Penn Turnpike Commission's implicit concession bid is $5.3b - below half expected top private sector bid

The Pennsylvania Turnpike Commission's implicit bid in the state's lease concession procurement is $5.3b, versus a likely top bid by private sector bidders in the range $9b to $13b. The $5.3b implicit bid is cited by the Commonwealth Foundation thinktank in Harrisburg today.

They point out that $5.3b is the upfront payment which would at 8.5% annual interest generate the $450m/year which the Turnpike Commission will pay the state of Pennsylvania under the Turnpike-designed Act 44 in case of no tolls on I-80.

The 8.5% is the rate assumed by the state's major pension plans.

"We need an apples-to-apples comparison in order to fully consider the forthcoming bids on the Pennsylvania Turnpike," said Matthew Brouillette, president of the Commonwealth Foundation. "The only means by which we can adequately compare these bids is to contrast them with the Turnpike Commission's effective lease payment to control and operate the toll road."

Brouillette emphasized that these private-sector companies are not bidding on Act 44, which includes the tolling of both the Turnpike and I-80 with unlimited power to increase toll rates.

"These companies are bidding on the Turnpike alone with strict limits on toll rates, mandates for investments, penalties for failures to perform, and requirements to keep current employees (for the term of their current contracts). The effective 'bid' of $5.3 billion from the Turnpike Commission provides lawmakers and the general public with a good benchmark from which to consider all other bids."

Brouillette said another way to make an apples-to-apples comparison would be to request private-sector bids on the tolling of Interstate 80, as well as the Turnpike.

"The Turnpike Commission's monopoly of Pennsylvania's major east-to-west highways under Act 44 would produce even larger lease payments from the private sector," he said. "If the state is intent on tolling the currently free I-80, then that stretch of road should also be put out for competitive bid to maximize the taxpayers' value in their roads."

The granting of tolling authority of Interstate 80 to the PTC, without seeking bids from the marketplace, likely left billions of dollars on the table. In addition, Brouillette said that giving more power and control over Pennsylvania's transportation funding and infrastructure to the Turnpike Commission-which was recently ranked the third least-efficient toll road authority in the nation-will cost taxpayers and toll payers larger sums of money in the future. (Who would write that?)

Lower end of $12b to $18b range cited

Joe Grata of the Pittsburgh Post reported (May 6) Roy Kienitz, Governor Rendell's staffer as saying the general expectation within the administration was that the top bids would be "at the lower end" of the range $12b to $18b cited by the state's advisers at Morgan Stanley.

Kienitz is quoted: "Only when we open the envelopes will we know if the governor's proposal is the solution. It's going to come down to the numbers. If a lease provides more money than Act 44, then we have a compelling case to present to the state Legislature, whose speedy approval will be sought."

The deadline for bids is a moving target. A deadline at the end of last month was moved back to Friday this week after at least one major group asked for more time. The latest deadline could slip also. Such postponements are almost the norm in these large concession transactions.

Four or five bidders are expected for what would be as large as all other concessions in north America so far combined.

$13b average bet

One financial group not bidding has bets going on what the Penn Pike bids will be and we're told the average bet is $13b, right by the price point mentioned by Kienitz. We got the strong impression from one deep throat that the best bid will be several billion lower than that. Financial conditions are very different now from one to two years ago.

We'll only know after envelope opening time.

TOLLROADSnews 2008-05-08