Will leasing PA Turnpike be a 21st-century taxpayer bargain?

Will leasing PA Turnpike be a 21st-century taxpayer bargain?
By MARC LEVYAssociated Press Writer

HARRISBURG, Pa. (AP, Dec. 30) - Let the bidding begin.

With lots of private money looking for a home and little stomach in the Capitol to raise billions of dollars, the Pennsylvania Turnpike could become the nation's longest highway to be privatized.
In exchange for handing control to a private company, the state could realize billions of dollars for its crumbling bridges, highways and mass transit systems.

An enthusiastic response met Democratic Gov. Ed Rendell's Dec. 6 invitation to help his administration explore whether to lease the road, considered America's first superhighway. Four dozen letters poured in from places like Wall Street and companies that already operate highways, bridges and tollbooths in the United States and Europe.

"Oh my god, that's a smashing success," said state Rep. Richard Geist, the 15-term Blair County Republican who has chaired the House Transportation Committee for more than a decade.

Pennsylvania is not alone in the transportation funding quagmire, as states from New Jersey to Illinois look at privatizing major routes, picking up a trend that is decades-old in Europe. The idea for private companies is to earn a solid return by raising tolls - perhaps higher than a public agency would - improving traffic flow and cutting costs, analysts say.

In the United States, Chicago pioneered the idea two years ago when it leased the 7.8-mile Chicago Skyway to the Australian-Spanish consortium Macquarie-Cintra for 99 years in exchange for $1.83 billion. Indiana followed in June, leasing a 157-mile toll road to Macquarie-Cintra for 75 years at a price of $3.8 billion.

Other states, including Texas and California, are selling the rights to build new toll roads and run bridges and toll booths.

"It's a natural evolution," said C. Kenneth Orski, who publishes Innovation Briefs, a Maryland-based transportation newsletter. "I think we had a great period in our history where we built a 42,000-mile network of interstate highways and for a long time that system served us very well. ... But we are now entering into a new era."

Theoretically, tollpayers, including trucking companies and out-of-state motorists, would shoulder the burden of new highway funding in Pennsylvania, instead of residents and taxpayers.

However, in a published analysis of the Chicago deal, Dennis Enright, a New Jersey-based financial analyst, questioned whether it was wise to relinquish toll revenue - about $600 million a year on the Pennsylvania Turnpike - in exchange for a one-time payment. Instead, a state could retain control of the tolls and borrow against the future revenues to raise needed cash, Enright wrote.

The privatization shift has much to do with an unwillingness or inability of federal and state policymakers to raise taxes or otherwise find enough money to maintain and improve highways, many say.

At the same time, investment banks are awash in money, such as pension fund dollars, and are looking to park it in safe, long-term investments.

Wall Street is taking notice of public infrastructure projects. On Thursday, the Goldman Sachs Group Inc. announced it raised its first infrastructure investment fund, with more than $6.5 billion for things like toll roads, airports, ports and utilities.

In addition, the federal government last year took steps to encourage private investment, such as allowing tax-exempt bonds to finance projects by private operators and developers on highways and rail routes supported by federal money.

As such investments go, the Pennsylvania Turnpike could be a solid one, said Joe Pezzimenti, a credit analyst with the New York-based debt-rating firm Standard & Poor's. The turnpike's 359-mile main stem from Ohio to New Jersey is an essential long-haul link for commercial traffic and local motorists, he said.

The value of the investment - and, hence, the amount of money Pennsylvania gets in return - will depend heavily on the details of the agreement between the state and the private operator. Such an agreement would include things like maintenance standards and a schedule of toll increases.

The Rendell administration has been careful to say that the process is in the early stages, and that no decision has been made on whether to lease the turnpike or whether a deal would cover all or just part of its 537-mile network. Legislative approval also will be required.

Geist, for one, said a private company could radically improve the turnpike's operations, introducing things like time-of-day pricing and 70-mph toll facilities. Leasing it could help generate some of the billions of dollars that Pennsylvania will need to scrounge each year not only to repair highways and rail routes, but also to update and expand them, he said.

"There's some awfully good transportation projects in Pennsylvania out there waiting to be done," Geist said. "There's just no money to do them."

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Marc Levy covers state government for The Associated Press in Harrisburg. He can be reached at mlevy(at)ap.org.

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