Choosing to Pay Interest, Rather Than Earn It

Is it financially better to earn interest or to pay interest? Seems like a rhetorical question. It should be. However, Governor Rendell and the General Assembly chose to make Pennsylvanians pay interest for decades to come under Act 44 of 2007, the recently passed transportation legislation.

Act 44 empowers the Pennsylvania Turnpike Commission to raise tolls on the Turnpike by 25% in 2009 and 3% every year thereafter, as well erect toll plazas on the currently un-tolled Interstate-80. The surplus revenue generated from these new and higher tolls will pay off the interest and debt on bonds issued by the Turnpike Commission and its favored bond attorneys to benefit Philadelphia and Pittsburgh’s transit systems.

Unfortunately, Act 44 provides only half the amount of money needed to remediate our dilapidated bridges, roads, and highways, but at more than twice the cost to commuters and taxpayers. The bridge tragedy in Minneapolis and reports showing that Pennsylvania has the highest number of structurally deficient bridges should serve as a wake-up call to Pennsylvania policymakers who put the interests of the Turnpike Commission and its political friends ahead of the people’s best interests.

Gov. Rendell admitted his failure to protect commuters and taxpayers on CNBC when he stated “We could have generated another half-billion dollars for bridges, roads, and highways had we leased the Turnpike to a private operator.” Instead, he pushed for and signed a bill that under-funds our infrastructure needs while requiring new taxes and tolls on Interstate-80—costs to Pennsylvanians that would have been unnecessary with a Turnpike lease.

Instead of generating the conservatively projected $1.6 billion annually from a lease of the Turnpike, Act 44 will provide less than half that amount in 2008. What is worse is that it will cost Pennsylvanians more to do so. Rather than earning interest under a Turnpike lease—upwards of $3 million per day—the commuters and taxpayers of Pennsylvania will be paying interest of approximately $11 billion over the next 35 years!

It is rare that policymakers can choose between paying interest on debt or earning interest on a public asset. Yet the choice to pay interest and embrace the Turnpike Commission’s plan has placed Pennsylvanians at high physical and economic risk.

If the Turnpike’s promises are not fully realized, taxpayers and commuters will be at financial risk via the gas tax (Motor License Fund). Commuters are put at physical risk because insufficient revenues will be generated under the Commission’s legislation to pay for Pennsylvania’s needed infrastructure improvements. Indeed, the Pennsylvania Department of Transportation recently estimated the cost of structurally updating 6,000 bridges across the Commonwealth will cost $11 billion.

Where will this money come from?

Unfortunately, it won’t be generated by Act 44. In fact, Act 44 will do little to improve the lack-luster performance of Pennsylvania’s state-owned roads and highways—let alone rebuild its dilapidated bridges. An annual ranking by the Los Angeles-based Reason Foundation placed Pennsylvania’s state highway system 36th in the nation on twelve indicators covering the state’s highway revenues and expenditures, pavement and bridge condition, congestion, accident rates, and narrow lanes. With regard to congestion relief, the report noted that 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.

The good news is that the ink is still wet on Act 44 of 2007—and our elected officials can prevent it from drying. They can still choose to earn interest rather than pay it, but only if they have the courage to pursue the public’s best interests rather than taking care of Harrisburg’s special interests.

(click here for full table)

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Matthew J. Brouillette is president of the Commonwealth Foundation (, an independent, non-profit public policy research and educational institute based in Harrisburg, PA.