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Turnpike Lease a Better Deal for Taxpayers, Drivers

$12.8 billion Turnpike bid should be the final nail in Act 44's coffin

Leonard Gilroy
May 20, 2008

With Monday's announcement of the winning $12.8 billion bid to lease the Pennsylvania Turnpike, the legislature finally has a viable way to improve and expand the state's transportation system.

Last year's ill-conceived Act 44-which will let the Pennsylvania Turnpike Commission increase tolls on the Turnpike and turn the currently free Interstate-80 into a toll road-has been a sham from the get-go. Over the next decade, it would provide only half of the $1.7 billion needed annually to meet the state's road, bridge, and transit needs. And it seems increasingly likely that the federal government will rule that the proposal to toll I-80 is illegal.

Without the proposed I-80 tolls, Act 44 would only generate $450 million annually, roughly a quarter of the cash the state needs for its roads. Leasing the Turnpike to the Abertis /Citigroup team would clearly deliver far more value-in fact, more than double. The upfront cash, $12.8 billion, from the lease would generate about $1.1 billion dollars in interest every year dedicated exclusively to transportation projects.

In 2006, Indiana leased the Indiana Toll Road for $3.8 billion. The Indianapolis Star recently reported that in 2007 "the state earned more than $287 million in interest from its investment of proceeds from the $3.8 billion lease of the Indiana Toll Road."

The money Pennsylvania would earn from the interest means roads can be expanded and improved without tolling I-80 or taking on new bonded debt. And even more impressive, the Turnpike lease requires the companies to keep toll rates lower than those that the Turnpike Commission is currently committed to.

The Turnpike contract will also demand accountability and penalize underperformance. The Abertis /Citigroup team would have to live up to the provisions of a strong, performance-based contract with detailed requirements for maintenance, care, and expansion-and financial penalties for failing to abide by lease terms. In the worst case scenario, if the private sector group fails to live up to the contract terms, or goes bankrupt, Pennsylvania would keep the entire $12.8 billion upfront payment and would have the opportunity to re-bid the lease to other companies.

Contrast that with the Turnpike Commission. A recent Reason Foundation analysis found that the Commission is the third most inefficient toll operation in the country, spending 62.4 percent of its toll revenues on operations and maintenance. Of 35 toll roads studied, only the Massachusetts and West Virginia turnpikes spend a higher percentage. By comparison, the New York State Thruway spends 10 percent less than the Pennsylvania Turnpike, despite having 51 percent more lane miles and 83 percent more travel. And the private sector toll road operators studied were far more efficient than the Turnpike, averaging just 23.4 percent of revenues spent on operations.

The Turnpike Commission is also severely lacking on the accountability front. In fact, its proficiency in the murky art of political patronage-rewarding friends and cronies with cushy jobs and contracts-is legendary. Taxpayers would not be well served by making the Turnpike Commission even more powerful, as Act 44 would do.

Pennsylvania is at a critical point. There's not enough money today to properly maintain the system in place. The state needs $1.7 billion in new revenues every year to adequately maintain and improve the road and transit system. When you throw in growth expected over the next two decades, you have a funding crisis. In a 2006 study University of North Carolina-Charlotte professor David Hartgen found that Pennsylvania needs to add 4,450 new lane-miles at a total cost of $26 billion, in today's dollars, by the year 2030 to prevent traffic congestion from significantly worsening. Only five states have greater road needs.

Any way you slice it, the Turnpike lease would contribute far more to meeting the Commonwealth's transportation needs than Act 44.

Now it's decision time for legislators. Do they opt to generate more money to fund critical, long-term transportation needs by leasing the Turnpike to an experienced private-sector toll road operator? Or, do they stick with Act 44 and generate less money while expanding the size and power of an inefficient and unaccountable bureaucracy? There's really only one responsible choice.


Leonard Gilroy is Director of Government Reform


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