Revealed: Conduent, the corporate giant behind cashless tolls

Electronic tolling has been heralded as the wave of the future on public roads and bridges, an efficient way to move traffic swiftly across the nation’s highways.

As a way to cut down on time wasted at toll booths and reduce carbon emissions, the $14 billion cashless-tolling industry is poised to expand throughout New York state and beyond.

And few have ridden the wave like Conduent, a New Jersey-based company born out of a showdown between copy-giant Xerox and Carl Icahn, the pro-Trump billionaire investor who’s been thundering his way through corporate boardrooms for decades.

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Conduent — based out of Florham Park, New Jersey — currently controls nearly half of the U.S. electronic-tolling market, with more than $6.4 billion in annual revenue, according to the company's financial reports.

In an attempt to understand the financial arrangement between the state Thruway Authority and Conduent, The Journal News/lohud made repeated requests for the contract, but Thruway officials declined those requests.

Despite its significant market share, Conduent's ride to shore hasn’t gone so smoothly. Coast to coast, states have reported troubles with its system.

But its involvement in the metropolitan region's electronic-tolling apparatus has thrust it and the technology itself into the spotlight. Take Conduent's role in the cashless-tolling system on the Gov. Mario M. Cuomo Bridge and its predecessor, the Tappan Zee Bridge.

For months, drivers have been complaining about a series of billing woes, saying they've been hit with bills that far exceed the tolls for their crossing, and worse.

People have had their registrations suspended and credit scores threatened with unpaid bill claims for what they say are simple billing and mailing issues.

Things got so bad that this week the Thruway Authority kicked off an amnesty program — complete with its own web page — to deal with the mounting violations the system has created.

The Thruway’s acting executive director, Matthew Driscoll, said last week he’ll meet with Conduent to address some of the problems that have cropped up during the system’s roll-out.

"For me, it's not about what they currently do, it's about how they can offer solutions to improve what they do," Driscoll said when asked if he was open to the problem being with the system itself or the contractors.

Transportation departments around the country rely on billing systems to collect fees, but rarely announce the partnership.

Conduent's beginnings not seamless

Conduent handles the “back office” for E-ZPass in New York and other states, and the Tolls by Mail NY website.

When a bill on the Gov. Mario M. Cuomo bridge gets mailed, Conduent mails it. When drivers use Tollsbymailny.com, they’re dealing with Conduent. Drivers in other states also find themselves unknowingly dealing with Conduent for their tolling, too.

Conduent inherited the Thruway contract through a series of mergers and splits. In 2009 Xerox bought the firm Affiliated Computer Services for $6.4 billion. ACS had run the billing for E-ZPass in New York and managed other governments’ billing needs.

ACS held the contract with the Thruway Authority. Xerox would run both its document and business support division until 2017. In early 2017, Xerox split those divisions, creating Conduent.

Its beginnings were anything but seamless.

Conduent was born out of a pitched battle between Xerox, the Norwalk-based copying giant, and Icahn.

After announcing in 2015 that he had a major stake in Xerox, Icahn began hammering away at the company’s “old guard.” In December 2016, he got his wish when Xerox agreed to split into two publicly traded companies, one of those Conduent.

Icahn took credit for the spinoff in an open letter to his fellow Xerox shareholders in December that scorched Xerox leadership for painting “a rosy picture of what is in reality a bleak situation.”

“To be clear, the primary reason Xerox stock is up 30% year-to-date is the Conduent spin-off that I spent over a year fighting for,” Icahn wrote. “Xerox stock closed at $23.00 on Friday, December 30, 2016 (the last trading day of the year). The following day, when markets were closed, Xerox completed the long-awaited spin-off of Conduent. As a result, the price of Xerox stock increased to close at $27.56 on the first trading day of 2017. That means the split I championed is responsible for 75% of the value creation Xerox claims as evidence of shareholder support.”

When Conduent split from Xerox, it took staff along with contracts for toll roads and other services.

Top guy for tolling at Conduent

Among them was toll-road veteran Ken Philmus, who works as a senior vice-president in Conduent’s Transportation Services section. Before that, he worked at the Port Authority of New York & New Jersey for 33 years. At the end of his three-decade tenure, Philmus ran the Tunnels, Bridges and Bus Terminals for the PA. He left in 2005.

