Rendell first proposed leasing the 570-mile toll road last May after an analysis by Morgan Stanley said a lease would generate the most revenue out of three transportation funding options. The governor is now touting a lease as a source of alternate funding to Act 44, which the Pennsylvania Legislature approved in July to produce new transportation revenue.
Under Act 44, tolls on the turnpike would increase and tolls would be charged for the first time along Interstate 80 through Pennsylvania, for added revenue averaging $945 million per year for the first 10 years. Sections of I-80 through Ohio and Indiana are tolled.Turnpike tolls under a leasing arrangement would be the same as under Act 44, "so there will be no additional cost to travelers," Rendell said in a statement. However, one purpose for leasing the turnpike would be to limit the rate of toll increases on the roadway along with eliminating the need to toll motorists traveling I-80. Toll increases under the leasing scenario would be limited to 2.5% annually, while under Act 44 the annual increase could be considerably larger without a lease in place.
Bridge repairs represent one area where the potential revenue generated by a turnpike lease could be meaningful. Construction contracts for bridges in Pennsylvania exceeded $700 million in 2007, compared to $250 million in 2002. "But for every two bridges we fix, three more reach the point where they also need repairs since the average age of our 25,000 state-maintained bridges in Pennsylvania is 50 years," the governor said in the statement.
With nearly 6,000 structurally deficient bridges, the most of any state in the nation, the repair bill for the commonwealth's bridge system is estimated at $11 billion by the state Department of Transportation. Even at the level of funding recommended in a 2006 report by the Transportation Funding and Reform Commission, it would take Pennsylvania 17 years to cut its percentage of structurally deficient bridges from the current 24% to the national average of 11%.
Bidders on the lease were required to submit a non-refundable letter of credit for $100 million, and bids will remain valid until June 10 to allow time for legislative action. "We are also requiring the operator to maintain the turnpike at the same or better condition as the current Turnpike Commission," Rendell said in the statement. "Full details will be made public once we have the highest bid, but for now my first responsibility is to assure that the commonwealth receives the highest possible bids."
In an earlier statement, the governor's office noted that "the value of a lease for the Pennsylvania Turnpike cannot be fully measured unless, and until, a bidding process is completed." Revenue estimates in published reports have ranged up to $20 billion for the commonwealth over the lifetime of a lease.
According to published reports, entities that submitted proposals when Rendell first floated the idea of leasing the turnpike included investment banks, leading construction services firms and international developers. Additional information from the governor's office was not available by deadline.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
