Study: Speculation and Predetermined Conclusions

House Democrats waste taxpayer money on useless report 

HARRISBURG, PA — The Commonwealth Foundation responded to a study released today by the House Democrats on the potential lease of the Pennsylvania Turnpike and the abolition of the Pennsylvania Turnpike Commission.

“This study—paid for by the taxpayers to defend Pennsylvania’s most bloated, inefficient, and patronage-laden government entities—does little to better inform legislators and citizens about the financial or economic impact of leasing the Pennsylvania Turnpike,” said Matthew J. Brouillette, president of the Commonwealth Foundation. “The assumptions made by the authors and their conclusions based on those assumptions make this study useless. The only way to test all of their assumptions is to have a competitive bidding process on leasing the Turnpike, something the authors and the legislators they produced this study for oppose doing.”

Pennsylvania House Democrats awarded $75,000 to three university professors selected by legislators who oppose the leasing of the Turnpike. “Is anyone surprised by the outcome?” asked Brouillette. “We fully expected legislators who have been publicly opposed to leasing the Turnpike to produce a study that supported their opposition to leasing the Turnpike. But we knew that well before they spent $75,000 of our money.”

The authors’ conclusion that more public debt, higher tolls on the Turnpike, and new tolls on Interstate 80 are better than leasing the Turnpike to a private operator is premised primarily on the authors’ assumptions of the “present value” of three scenarios—two of which expand the Turnpike Commission and the other which abolishes it. The authors ignore that without the tolling of I-80, Act 44 loses more than half its value—making a Turnpike lease a much better value, even by their own estimates.

“These authors’ assumptions and comparisons are simply inaccurate,” said Brouillette. “They don’t compare apples to apples, and in the process they mislead the public about the true taxpayer costs of Act 44 and fail to discuss the real benefits of leasing the Pennsylvania Turnpike to a private operator.”

The study does offer several valid concerns about a potential lease of the Pennsylvania Turnpike; however, all of the concerns would be addressed through legislation and the lease agreement.

Concern #1: Tolls may or may not be higher under Act 44 than a Turnpike lease.

Turnpike tolls will increase 25% in 2009, and 3% annually thereafter. Under Act 44, there is no limit on tolls on the Turnpike or Interstate 80, and the Turnpike Commission is granted complete autonomy to increase tolls to whatever rate they deem necessary to fulfill their obligations to pay debt, bond attorneys, no-bid contracts, as well as the waste and bloat of the Commission’s management.

The study argues that tolls might be higher under a lease deal. However, Gov. Ed Rendell has publicly state that tolls will be limited in the lease contract. In fact, a lease contract could be structured so as to allow lower tolls on the Turnpike—and no tolls on Interstate 80—if lawmakers so choose.

Concern #2: Legislators might misspend revenues in the future.

The study notes, “Absent an amendment to the Pennsylvania Constitution, we are aware of no authorization or ability for the commonwealth to create an effective lockbox which would protect such funds from the enticing temptation of future legislative invasion and usurpation for non-transportation purposes.”

While this risk is real, the risk under Act 44 is precisely the same. Act 44 revenues are not protected against non-transportation uses—a simple majority can pass legislation to spend Act 44 revenues (i.e., Turnpike payments to PennDOT) in any way they see fit. Nor are taxpayers protected against misspending by the Turnpike Commission, which has been well documented in reports, media stories, and federal indictments of state legislators.

“There is certainly a need to ensure these funds are dedicated to transportation funding—legislators should pass a Constitutional amendment to limit how a Turnpike lease payment can be spent,” said Brouillette. “And if protecting taxpayers against misuse of resources is a concern, then eliminating the inefficient, patronage-ridden Turnpike Commission would represent a giant step in the right direction”

Concern #3: Revenue from lease deal might not be as high as some estimates.

While Act 44 generates an average of $900 million annually over the next ten years, Morgan Stanley estimates that a Turnpike lease (which would not involve tolling I-80 or taxpayer-backed borrowing) would generate $1.2 to $1.6 billion annually for transportation infrastructure. While this study suggests that Morgan Stanley’s estimates might be high, in both the Indiana and Chicago lease deals, actually bids exceeded estimates by over 50%.

Consider this endorsement of a Pennsylvania Turnpike lease by the National Construction Alliance and their affiliated unions:

In its first year alone, the Indiana deal has provided quality construction jobs for local workers. Estimates have concluded the lease results in billions of dollars in revenue which the state spent on hundreds of road improvements that wouldn’t have happened otherwise. Indiana is now the only state with a fully funded transportation plan.

The only way to determine what a lease deal might yield would be to open up the process to competitive bidding. “The Turnpike Commission should be allowed to bid against private operators, and if their proposal (Act 44) is a better arrangement for Pennsylvania taxpayers and motorists, then legislators should stick with that arrangement,” stated Brouillette. “But if an experienced private operator offers greater funding with equal or lower tolls, there is no justification for giving the Turnpike Commission a sweetheart deal.”

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The Commonwealth Foundation ( is an independent, non-profit public policy research and educational institute based in Harrisburg, PA.

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