The $12.8B cash cow

Pennsylvania Gov. Ed Rendell has an uphill haul trying to convince state lawmakers that his plan to lease the nation's first major toll road and superhighway is a sound idea. The arguments against leasing the Pennsylvania Turnpike for 75 years at $12.8 billion to buyers led by Spain's Abertis Infraestructuras SA are growing and not only include economic issues, but emotional positions as well. Selling

Pennsylvania Gov. Ed Rendell has an uphill haul trying to convince state lawmakers that his plan to lease the nation's first major toll road and superhighway is a sound idea.

The arguments against leasing the Pennsylvania Turnpike for 75 years at $12.8 billion to buyers led by Spain's Abertis Infraestructuras SA are growing and not only include economic issues, but emotional positions as well. “Selling the grandfather of all toll roads to a foreign company doesn't sit well with a lot of people,” says Jim Runk, president and CEO of the Pennsylvania Motor Truck Assn. But Runk also notes that it's not just nostalgic feelings for the road that make this a bad deal. “Rendell thought he would get $15 billion to $25 billion; now it's down to $12 billion to $15 billion, and it's really not going to be that much in the end.”

According to Runk and others, the original plan looked a lot better than what Rendell's office finally negotiated after two other bidders dropped out. Abertis, Criteria CaixaCorp and Citibank Infrastructures have offered $12.8 billion for the lease, which dwarfs the $3.8 billion paid for the Indiana Toll Road in 2006 and the $1.8 billion purchase of the Chicago Skyway in 2005. These and other deals are part of a growing movement to privatize the nation's roads in an effort to shore up dwindling state and federal funding for road repair and maintenance.

In the case of Pennsylvania, the state will only receive $10.5 billion because $2.3 billion is being set aside to pay off existing Turnpike bonds. Proponents, though, argue that the effective price is really higher than $10.5 billion because the buyers have committed to more than $5 billion in improvements.

The Turnpike now generates about $600 million annually but more is needed to maintain it under the current Turnpike Commission, Rendell says. Albertis assumes that it can do this for less because it is more efficient than the Commission, which has a reputation of political patronage, no-bid contracts and waste. The slowing economy is making the leasing numbers look poorer every day, however.

The governor's plan suggests that the lease would generate $1.1 billion annually, but that's based on a 12% return on the $10.5 billion lump sum payment. Actual returns may be closer to 8.5%, according to what state pension fund managers foresee for their investments. This would cut the return to about $800 million, which is closer to the $600 million that the Turnpike currently generates — and the state still owns the Turnpike, say opponents.

The leasing discussion had been going on for several years and was pushed to the forefront by the passage last year of Act 44, a state law that calls for tolls on I-80; funding for mass transit; and other distributions aimed at fixing bridges, tunnels and roads. The state law drew massive protests, especially from truckers, and several Washington lawmakers have moved to block it. The response was so strong that Rendell resurrected the idea of leasing the Turnpike in the hopes that it would sit better with the public. It did not.

One plan that does not involve leasing the Turnpike or tolling I-80 may gain traction. State Sen. Joe Scarnati says the state should transfer $225 million this year and $510 million next year from the Motor License Fund to pay for infrastructure. This fund currently pays state police operations and Scarnati suggests they be funded from the general fund using a portion of personal income tax revenues. Rendell has vowed to veto any plan that does not raise at least $1 billion a year. Opponents also question whether this plan is simply a reshuffling of funds to appease voters.

Other cash-strapped states will be watching Pennsylvania closely as it figures out how to pay for infrastructure in an age of dwindling resources coupled with a growing backlash against selling state highways.

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