After leaving government, Philmus worked at AECOM, one of the largest engineering firms in the world, as its national director of toll services from 2005-09. While at AECOM, Philmus helped manage the relationships between tolling agencies and governments. He also assisted in creating and developing public-private partnerships for cashless tolling.

Philmus declined comment through a spokesman for Conduent. Company officials declined to be interviewed for this story.

AECOM later helped with the planning of the replacement for the Tappan Zee bridge and helped set up cashless tolling on the Henry Hudson Bridge. Philmus moved on to Xerox in 2009 as a senior vice president and remained with Conduent after the split.

Banking on fines

Questions have arisen about the tactics Xerox and Conduent applied to collect outstanding bills.

While operating as Xerox in 2010, there were standing orders which increased fine collections, according to a state lawmaker. Xerox instructed workers not to tell customers if their credit card was nearing its expiration date unless explicitly asked about that issue, according to state Sen. Diane J. Savino, a Brooklyn Democrat. E-ZPass users with an expired credit card received fines when trying to pass through an E-ZPass lane. Toll-booth personnel had to collect cash from those drivers.

Cuomo, in his October 2016 remarks, defended the system on the Henry Hudson Bridge, the first in the New York City region to go to electronic tolling. There, Cuomo said 94 percent of vehicles used E-ZPass and the other 6 percent received bills in the mail.

“And while only two-thirds paid, the penalties made up for the loss,” Cuomo said.

On the Tappan Zee Bridge and its successor, nearly $8 million in mail-issued tolls remained unpaid as of September, according to records obtained by the USA Today Network’s Albany Bureau.

The Thruway Authority says the vast majority of drivers have paid their tolls, representing some 96 percent of revenue generated at the bridge.

The Thruway still hopes to come out ahead. A Thruway consultant’s report estimates that the $100 late fee will generate $13 million, a total expected to jump to $16 million this year.

Richard Meegan of New York City is among those who feel trapped by a never-ending cycle of fees and fines.

Meegan said he racked up over $2,500 in fines on the Triborough (Robert F. Kennedy) Bridge. He claims to have never received his initial toll bill — a claim repeated by scores of motorists across the region — then got a violation notice with hundreds of dollars in fines.

Meegan sent in the money for his tolls, along with a letter explaining the situation, but still got sent into collections for his outstanding fines.

Such "aggressive" tactics leave those who've fallen through Conduent's cracks with few options.

“This ordeal has really made me depressed and I feel hopeless as I have nowhere to go and state my case,” Meegan wrote in an email to The Journal News/lohud.

Problems around the country

In just a few years cashless tolling has grown into a $14 billion industry, according to the International Bridge, Tunnel and Turnpike Association, a trade group. Currently, 34 states and Puerto Rico have some form of cashless tolling.

States looking for ways to fix aging transportation infrastructure have found they have too few financing options and little help from the federal government.

Conduent has stepped into the breach, promising a reduction in overhead for transportation departments if they outsource collections and billing to them.

Conduent's business model counts on governments turning to it for its expertise.

"Our business is dependent on continued interest in outsourcing," Conduent said in its 2016 financial report. "Our business and growth depend in large part on continued interest in outsourced business process services."

New York isn't the only state to face challenges with its electronic tolling rollout. From Texas to Maryland and elsewhere, drivers have complained of receiving excessive fines.

Conduent manages the billing and processing on some of the Lone Star State's toll roads.

Drivers there have complained of many of the same billing problems faced by drivers on the Gov. Mario M. Cuomo Bridge. They say they've been hit with massive fines even though they had not received initial bills, according to published reports.

In California, more of the same. Fines mounted for drivers who claimed to never get the initial bills.

And in Maryland drivers said minor toll-violation bills led to fees ranging into the thousands of dollars.

Texas, Maryland and Califorina each engaged in amnesty programs of their own. All used Conduent for their back-office operations.

“Every state has had a few teething problems as people get used to it,” said Robert Poole, a transportation analyst with the Reason Foundation in Washington, D.C., who has studied the issue. “It’s usually a customer-service issue where customers have a hard time understanding and they haven’t explained it well enough.”

Staff writer Thomas C. Zambito contributed to this report.

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