Turnpike lease plan sent to Pa. legislature

Gov. Rendell sent a turnpike leasing plan to the state legislature yesterday, and his financial advisers said the turnpike could be worth $20 billion or more.

Rendell wants to lease the Pennsylvania Turnpike to raise money to repair the state's battered highways and bridges. And he suggested yesterday the turnpike might bring enough to pay for increases in public-transit funding, as well.

The turnpike, Rendell said in a statement, "can be the key to solving our transportation-funding crisis today and for generations to come."

Rendell's proposal, if approved by the legislature, would authorize the administration to solicit bids and choose a private company to lease the turnpike, without further approval by the lawmakers.

The governor's proposal faces significant opposition in the legislature, and Rep. Joseph Markosek, (D., Allegheny), the chairman of the House Transportation Committee, said "If the skepticism continues, we'll have to come up with alternatives ourselves."

The administration's financial advisers said that if the legislation is adopted, a winning bidder for the turnpike could be selected by the end of the year.

Morgan Stanley & Co., hired by the administration to examine various ways to "monetize" the turnpike, said a long-term lease was likely to raise the most money, perhaps as much as $19.8 billion for a 99-year lease. And the price could be higher, depending on the value that private firms see in the road, the financial analysts said.

Tolls for drivers would be sure to rise. The Morgan Stanley analysis assumed no toll-rate growth till 2010 and then toll revenue growth of 5.5 percent a year for 50 years and 3 percent a year after that.

That means the current one-way toll of $19.75 for the 359-mile main section eastbound could increase to $287.20 after 50 years if traffic remained at current levels. Roy Kienitz, deputy chief of staff for Rendell, said Pennsylvanians' salaries would also rise significantly over that time, taking much of the sting out of any toll hike.

"It's going to go up, no matter what," Kienitz said of the cost of driving the turnpike. "We think it's better to be honest about that."

Rendell said his legislation "protects against excessive toll hikes." Kienitz declined to say whether 5.5 percent annual increases qualified as "excessive."

The proposed legislation does not specify how future toll increases would be governed, but Morgan Stanley used the same inflation indexes used by Chicago and Indiana in their recent leases of toll roads.

Morgan Stanley looked at three options in its analysis: A long-term lease to a private company; public financing under a newly created public corporation; and a multi-pronged plan by the existing Pennsylvania Turnpike Commission to monetize the road.

The financial firm concluded a long-term lease would probably be the most lucrative for the state. It said a lease for $12 billion to $18 billion, invested at 7 percent to 9 percent, would generate $840 million to $1.6 billion a year. The high range of that estimate, Rendell's office said, would be nearly enough to pay for highway, bridge and transit needs.

SEPTA and other transit agencies are seeking additional state funding to prevent sharp fare hikes and service cuts. Rendell proposed creating a tax on oil-company profits to raise $760 million for transit agencies, but has found little support in the legislature for an oil tax.

The Rendell administration received "expressions of interest" in December from 48 firms interested in the turnpike lease, including a proposal from the Turnpike Commission. The Turnpike Commission made its proposal public, but Rendell has kept the 47 others secret, saying they contain "proprietary" information.

Senate President Pro Tempore Joseph Scarnati (R., Jefferson) said during a speech at the Pennsylvania Press Club luncheon yesterday, "I would encourage the governor to let us look at those 47 proposals that came in. Let us see, let us understand what is in them."

Rep. Richard Geist (R., Blair), the top Republican on the House Transportation Committee, said he supported leasing the turnpike and other public-private partnerships to raise money for transportation. He said he thought the turnpike could be worth as much as $30 billion, and he said Rendell will need to compromise with lawmakers to get any bill passed.

"No work has been done by anyone in this administration to start the process of gathering votes," Geist said. Submissions have come in from New York investment banks, the former employers of both Rendell and New Jersey Gov. Corzine, Philadelphia law firms, construction giants, international developers, and a prominent think tank.

As Rendell sent his 42-page proposal to the legislature, Senate Republican leaders criticized what they said was a possible conflict on interest by financial adviser Morgan Stanley.

Since Morgan Stanley will be paid a fee based on the amount of any eventual lease value, the financial firm has an incentive to "recommend the largest transaction possible rather than a course of action which may be more balanced and more prudently serve the needs of the Commonwealth and its residents," said a letter from Sens. Scarnati, Majority Leader Dominic Pileggi (D., Chester), and transportation committee chairman Roger Madigan (R., Bradford).

Michael J. Masch, the governor's budget secretary, responded that the contract had been approved by the attorney general and that it "falls well within the bounds permitted" by the state's conflict-of-interest law.