Group suggests leasing out Pa. Turnpike
Libertarian foundation projects big toll road profit if private firms take the wheel
With transportation agencies struggling financially because of the sharply reduced traffic during the COVID- 19 pandemic, the Reason Foundation is bringing back an old idea: leasing operation and maintenance of the Pennsylvania Turnpike.
The Los Angeles- based libertarian foundation, whose motto is “free minds and free markets,” released a 65- page study Tuesday encouraging nine states — including Pennsylvania — to take a hard look at leasing toll operations to a private operator for a large upfront fee to eliminate debt and fund road improvements. Author Robert Poole, a Massachusetts Institute of Technology- trained engineer, estimated Pennsylvania could rake in a net profit of $ 2.6 billion for a 25year lease, $ 6.8 billion for 50 years and $ 10.9 billion for 75 years.
In 2008, then- Pennsylvania Gov.
Ed Rendell sought proposals to lease the turnpike and endorsed one from a consortium that offered $ 12.8 billion, which at the time would have been the largest lease of a government facility to a private operator in the country. But the group withdrew the proposal when the state Legislature refused to act on it.
Current Gov. Tom Wolf didn’t address the privatization issue directly last week, though his office issued a statement in which it said the state is “evaluating all options for funding transportation and other larger budgetary needs.”
Like many states, low traffic during the pandemic has ravaged finances for Pennsylvania’s Department of Transportation, which relies on gasoline taxes for much of its funding, and the Turnpike Commission, which charges tolls. The agencies have projected losses of more than $ 100 million.
Although that sounds like a bad time for a private operator to become involved, Mr. Poole said in an interview the opposite is true. That’s because the leases are for a minimum of 25 years, and he said he’s convinced that traffic will return to normal early next year, leaving plenty of time to generate a profit.
Also, any lease would require legislative approval and a bidding process, which likely would last until 2022, when the economy likely will be stronger.
Although leasing public facilities has been popular in Europe and Australia, in particular, only five similar leases have occurred in the U. S. But the struggles caused by the pandemic may make privatizing an easier political sell, Mr. Poole said.
“The timing for releasing the study was now because we could see a lot of agencies struggling,” he said. “What might have been impossible before might become politically feasible now.”
Mr. Poole said one of the reasons the return for the turnpike is lower now than it would have been in 2008 is that debt has grown substantially since then to nearly $ 14 billion. Much of that debt comes from the agency borrowing to pay $ 450 million a year to PennDOT for transit — alternative funding that was developed then after privatization was rejected.
Any lease to a private operator would require paying off that debt, leaving a lower net return, he said.
Typically, when a state leases a facility to a private operator, the lease comes with an upfront payment and a series of requirements, such as limiting rate increases and providing specific upgrade to facilities over the course of the lease.
The turnpike is scheduled in 2021 to raise tolls for the 13th year in a row, and it faces serious capital needs that include adding lanes across the state and replacing some original construction from the
1940s and ’ 50s.
“Whoever would take this on … would be facing some significant capital investment,” Mr. Poole said. “There are large capital improvements that need to be done.”
Despite those shortcomings, the turnpike continues to have strong financial ratings from bonding agencies that would make it an attractive investment, he said.
“I think so. People would be coming in with their eyes wide open,” Mr. Poole said.
Any state could use its lease payment for a variety of purposes: road improvements, paying off general debt or meeting unfunded pension obligations.
The other facilities Mr. Poole suggested should consider leasing to a private operator are the Illinois Tollway; the New York Thruway; and the Florida, Kansas, Massachusetts, New Jersey, Ohio and Oklahoma turnpikes.