What now for Pennsylvania transportation funding, turnpike lease?
Joe Grata has an article in the Post-Gazette on what will happen now that the federal government has rejected I-80 tolling in Pennsylvania.
As we pointed out a few weeks ago, without I-80 tolling, Act will provides only $450 million to the state each year (one addendum: as Grata points out, the PTC will pay $850 million this year and $900 million next year - all on borrowed funds - the $450 million annual payment begins in 2010).
Based on this figure, an expected return of 7.5% on the $12.8 billion lease payment (less the amount payed to retire Turnpike debt) and with additional cost savings, a lease generates almost $37 Billion in additional funds to the state. Click here for a chart of annual payments compared.
Turnpike tolls will increase 25% in January 2009, regardless of a lease - a fact John Micek seems surprised to learn this morning. The Turnpike Commission plans on increasing tolls 3% annually thereafter, but Fitch Bond ratings projects higher increase, based on all the new debt the PTC is issuing. Under a lease, future tolls would be capped at 2.5% or the rate of inflation.
A spokesman for the Senate Republicans thinks the General Assembly should wait until January and rebid the Turnpike, perhaps leading to a better deal. In theory, this might be advisable, except the Turnpike Commission continues to issued more debt on future revenues they won't receive in the meantime (something the House Republican Leader thinks should end).
Furthermore, how many bidders would truly spend the time and money on another bidding process, when the first bidding process was ignored. It looks more like the Senate Republican leadership is less concerned with a better deal than maintaining a close relationship with the Turnpike Commission and its lobbyists.
6 comments:
Considering the Turnpike is worth way more than 12.8B, why even put it up for re-bid? This idea was ludicrous to start with. Certainly, we as a Commonwealth should not rush into anything (like leasing the turnpike). Remember, we rushed on Act 44, which did not go over well with the public.
How much is a head of lettuce worth? Whatever a grocery shopper is willing to pay for it. Just because you think it is worth $100, doesn't make it so. The bidding process in PA involved the largest banks and transportation companies in the world, and the competitive process produced bids as low as $9B, with the high of $12.8B -- that was the most anyone was willing to pay. Just because YOU don't think its enough, means absolutely nothing in the marketplace where prices are set by consumers and what they are willing to pay.
Furthermore, there is no rush. The same arguments and facts have been out there since Day 1. That is NOT the same as Act 44 which WAS rushed through without any hearings or studies AND is constantly changing because of the PTC control of everything and lack of accountability.
In 2007 studies on the value of the PTC were conducted by several of "the largest banks", the conclusions were twice what the states current offer is (remember, Rendell and many lawmakers stated that the state could receive as much as $30B). Exactly, we need not rush into anything, especially during these tough economic times. We should not be selling state-owned infrastructure for the same reason…
The range provided by Morgan Stanley put the value between $12 and $18 billion, based on various assumptions. $30 billion was never a reality, only a pipe dream, and could only possibly be worth that much if it were actually SOLD, there were no toll rate caps, prevailing wage was eliminated, and the unions abolished.
The $12.8 billion was the highest bid because of all the restrictions placed on the bidder.
As for "how much it is worth", the lease (with all the requirements from the Governor) was competitively bid. The bid was the highest anyone was willing to pay for it under those terms and delivers more than twice the value the Turnpike Commission's plan offers.
As for "don't rush into anything", I have a much longer response.
The fact that the lease plan was competitively bid doesn't necessarily mean that we received best value. I imagine that Abertis' considerable risk was built into their bid. Yes, the $5.3B "equivalent payment" looks bad against the $12.8B bid on the table, but has anyone done any kind of business modelling to see what a reasonable private operator could expect to earn, given the expected costs and revenues, the cost of Abertis' financing, and the amount to be paid to Pennsylvania? Would it tell us that no company could survive under those terms, or would our high bid become a low ball? And why, if a private operator can achieve such a payment, can we not hold PTC's feet to the fire and force them to cough up? Regardless, it all begs the question of whether it is responsible or proper for Harrisburg to seek this form of revenue, rather than to operate it using taxes and tolls. Did not a number of municipalities and at least one state (California) nearly go bankrupt a few years ago, not being able to cover bad investments? Why are we giving more money to a state government that has proven it can't handle what we've already given them? How does a lease plan serve the goal of limited government? There seems to have been no discussion on these points.
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