, Julius Flynn, Rosa Maria Baughman, 'Catherine L. Coopersmith, Lama L. Fogel, Carl E. Beach, Merle K. Cope, William G. Fogo,R.D. Bell, Dale Ray Copeland, Leland R. Folsom, Margaret A. Bell, Glenna M. Cornett, Evelyn C. Forgy, Dennis M. Bennett, Kenneth L. Cox, Glen E. Foster, Darrell L. Berggren, Scott L. , Crabtree, Richard W. Foster, Jack R. Berry, Angelic C. Cramer, Clyde D. Foster, Jeanne B. Biggart, Marc P. Creed, Mark W. Foster, Mitchell L. Birdcreek, Amos B. Cripps, Ronald L. Frevele, Earl J. Jr. Boney, Justin L. Criqri, WiI1aim D. Fritchman, Elden H. Bosworth, Daniel E. Crisler, James L. Gaddie, Cindra L. Bowen, Benny R. Crook, Elaine Gallentine, Jackie L. Bowling, Robert A, Crook, Jerry Garretson, Tony J. Bradford, Thomas E. Cross, Jeffrey J. Gast, Marvin A. Bradley, Lynne Crumb, Clifford Bruce Gates, Robert A Briggs, Albert L. Currie, Kristie L. Gerdes, Olen Britt, John Curry, Beverly Gilchrist, Judith K. Brockman, Howard Cutchlow, Shelly M. Gilmore, Naomi R. Brotherton, Betty J. Daniels, Charles W. Glaser, Jon Brown, Jake Davis, Jeffrey B. Glenn, Velta L. Brown, Ova Deen, Lance M. Glover, Dean Browning, Roger L. DeMaranville, Scott Goddard, Frank B. Brush, Jr., William R. Derr, Roy E. Godwin, Lucas J. Bryan, Patricia DeWeese, Joyce E. Gonzalez, Dana L. Buckbee, Anna J. Diaz, Benjamin M. Gotlman, Mary Susan Buller, Patricia Diehl, Cora A. Graham, Peggy Buller, Wayland Dies, Donnavon A. Graham, Rick Burl::ett, James M. Dobbs, Wesley Graves, Charlene L. Burns, David K. Dobbs, Wesley R. Graves, Michael Bums, Virginia Dove, Marilyn V. Griffith, Ronald L. Burris, Bill K. Dryer, Brenda D. Hackler, Thomas W. Byers, Cherri (Sue) Dudley, Bryan Halbett, Daniel Jay Canlim1ed ConIim1ed Continued

65. Current Employees with 'Number ' Current Employees with Number Current Employees with Number Temporary Passes of Passes Temporary Passes of Passes Temporary Passes of Passes

Hall, Leroy E. Kimball, E. Wayne Miller, Daniel J. Hamlett, James H. Kimberlin, Dan R Miller, Gary 1.. Hammett, Ethel J. Kitzenberger, Dean Mitchell, Jack E. Hardesty, Nancy K. Klamm, Thomas E. Moody, Beth M. Harding, Willian G. Klamm, Tony W. Moody, Vickie J. Harsh, Terri 1.. Klassen, Richard Morales, Natividad Hase, Vivian 1.. Kloxin, Jerry D. Murray, Bruce Hawkins, Robert L. Knaup, Charles W. Nail, Gary D. Heckennan, Anita C. Knetzer, Helen J. Neal, Yolanda N. Helurns, Roy E. Knox, Charles Nearhood, Mary C. Hendrix, Cheryl 1.. Knox, Kathleen Nesler, Dennis A. Hennan, Craig 1.. Komp, Ronald D. Newcomer, Carl G. Herron, Dale E. Lamb, Rodney Newland, Loretta M. Heyman, John C. Langdon, Debbie L. Newman, Milo B. Higgenbotham, Neil H. Langdon, Rick M. Nixon, Darin 1.. High, Vaughn C. Larabee, James B. Nixon, Linda S. High, Vemon T. Larison, George A. Nuss, Sidney W. Hinckle, Delbert G. Jr. Lauritzen, Frederick J. Nuttle, Jim, Jr. Hochard, Joan E. Lawrence, Paula O'Flaherty, Lawrence J. Hodges, Charles A. Lehman, Glen R. Jr. Olson, Richard Hoeven, Nancy J. Lemons, Tonja L. Oney, Keith B. Hogoboom, John T. Leonard, Mason S. Orton, Marion J. Holland, Carolyn J. Lewis, Robert D. Oshel, Roger N. Holloway, Margaret E. liggett, Robin D. Parks, Gary W. Hooks, Leah L. lightle, Martin Paschal, Edward D. Hoover, Traci A. Lockhart, Jason S. Patterson, Edward A. Hopper, Gloria M. Long,EarIR Patterson, Janis L. Homing, Qujntin J. Love, Tim A. Pearson, Scippy E. Houlton, Steven Lozano, Jorge Pennington, Marie 1.. Howerton, Michael Luse, Robert E. Penson, Steve Howlett, Randy Mahoney, Kenneth Peterson, Kent G. Hubbard, Jeremy D. Maike, Gerald P. Peterson, Michael D. Huckins, Candra C. Manning, Dwaine L. Pinick, Mary K. Huerta, Rosie Manthei, Charles o. Plett, Timothy Hull, Mary K. Mark, Paul Plummer, Forrest B. Istas, Robert M. Marshall, Eldon o. Polk, Sheila Jackson, Ami E. Martin, Mary D. Popplewell, Greg A. Jackson, Brian 1.. Martin, Myrtle 1.. Potter, Jon H. Jackson, DanielL. Maslak, Janet L. Powell, Stacy D. Jackson, Wanda Mason, Pat C. Pressnell, Rodney F. Jackson, WilliamC. Mavity, Gene W. Ralstin, John C. Johnson, Charles Philip May, Marlin R. Rankin, Dorothy J. Johnson, Cynthia S. Maycock, Jackie A. Regnary, Donna M. Johnson, Delbert L. McCammon, Anne R Renolds, Steven Johnson, Esther McCulley, MichaelN. Resser, Delbert D. Johnson, Jane E. 1 McDonald, Dorothy M. Robbins, Danny R Johnson, Ronald L. 1 McHenry, Devy J. Roberson, Darren C. Jones, Nancy L. McKenzie, Howard N. Roberts, Mark A. Jones, Stephanie L. McLaughlin, Eric Rock, Robert R. Juancito, Jolita C. McMahon, WandaJ. Rodgers, Thomas A. Judd, Allen G. McMillian, Suzanne Roe, EricD. Keffer, Mary K. Means, Charles E. Ross, Rodney E. Keith, Barbara A. Meisch, Bruce N. Ruff, John D. Kelly, Elizabeth Mendoza, Regina Sadler, Elaine K. Kelly, Keith I. 1 Merriman, Suzann Sandahl, Frank E. Kilgore, Jr., William S. 1 Metcalf, Christy L. Sanders, Charles E. Continued Continued Ccmtilrued

