The deal to renovate 23 service stations along Interstates 95, 395, and the Merritt Parkway is done, but lawmakers wanted to hear more about the 35 year agreement the state inked last year with the owners of Subway restaurants and The Carlyle Group.
Some lawmakers are concerned that the deal has the state earning less revenue from gas and food sales than the previous 27-year-old contract with ExxonMobil.
Sen. Andrew McDonald – one of the most vocal critics of the deal – wondered why the state would agree to accept a penny when it had been receiving 11 cents per gallon on every gallon of gas sold at the rest areas for decades.
At a public hearing on the deal Monday, Office of Policy and Management Secretary Robert Genuario said the market has changed. He said an analysis by an independent third party contractor showed ExxonMobil, the former contractor, was paying 100 percent of its profits to the state under the old deal.
He said if the state wanted to borrow $178 million to renovate the service stations, it would have to pay $12 million annually in debt service over the next 23 years. Under the current deal he said the state brings in $10 to $11 million a year in revenue. Under the new deal it’s estimated at $14.2 million.
“It was a good financial deal for the state given the current market conditions,” Genuario said.
Genuario said the renovations are expected to increase the amount of fuel sold by 27 percent and increase non-fuel sales by 80 percent. “None of this is possible without substantial investment,” he said.
The $178 million investment by Subway and The Carlyle Group, collectively known for this venture as Project Services LLC, will improve the sales of both fuel and food over the first five and half years of the contract , Genuario said.
Lawmakers also worried about who will be responsible for remedial environmental cleanup at the existing sites. Genuario said ExxonMobil is responsible for those costs.
Bob Landino of Project Services LLC told the committee that this is a good deal for the state. He said rarely do investors invest in real estate that at the end of the day they won’t own. And he reminded them that this deal only works for investors if they see a higher return on their investment.
Paul Landino, president and CEO of Project Services LLC, said they would be reconfiguring the gas pumps to increase the number of drivers who can stop to fuel up simultaneously at the rest areas.
But McDonald, a Democrat from Stamford, wondered why the state agreed to accept 1.25 percent on food sales, instead of the 5 percent it had been receiving under the old contract.
Department of Transportation officials said the state was looking for a unified solution. Department of Transportation Commissioner Joseph Marie said the overall value to the state, including new underground storage tanks in 30 years, exceeds what it is receiving.
Marie said there’s been no other agreement in any other state that has attracted as much equity investment as this one.
Rep. Cam Staples, D-New Haven, wondered why the state had to agree to a 35 year contract, instead of a five or 10 year contract.
Genuario said it had to allow the investors to get their money back.
“They don’t need to be as pristine as they are,” Staples opined referring to the proposed renovations.
However, Sen. Toni Boucher, R-Wilton, disagreed. “This is the right thing to do for Connecticut. It’s a real win-win.”
Genuario, who travels from Norwalk to Hartford daily, said the current conditions of some of the service plazas are “unacceptable.”
The Darien service plaza in particular “is not a good welcome center for the state of Connecticut,” he said.