Penn Pike submits 're-application' to toll I-80 - argues lease 'rent' OK outside corridor

The Pennsylvania Turnpike Commission (PTC) in their long-awaited second shot at getting US permission to toll I-80 have come up with an ingenious new argument about how it qualifies for a federal Yes. Their biggest obstacle - many called it the square peg in the round hole - has been the apparent conflict between the TEA21 Sec1216(b) requirement that tolls be used for the road being tolled and the Pennsylvania Act 44 requirement that I-80 tolls be used to support roads and bridges all over the state. The Feds challenged the Turnpike on this in Q14 of their December 12 letter: "Please explain how the amounts of any payments from PTC to PennDOT made using I-80 toll revenues were derived and properly considered operating costs."

The thrust of the ingenious response to this is to declare that payments to PennDOT under the lease agreement "constitute rent" and are therefore a valid operating expense. They cite federal law at Section 156 of Title 23 as encouraging states to collect rent from operators of leased property, with the proceeds use being only limited to Title 23 (that is all highway and bridge programs within the state).

This is a new argument and if the Feds buy it, the Commission may win their federal permit. The stakes are huge for Pennsylvania and especially for the Turnpike Commission which faces extinction if the alternative proposed by Governor Rendell of a lease concession is approved by the state legislature.

But was rent from roads envisaged by federal legislators?

Trouble is it's not clear that back in the days when Section 156 on leasing state highway property was written by federal legislators that any of them contemplated "leasing" roads, let along a whole interstate.

Opponents of granting federal approval will argue that the leasing encouragement of Sec 156 was intended for unused buildings, vacant lots of land, and suchlike. The use of the term "lease" for a longterm toll concession or public-private partnership agreement is relatively new, and it would be difficult to cite any upfront fees for toll concessions being called rent when Sec 156 was enacted.

But lawyers differ on the importance of "legislative intent" and the "rent" argument cannot be written off.

The Turnpike Commission assures the FHWA that all rent payments received by PennDOT from the I-80 lease will be deposited in the state's motor license fund which can only legally be expended on Title 23 highway and bridge projects to ensure compliance with the troublesome Sec1216b.

If the Sec 156 argument is insufficient the Turnpike adds another pitch: "Section 1216(b) does not restrict how the recipients of rental payments or returns on investment use such proceeds. While returns on investment may be used by a private entity any purpose (for example dividends to shareholders), rental payments derived from a federal-aid highway are are governed by section 156 of Title 23 and will be used for Title 23 authorized purposes."

The 52 page document stating the Turnpike's response - it is jointly signed by the Turnpike Commission adn PennDOT but we understand it's 95% Turnpike - to the 14 questions posed by the Feds is accompanied by two appendices with more details together with a letter of support from Governor Rendell.

A "cornerstone" as the Commission calls it of the application to toll I-80 is an enlarged and more detailed plan of capital works on I-80 which will treble the spending of the state DOT to $250m a year over ten years.

The Turnpike Commission says it will implement the most advanced all-electronic tolling at ten points along the 501km (311 mile) interstate so that locals will only pay tolls on about a third of their trips. In another effort to assuage the locals they will consider further local discounts on toll rates.

COMMENT The initial PTC application submitted October 2007 was a poorly conceived document and provoked the scathing set of 14 questions from the Federal Highway Administration in a response sent to Pennsylvania Dec 12 2007.

Seven months later the PTC has assembled a much more formidable application - both in quantity and quality. It remains to be seen if federal lawyers think it meets the test of US law to qualify for tolling under the provisions for Interstate System Reconstruction and Rehabilitation.

The materials are downloadable on the Turnpike website here:

http://www.paturnpike.com/news/press_072208.aspx

TOLLROADSnews 2008-07-22