66. €urreilt Employees with Number Current Employees with Number Current Employees with Number Temporary Passes of Passes Temporary Passes of Passes Temporary Passes of Passes

Scafe, Christopher J. Taylor, Lasandra L. Zeiner, Linda C. Schimmel, Raymond Teague, Marvin L. TOTAL 447 Schmidt, Tim Teter, A. Eldon Schneider, Julia M. Thibault, Richard Schonerbeck, Tonya Thi1I,Ralph Scott, Robert J. Thomas, Karen D. Sears, Wendy L. Thomas, Pamela Seward, Phyllis Thomas, Sylvia A. Sharp, Melvin D. Thomas, Villa J. Sharp, Nadine L. Thompson, Ted L. Sheetz, Charles J. Thornton, Bryant Shirey, Paul Threadgill, Kimberly D. Sigley, Barbara A. Tinker, Richard H Sill, Becky A. Trissell, Beverly S. Simmons, Belinda L. Turner, Preston Sinda, Guy E. UhIenhake, Mike D. Sipes, Nancy A. Uhlrich, David E. Slade, Richard Unfred, Bruce A. Slusser, Galen R. Uttinger, Lowell A. Smith, Generose M. VanBuskirlc, Duane Smith, Karla K. Vandenberg, Terry J. Smith, Maudine Vandenneyden,Peggy Smith, Sharon L. Vanderslice, Sr., Nathan Snyder, Brian F. Vargas, Connie J. Snyder, Jay Vaughn, Sharon Spade, Leland Vaughn,Sherri Spade, Willard 1 Vega, Norma Sparke, John R. 1 Villa, Rita K. Sparr, Dale C. Waetzig, Harold E. Spillman, Jimmy R. Walbridge, Douglas E. Sprague, Thomas Walters, B. Louise Stafford, Harold E. Watkins, Candy Stalling, William T. Waymire, Darlene L. Stalnaker, Joan Weaver, Shirley M. Standley, Edward A. Wecker, Stephen M Stanley, Patrical Wehmeyer, Michael E. Steinert, Diana Whalen, J. P. Steinman, Jillene D. Whelpley, Marjorie K. Stephenson, Sue E. White, Danny R. Stevens, Patricia White, Jr. Roy Stewart, Cheryl L. Whitmore, Joyce M. Stewart, Dennis E. Wichman, Clinton D. Stewart, Paul Wllkins, Eugene D. Stice, Peggy Williams, Jay Dee Storey, Nancy Willis, Janet M. Stratton, Teresa A. Wilson, David E. Strunk, Janet J. Wilson, Kathy A. Swain, Lance L. Wiltse, Marty R. Sweigart, Stephen Wmkle, Harold B. Jr. Swift, Melvin D. Wmkle, Randy Swim, Mark A. Wood, EvaP. Talkington, Randy Wurdeman, Thomas Tammany, Edward C. Yankovich, Jerry R. Tatum, Royce E. Young, Ronald F. Taylor, Barbara L. Zavala, Pete Continued Continued

67. Highway Patrol Highway Patrol Highway Patrol ,Other Than Troop G Number Other Than Troop G Number Other Than Troop G Number Temporary Passes of Passes Temporary Passes of Passes Temporary Passes of Passes

