Pennsylvania Turnpike Commission status quo better than concession - Democrat Caucus experts
A report commissioned by the Democratic Caucus of the state House slams Governor Rendell's proposed longterm lease/concession for the Pennsylvania Turnpike, claiming that a corporate concession will have a present value of only $14.8 billion vs the Turnpike Commission (PTC) under Act 44 being worth $22.8b to $26.5b at present value. (CORRECTION HERE 2008-03-04 12:30 We initially misread the report. We understand that without I-80 tolling the present value of Act 44 payments would be about $9b, not $22.8b, the lower of the range.)
The report concludes: "we believe that the (state) is best served by staying the course with Act 44 (the 50 year non-competed toll concession granted by PennDOT to the Turnpike Commission for tolling of I-80)."
It continues: "If the federal government fails to approve tolling I-80, additional revenues can be generated through a full public monetization of the Turnpike, by identifying other supplemental revenue sources, or by some combination..." (p4)
The Caucus report is in its nature hypothetical. It is based on a set of assumptions about the Administration's concession contract terms not yet announced, and about private sector bids that can only be tested in a real procurement.
The Caucus Report as we'll call it has the title "For Whom the Road Tolls: Corporate Asset or Public Good" - a juxtaposition that poses the beautiful notion of the Turnpike Commission as comprised of saints committed only to the public benefit and wholly without any of the self-interest attributed to a corporate operator.
The authors, selected by legislators who are supporters of the Turnpike Commission are Gary Gray and Patrick Cusatis, public finance professors at Pennsylvania State University and John Foote, a founder of TransCore, which began as a company solely servicing the Turnpike, now retired at Harvard's Kennedy School where he is a strong critic of privatization.
The report summarily dismisses the notion that a private operator could run the Turnpike more efficiently and at lower cost than the Turnpike Commission or that it could offer better value to motorists through improved customer service.
It follows from the dismissal of private sector efficiency that "cost of capital becomes the most significant value driver." The report asserts that private sector capital costs are higher and that it therefore cannot offer as much to the state as the Turnpike Commission - the very issue the Governor is proposing to test.
Misrepresenting their own report
A press release from the Democrat Caucus leaders who sponsored the report, house majority whip Keith McCall, appropriations chair Dwight Evans and transport chair Joe Markosek says the study proves that concessioning the Turnpike "would result in skyrocketing toll rates."
The report nowhere says anything like that, since it acknowledges the Governor's concession contract would limit toll increases to about those proposed by the Turnpike Commission - a 25% initial increase plus 3% annual increases.
Misrepresenting their own experts' report to score a headline!
The Caucus experts report does raise several important issues:
- whether current turmoil in the finance markets and the difficulties of bond insurers will seriously undercut concession bids of the kind expected by Gov Rendell last year
- the validity of Rendell consultant Morgan Stanley's target rate of return of 7% to 9% on an invested concession fee
- whether the concession fee investments can really be dedicated to transportation and protected against political "redirection"
- the likely extent of diversion of traffic, especially trucks, to non-tolled routes
The full Caucus report a 65 page pdf file is downloadable here:
There will likely be plenty of reaction to the report.
COMMENT: Much of this Caucus report is speculative. Answers to many of its questions will come when a concession contract document is released by the Rendell Administration and when real concession bids are sought against that contract document.
Ridiculous is the authors model of a Turnpike Commission as efficient as a competitive private sector business and as motivated to serve only "the public good." If that were remotely plausible communism would have won the cold war, and business of all kinds - electric power, telecom, housing, retailing, banking, farming, airlines, manufacturing, you name it - should logically be turned over to such public spirited and well managed government commissions as the PTC. Joe Brimmeiers should be cloned by the thousands.