Study: Pennsylvania Turnpike Lease Would Not Be Cost-Effective for State

A new study about leasing the Pennsylvania Turnpike concluded a lease would not be as cost-effective for the commonwealth and its taxpayers as the current transportation infrastructure funding plan signed into law last year in Act 44.

In January, Pennsylvania House Democrats, led by House Transportation Committee chairman Joseph Markosek, commissioned a study to compare the current funding program of Act 44 to the possible leasing of the Turnpike.

Act 44, which Gov. Edward Rendell signed into law last year, allows the Pennsylvania Turnpike Commission to issue up to $5 billion of special revenue bonds with no more than $600 million of those bonds to be issued in one year. In a public-public partnership, the PTC would lease Interstate 80 from the Pennsylvania Department of Transportation, starting with a $750 million payment in fiscal 2008, and begin tolling that road, if approved by the federal government. Expected payments under Act 44 total $83.3 billion over the 50-year term.

"We believe that the commonwealth is best served by staying the course with Act 44," concluded the study, which was released Tuesday. Authors of the study, titled "For Whom the Road Tolls: Corporate Asset or Public Good," included Gary J. Gray, a visiting finance professor at Penn State; Patrick J. Cusatis, an assistant finance professor at Penn State; and John H. Foote, a senior fellow in Harvard's Kennedy School of Government. Both Gray and Cusatis have a municipal bond background, while Foote specializes in transportation policy.

One of the biggest differences between leasing the Turnpike to the private sector and keeping it in public control was that the PTC "can issue tax-exempt municipal bonds at a yield that is considerably lower than the cost of capital for a concessionaire that would lease the Turnpike," the study said.

The study discussed three possible plans for Pennsylvania, including maintaining the status quo under Act 44; leasing the Turnpike to a for-profit corporation in a public-private partnership,; or engaging in a full public monetization in which the Turnpike would be operated by the PTC or a nonprofit corporation. Markosek, who introduced the legislation that Rendell signed into law to become Act 44, said the study showed that his previous feelings regarding leasing the Turnpike were "indeed correct."

"The bottom line to the whole study is that the public effort by the Turnpike Commission to issue bonds and to raise money through the bond market is far more economical than a private concessionaire going into a bond market using taxable bonds," Markosek said. "Which means that over time, in order to have the same amount of money coming into the state, they would have to charge far more tolls to equal what the Turnpike Commission can do for a lesser amount."

The study noted that because leasing the Turnpike would be for-profit, the private management's primary motivation would be to maximize toll revenue. Because of this, the authors believed that Act 44 would "likely keep tolls at the lowest possible level," enough to satisfy contractual obligations.

If Pennsylvania received a large up-front sum from leasing the Turnpike, it is possible that lawmakers would divert some of the cash away from transportation projects, the study also noted.

Rendell still plans to move forward with possible plans to lease the Turnpike. After a great deal of opposition to Act 44 from Pennsylvanians in the I-80 corridor, the governor has returned to his original proposal of leasing the commonwealth's 537 mile-long asset.

"We continue to believe that a Turnpike lease is an option worth pursuing," said Rendell spokesman Chuck Ardo. He asserted that the recent study is "based on speculation as to what might happen if and when a lease is let. The governor prefers to wait until he has solid information on which to base his decision."

Ardo said that Rendell's administration is currently working with companies interested in bidding on a long-term Turnpike lease, and he expects Rendell to submit the best offer to the General Assembly within the next month or two.

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