Ackennan, Al Lockett, Tim Witham, Joseph D. Alexander, Paul F. Lohse, Rich Woodard, Michael R Allen, Glenn M. Lueske, Raymond Wright, Mark A. Allen, Michael Maag,Roger Zeller, Steve Backus, Mike Maple, Larry L. TOTAL 116 Bailiff, Ray Maple, Terry L. Baker, Robert D. Mannon, John M. Highway Patrol Baughman, Roger L. Martin, Dennis E. KTA's Troop G Number Baumchen, Larry Mayfield, N. Scott Temporary Passes of Passes Behm,Paul McCune, Marc J. Berner, Terry L. McGuire, Kelly Amrein, Edwin F. Blow, Jack B. McKinney, Carl Baker, Gary Bostain, Phillip A. McKinzie, Steve Barnhardt, Ronnie D. Bott, Joseph A. Metz, Kenneth S. Barta, Major Richard Brownlee, Donald W. Miller, Jacquelyn Bernhardt, Bradley N. Bryan, James T. Mitchell, Robert C. Brockman, James L. Cackler, Donald W. Moomau, Kyle L. Brown, Dan L. Canupp, Arthur D. Nicholson, Michael J. Brownlee, Capt. Donald W. Carlton, Damon L. Pace, Paul Carver, Michael L. Catania, Tom Pankratz, Charles Child, Donald D. Clary, Jerry Pape, Galen J. Cmwford, Charles B. Clayton, Jamison R. Patterson, Ronald Foster, Larry Cole, Rodney Peterson, Morris F. Garcia, Gene D. Conboy, Mark A. Petrey, David Gonzales, Gilbert Connors, Leo L. Petrigna, Alex Guinn, Dennis D. Conover, Michael J. Porter, David Baak, Gary Corp, David Prideaux, Anthony Baegert, Dirk L. Currie, Gilbert A. Railsback, Rex Hanlon, Ed Dean,Kent Reitmeyer, Robin Harsh, Robert R. Dickinson, Howard Roger, Dennis Herbers, Larry Dickinson, Michele R. Roland, Larry Hennan, Gary L. Drake, Ed Rourke, Kevin F. Hornbaker, Major David Duncan, Douglas Rushmeyer, Lance J. Hover, Michael C. Eichkom, John A. Sanchez,Al Hughes, Gemld L. Evinger, Suzanne Sanders, Ron Keesling, Michael D. Fox, Larry A. Sanjmjo, Hector Kilgore, Bill Gaunt, John R. Schimmel, John A. Ladner, Robert D. Gonzales, Dennis Seacat, Blake McCollum, Col Lonnie R. Gonzales, Raymon R. Sharp, Bob McCoy, Steven R. Grant, Samuel G. Siebert, Richard D, Metz, Kenneth S. Griffin, Robert R Siecgrist, Charles Owens, Michael Hann,Don Smith, Bmdley A. Peck, Douglas A. Heady, William D. Smith, Daniel D. Ragan, Steven Herridge, A.J. Starr, Howard Rollins, Jan L. Heryford, Jeff Stout, Jr., William Scott, Lt. Col Terry J. Huerter, David Swihart, Gale Sears, Donald P. Jacobs, Bill Theis, James Sharp, Robert J. Jensen, Steve Tilford, Timothy L. Smith, Jerry E. Jones, John M. Todd,James Stauffer, James E. Joy, Brent L. VanBuren, Brent L. Stohr, Thomas E. Justice, Ken Vesey,Ed Swart, Kenneth W. Kimball, C.W. Westfall, George Tangeman, Major Dennis C. Koenig, Karl J. Wheatley, Wilbur Tate, Douglas G. Kmmer, Martin Whitenack, Bill Taylor, Lannon M Kmpe, Charles Wickham-Farris, Tmcey Thompson, Ted Kruger, Dek Winn, Darvin Vohs, Edward G. Continued Continued TOTAL 46

68. Other Law Enforcement Number Contractors & Others Number Vendors with Number Officials-Temporary Passes of Passes with Temporary Passes of Passes Temporary Passes of Passes

K.C. Chief of Police 2 AI1en Ready Mix 12 Costal Branded Marketing 95 Butler County Sheriff 1 Allied Laboratories Hardee's 421 Butler County Undersheriff FIasherCo. 6 McDonald's 86 Chase County Sheriff The above vondom have tumarmmd passes only Chase County Undersheriff Ritchie Paving 5 Douglas County Sheriff Utility Contractors 26 Costal Branded Marketing 18 Douglas County Undersheriff The above cODlnicIDm have tumarmmd posses only Hardee's 8 Leavenworth County Sheriff Dept. of Economic Development 1 Leavenworth County Undersheriff McDonald's 3 Lyon County Sheriff Allen's Concrete 6 TOTAL 632 Lyon County Undersheriff Arrow Wrecker 13 Osage County Sheriff Auto Inn Wrecker 16 Osage County Undersheriff Auto Medic 4 Sedgwick County Sheriff Bank IV 1 Sedgwick County Undersheriff Brown's Super Service 13 Shawnee County Sheriff E. J. Edsall Auto Service 6 Shawnee County Undersheriff FIasherCo. 4 Sumner County Sherrif Flint Hills Towing 6 Sumner County Undersheriff Heartland Towing 5 Wyandotte County Sheriff Hillcrest Wrecker & Garage 8 Wyandotte County Undersheriff Howard Needles 2 TOTAL 22 K&S Eastside Amoco 4 KDOT Tower Inspectors 5 Ken's Auto Tow 8 Merrick Tow Service 5 Midwest Tow Service 14 Mike's Standard 1 O.K. Wrecker 4 Ptl Towing & Auto Repair 4 Ritchie Paving 14 Robinson Wrecker Service 3 Ron's Service 5 Sauerwein Construstion Co. 6 Strickland Road Service 3 Utility Contractors 3 We Tow 'em Wrecker Service 7 Wiebe Tire and Supply 7 William's Automotive 7 TOTAL 234

NUMBER OF PERMANENT PASSES ISSUED =460 NUMBER OF TEMPORARY PASSES ISSUED =1,497

TOTAL PASSES ISSUED = 1,957

69.

AppendixF

Agency Responses

On December 20, 1993, we provided copies of the draft audit report to the Kansas Turnpike Authority and the Department of Transportation. The agencies' written responses are included as this Appendix..

The Authority and the Department provided us with separate' listings of .". . suggestions for .correctionsand· clarifications. We 'carefully reviewed these listings and made a ,number of changes to improve' the accuracy and clarity of the report. However, these changes did not alter any of the findings or 'conclusion's'of the report.

In revising the report, on page 44 we incorrectly added a clause at the end of the wrong sentence<.. Our mistake categorized the 1993 bond issue as a straight­ forward issue. We intended to categorize the 1993 issue as a large, complex issue. The portion of the Authority's response to the draft audit report concerning the Authority's bond issues was based on the incorrect language. We regret the confusion caused by our error.

