Pennsylvania Turnpike moving forward on I-80 tolling but part of a Rube Goldberg contraption

The Pennsylvania Turnpike Commission is moving ahead strongly with plans to toll I-80. They have completed a draft 50 year lease agreement with Pennsylvania DOT which is expected to be signed Monday (Oct 15). Next week the Turnpike also plans to submit their formal application to USDOT for federal authorization to toll under the Interstate System Reconstruction and Rehabilitation Pilot Program (Sec 1216b of TEA21).

Major obstacle to US approval is the incompatibility between Pennsylvania's Act 44 requirement that I-80 generate huge surpluses for other roads and bridges in the state whereas Sec 1216b of federal law requires toll revenues to be devoted to the interstate being tolled.

Meanwhile at the Turnpike they have hired McCormick Taylor engineering and planning consultants based in Philadelphia as I-80 project managers under a $3m contract. Wilbur Smith have been contracted to do an updated traffic study and make recommendations on the location of the ten toll points along I-80 allowed by the state's Act 44.

The provisional plan for I-80 will have tolls average 8c/mile (5c/km) for cars and 30c/mile (18c/km) for 5 axle tractor trailers in the first year FY2011.

see http://www.paturnpike.com/I80/pdf/MPO_RPO_100307.pdf

Fuzzy numbers

The Turnpike is now saying that over 50 years its package of measures will generate $116b in net revenue or an average of $2,320m/year.  The basis for this enormous number has not been published.

The Turnpike's financial plans are based on a monetization model produced by Citibank, none of which has been officially released. The model has only been referred to in footnotes of the Turnpike's documents and in a Fiscal Note by the Pennsylvania House appropriations committee dated July 16.

House Fiscal Note is available here.

We have the scoop on several slides in a closed door Citibank presentation earlier in the summer apparently in Harrisburg on behalf of the Turnpike Commission. Citibank shows for the first time the year by year cash flow for 40 years.

It's only a little scoop however because it's hard to make much sense of these three slides without the rest of the presentation.

See one slide above and this Citi one on projected cash flows for all the various elements of Act 44.

How good is this I-80 deal for the Pennsylvania Turnpike?

We've taken the assumptions as laid out in the modeling by Citibank as described by the House Appropriations staff and the Turnpike.

The House Fiscal Note quotes the Turnpike as saying toll revenues will be FY2011 $412m, 2012 $435m, 2013 $459m, rising at 3% toll rate adjustment plus traffic (assumed 2.5%) each year after that.

The lease of I-80 will cost the Turnpike Commission FY2008 $750m, 2009 $850m, 2010 $900m, then escalating at 2.5%/year, according to the Commission.

We ran these numbers in an Excel spreadsheet for the 50 years of the lease - simply lease payments by PTC to PennDOT and toll revenues. This omits operating and maintenance costs and capital expenditures. Even so the cash flow looks horrible for the Turnpike Commission. (see our spreadsheet results nearby at right)

It takes 38 years (2045) until I-80 toll revenues catch up with lease payments. Only in the last 12 years does I-80 have a positive cash flow. For the full term of the lease, lease payments total $94.7b to toll revenues of $85.4b for an overall deficit of $9.3b.

Net present value analysis would make this lousy deal look even worse because the few years of positive cash flow are year 38 (2045) and beyond while the negative cash flow is large in the early years.

The only Citibank spreadsheet we have from a presentation avoids this by combining other aspects of Act 44 - the pledging of the Motor License Fund and the monetization of the Mainline operations of the Turnpike. Citibank doesn't appear to break out the I-80 cash flow by itself, perhaps because that highlights what a lousy deal it is for the Turnpike.

The lease payments for I-80 are way too high.

The Mainline and, worse, the Motor License Fund are carrying the losses on I-80. The deal only works because all the motorists of the state are put in hock through the pledging of Motor License Funds. If it isn't working license fees will have to be increased to make up the difference.

COMMENT: Tolling I-80 makes a lot of sense for Pennsylvania. This highway is largely an out-of-staters road and it is absurd to put the costs of maintenance and expansion on Pennsylvania motorists alone with taxes. Its users should pay via tolls.

The local politicians predicting gloom and doom from tolling are plain wrong in saying tolls are an economic burden. They produce a better road, better maintained, and expanded when necessary. A better road with tolls is a boon not a burden.

Tolling usually goes hand in hand with economic development alongside because it provides a mechanism for improvements that otherwise wouldn't be funded. That's why there is prosperity along most tollroads - the New Jersey Turnpike, the Garden State Parkway, the Dulles Toll Road and Dulles Greenway in northern Virginia,  E470 in Colorado, most tollroads in Texas, Florida, and California.

But Pennsylvania is going about tolling I-80 badly - with a ramshackle mismash deal that mixes I-80 tolling up with pledges of motor license fees and with mainline tolls in an effort to generate surpluses for free roads and loser transit while obscuring their source.

The Feds should tell Pennsylvania: Guys you are well-intentioned but this just won't pass muster. It's a mess. Go back to the drawing boards. Under federal law we can only approve a deal on I-80 that focuses on the benefits to the I-80 corridor. This darned Act 44 thing is a Rube Goldberg contraption (see cartoon).

TOLLROADSnews 2007-10-13