In the largest bid ever for the private operation of a U.S. toll road, a Spanish toll-road operator and a U.S. investment firm have offered $12.8 billion to lease the Pennsylvania Turnpike for 75 years, Gov. Rendell said yesterday.
The proposal by Abertis Infraestructuras S.A., of Barcelona, and Citi Infrastructure Investors, of New York, must be approved by the Pennsylvania legislature. But legislative leaders in Harrisburg said the plan faces tough sledding.
Abertis operates toll roads in Europe and South America. The company also operates airports, telecommunications systems and parking garages. One of its major shareholders, Spanish investment firm Criteria CaixaCorp S.A., joined in the bid.
Under Rendell's plan, the Abertis/Citi consortium would lease the turnpike for 75 years with the right to raise tolls 25 percent next year and 2.5 percent, or the rate of inflation, every year after that.
Rendell called the lease plan "a very good deal for Pennsylvania drivers and taxpayers," and said it would mean about $1.1 billion per year for road, bridge and transit projects, on average, over the next 10 years.
Under terms of the lease, the private operator would be required to maintain and improve the turnpike and to honor existing labor contracts until they expire. At that point, employee unions would need to negotiate new contracts with the Abertis/Citi consortium.
If approved, the turnpike lease would mean the end of embattled efforts to toll I-80 as a way to raise transportation funds. And it would mean the effective end to the 70-year-old Turnpike Commission, the politically powerful agency that operates the toll road.
To generate $1.1 billion, Rendell said the lease money would be invested with the Pennsylvania State Employees' Retirement System. He said the administration expected to earn 12 percent a year, which Rendell said was the average return for SERS over the last 20 years.
The actual payment would vary each year, depending on how much the investment actually generated, since the 12 percent projection is based on the average of the last 20 years and might be higher or lower over the next 75.
The total bid would be reduced by about $2.3 billion necessary to assume existing turnpike debts and other obligations, leaving about $10.5 billion to be invested, according to the administration's calculations.
Rendell has said he wants the 359-mile east-west turnpike and the 110-mile Northeast Extension to be in the hands of a private operator by mid-September, but legislators said that is very optimistic.
If approved, the lease would be the largest ever of a U.S. toll road. The Indiana Toll Road was leased in 2006 for 75 years for $3.8 billion, and the Chicago Skyway in 2005 for 99 years for $1.83 billion.
Pennsylvania Turnpike Commission chief executive officer Joseph Brimmeier said yesterday that his agency opposes leasing the turnpike, preferring to stick with Act 44, the new law that would raise transportation funding by tolling I-80 and increasing turnpike tolls.
"With Act 44, the turnpike will supply PennDot almost $84 billion over 50 years without raising taxes or out-sourcing a critical asset," Brimmeier said in a statement. "That's why we remain committed to implementing Act 44 and seeing it through to completion."
Rendell, though, argued that a lease would raise about $150 million more per year than Act 44. "If you don't have to toll a road, that's a very good idea," Rendell said. "It seems like a slam dunk to me."
Act 44 relies for much of its funding on the tolling of I-80, which requires federal approval. That approval remains uncertain; the Federal Highway Administration returned the state's first application for permission to toll I-80, and the state has not yet resubmitted its application.
Rendell said yesterday that he would urge the Turnpike Commission "in the strongest terms possible" to resubmit the I-80 application this week. And he said he will ask U.S. Transportation Secretary Mary E. Peters for a quick response so state lawmakers can weigh that information in their deliberations.
Rendell is not pursuing both plans. He prefers the lease. But he doesn't want uncertainty about the I-80 toll prospects clouding legislators' minds as he pursues the lease, which he says is a better deal than Act 44 with I-80 tolling, and a much better deal than Act 44 without I-80 tolling.
But Turnpike Commission spokesman William Capone said the application "is clearly not ready to go this week. . . . No way it's close to being ready to be resubmitted."
Abertis and its predecessor companies have been operating toll roads in Europe for 40 years. Its network covers 68 percent of Spain's toll routes, and toll roads in northern and western France. It also has a stake in toll-road operations in Italy, Portugal, the United Kingdom, Chile, Colombia and Argentina.
In addition, it operates telecommunications facilities, parking garages, and airports, including the Orlando, Fla., airport; the Burbank, Calif., airport; and one concourse of the Atlanta airport.
Abertis reported a first-quarter profit of 134 million euros, or $208 million, up 9.4 percent from the same period a year earlier.
Citi Infrastructure Investors is a division of Citigroup, a financial-services company whose brands include Citibank, Primerica, Smith Barney, Banamex and Nikko.
Under the lease plan, Abertis and Citi would equally share management responsibilities for the toll road, while Abertis would own 50 percent of the company, Citi 41 percent and Criteria 9 percent.
Rendell said the two losing bidders were teams consisting of Goldman, Sachs & Co. and Transurban Group of Australia; and of the Macquarie Infrastructure Group of Australia and Cintra of Spain.