. J'B its respon!;e, the Kansas Turnpike Authority stated that it included reports from Public Financial Management and Coopers & Lybrand as part of its response. Because of the volume of these reports, only the summary pages of the Coopers & Lybrand report were included in this appendix.. Complete copies of these two reports were distributed to the members of the Post Audit Committee, and are available from the Legislative Division of Post Audit upon request.

71. ST A TE OF KANSAS

KANSAS DEPARTMENT OF TRANSPORTATION Michael L. Johnston Docking State Office Building Joan Finney Secretary of Transportation Tope ka 66612 -1568 Govemor of Kallsas (913) 296-3566 FAX - (913) 296-1095

December 30, 1993 ECEIVED RDEC .3 0 1993

Barbara J. Hinton LEGISLATIVE POST AUDIT Legislative Post Auditor 800 S.W. Jackson, Suite 1200 Topeka, Kansas 66612-2212

Dear Ms. Hinton:

Thank you for the opportunity to review the draft report, Reviewing the Operations of the Kansas Turnpike Authority. Although this was not an audit of the Department of Transportation, we believe it is important that the comparisons made in the audit be both fair and accurate. We appreciate the efforts your staff made throughout their audit work to ensure that they understood the Department's operations and the many legitimate reasons why those operations and the accompanying costs differ from those of the Kansas Turnpike Authority.

Overall, we believe the information in the draft report is presented fairly and accurately. We do, however, have some concern about the following points:

1. The tone of the narrative 'concerning KDOT's maintenance efforts may lead some readers to assume that the Department is not doing all it can to preserve the condition of the Interstate. For example, on page 10, we believe it would be more accurate to say that the KTA provides a higher level of service, rather than making the statement that it is being maintained better. In the second and last paragraphs on that page, saying KDOT "allows the Interstate to deteriorate" because of funding is not accurate. Similar comments are made on pages 14, 17, and 18. The real problem is that we do not have enough state money to maintain the Interstate at a high level. The use of federal funds has, until recently, required expenditure of significant amounts of funds to address safety issues like bridge rail, guardrail, and side slopes, when all that is needed is resurfacing. These requirements have been slightly relaxed recently but are still more restrictive than if we use only state money.

72. 2. On pages 20 and 21, we question the comparison of our Chief of Fiscal Services to KTA's Accounting Systems Manager. Our Chief of Fiscal Services supervises our purchasing~ accounting, and fiscal operations, while KTA has separated these duties" Our Chief of Fiscal Services is probably more comparable to KTA's controller, and their accounting systems manager is probably more comparable to one of our Chief's assistants.

3. On page 48, the last two sentences of the second full paragraph are unclear. If the bonds are defeased, bond counsel apparently indicated any source of revenue can be used. If what is being discussed is a scenario wherein the bonds would not be defeased, that point is not made.

4. .. On page 49, in the table and following paragraphs, the estimate of $75 million to reconstruct the KTA from Topeka to Kansas City does not include all of the work that would need to be done to meet federal requirements. It may be that the estimate assumed only paving work would be done and nothing else. A more realistic estimate of KDOT's costs would take into account the additional work that would be required. Three of our recent reconstruction projects on 1-70 in Geary and Dickinson counties totaled $38.5 million for 17 miles, or an average of $2.26 million per mile. Using this as an average for rural Interstate would produce an estimate of about $108 million to reconstruct the 47.5 miles of KTA from the South Topeka entrance to the Eastern Terminal. This estimate would need to be adjusted to account for several factors: (1 lit is based on two- to three-year-old prices; (2) no inflation for the 10-year construction period. mentioned is calculated; (3) the projects on 1-70 had much better geometrics than the older KTA design and therefore required less upgrading. When those factors are taken into account, the actual cost of reconstruction over the 1 O-year period would probably be in the range of $150 to $200 million.

Thank you again for the opportunity to provide these comments. If I can be of further assistance, please let me know.

73. KANSAS TURNPIKE AUTHORITY

9401 EAST KELLOGG WICHITA. KANSAS 67207-1804 (316) 682-4537 FAX (316) 682-1201

December 30, 1993

Ms. Barbara J. Hinton Legislative Post Audit Committee 800 SW Jackson, Suite 1200 Topeka, Kansas 66612-2212

Re: Reviewing the Operations of the Kansas Turnpike Authority

Dear Ms. Hinton:

The Kansas ·Turnpike Authority· 'would ,like to commend .Legislative· Post Audit personnel for professionally addressing a very difficult and complex comparison of the Kansas Turnpike Authority's operation with the Kansas Department of Transportation's. As the audit itself states, these two organizations share a similar goal of providing a smooth, safe, and comfortable ride for people, but major differences exist between the agencies which cause them to go about their duties differently. The Department of Transportation is a state agency, funded entirely by taxes and responsible for a variety of roads throughout the state of Kansas. The Kansas Turnpike Authority oversees a specific roadway and is supported entirely by tolls.

Through the process of the audit, the Kansas Turnpike Authority believes Legislative Post Audit personnel generally understood these differences and reported them fairly. The Kansas Turnpike Authority appreciates the hours of work Post Audit personnel spent examining these complex issues and attempting to make fair comparisons of these two different agencies.

For the most part, the Kansas Turnpike Authority concurs with the conclusions in this audit and appreciates their recommendations. However, the Kansas Turnpike Authority believes there are some issues which require further clarification. The following information is in response to the draft of the audit. We have also included the Public Financial Management and Coopers & Lybrand reports as part of our response. 74. NICK M. BADWEY. Chairman REP. REX CROWELL. Secretary-Treasurer SEN. BEN VIDRICKSEN R.D. POGO. P.E. ElDorado Longton Salina Chief Enqineer-ManBSJer

SEN. RICHARD R. ROCK SEN. MICHAEL L. JOHNSTON PAUL V. DUGAN JON GLASER Vice-Chairman Sec. of Trans. - IIDOT General Counsel Controller Arllansas City Parsons Asst. Secretary-Treasurer Ms. Barbara J. Hinton December 30, 1993 Page 2

1. On a per-mile basis, how do operating costs and staff"mg levels compare for the Kansas Turnpike Authority and the Kansas Department of Transportation?

