CF expresses concerns over transportation bill

July 14, 2007

The Honorable Edward G. Rendell
Office of the Governor
Commonwealth of Pennsylvania
Harrisburg, PA 17120

Members of the General Assembly
Commonwealth of Pennsylvania
Harrisburg, PA 17120

VIA EMAIL

Dear Gov. Rendell and Members of the General Assembly:

I am writing to bring to your attention several critical issues and unanswered questions related to the proposed transportation/transit funding bill (House Bill 1590) you are considering as part of the FY 2007-08 budget agreement.

This proposal is predicated on the legal ability of the Pennsylvania Turnpike Commission to toll I-80 in order to pay the debt service on multi-billion dollar bonds that would be issued by the Commission. In support of this bill, legislators and legislative staff are citing a letter from the U.S. Department of Transportation (USDOT) to Senate Transportation Chairman Roger Madigan (view the letter here [1]) which purportedly clarifies questions about the prospects of tolling I-80. Unfortunately, this letter does not indicate that tolling I-80—the cornerstone of House Bill 1590—is permissible.

Instead, the communication from USDOT reveals that the proposed tolling of I-80 would not qualify under current federal law. According to the letter, the federal government would authorize tolling on I-80 (1) for congestion relief in major metropolitan areas and/or (2) for new “express” lanes, again for congestion relief. Specifically, the letter states:

• The Value Pricing Pilot Program (VPPP) “must be targeted towards congestion relief and involve the use of variable tolls.” This is not the plan the General Assembly is currently considering. Additionally, the competition for VPPP is expected to be strong—“only 2 slots remain open, and the Department is expecting a number of additional States to explore congestion pricing in major metropolitan areas in the coming years.”
• The Express Lanes Demonstration Program—as the name implies—applies only to toll facilities “that are modified or constructed to create additional tolled lane capacity.” Again, this does not apply to the current plan to toll I-80.

Given the rather unambiguous USDOT response to Sen. Madigan, we do not see any evidence the federal government will allow the Turnpike Commission to toll the entire length of I-80. Even if I-80 were to qualify for one of the federal programs (whether for congestion or express lanes) the limited tolling ability would not generate the revenue required by the Turnpike Commission’s funding proposal.

In light of these facts, prudent policymaking would require that the Commonwealth of Pennsylvania receive federal permission to toll I-80 before allowing the Turnpike Commission to issue multi-billion dollar bonds and enter into a 50-year lease with PennDOT to control I-80.

Furthermore, if federal permission to toll I-80 is somehow granted, the General Assembly should not automatically expand the Turnpike Commission’s authority and bonding power. Such a no-bid agreement would cost Pennsylvania taxpayers hundreds of millions—if not billions—of dollars. The only way to maximize the value of tolling I-80 would be to allow private firms the opportunity to compete with the Turnpike over a contract to operate and manage the I-80 toll road. Recent experience in other states reveals just how much capital the General Assembly could be leaving on the table:

• Chicago Skyway. The City of Chicago estimated the value of this deal at $1 billion. After a competitive procurement involving private firms, however, the actual value obtained was $1.8 billion (approximately 80% more).
• Indiana Toll Road. The State of Indiana estimated the value of this deal at $2 billion. The private sector, however, estimated that the value was actually $3.8 billion (approximately 90% more).
• SH 130 (Segments 5 and 6). SH 130, in and around Austin, was conventionally toll-financed by the Texas Turnpike Authority. The 40-mile southward extension, to San Antonio, was projected to have lower traffic, and when the Texas Department of Transportation (“TxDOT”) did its own traffic and revenue assessment, it concluded that conventional toll finance could cover, at best, $600 million of the project’s $1.3 billion cost. When the project was offered as a long-term concession, however, the private-sector partner, Cintra-Zachry, offered to finance the entire $1.3 billion project. In addition, the company also agreed to pay the state a $25 million upfront concession fee and share profits with TxDOT over the 50-year term of the deal.
• SH 121. This partially-completed highway is located north of Dallas. To date, TxDOT has spent some $700 million on its construction, and tolling started on the first completed segment on December 1, 2006. The regional toll road operator, the North Texas Tollway Authority (“NTTA”), did not initially wish to assume financial responsibility for completing this toll road; the NTTA just wanted TxDOT to transfer the facility to the NTTA upon its completion by TxDOT. TxDOT instead decided to initiate a competitive procurement involving private-sector firms to determine if any of them would be willing to complete and operate SH 121. Several months ago, the recommended private-sector partners, Cintra/JP Morgan Asset Management, offered a $2.8 billion concession payment to TxDOT, consisting of a $2.1-billion upfront payment due upon financial close and an additional $700 million in guaranteed annual fees. Only then did the regional toll road operator, the NTTA, offer to make a $3.33-billion concession payment to TxDOT, consisting of a $2.5 billion upfront payment and guaranteed annual fees totaling $833 million over the term of the 50-year concession.

Clearly, it would be extremely costly to the people of Pennsylvania if the General Assembly fails to explore all opportunities to partner with the private sector to help finance and operate Pennsylvania’s transportation infrastructure.

Finally, by subsidizing the current system without significant reforms, the proposal under consideration would merely postpone the current financial crisis for another day—it will not solve it. According to the final report from the Pennsylvania Transportation Funding and Reform Commission, “The Commission concludes that no additional funding should be provided for highways, bridges and transit unless a series of parallel actions are taken to reform funding structure and a number of transportation business practices.” [emphasis added] What significant reforms have been enacted to merit additional funding?

Given these many unresolved issues and unanswered questions, we urge you to refrain from rushing through legislation that will affect Pennsylvania’s transportation policy for decades to come. House Bill 1590 has too shaky of a premise—the legality of tolling I-80—and it fails to include many alternative options that will result in much higher costs to taxpayers than necessary.

The Commonwealth Foundation is more than willing work with you to promote a better understanding and have a full dialogue regarding more innovative and efficient means of financing and operating Pennsylvania’s transportation infrastructure and transit needs. Please do not hesitate to call on us at 717.671.1901 if we can be of any assistance.

Sincerely yours,

{signed}

Matthew J. Brouillette
President & CEO