Penn Pike debt soaring on Act 44 payouts for transit/free roads - tripled in 5 years +ADDITION
By Peter Samuel
2012-08-28: Preliminary $-numbers for fiscal year 2012 show the Pennsylvania Turnpike Commission's (PTC) debt now standing at close to $8 billion, a near threefold increase over the past five years. In FY2007 total debt was $2.71b, while at end FY2012 it was $7.95b - 2.95-fold higher.
In that time toll revenues - the commission's major source of revenue - went from $593m to $779m, a 31% increase. These are unaudited numbers that the commission says should be regarded as preliminary.
The good news seems to be that America's oldest automobile era pike has managed to cut operating expenses considerably - from $363m in FY2007 to $303m in FY2012.
Tolls minus op exp then go from $230m in FY2007 to $476m in FY2012, a better than two fold increase. In our extremely simplified version of the Penn Pike's accounts their net - before debt service, depreciation and capital spending - was improved substantially by strong toll increases on the one hand and and economies in operation costs on the other.
Trouble is their annual debt service costs from their ballooning debt are soaring. In five years debt service costs have gone from $135m to $707m/year - an increase of more than five fold.
There is a longterm plan (see cover nearby)
We and others have written previously that the Turnpike hasn't published a longterm financial plan on handling Act 44's $450m/year payouts to PennDOT for transit and untolled roads. In fact with the help of the PFM Group they filed such a report with the state Secretary of the Budget, June 1, 2012. It isn't available on either the Turnpike's or the budget secretary websites, but the Turnpike provided a copy to TOLLROADSnews.
They have tables projecting all their finances year by year out to 2057!
In 2057 you need to know their toll revenue is projected at $9,191m, 11.8 times present tolls.
We've focussed on their financial plan projections over the next nine years to 2020.
Debt looms as their huge threat, and annual service of the debt. Debt service is scheduled to increase an average 12%/year to 2020 versus toll revenues of 6.9% average.
Debt service costs at $707m this year compare with toll revenues of $779m but within two fiscal years they'll exceed tolls. In FY2014 debt service is projected at $1,053m versus toll revenues of $868m. From that point the Turnpike will be borrowing - if lenders will lend to it - not just for the Act 44 payouts to PennDOT and for their own expenses but to pay interest on past debt.
By 2020 the report says annual debt service will be $1818m versus toll revenues of $1,353m.
The financial plan, they say, "assumes Turnpike traffic and toll rates will increase at levels sufficient to comply with these parameters (debt service coverage ratios guaranteed to lenders.)"
Their report says they plan to issue new debt over the next ten years of $10.5b, $6.2b to support the Turnpike itself and $4.3b to allow them to make the $450m/year payouts to PennDOT.
Over 44 years to 2057 they plan to issue about $35b, split $25b for the Turnpike's needs and $10b for payouts to PennDOT.
"There are inherent uncertainties..."
The PFM/Turnpike report continues:
"While PTC's financial plan is based on reasonable financial assumptions, it is important to recognize that there are inherent uncertainties in projecting resources and obligations over a 44 year time period.
"Downside risks to the financial plan include lower than expected traffic and toll revenues, higher interest and inflation rates and/or greater than projected cost increases.
"In the near term, the financial plan accounts for the effects of the gradual economic recovery. To accommodate these risks, the financial plan requires the PTC to maintain strong debt service coverage and preserve internal liquidity.
"Nevertheless, it is also important to assess how the combination of downside risks may impact the financial plan and to identify remediation measures the Commission could implement to maintain fiscal stability.
"PTC will monitor its performance relative to the financial plan, and take corrective action if costs are higher and/or toll revenues are less than projected. While such a scenario may call for further adjustments in toll rates, the Commission will explore strategies to contain cost growth or reprioritize capital initiatives to manage the level of rate adjustments and maintain fiscal stability."
