Study criticizes idea of leasing turnpike

March 3, 2008 3:10:39 PM PST
Leasing the Pennsylvania Turnpike holds major risks, according to a Pennsylvania House Democratic study that argues that the plan to add tolls to Interstate 80 is more cost-effective.

"Not only is the cost of the money extremely high, but when you add in the profit in all of this and extrapolate that number out 99 years, it's very, very expensive to lease the turnpike," Majority Whip Keith McCall, D-Carbon, said Monday.

The 65-page study also warned that the billions of dollars in upfront payments that a lease would generate for roads, bridges and mass transit could become a cash cow waiting to be milked by state lawmakers.

"There are many areas that I can cite in my 25 years here where we have not been very good stewards of a large amount of cash sitting around," said Rep. Joseph Markosek, D-Allegheny, chairman of the Transportation Committee.

The study said "aggressive toll increases" are likely to result from a turnpike lease, described financial assumptions in previous studies as too rosy and warned that the state probably would not be able to reclaim the road at no cost if the operator were to go broke.

"By immediately placing billions of dollars in new debt on the turnpike enterprise, a privatization increases the likelihood of financial distress," the study said.

The Turnpike Commission's ability to issue tax-exempt municipal bonds gives it a significant advantage over someone operating the roadway for a profit, according to the study. McCall said the I-80 toll plan also would keep the turnpike under state control.

"I think the analogy is a very simple one," McCall said. "If your house needs a new roof, you don't sell your house to the roofer. You find what equity you have in your home and you borrow against that equity at the lowest financial rate you can find."

The I-80 plan, which require approval from federal regulators, would be accompanied by considerably higher turnpike tolls, starting with a 25 percent boost in 2009. The law passed last summer, known as Act 44, is designed to raise $83.3 billion over 50 years.

Turnpike Commission chairman Joe Brimmeier told a state legislative hearing Monday that the federal review of Pennsylvania's application for permission to install as many as 10 toll collection sites along I-80 "is going to be a lengthy process."

"This is also a learning process for the Federal Highway Administration, as it is for us," he said.

A spokesman for U.S. Rep. John Peterson, R-Pa., a leading opponent of I-80 tolls, said the study failed to account for the greater efficiency a private company could bring to running the turnpike or the effect tolls would have on busineses near I-80.

"This is not only a damaging proposal to the folks who live along the I-80 corridor, this is a Pennsylvania economic disaster," spokesman Patrick Creighton said.

The plan to toll I-80 has generated bitter opposition from people who live along the east-west highway, and Democratic Gov. Ed Rendell's administration is currently working with 14 groups interested in bidding on a long-term turnpike lease.

Rendell spokesman Chuck Ardo said bids will be taken within a few weeks, and the governor expects to submit the best leasing offer it gets to the Legislature.

"The tolling and maintenance schedules are going to be negotiated to ensure that the commonwealth has control of both," Ardo said. "In as far as the other details of the lease, they still need to be worked out."

The study, "For Whom the Road Tolls: Corporate Asset or Public Good," was written by Gary J. Gray and Patrick J. Cusatis, Penn State University finance professors, and John H. Foote, a senior fellow in Harvard University's Kennedy School of Government.


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