Indiana Toll Road update

Several years ago, as Pennsylvania was considering the merits of selling or leasing the Turnpike, proponents pointed toward Indiana as a successful example of leveraging transportation funding through privatization.  That grass is always greener on the other side of the fence, right? 

In 2006, Indiana entered into a 75-year lease with a consortium of foreign investors, who paid $3.8 billion to operate the Indiana Toll Road.  The state then embarked on an ambitious highway construction program.

According to the Fort Wayne Journal Gazette this week, nearly all of the $3.8 billion will have been spent or allocated by the time the state’s next governor takes office in January, portending a significant drop in the highway program and putting Indiana back in the same boat as many other states, including Pennsylvania.

Many opponents of the Pennsylvania Turnpike’s privatization cited the challenges of protecting the principal once the up-front payment was received.  In fact, and in retrospect, the 2008 economic crash almost certainly would have resulted in significant erosion of the principal and significantly lower returns on the investment than had been projected.

To many in Pennsylvania, it is not clear why Indiana never even attempted to preserve the proceeds of its toll road lease, and instead began a short term construction initiative.

“Some suggest that Indiana is right back where it started, but in some ways it’s even worse off,” said PHIA Managing Director Jason Wagner.  “Besides facing a major funding gap in the near future, Indiana won’t be able to leverage its toll road to generate revenue again until 2081.  PHIA has long held to its position that only a long-term, comprehensive funding solution will solve the transportation crisis we face.  Enacting short-term solutions such as this will do little but delay the inevitable realization that additional, growth-oriented funding is the only way to solve our infrastructure woes.”

To read the Journal Gazette article, click here.

Speakers portray funding solution prospects as mixed

Those who attended the PHIA Transportation Conference and Annual Meeting came away with a combination of good and bad news related to the likelihood of transportation funding solutions.  

Sec. Schoch

PennDOT Secretary Barry Schoch said he remains optimistic that the General Assembly and administration will begin tackling the funding issue, perhaps as soon as May, and that he believes that whatever policymakers support, it will include the most important elements among the recommendations of the Transportation Funding Advisory Commission.

Schoch said he and Governor Corbett plan to meet with legislative leaders at the end of April to determine a course of action.

Sen. Jake Corman also delivered a pep talk, urging attendees to continue the push and keep the faith.  Corman, who introduced legislation in the Senate that mirrored the TFAC recommendations, said he believes the Senate is ready to address the issue and has the votes to advance the issue.

Sen. Corman

Corman made an interesting point countering the notion that legislators will have a difficult time with gasoline hovering at $4 per gallon.  He noted that the oil companies price their product by region based on what the markets will bear, and because of the current price may actually absorb a greater portion of any Oil Company Franchise Tax increase instead of passing it along to motorists.

Schoch and Corman both spoke of the “cost of doing nothing,” noting that Pennsylvanians can either pay to fix the problem, or pay to continue to have the problem.  Congested roads, rough pavement and weight-restricted or closed bridges increase the cost of fuel and maintenance, as well as for products that move through the Commonwealth.

Rep. Shuster

As for a solution at the federal level, Congressman Bill Shuster’s keynote address was not as cheery.  There is no appetite in Washington increase the federal fuel taxes, he said, nor is there enough support for expanded tolling at present.

Shuster said he has been tasked with “selling” the House Republican’s proposed five-year funding bill before the latest funding extension – the ninth since the most recent funding measure expired 2 ½ years ago – expires at the end of June.

PHIA wishes to thank the speakers, as well as attendees, for a successful event.

Anyone who has ideas or comments regarding the event is welcome to email Managing Director Jason Wagner at jwagner@PaHighwayInfo.org.

P3’s are a tool, not a panacea

As legislators at last seem to be making headway in advancing a public-private partnership bill, it behooves us to keep some perspective on how much P3’s can contribute to a solution to Pennsylvania’s transportation funding woes.

Many federal and state elected officials suggest that private-sector financing holds significant promise as a funding solution.  The transportation construction industry agrees that a comprehensive solution should include the opportunity for private investment, but there are several things about privatization that everyone should consider and understand.

First is the scope of the funding problem.  Pennsylvania’s Transportation Advisory Committee calculated the state’s funding gap for PennDOT, public transit and local roads at $3.5 billion annually.  It is not realistic to believe that market-driven private sector investment will solve the entire problem, or even a significant portion of it.

As the Pennsylvania Economy League’s transportation study noted six years ago, a comprehensive solution certainly must include a wide variety of funding mechanisms, including increased user fees, local taxing authority and prudent use of debt, as well as private investment.

Private financing options will introduce market forces into transportation services.  However, there are limited projects in a few geographic areas that make market sense for the capital risk associated with privately financed projects.

The success of privately financed projects in other states underscores the public’s willingness to pay for transportation services.  All private finance arrangements – whether leasing existing toll roads or building new bridges and high occupancy toll lanes – introduce a mileage fee or toll system paid by the road user.

If the last several years have shown us anything, it is that there is no panacea for the transportation funding problem.  Pennsylvania’s needs have far exceeded the resources required to address this problem, and a solution without significant cost is impossible.

On the bright side, it is clear from the continuing public opinion research that Pennsylvanians are willing to make an investment in safer and less congested highways, as well as efficient public transit systems.  Nearly everyone agrees that the transportation system needs to be fixed, and an adequately funded transportation program would create 50,000 jobs in Pennsylvania, mostly in sectors other than highway construction. 

For these reasons, we are optimistic this issue is finally ripe for a lasting solution.  But that lasting solution will need to be much more than public-private partnerships.

PennDOT forecasts diminished 2012 highway construction program

PennDOT Deputy Secretary Scott Christie last week outlined the department’s projected 2012 construction program during an annual gathering of the highway construction industry. And, the news wasn’t good.

While lettings this year will exceed the original projections of approximately $1.9 billion, Christie put the 2012 forecast at a maximum $1.5 billion in lettings, a decrease of more than 20 percent.

Given its diminishing resources, PennDOT will focus on “preservation of the network” in 2012 and plans to bid only six projects exceeding $20 million, with a potential of adding eight more if circumstances warrant.

Christie was quick to add that the $1.5 billion figure would increase to about $2 billion if the state enacts a comprehensive funding package soon, due to the department’s ability to bond against future anticipated revenues.

Also addressing the gathering of approximately 1,500 people at the Associated Pennsylvania Constructors Fall Conference was PennDOT Secretary Barry Schoch, who outlined elements of a funding proposal that would generate additional short and long-term funding. Schoch indicated that a key component of the plan would be to systematically increase the cap on the Oil Company Franchise Tax in out years when the economy improves, but that short-term bonding could be used to generate immediate funds.

While the specifics of such funding proposal are still being vetted with the state legislature, Schoch indicated that the passage of a funding proposal is still within reach. He said Gov. Tom Corbett is working on the specifics of making a funding-package announcement, which could come as early as this week.

Adequate transportation program would add 50,000 jobs in PA

An adequately funded transportation program would add more than 50,000 jobs to the Pennsylvania economy, lowering the state’s unemployment by nearly 10 percent, according to an economic study commissioned by Associated Pennsylvania Constructors.
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