Pennsylvania yesterday released terms and conditions for its proposed leasing of the Pennsylvania Turnpike, which included a 75-year lease, limited toll increases on the Turnpike, and no tolls on Interstate 80.
Although last year Gov. Edward G. Rendell signed off on Act 44 - a funding plan to help pay for transportation infrastructure needs in the commonwealth - he has since revived his support of leasing the Pennsylvania Turnpike instead as more and more opposition to Act 44 and the tolling of I-80 mounts.
Act 44 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. Under Act 44, the PTC - in a public-public partnership - would lease I-80 from the Pennsylvania Department of Transportation, starting with a $750 million payment this fiscal year, and begin tolling the road, if approved by the federal government.
But with delays in the federal approval process for tolling I-80, and more resistance to tolling along the I-80 corridor, Rendell and his administration have over the past several months been working with companies interested in bidding on a long-term Turnpike lease in a public-private partnership.
Yesterday, the state proposed entering into 75-year concession lease agreement in which nearly all of the 537-mile system would be included in the lease for the winning bidder. Rendell hopes to have a winning bid announced by the end of April, according to his deputy chief of staff Roy Kienitz. Though Kienitz would not say which companies were involved in the bidding process, he did say there were "multiple" entities.
The General Assembly would then have to approve the leasing of the Turnpike before the concession agreement could be executed with the winning bidder. Rendell is hopeful that the legislature would approve the lease by mid-June, Kienitz said. The winning bidder would have to submit a $100 million letter of credit that could be forfeited if lawmakers approve the deal but the bidder backs out.
The lease proposal includes a 25% increase of tolls on the Pennsylvania Turnpike in January 2009. Each subsequent year would include toll increases of 2.5% or the consumer price index, whichever one is greater. Act 44 also set forth these same toll increases for the turnpike.
While initial analysis last year by Morgan Stanley, who is advising Pennsylvania, concluded that the Turnpike could generate between $12 billion to $18 billion up front in a 50-year to a 99-year lease, Kienitz now says that number might not be as high. He said the analysis was based on the assumption that Pennsylvania would adopt a toll schedule similar to the Indiana Toll Road, which in 2006 entered into a 75-year lease agreement in exchange for $3.8 billion.
Since Rendell insists on keeping toll increases lower than those Indiana put into place, the Pennsylvania Turnpike is likely to generate less funding than originally anticipated, Kienitz said. The commonwealth's hope, however, is that by leasing it the Turnpike can generate as much money for transportation funding as Act 44, and do so without tolling I-80.
Kienitz said that the state has not proposed specific limits on foreign involvement in the lease agreement.
"When you're doing a deal this big, it's a global marketplace," he said. Still, Rendell's administration has explained to interested bidders that some involved in approving the lease may be more comfortable if foreign bidders are accompanied with American companies within their team. Kienitz said it's likely that the winning team will include a mix of both American and foreign investors.
The new operator would have to meet requirements of maintenance and upkeep that the state would set in place, or risk termination of the lease. PennDOT would head up inspections and audits to ensure proper operations.
Additionally, the operator would be required to assume obligations of all existing labor contracts until they expire. After the contracts expire, the operator and unions would negotiate future terms.
It is unclear what role the Pennsylvania Turnpike Commission would play in the lease agreement. It is possible that a portion of the proceeds the state receives from the lease transaction would be used to pay off some of PTC's outstanding debt, Kienitz said.