Legislative Post Audit made three comparisons of operating costs: total operating costs, maintenance costs, and life-cycle costs. The frrst two comparisons did not include reconstruction costs, "Although everyone agreed that the most accurate comparisons would take into account the life-cycle costs (construction, maintenance, and reconstruction) for all roads, ... " (page 14) Therefore, we only agree with the third comparison. Legislative Post Audit findings state, " ... when the total costs of building, reconstructing, and maintaining similar sections of highway were compared over the lives of the highways--which attempts to capture the cost differences in the way the two entities maintain or reconstruct their roadways--we found the Authority generally spent less per lane mile than the Department." (page 12)

The report goes on to say, "Department of Transportation officials agree that the ,Authority provides the, Turnpike with a higher level of "'service than the Department provides to State ffighways." (page 10) Further, "It is generally agreed that the Authority provides more frequent maintenance than most State highways receive, and a higher level of service in such areas as mowing and snow removal. " (page 13)

2. How do salary levels and fringe benefits compare for the Kansas Turnpike Authority and the Kansas Department of Transportation?

The Legislative Post Audit report shows the Authority's salaries generally were below the Department's in 1988, and because of cost-of-living increases, now are higher in some categories. "The Authority has upgraded its salary structure since 1988, when its salaries generally were lower than the Department's." (page 19) The report states that, "From July 1988 to July 1993 the Consumer Price Index increased about 22 percent." (page 20) This increase corresponds directly with the increases in the Authority's overall salary structure.

Legislative Post Audit found one Authority employee classification, Auto Mechanic I, increased 37 percent. This position was restructured in 1989 and the current salary level is still below the Department's similar position. (page 20)

The report shows, "The Kansas Turnpike Authority's benefits generally appear to be in-line with or somewhat better than benefits provided in other states." (page 22) When Authority benefits are compared with the Department's, the main difference is

75. Ms. Barbara 1. Hinton December 30, 1993 Page 3 that the Authority provides family health insurance coverage while the Department provides coverage for the employee only. (page 22) The Authority believes that the family health insurance program is appropriate and necessary to attract and retain qualified KTA personnel. This is a policy that has been in place virtually since the Turnpike's inception.

3. Does the Kansas Turnpike Authority have adequate operational plans, procedures, and controls?

The Legislative Post Audit found the Turnpike to have in place good operational controls and planning procedures. "The Kansas Turnpike Authority generally has adequate practices to help ensure that the organization operates efficiently." (page 28) The report also states, "Through this work we learned the Authority's auditors have not identified any material weaknesses which would impact the Authority's financial statements." (page 28)

The report goes on to make three recommendations:

1. "To ensure that the Kansas Turnpike Authority does not pay for expenses it did not intend to incur, it should require receipts or other forms of documentation for expenses employees and Board members charge on credit cards issued in the Authority's name." (page 36) Authority'staff recommends· implementation of this recommendation.

2. The second recommendation has three parts:

"a. Developing a procedure to review Statements of Substantial Interest submitted by Board members and employees to ensure that purchases are not made from businesses listed on those forms." (page 36) The report states, "State law prohibits the Authority from contracting with its employees or Board members." (page 30) The Authority intends to periodically check the Statements of Substantial Interest with future purchases.

"b. Providing written documentation stating the circumstances and any reasons for deviating from the Authority's policy of seeking written bids on purchases exceeding $10,000." (page 36) Authority staff recommends written documentation be kept for any deviation from current procedures.

76. Ms. Barbara J. Hinton December 30, 1993 Page 4

"c. Establishing a policy that would prohibit the Turnpike Authority from doing business with former Board members for a specified period of time after they are no longer on the Board, or at least ensure that any such transactions are done on a competitive-bid basis." (page 36) Purchases of this nature have and will continue to be made on a competitive-bid basis.

3. The third recommendation deals with the construction of new interchanges and has two parts:

"a. Perform a break-even analysis that pulls together for Board members the anticipated costs of any proposed interchanges, the minimum level of traffic that is anticipated to be needed to cover those costs, and the projected level of traffic that is anticipated for the interchange." (page 36) That information has always been provided to the Board in two different reports. The composite analysis will be a part of new interchange studies.

"b. ConduCt a follow-up analysis of traffic flows and revenues generated by new interchanges' after they have been built to determine whether they are meeting projections and covering their costs." (page 36) This analysis can be completed for any new interchanges.

4. Do there appear ,to be any problems with the way the Kansas Turnpike Authority handled its recent bond issues?

In response to question No.4, we agree with the Audit that, "The Authority generally has done well financially in its recent bond issuances," (page 37); "The Authority has achieved a present-value savings of more than $17 million since 1985 by refinancing its , bonds, ",(page 37); and "The Authority obtained favorable interest rates on its recent bond issues." (page 38)

The report makes two recommendations:

1. "When working on a complex bond issue, the Authority should use a financial advisor to assist it in selecting its underwriter and bond counsel, in planning the bond issue, and in otherwise protecting the Authority's interests. The Authority should use a request-for-proposal process to choose the financial advisor." (page 46) Legislative Post Audit states, "Financial advisors are very expensive and may not be cost effective on straight-forward bond issues like the 1993 Authority bond issue." (page 44)

77. Ms. Barbara 1. Hinton December 30, 1993 Page 5

They also state, "We reviewed the methodology used by Public Financial Management, and concluded that its findings were reliable. The report concluded that the interest rates for the Authority's bond issue were better than would have been expected in the marketplace for a bond with a similar rating (insured AAA). It also noted that the interest rates on the Authority's 1993 bonds were the same as or lower than comparable bonds that were sold at the same time as the Authority bonds." (page 38) "During its analysis of the 1993 bond issue, Public Financial Management also collected information on the Authority's 1990 and 1986 bond issues. Those bonds received very favorable interest rates as well. In fact, interest rates on the 1990 bond issue were significantly lower than would have been expected for bonds with similar ratings." (page 38)

With results such as these, and given the expense incurred in retaining a fmancial advisor, particularly " ••• on straight-forward bond issues like the 1993 Authority bond issue, II (page 44), the Authority believes the. benefIt of . employing a .fmancial· advisor would not outweigh its :-cost. ,However,;'the Authority will consider the Legislative Post Audit recommendation to hire a fmancial advisor by means of request-for-proposal for any future complex bond issues.

