Pennsylvania Auditor General Eugene DePasquale said Friday that an unusual plan to finance construction of the I-95/Pennsylvania Turnpike connection "raises alarms" and may prompt an investigation by his office.
DePasquale said he was especially interested in why an entity was created to broker the deal, in which wealthy foreign investors would lend the turnpike $200 million in exchange for possible permanent residence in the United States.
DePasquale said his office was legally bound to wait until a transaction is completed before launching an audit, so "it may be several months or longer" before he formally investigates the turnpike plan.
"I am going to follow this situation carefully," DePasquale said. "It raises some alarms. I'm not taking a position that it's wrong yet. . . . We'll wait till the issue is ripe for an audit."
The Inquirer reported Thursday that Turnpike Commission officials had signed an agreement with a newly created firm to borrow $200 million from foreign investors, expected to be primarily from China.
The deal makers are Joseph P. Manheim and Paula Mandle, who brought the proposal to the commission and will collect substantial commissions and fees, perhaps as much as $20 million, if it succeeds.
The deal was suggested to turnpike officials by Turnpike Commissioner Pasquale T. "Pat" Deon Sr., a Bucks County restaurateur and beer distributor and Republican power broker.
Manheim and Mandle are officers in the Swarthmore Group, a Philadelphia investment management firm headed by James E. Nevels, a prominent Republican donor and fund-raiser. Nevels has no official role in the newly created business, the Delaware Valley Regional Center.
The Turnpike Commission is Republican-controlled. DePasquale, a former York County state legislator who was elected auditor general last November, is a Democrat.
Manheim and Mandle are seeking approval from U.S. Citizenship and Immigration Services to operate a federally designated "regional center" to recruit foreign investors and provide the turnpike loan.
Such regional centers operate throughout the United States under the federal Immigrant Investor Program, created by Congress in 1990 to grant EB-5 immigration visas to wealthy investors who provide money to U.S. projects that will create at least 10 American jobs within two years.
The minimum investment is $1 million ($500,000 for high-unemployment areas) from each investor.
The funds are required to be used for "new commercial enterprises" engaged in for-profit activity.
Since the turnpike is neither, the brokers have created a limited partnership called DVRC Pennsylvania Turnpike L.P., with an office in Berwyn. Because the construction area - Bristol Township, Bucks County - is deemed "high unemployment," foreign investors would invest a minimum of $500,000 each in shares of the limited partnership, which would then lend the money to the Turnpike Commission.
The Turnpike Commission signed a $200 million loan agreement with the limited partnership on April 26. The agreement requires the creation of 4,000 direct and indirect permanent jobs by the turnpike project.
The brokers could receive about 10 percent, or $20 million, if the deal is successful, according to experts in EB-5 deals.
Turnpike officials said they did not consider doing their deal with already-established regional centers, like one operated by the Philadelphia Industrial Development Corp., which has arranged EB-5 loans to such businesses as Aker Philadelphia Shipyard, Comcast Corp., Butcher & Singer Steakhouse, Temple University Health System, the Convention Center, and SEPTA.
That decision puzzled DePasquale, he said. "If you're going to create a new entity, the question is, why?" DePasquale said.
Nikolaus Grieshaber, chief financial officer of the Turnpike Commission, said the new business offered a "unique program" with better terms and financing than would have been available from PIDC.
Turnpike spokesman Carl DeFebo said Friday, "We would welcome the auditor general's review of the commission's I-95 funding and would naturally cooperate with any such review as we have done in the past.
"The DVRC was selected because of the innovative financing package offered that meets the long-term needs of the commission. The DVRC offers financing well beyond the five-year period common in EB-5 programs. Since the turnpike develops projects like the I-95 interchange with an average life expectancy in the 50- to 75-year range, we need long-term financing to better match the asset being financed.
"DVRC was not selected because it was a new entity; it was selected because of the attractive terms of its financing and because of the significant savings to the commission - savings of about $35 million compared to conventional funding. It's important to remember that the commission does have an obligation to seek out cost-effective financing alternatives."
The specifics that make the deal uniquely attractive are secret. At the request of the deal brokers, the Turnpike Commission declined to divulge "a financial innovation" of the deal.
"We only hope to keep our financial innovation away from the cunning interest of our competitors," the deal brokers wrote to turnpike officials in their request to keep the terms secret. "We fear that if our competitors could easily copy our innovation, the market may be flooded with similar offerings, thus weakening PTC EB-5 loan's attractiveness."
In response to a public-right-to-know request by The Inquirer, turnpike officials released the April 26 loan agreement without a secret "optional repayment" schedule. That data, turnpike officials said, is "trade secret and confidential proprietary information."
The $420 million construction project will link the turnpike and I-95 where they cross in Bristol Township, with high-speed connections, a new mainline turnpike toll plaza, and widening of the turnpike.
The completion of that first stage, along with the re-designation of sections of the Pennsylvania and New Jersey Turnpikes as I-95, would finally make I-95 continuous between Maine and Florida.
The connection project is supposed to be completed by 2017. Additional construction of future stages will last beyond 2020.