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State left billions on the table by ignoring possible turnpike lease deals
By Geoffrey Segal
TollRoadsNews.com recently broke the news that New Jersey had received a $30 billion offer to lease the New Jersey Turnpike. After seeing the latest state transportation funding plan – and how it fails to reduce congestion, Pennsylvania taxpayers are going to wish Gov. Ed Rendell hadn't shelved his own plans to lease the Pennsylvania Turnpike for billions that could have been spent improving transportation across the state.
The state budget and transportation spending compromise recently reached by the governor and legislature will do little to relieve congestion. The compromise will not lead to a well financed or functioning system because it relies on borrowing billions. Borrowing is bad news for commuters because bonds end up costing taxpayers nearly $2 for every $1 borrowed. Wouldn't spending $2 on new roads beat $1 for new roads and then sending the other dollar to the credit card company?
An annual Reason Foundation study just ranked Pennsylvania's state highway system 36th in the country, finding 43 percent of the state's highways already congested. By 2030, Pennsylvania will need 4,450 new lane-miles at a total cost of $26 billion, in today's dollars, to prevent even more severe, economy-crippling congestion.
Failing to bring reforms to aging transit systems and the Pennsylvania Turnpike Commission (PTC) will have long lasting negative impacts on Pennsylvania. Morgan Stanley recently concluded that a turnpike lease could net as much as $18 billion for the state's roads. Keep in mind that experience with toll roads in Indiana, Chicago, and Texas shows that private sector proposals are often twice that of the estimated value, so some experts wouldn't have been surprised if Pennsylvania had fetched over $30 billion in a turnpike lease. But rather than tap the private sector, Pennsylvania will be giving more power and authority to the PTC, hamstringing future generations of Pennsylvanians to high cost, poor quality transportation options.
Just over a year ago, Indiana leased its toll road for 75 years and now they're the only state in the nation that has a fully funded transportation investment plan. In fact, thanks to its toll road lease, Indiana is earning $6 of interest every second. That interest money will continually be spent on critical road projects that wouldn't have been funded otherwise. Indiana has plans to spend $12 billion on road projects by 2015.
Meanwhile in Pennsylvania, the transportation plan calls for borrowing, raising tolls on the turnpike 25 percent in 2009, and placing tolls on Interstate 80, a route that is currently free. The plan to toll I-80 and take the proceeds to fund improvements around the state is probably illegal under federal law.
The federal government has placed strict rules on placing tolls on existing taxpayer financed highways. It's not likely that Pennsylvania's plan meets those guidelines potentially leaving commuters stuck in traffic.
Rendell took the turnpike lease off the table in order to reach this compromise deal full of borrowing and fee increases that don't promise better commutes. The global trend towards public-private partnerships is a better answer for the state's future. Indeed, Rendell recently said, "in the palace of truth and justice, we would lease that baby," referring to the turnpike.
Rendell is right on this one—sadly he didn't keep up the fight. His fellow Democrats should ask Chicago Mayor Richard Daley, also a Democrat, how leasing one of the city's major roads to a private company turned out.
"I'm happy to state that our expectations have been met, and possibly exceeded," Daley said on the one year anniversary of the $1.83 billion lease.
Do you think Pennsylvania's taxpayers will say the same positive things one year from now about the borrowing? With billions in new debt, higher fees, possibly having to pay tolls on roads that are free today, and consistently worse commutes, I'm guessing the answer will be a resounding "no."
Geoffrey F. Segal is the director of government reform at Reason Foundation. An archive of his work is here. Reason's transportation research and commentary is here.
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