A Spanish company's $12.8 billion bid to lease the Pennsylvania Turnpike is not, as Gov. Rendell said, a "slam dunk."
The proposed lease is a drastic step, with a huge short-term payoff but many risks. Now it's up to the General Assembly to provide a clear-eyed assessment of whether the plan makes sense.
The pile of cash offered up front in this deal is alluring. The state's transportation needs are growing critical. Two years ago, a bipartisan commission found that Pennsylvania needs about $1.7 billion
to repair and operate the state's highways, bridges and mass transit systems. But Act 44, last year's deal to provide more transportation funding, is still partially undone because tolls on Interstate 80 have yet to be approved.
Rendell deserves credit for his relentless efforts to find a solution to the transportation crisis. He understands how important it is to the state's economic growth.
The primary considerations should be whether this arrangement makes financial sense for the public - taxpayers and drivers - and whether it ensures public safety. Rendell has a selling job to do on both points. For example, legislators need to decide whether the governor's investment scenario is overly rosy.
Under the proposal, Abertis Infraestructuras S.A. of Barcelona and Citi Infrastructure Investors of New York would pay $12.8 billion to lease the east-west turnpike and the northeast extension for 75 years. The total bid would be reduced by $2.3 billion to assume existing turnpike debt and other obligations. The remaining $10.5 billion would be invested in the Pennsylvania State Employees Retirement System.
Rendell says this investment would generate about $1.1 billion per year for transportation needs, based on average annual returns of 12 percent over the past 20 years. But the past 20 years included the stock-market boom of the 1990s, the longest bull market in history. This projection may be too optimistic.
The lease operators would raise tolls 25 percent next year, and 2.5 percent (or the rate of inflation) every year after that. That would mean more expensive trips for turnpike drivers, but not for those on I-80. The cost of transportation repairs ought to be borne by as many drivers as possible, which is a more attractive aspect of Act 44.
Under the lease, the operator would be required to maintain the turnpike and honor existing labor contracts. Any deal must include severe penalties for failure to maintain the roads properly.
One upside: Leasing the turnpike would spell the end of the 70-year-old Turnpike Commission, a patronage haven. But legislators also should consider whether a streamlined Turnpike Commission operating under Act 44 would make better financial sense than giving up control of an obviously valuable state asset.