Feds reject Pennsylvania application to toll I-80 - state to revisit P3

April 6, 2010
By Peter Samuel

USDOT officials have told state Governor Ed Rendell that Pennsylvania cannot toll I-80 because state plans for use of the proceeds are not permitted under existing federal law. Governor Rendell said this at a press conference in Harisburg this afternoon. He was confirming the news which was broken this morning by the Patriot-News of Harrisburg. Rendell said during a 45 minute press conference that the USDOT was wrong about the law, but that there is no appeal.

"It's over," he said and the state has find way to replace the money it was counting on. He is calling a special session of the legislature and says he will be talking to legislative leaders of both parties in an effort to find susbtitute funds.

"We have to deal with the fallout of this decision; there is no way that we can just do nothing," he said.

Governor Rendell says they will have to look at all potential sources of revenue. He seemed to put most emphasis on doing public private partnerships (P3s) and a tax on oil companies.

Rendell said that the Turnpike will have to cut their payments to the state for roads and bridges from $532m/year by about $300m to $230m. The Turnpike which was due under tolling I-80 to provide $414m/year for transit will drop that amount by more than $160m to about $250m/year.

Rendell said this means PennDOT will not be able to repair about 100 bridges and 300 miles of roads each year. Funding for 73 public transit systems that provide more than 400 million rides a year will be forced to make service cuts and do fewer capital improvement projects.

The governor said he wasn't going to shy away from asking people to pay for improvements: "People aren't stupid. They understand that if they want safe bridges, good roads, and potholes eliminated, you cannot wait for the pothole fairy to do it - you've got to pay for it."

Pennsylvania still has approximately 5,600 structurally deficient bridges -- the highest number of any state -- and approximately 6,000 miles of roads that are in need of repair.

Revisiting P3s

In answer to questions the Governor says the P3 business is reviving from the financial collapse of 2008 and he plans to talk to Wall Street people about how private investments can help the state.

He defended his plan to lease the Turnpike to Abertis saying the $12.8b they were prepared to pay would have generated an annuity for the state somewhat greater than Act 44 and tolling I-80. But the legislature had chosen not to support that.

The governor said that subsequently the legislative leaders expressed interest in P3 legislation and he would be discussing this with them again.

Feds "will lift the ban" on tolling - Rendell

Rendell who has had lengthy discussions with federal officials said he is certain that tolling of interstates will be a major feature of reauthorization of SAFETEA-LU: "I have  a prediction for you. When there is a reathorization they (the Feds) will lift the ban on tolling. There is no appetite for raising the gasoline tax."

Rendell said one of his arguments with federtal offciials for allowing I-80 tolling was that they were going to lift the restrictions anyway.

Nothing official yet from USDOT

Nothing has been released yet from USDOT. But under current law called SAFETEA-LU new toll money must be used for the upkeep and improvement of the road being tolled and for projects in the same corridor. It can yield a profit but that profit must be related to the fair market value of the facility.

Under the proposal submitted by the Turnpike much of the money generated would go for projects outside the corridor including subsidies to loss-making transit operations in Philadelphia and Pittsburgh.

In their application the Turnpike Commission was following the letter of state law HB44 which requires around $950m/year of revenues for other state transportation projects if tolling I-80 goes ahead. So they were in a bind, unable to tailor their application to meet the requirements of federal law.

This will be the third time an application to toll PA/I-80 has been rejected.  Twice under Bush there was a No for the same reason.

Bizarro jail group hired as consultant

One bizarre aspect of the Turnpike's application the third time around was its discovery of an obscure "financial consultant" Provident Capital Advisers LLC to perform a key "Financial Valuation of Proposed Rentals for Interstate 80." The valuation and rentals to be paid by the Turnpike to the state had been a stumbling block in previous applications to the US Government and it was expected they would use an established and reputable company in the field such as Wilbur Smith, Citi, Cambridge Systematics, Carlyle, Nossaman, Charles River, IBI, Chase or any number of other known firms.

We reported - http://www.tollroadsnews.com/node/4427 - that Provident Capital Advisers LLC was actually formed in a corporate name change just days before the document was submitted to the Feds in an apparent deception designed to obscure the company's major activity running 14 jails and old people's homes. The company is run out of two houses in Baton Rouge LA and didn't even claim on its website any expertise in financial valuation.

A joke circulated that the Turnpike's longtime legislative patron ex-senator Vincent Fumo serving a four year sentence for corruption was in one of Provident's jails, and have recommended that his jailers be hired by the Turnpike.

Lose/lose decision for Feds

Politically the decision was a lose-lose one for the Feds. If they OK'd tolling PA/I-80 as well as alienating local communities in the corridor (heavily Republican) they'd likely be tied up in litigation challenging the decision that could well go against them in the courts.

With a No to tolling they anger their political base in the heavily Democratic constituencies of the big cities who stood to gain from diverted toll monies.

Reaction

Marcus Lemon, chief counsel at FHWA during the previous two I-80 tolling applications under President Bush, now at the Washington DC law firm Baker & Miller told us today that the third application of the Turnpike had no more credibility than previous applications. In fact he said the use of an apparently bogus financial adviser by the Turnpike made the third application if anything worse than earlier applications.

"The Obama administration read the law correctly as not allowing an acceptance of the Turnpike proposal."

Lemon said the state has an opportunity to pass proper P3 legislation and seek investor funding for major highways and bridges through the state DOT rather than prop up a state turnpike that has no credibility.

OUR COMMENT: In rethinking their approach to tolling state officials might look at prioritizing introduction of tolls across the state according to the the level of congestion, the extent of disrepair and the urgency of improvements in various corridors.

Improvements and traffic management with variable toll rates are most urgently needed on:

- I-76 Schuykill Expressway northwest out of Philadelphia

- I-95 along the Pennsylvania bank of the Delaware River both southwest and northeast of Philadelphia

- US422 from the Turnpike to Pottstown on the upper Schuykill River valley

- US15 from the Maryland line to Harrisburg and north of Harrisburg up the Susquehanna River to I-80

- I-376 Parkway East in Pittsburgh, northern segments of the Monfayette Expressway

- I-81 from the Maryland line to Scranton

- I-70 Maryland to the Turnpike needs tolling for new interchange at Breezewood and from the Turnpike at New Stanton west to West Virginia line

- I-78 from its western end at I-81 east to the Delaware River

- I-80 but starting at the Delaware River, tolling and improving first west to I-81, and tolling subsequent segments to the west of I-81 only when major upgrades are needed

Turnpike materials on tolling I-80:

http://www.paturnpike.com/I80/

COMPETITORS: the Patriot News of Harrisburg citing two sources was the first to break yesterday's story with a report by Kari Andren. She correctly anticipated the decision going from USDOT to Governor Rendell "today or tomorrow." Rendell said he got the decision from government affairs officials of USDOT. But back on Feb 2 a smaller internet news outfit "Pennsylvania Independent" an affiliate of the Commonwealth Foundation thinktank quoted "multiple federal sources" as saying the decision on allowing I-80 tolling was negative. What they got wrong was saying the decision would come out "within a week." http://www.tollroadsnews.com/node/4579

TOLLROADSnews 2010-04-06

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