Sluggish economy hinders turnpike-leasing plan

Turbulent financial markets have hampered prospective bidders for the Pennsylvania Turnpike, prompting the Rendell administration to extend the bidding period for several weeks.

The field of potential bidders for the turnpike has shrunk from 14 teams to about five, Roy Kienitz, deputy chief of staff to Rendell, said yesterday. So far, none has submitted a bid.

The administration wants to lease the turnpike for 75 years to a private operator to raise billions of dollars to repair the state's crumbling bridges and highways. It's unclear how much the turnpike might bring; the administration's financial adviser, Morgan Stanley, last year predicted a lease could garner $12 billion to $18 billion.

Any contract for the turnpike would be subject to legislative approval, and the delay in opening bids makes approval by the end of the fiscal year on June 30 less likely.

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, but that timetable was considered overly optimistic even before the latest delay.

Kienitz said yesterday he didn't expect the postponement to result in lower bids.

"Turmoil in the financial markets . . . has certainly affected the process which they [prospective bidders] go through to get financing . . . but we're pretty confident it's not affecting the size of the bid," Kienitz said yesterday in a meeting with The Inquirer editorial board.

Transportation Secretary Allen Biehler said: "We're all very anxious to see what the number is and see if it's good enough to follow on with the discussion with the legislature."

Under terms of a plan the administration presented last month, the turnpike would be leased for 75 years to a 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 add tolls to I-80 as a way to raise transportation money.

The administration would instead invest the multibillion-dollar lease payment and use the proceeds to pay for highway, bridge, and public transit projects.

The proposal to lease the turnpike faces stiff opposition in the legislature, which rejected the proposal last year. Instead, it approved a measure empowering the Turnpike Commission 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 that tolls on I-80 would cripple their economy. And I-80 tolls would require approval from the U.S. Department of Transportation, which remains uncertain.

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.

Because of the Turnpike Commission's new obligation under Act 44 to help pay for transportation projects around Pennsylvania, a Wall Street bond-rating firm last month downgraded its rating for turnpike revenue bonds.

Citing "reasonable scenarios under which planned toll increases may be insufficient to meet the annual obligations under Act 44," Fitch Ratings downgraded its rating to "A+" from "AA-." Such a rating reduction could increase the costs of borrowing for the turnpike commission.

Turnpike Commission spokesman Carl DeFebo said it was "not uncommon for rating agencies to downgrade a rating when an agency like the turnpike takes on more debt. Fitch has rated the turnpike's bonds solidly in the investment-grade category."

Also, turnpike officials have not yet resubmitted their application to the Federal Highway Administration for permission to put tolls on I-80, which was sent back to the state more than four months ago.

The federal agency returned the state's application on Dec. 13 without approving or denying it, but with a series of pointed questions about why the state felt it necessary to put tolls on the interstate.

DeFebo said the commission had been "conducting in-depth engineering assessments of the entire 311 miles of I-80 to determine the rehabilitation and reconstruction needs." He said the amended application was under final review and would be resubmitted soon.