A Penn Pike lease "not the only solution" - A DEBATE

September 15, 2008
By Peter Samuel

Here's a commentary from Lowman S. Henry, head of the Lincoln Institute running on Pennsylvania radio on the tolling of I-80 and the future of the Turnpike. We agree much of his general drift, but think he's got a lot of things wrong, so our comments in parentheses make a debate.

Henry's headline: "Wrong Again: Leasing turnpike not only solution to PA's roads and bridge funding woes"

Henry: The federal government has realized something Pennsylvania policymakers did not: that the proposed tolling of Interstate 80 to provide funding to fix other roads and bridges was a bad idea.

(WRONG: as we quoted James Ray the deputy administrator of FHWA they think tolling of interstates is a good idea, the way of the future.)

Thus did the U.S. Department of Transportation deny the commonwealth's application for permission to place tolls on the cross-state highway.

(WRONG: They dwelled on the fact that the Pennsylvania application doesn't meet the requirements of existing federal law.)

It was a bad idea from the beginning. First and foremost the tolling of I-80 would have had a crushing effect on the economy of northern Pennsylvania.

(DEBATABLE: Improvements associated with tolling often bring benefits that exceed the cost of the tolls, and therefore help generate prosperity. Tolls in the Dulles corridor in Northern Virginia or on the Dallas North Tollway north of Dallas are associated with development and Fairfax County VA having some of the highest average incomes in the country. Orlando FL has nothing but tollroads and is one of the fastest growing areas in the US.)

The timing would have been especially bad as the region is beginning to emerge from decades of economic doldrums due to existence of shale oil deposits which have suddenly become viable to tap.

(WOT'S THIS? Oil shale investments are going to tip a decision for or against the investment? C'mon that'll be determined by the price of oil and the cost of getting and processing the shale! Truckers will have competition from rail and pipe so tolls, or no, will be a minor factor.)

Worse, the tolls collected from I-80 traffic would have been used not to maintain and improve that roadway, but rather to fix other roads and bridges across the state. (TRUE)

That proved to be the fatal flaw to the plan as federal regulations require any toll revenue derived from interstates to be invested back in those interstates. (GOT IT RIGHT HERE, CONTRADICTS FIRST SENTENCES)

The rejection leaves Act 44, which was to have resolved Pennsylvania's highway "crisis," in tatters. Governor Ed Rendell claims the only remaining viable option is to lease out the Pennsylvania Turnpike to a foreign company.

He is, as usual, wrong.

Leasing the turnpike under a private/public partnership is, in and of itself, a good idea. Similar lease agreements in other states, and in many other nations, have proven highly beneficial as private operators, shorn of the shackles of over-unionization and other constraints of government, have been much more cost efficient. (AGREE)

But this proposed turnpike lease is a bad for two reasons: first, the revenue Pennsylvania would derive from the plan is far less than initially projected and far less than what the state could get if it were to rebid the contract.

(QUESTIONABLE: Who can know that you'd get more on a rebid? If anything financial conditions have deteriorated in the past couple of months - Lehman, Merrill etc. A better argument could probably be made that you'd get less on a rebid.)

Second, just like with the I-80 scheme, funds derived from the proposed turnpike lease would be diverted to other roads and bridges and not spent on maintenance and upgrading of the turnpike itself. Given the overwhelming capital needs of the turnpike system, this diversion of funds would be a huge financial blunder.

The $12.8 billion high bid by the Spanish consortium Abertis Infraestructuras to lease and operate the turnpike for 75 years falls far short of the lease's initial projected value which ranged between $15 billion and $20 billion depending upon who was making the estimation.

(MEANINGLESS: Henry is making too much of these those initial projections. They were little more than informed guesses by one analyst. Others said at the time he was much too high.)

The state received three bids after a process which initially yielded no takers. The bidders, apparently sensing a fire sale, came in low, with Abertis being the best of the bunch.

(WRONG: $12.8b was several billion higher than most people expected.)

Further, whether this lease is approved, or is rebid, any revenue received from leasing the turnpike should be dedicated solely to the improvement and maintenance of the turnpike. Keep in mind the Pennsylvania turnpike is the oldest limited access superhighway in the nation. A major east-west traffic artery, traffic volumes continue to grow. The turnpike is in need of being expanded to six lanes across the state with the attendant improvements in bridges and tunnels to accommodate that expansion. Thus, the roadway needs the major infusion of capital cash a lease would yield.

(SILLY: The concessionaire takes on responsibility to maintain and improve the Turnpike.)

That leaves the problem of Pennsylvania's crumbling roads and bridges still on the table. It is a problem created by the Rendell Administration which has habitually diverted federal highway funds to cover massive deficits in public transit systems in Philadelphia and Pittsburgh. Rather than reform such agencies, Rendell has allowed patronage and waste to continue to flourish, choosing instead to simply cover the operating losses with highway money.

The one option the governor refuses to consider is funding the repairs of state roads and bridges with existing tax revenue. The Pennsylvania Department of Transportation is itself a bloated and inefficient government bureaucracy that cries out for reform. The problem is not a lack of revenue, but rather the inefficient and improper use of existing funds.

(COP-OUT: Inefficiency and bloat are in the nature of old state bureaucracies like DOTs. The institutional incentives are all for that. Inefficiency is rewarded in the political system. Governors come and go and none have any effect on them. And just how, you wonder, did the wheeler-dealer legislators manage to get the amount of revenue just right?)

Rendell and the spendthrift General Assembly will be hard pressed to convince a majority of Pennsylvanians to pay higher taxes to fund road and bridge repair until and unless it become crystal clear the state has made good use of the money we have already provided. Further, if roads and bridges are so important - and they are - other parts of the state budget could be cut or eliminated and the funding shifted to transportation.

In the real world we call that living within our means.

(WISE WORDS BUT... it's not the way government works. Mr Henry's column amounts to a Do-nothing call because the lease is the only solution on the table.)

TOLLROADSnews 2008-09-15


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