Rendell expects to name turnpike lessee soon

Gov. Rendell expects to name the top bidder for the Pennsylvania Turnpike by the end of April, and then immediately submit a proposed lease to the legislature for approval.

Under terms of a plan unveiled by the administration yesterday, the turnpike would be leased for 75 years to the private operator, who would be allowed to raise tolls 25 percent next year and 2.5 percent or the rate of inflation every year after that.

If approved, the turnpike lease would mean the end of embattled efforts to toll I-80 as a way to raise transportation funds.

The administration would instead invest the multibillion-dollar lease payment and use the proceeds to pay for highway, bridge and public transit projects. It's unclear how much a turnpike lease might bring; the administration's financial adviser, Morgan Stanley, last year predicted a lease could garner $12 billion to $18 billion or more.

Rendell 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, top aides said.

However, state legislators last year showed little interest in leasing the highway, which Rendell said was the best way to raise roadway money.

Instead, lawmakers eventually approved - and Rendell signed - a measure to raise tolls on the turnpike and install tolls on I-80, the free interstate that runs across northern Pennsylvania.

That law, Act 44, quickly drew heavy opposition from rural legislators, businesses and residents, who argued tolls on I-80 would cripple their economy. And tolls would require approval from the U.S. Department of Transportation, which remains uncertain.

Rendell "has become more and more concerned about federal approval," deputy chief of staff Roy Kienitz said yesterday. "He is motivated in part by the fear that it wouldn't get approved."

Early reaction from lawmakers suggests Rendell's lease plan faces a tough road in the legislature, especially because the administration says it wants lease authorization by mid-June.

About 188 million vehicles use the turnpike each year; 87 percent are passenger vehicles, and the rest are commercial vehicles.

The turnpike lease proposal attracted interest from 14 teams of potential bidders last year, ranging from the biggest international players in toll-road leasing to local ventures. How many will actually submit bids by April 25 is unclear; Kienitz declined to say how many were still in the running, saying only that "multiple" bids were expected.

If several bids are close to each other, bidders will be asked to improve their offers.

Among those considered the strongest contenders are teams put together by Macquarie Infrastructure Group of Australia and Cintra Concesiones de Infraestructuras de Transporte of Spain; Abertis Infraestructuras of Spain and Babcock & Brown of Australia; and Goldman Sachs of New York and Transurban Group of Australia.

The Macquarie-Cintra consortium was selected by both Chicago and Indiana to operate toll roads.

A local group, POPT, a new company that proposes to sublease the turnpike back to the existing Turnpike Commission, says it still plans to bid. POPT's management team includes former Philadelphia Controller Jonathan Saidel.

A key question is what the turnpike is worth.

Kienitz said restrictions on toll increases and the tight credit market might reduce the amount that bidders offer.

Morgan Stanley predicted last year that a lease could produce $12 billion to $18 billion, but that was based on projected toll-revenue growth of 5.5 percent a year for 50 years and 3 percent a year after that. Some other analysts have suggested Pennsylvania could get as much as $30 billion for the turnpike.

In 2006, Indiana leased its 157-mile Indiana Toll Road to Macquarie-Cintra for $3.8 billion for 75 years.

By comparison, it is "not realistic" to expect seven times or nine times as much ($26.6 billion or $34.2 billion) for a Pennsylvania Turnpike lease, Kienitz said.

"It is realistic to expect that the bids are not going to be as gargantuan as some people have projected," Kienitz said.

Administration officials expect investments from the proceeds of a turnpike lease to generate at least as much as would be produced by the current Act 44: $945 million per year, averaged over the next 10 years.

Legislators suggested Rendell's plan faces an uphill battle.

"It's not a good idea," said Rep. Joseph Markosek (D., Westmoreland), chairman of the House Transportation Committee. "The governor needs to get behind Act 44."

Markosek said the Rendell plan would shortchange the state, give up control of a vital asset, and put the burden for transportation funding on users of the turnpike.

Rep. Dwight Evans (D., Phila.), chairman of the House Appropriations Committee, will "look at this with a very skeptical eye," said spokeswoman Johnna Pro. "Act 44 really was a historic piece of legislation. . . . We think that is a very solid piece of legislation."

Republicans were more supportive.

"I think the governor is going in the right direction," said Rep. Richard Geist (R., Blair), the ranking Republican on the House Transportation Committee and a leading proponent of "public-private partnerships." "The infusion of capital you could get from something like this would allow you to catch up on bridge repairs in five years."

Geist said Rendell's plan faces a "huge, heavy lift" in the legislature and is unlikely to be approved by mid-June, as sought by Rendell.

Steve Miskin, a spokesman for House Minority Leader Sam Smith (R., Jefferson), said Smith was "100 percent supportive of some kind of lease," especially one that would kill any I-80 tolls. But he said the governor had been too secretive about prospective bids and his relationships with bidders.

"Will it just be a sweetheart deal?" Miskin said. "This has been a very closed process."

The governor's plan would require a private operator to honor existing labor contracts until they expire. After that, the operator would be free to renegotiate with workers. The turnpike employs 2,240 people, including 1,765 union workers.

"I expect that any private operator will want to accelerate the use of technology . . . and that may result in less of a need for physical toll takers," Kienitz said. He said a smaller work force was likely, "but I would not expect it [the shrinkage] to be precipitous."

The Turnpike Commission, which would be reduced to near-irrelevance by Rendell's plan, was "disappointed that he's decided to continue down this path," spokesman William Capone said.

"We think it's premature to abandon Act 44 nine months in, with $520 million already paid to the commonwealth and $230 million more coming at the end of this month," Capone said.