Learning from Pa.'s failure to lease turnpike

The Rendell administration's failed effort to lease the Pennsylvania Turnpike last year was hampered by unrealistic financial assumptions, a lack of investment planning, and a short-sighted focus on immediate impacts instead of long-term effects, a Washington policy research institute said yesterday.

The Pew Center on the States analyzed Pennsylvania's experience as a primer on how to - and how not to - partner with private companies to operate public highways and other facilities.

Rendell's plan for a 75-year lease of the turnpike for $12.8 billion to a Spanish-U.S. consortium was killed last fall by legislative resistance. Rendell had proposed to invest the lease payment to generate income for transportation projects around the state.

Given the failure of the turnpike-lease plan and the subsequent collapse of financial markets, neither the Rendell administration nor the legislature is very interested in trying again to lease the toll road.

Pennsylvania's experience last year highlighted crucial lessons for states considering such public-private partnerships, Pew researchers said yesterday:

Pass enabling legislation first. Twenty-four states, mostly in the South and West, now have laws providing for public-private partnerships.

Use realistic financial assumptions.

Describe how money will be invested and how a private operator's performance will be monitored.

Involve the public and the legislature, and make the process transparent to all.

Define specific goals, such as greatest possible income or close control over toll increases.

Consider the long-term effects on the economy, the environment, and the next generation of taxpayers.

The Pew report was especially skeptical of Rendell's rosy financial assumptions. The governor, who predicted that the lease income would generate about $1 billion a year for transportation projects, assumed a 12 percent return on the state's investment.

"The state assumed it would be able to earn more interest income than seems feasible," the Pew authors wrote, noting that the stock market decline in the last year would have likely meant no short-term gain at all. " . . . In fact, had the deal gone through, it is difficult to know how much the state would have lost on its investment in the last year."

The Rendell administration would have invested the money in the Pennsylvania State Employees' Retirement System, spokesman Barry Ciccocioppo said yesterday. He acknowledged that the 12 percent assumption, based on the 20-year-average return of PERS, would not have held up this year.

"Regarding the financial projections, 20/20 hindsight is always more accurate," he said. "The lease proposal was carefully developed and executed based on the best financial and legal advice available at the time."

The governor won't propose another turnpike lease, Ciccocioppo said.

"There is no plan to revive the proposal," he said. "Clearly, with financial markets as they are, right now is not the time to explore that avenue."

State House Transportation Committee Chairman Joseph Markosek (D., Westmoreland), who opposed the lease last year, said there was little support in the legislature for such a lease.

But lawmakers remain interested in public-private partnerships, said Markosek, who is working to pass legislation to permit such arrangements.

"Absolutely, that's the goal," Markosek said yesterday. "There's not total agreement on how to get there."

States will continue to consider public-private deals, because they don't have enough money to pay for roads, bridges, and public transit on their own, said Susan Urahn, managing director of the Pew Center.

She said a recent report by financial institutions said as much as $180 billion in private dollars is "waiting to be invested in public projects."

"Private capital is likely to play a growing role in helping states pay for their infrastructure needs," Urahn said.

"We are going to see a lot of debate going on," she said, citing Florida, Texas, and Massachusetts among the states proceeding with public-private projects or proposals.

"I don't think this is going to disappear any time soon," Urahn said.

To read the report, go to http://go.philly.com/pikeEndText