2. "To ensure that the Authority obtains the best possible services at the lowest price; the Authority "should consider 'soliciting proposals from· more than' six underwriting firms for bond issues." (page 46) The Authority believes that soliciting proposals from six highly competitive underwriting firms adequately ensures that the Authority is obtaining the best possible bid; however, the Authority will take this recommendation into consideration in any future bond issues.

5. What would it cost the State to payoff the Authority's bonds and operate the Kansas Turnpike as a toll-free road?

We agree with the Legislative Post Audit Report's conclusion that, "Finally, we estimated it would likely cost the State hundreds of millions of dollars to retire the Authority's outstanding debt and operate the Turnpike as a toll-free road."(page 2)

78. Ms. Barbara J. Hinton December 30, 1993 Page 6

We appreciate the opportunity to offer our comments on Post Audit's review of the Authority's operations. Please feel free to contact me or my staff regarding any questions you may have concerning the Kansas Turnpike Authority.

Sincerely,

KANSAS TURNPIKE AUTHORITY

R. D. FOGO, P. E. Chief Engineer-Manager

RDF:jle Enclosures

79. certified PUbliC accountants Suite 900 In principal areas of the world Coopers City Center Square 1100 Main & Lybrand Kansas City. MISSOUri 64105-2140

telephone (816) 474-6800 December 14, 1993

Nick Badwey, Chairman Kansas Turnpike Authority 9401 E. Kellogg Wichita, KS 67207-1804

Dear Mr. Badwey:

This is our letter of findings in connection with the operating efficiency of the Kansas Turnpike Authority (KT A).

SUMMARY

Our study showed the KT A to be an efficient turnpike in comparison with several comparable turnpikes in the United States in terms of maintenance and operating costs per mile. Further, the KTA's toll rates are among the lowest in the country. The KTA appears to have adequate internal controls in place to capture relevant information and monitor costs of operations. Finally, the KTA has issued bonds at a relatively low cost and has achieved significant savings from refunding debt.

Our findings were based on studying and analyzing the following:

o Operating and maintenance costs. o Salary and wage structure. o Toll rates. o Certain defined internal controls. o Debt financing of the KT A.

We compared the KT A's operating and maintenance costs per mile of operation for the last 5 years to 7 other comparable turnpikes. The KTA's costs per mile were lower than all but 1 of the other comparable turnpikes.

The KTA's wage and salary structures were compared to national industry averages and to the Kansas Department of Transportation's (KDOT). Both comparisons showed the KTA was paying a comparable wage for comparable services.

Toll rates were studied for the KT A and 11 other turnpikes representing over 90 % of the toll road miles in the United States. KTA's toll rate per mile was less than or equal to 2/3 of the turnpikes in the study. The KTA has not raised its toll rates since 1986.

Certain of the KT A's defined internal controls were analyzed. Based on our limited analysis the KTA's defined internal controls appear to be adequate in nature for an organization of its size. We have made some suggestions which are included in tab 8 to this letter of findings.

80. Nick Badwey December 14, 1993

The economic gain or savings from refunding the KTA debt was calculated on 3 of the KT A's refunding issues. The KT A achieved a nominal debt service reduction of $175,068,069 as a result of refunding efforts. The present value of savings from refunding was $16,865,725.

The costs associated with the issuance of the KTA's bonds were analyzed and appear to be similar to or lower than other toll organizations. We surveyed 27 other turnpikes, toll bridge and tunnel authorities in the United States to determine their cost of issue. The KTA's costs associated with the issuance of their bonds were less than 2/3 of the respondents to the survey.

Our analysis incorporates the information contained in tabs 2 through 10. Our report describes the procedures we utilized in forming our conclusions and is divided into the following 3 parts:

o Background o Analysis o Conclusion

BACKGROUND

The KTA was created under the provisions of Kansas Statutes Annotated 68-2003. The statute grants 'the KTA authority to construct and operate toll roads and issue revenue bonds. Maintenance and operation of the .facilities as well as principal and interest on the bond issues are funded solely from tolls and other turnpike user revenues.

The KTA's Board of Directors is made up of 5 members, one of whom is elected chairman by the other members. Two members are appointed by the Governor of Kansas for 4 year terms. One member is the Secretary of the Kansas Department of Transportation. Another member is the Chairman of the Senate Transportation and Utilities Committee. The fifth member is a member of the House Transportation Committee appointed by the Speaker of the House. The Board meets twice monthly to discuss KTA business, approve disbursements, accept formal bids and review and approve budgets.

The KTA manages a 4-1ane interstate highway from the Kansas-Oklahoma border north through Wichita and Topeka and east to Kansas City. There are 386 bridges and 19 interchanges along the 236 mile corridor. Construction began in 1954 and the roadway opened for business in 1956.

The entire roadway is asphalt, except for the 50 miles between Kansas City and Topeka, which originally was constructed of concrete. The asphalt construction requires an overlay approximately every 6-7 years. Overlays currently cost about $100,000 per mile. The 50 mile concrete portion has since been overlaid with asphalt and is scheduled to be reconstructed

~. Nick Badwey December 14, 1993 beginning next year. Estimated reconstruction costs are expected to total $75,000,000, or $1,500,000 per mile.