Auditor-General Jack Wagner said Jan 5 "existence at risk" because "drowning in debt"
At the beginning of this year the state auditor general Jack Wagner said the Turnpike Commission's existence is "in jeopardy" and wrote January 5, 2012 to legislators:
"The statistics show clearly that the Pennsylvania Turnpike Commission is drowning in debt due to the burdens placed on it by Act 44. With Pennsylvania facing nearly a half-billion dollar budget shortfall this year, the (state) cannot afford to take on any additional debt. Immediate action must be taken to ensure this important state entity can continue to meet its mission to serve Pennsylvania taxpayers with excellent roadway service and to ensure that taxpayers aren't unfairly charged in the process."
"It is crystal clear that, with the passage of Act 44, the Pennsylvania Turnpike Commission has been placed in a position where its very existence is at risk. No entity can continue to operate with significant increases in long-term debt and the continued serious depletion of assets caused by Act 44. It is time to rescue the Pennsylvania Turnpike Commission by repealing Act 44."
Tolling tax-supported/unsupported interstates needed
A transport funding advisory commission set up by the state Governor Tom Corbett recommended August 2011, among other measures, that the state should authorize tolling of any interstate highway with revenue dedicated to the corridor in which it was collected (p12 Exec Summary.) That would require federal legislative changes too.
There was and is a case for tolling I-80 - to improve it and maintain it for the huge truck traffic that rolls across the middle of the state and that should pay for its upkeep, but not to pander to city transit sentimentalists - as the first I-80 toll foolishly tried. Equally a case can be made for tolling most of the state's other interstates. I-81, I-70 and I-78 are other big truck routes, that need to be rebuilt and often third-laned in proportion to the revenue stream they can generate.
The Turnpike Commission is already committed to a major improvement of I-95 in the Northeast Philadelphia/Bensalem/Bristol area with a three stage project to build an interchange I-276/I-95, while modernizing the approaches on either side and rebuilding the Delaware River bridge link to the New Jersey Turnpike.
This $1.3 billion project is more an I-95 project than it is a I-76/276 Turnpike project. It would be fairer to have I-95 drivers pay the lion's share of the cost through an I-95 toll than have the Turnpike carry the project. And instead of being drawn out over 13 years because of the sad finances of the Turnpike it could be built, Texas-style, in 4 or 5 years.
I-95 through Philadelphia and I-76 Schuylkill Expressway the northwest radial to the mainline of the Turnpike and I-476 the western belt route of the metro area all need tolls too for modernization. And they need variable tolls for traffic management purposes, and simply to gain market information on motorists valuation of better roads and what they are willing to pay for improved mobility.
Philadelphia Inquirer and AP give wide publicity to the problem
Paul Nussbaum of the Philadelphia Inquirer in a piece picked up by the Associated Press Monday has given wide coverage of the Turnpike's financial woes inflicted by the state's Act 44.
He quotes Penn Pike chief executive Roger Nott acknowledging that the Turnpike can't indefinitely continue on its present course of incurring more debt to make the $450m/year payouts to the state DOT, but emphasizing there is no immediate crisis.
Nott said in response to Wagner that "in the longer term" it may not be sustainable, but he is at pains to emphasize there is no immediate crisis.
He told Nussbaum: "I don't know how long we can continue, clearly probably not for 46 more years. But there is... not an immediate crisis. Right now, we are managing it. We don't have any choice."
OUR TAKE: Act 44 was largely the work of a notoriously corrupt state senator Vincent Fumo (Dem), now serving a long jail term. A bipartisan 'bad bill' it was devised in a huge last minute panic in 2007 by politicians politically investedf in the Turnpike as a state enterprise to head off a privatization proposed by Governor Ed Rendell (Dem).
Rendell proposed to take up an offer of $12.8 billion to the state for a 99 year lease of the Turnpike from the Abertis company.
In retrospect, rejection of the Rendell plan was a terrible mistake for the state. The mischief of the alternative - Act 44 - has left huge uncertainties about the viability of a great state enterprise and leaves the state with an unsustainable transport financing mechanism.
copy of Penn Pike's financial plan to 2057:
TOLLROADSnews 2012-08-28 ADDITION Aug 29 17:30