The KTA employs 411 full-time and 56 part-time employees. Approximately half are involved in the toll collection process, 143 in engineering and maintenance and the balance in administration and audit functions. There are an additional 43 persons in the Highway Patrol division for whom the KTA reimburses the State for payroll expenses.

KTA annual revenues in 1992 were $45,000,000. Toll revenue and traffic volume have been growing at over 5.5 % per year since 1987.

As of September 30, 1993 the KTA had $162,000,000 in outstanding debt. These funds have been used since 1984 for cash reserves, Kansas City Expressway upgrade and debt retirement, installation of median barriers, new interchanges and upgrades of bridges as follows:

o Cash for K.C.-Topeka and required reserves $ 53,000,000 o K.C. Expressway $ 52,000,000 o Median barriers $ 36,000,000 o Interchanges and bridges. $ 24,000,000

Total recent uses of borrowed funds $165,000,000

Total KTA debt outstanding $162,000,000

The $53,000,000 cash reserve is for required bond reserves and in anticipation of beginning the Kansas City to Topeka reconstruction in 1994.

The Kansas City Expressway funds were used for repair and debt retirement. The KTA committed $24,000,000 to put the Kansas City Expressway section of the turnpike in "like-new condition" and paid off all $28,000,000 of outstanding Expressway debt. The Kansas City Expressway was turned over to the KDOT and reopened as a tax-supported road in 1992.

The KTA spent $36,000,000 since 1985 installing a protective concrete median barrier the entire length of the turnpike. The barrier helped reduce the fatality rate 78 %.

Finally, the KT A constructed new interchanges and upgraded bridges to be in compliance with environmental and safety standards. Approximately $24,000,000 was spent on interchanges and bridges since 1984.

82. Nick Badwey December 14, 1993

ANALYSIS

Operating and Maintenance Costs

In order to evaluate the KTA's maintenance and operating efficiency we compared their 5-year historical performance to comparable turnpikes.

We obtained audited financial statements for 1988 through 1992 from the KT A and 7 other turnpikes. Together the turnpikes in the study represent over half of the toll road miles in the United States. We compared the annual operating and maintenance costs per mile of each of these major toll road operations to the KTA's operating and maintenance costs per mile. Operating costs included administration, toll collection and patrol expenses. The KTA's 5 year average operating and maintenance cost per mile is $82,876 compared to the other turnpikes' average cost of $224,717. The KTA's average cost is lower than 6 of the 7 comparable turnpikes (tab 2).

Wage and salary analysis

In order, to evaluate the KTA's costs for salaries and wages we compared their costs to the , KDOT and national average costs for comparable positions. We grouped KTA employees based upon job classifications. These 9 groups were based upon job descriptions, including responsibilities and education and experience requirements. We compared the KTA's 1993 salary ranges to salary ranges of KDOT employees with similar employment responsibilities.

Salary ranges for KT A and KDOT jobs with similar education and experience requirements are comparable. The 2 organizations are paying relatively the same amount for similar services. The average salary mid-range in 1993 for the 9 positions compared varies by less than 5% (tab 3).

We also compared KT A's employee compensation to national industry averages. Our study indicated that KTA's salary and wage rates are on average less than industry averages. The KTA's average salary in 1993 for the 11 positions compared is 11. 52 % less than the industry average (tab 4).

We compared directors' fees paid by the KTA to industry averages. In 1992 the KTA paid its directors less than half the average paid by organizations with similar revenues (tab 5).

83. Nick Badwey December 14, 1993

Toll rates

We evaluated the KTA's toll rates by comparing the KTA rates to the rates of other turnpikes. Toll rates were obtained for 11 other turnpikes, which combined with the KTA represent over 90% of the toll road miles in the United States. The passenger car toll rate per mile was compared for each turnpike and a weighted average computed. The KTA's average rate for the turnpike's length is 3.00 cents per mile. The weighted average toll rate of the turnpikes in the study is 3.22 cents per mile. The KTA's toll rate per mile is less than or equal to 2/3 of the turnpikes included in the study (tab 6).

Toll rates may be affected by trust indentures which are a part of the KTA's bond contracts. If revenues fall below levels necessary to adequately cover operating expenses and debt service then rates must be increased. The KTA has not had to raise rates since 1986. The Consumer Price Index has increased 35 % during that time.

Internal controls

. We have not studied KTA's internal controls in connection with generally accepted auditing standards (GAAS) and, therefore, our conclusions should not be interpreted to be an evaluation of KTA's controls in accordance with GAAS. In order to limit our costs to the KTA we performed a limited analysis of certain KT A controls to arrive at our. conclusions which may have been different if we performed an internal control study in accordance with GAAS.

In order to analyze the defined internal controls of the KT A we interviewed department heads and made observations of procedures and processes to test some controls. We also read the management letters the KTA's independent auditor issued.

A company's management is responsible for establishing and maintaining a system of internal (accounting and management) controls. Management must make estimates and judgments to assess the expected benefits and related costs of its control procedures.

The objectives of a system of internal accounting controls are to provide management with reasonable assurance that:

o The company's assets are safeguarded against loss from unauthorized use.

o Transactions are executed in accordance with management's authorization.

o Transactions are recorded properly to provide reliable operational and financial data.

84. Nick Badwey December 14, 1993

Management controls focus on the supporting policies, procedures and records related to the processes by which management decisions are authorized and executed.

Depending on the size of an organization, control systems will vary in complexity and formality. A smaller organization will rely on an informal system. Smaller businesses focus on organizational levels and rely on management experience.

The KTA employs a mixture of formal and informal controls within its organizational structure. The KTA operates 1 roadway which is divided into 2 Divisions. Division I has five 26-mile maintenance sections. Division II has four 26-mile maintenance sections. The organizational structure appears appropriate for the size of organization.

The formal controls include:

o Consulting engineer and annual inspection report.

o Long-range capital improvement program.

o Annual budgeting process, approved by the KTA Board. Monthly budget reports are prepared which compare actual costs to budgeted costs by department and category.

o Written operations manuals which detail KTA policies and procedures.

o Written job descriptions which detail job responsibilities.

o Formal feasibility studies on major construction projects.

o Formal competitive bidding procedure for major contracts and large purchases.

o Daily audit of toll collections, including tracking of individual toll collector performance by use of overage and shortage formulas.

o Purchasing policies with various levels of approval required.

o Annual fmancial audit by Certified Public Accountants.

o Twice monthly KTA Board meetings.

85. Nick Badwey December 15, 1993

Various reviews were performed on the formal controls listed above. The bidding process, proper approvals, general ledger coding and proper inclusion in the monthly budget reports were reviewed and we saw no discrepancies from the controls (tab 7). The interviews conducted and procedures and processes observed corroborated our review.

Informal controls include:

o Approval of overtime by appropriate supervisory personnel (toll collection shifts include a half hour of overtime).

o Approval of travel and employee expenses by the Chief Engineer-Manager.

o Daily observation by department heads over their assigned areas of responsibility.

o Staff meetings.

A series of interviews, observations and document reviews were performed to analyze the informal controls. We interviewed the Chief Engineer-Manager, Controller and department heads to understand KTA policies on overtime, travel and employee expense approval. We read travel/expense vouchers and employee time reports to observe the supervisor's and the Chief Engineer-Manager's authorizations of employee expenses and overtime.

Department heads were interviewed to understand daily observation practices and attendance at staff meetings. We read the distribution of memos scheduling monthly staff meetings.

We saw no discrepancies in the informal controls from the controls communicated to us during our review.

We conclude as a result of our limited analysis that the formal and informal controls currently in place appear to be appropriate for an organization of the KTA's size. We identified other controls which the KTA may consider (tab 8).

Debt financing

The KTA issued 5 bonds from 1984 through July, 1993 for a total of $471,680,000. Approximately $124,720,000 was used for capital expenditures and $346,960,000 to refund and restructure existing debt. We studied the costs of issuing debt and the savings earned from refunding existing debt.

We analyzed the KT A's costs of issuing debt by comparing their historical costs to costs of other authorities.

.86. Nick Badwey December 14, 1993

We requested copies of United States Treasury Form 8038-G from 27 turnpike, toll bridge and tunnel authorities to obtain historical costs of issuing debt. We received positive responses from 9 authorities. Cost of issue data since 1986 was used to make the comparisons. Costs prior to 1986 were recoverable by the issuer and form 8038-G has only been required since 1986.

The KTA's average cost of issue since 1986 was 1.54% of the face value of the bonds. The respondents to our survey reported an average cost of issue of 1.85 % of the face value of the bonds. The KTA's average cost of issue was less than 2/3 of the respondents to the survey (tab 9).

We analyzed the KTA' s debt refunding by calculating the nominal debt service reduction and present value of savings from refunding.

Advance refunding of existing debt is similar to refinancing the mortgage on a home to take advantage of lower interest rates. The KTA refunded debt 3 times since 1985, resulting in a nominal debt service reduction of $175,068,069 and a $16,865,725 present value of savings. The KTA's present value of savings averaged 6.43 % of refunded principal which compares favorably with suggested standards in the 2 %-4 % range (tab 10).

The present value of savings discounts the nominal debt service reduction to take into account the time value of money. The nominal debt service reduction resulting from the refunding of debt occurs over a period of years. The present value of savings establishes what the value of the debt service reduction would be if it were received in a lump sum the day of closing the refunding issue. Both nominal debt service reduction and present value of savings calculations are after all costs. They are net gains to the KTA.

CONCLUSION

We analyzed the operating efficiency of the Kansas Turnpike Authority. We studied the operating and maintenance costs relative to other turnpikes. We compared the KTA's wage and salary structure to industry averages and to the KDOT. The toll rates were analyzed and compared to other turnpikes. We analyzed the internal controls of the KTA. The savings from advance refunding debt were calculated and the costs of issuing debt were compared to other toll authorities.

We did not perform an audit in connection with generally accepted auditing standards and. therefore, we are not rendering an opinion concerning the KTA's financial statements or financial information. Additionally, our services are not designed to detect fraud, defalcations or irregularities should any exist and must not be relied upon for such.

87. Nick Badwey December 14, 1993

Our analysis indicated the following:

o The KTA's maintenance and operating cost per mile is among the lowest in the nation when compared to similar transportation authorities.

o The KTA is paying comparable wages for comparable positions when compared with the KDOT and national averages. The KTA pays its directors significantly less than industry averages.

o Toll rates on the Kansas Turnpike are less than or equal to 2/3 of the major turnpikes in the United States. The KTA has not raised its toll rate since 1986.

o The formal and informal internal controls of the KT A appear to be adequate for an organization of its size.

o The KTA's nominal reduction in debt service from advance refunding debt in 3 bond issues was $175,068,069 after costs.

o The present value of savings to the KT A from advance refunding debt in 3 bond issues was $16,865,725 after costs, a savings of 6.43% of the principal refunded.

o The KTA paid an average of 1.54% of the face value of the bonds in costs of issue since 1986. The weighted average cost of issue reported from a survey of transportation authorities was 1. 85 % of the face value of the bonds. The KTA' s costs of issuing debt were less than 2/3 of the respondents to the survey.

Very truly yours,

COOPERS & LYBRAND C-ChC& Charles E. Finch, Manager Financial Advisory Services

88.