Feds reject tolling PA/I-80 - Penn Pike's 9/11

The Federal Highway Administration has rejected the Pennsylvania Turnpike Commission's plan to toll I-80, saying the state's application does not meet the legal requirements for the use of revenues. Toll revenues can be used to pay annual lease payments under federal law, FHWA said, but the amounts must be based on an objective valuation of the asset being leased. The lease payments were set by the Pennsylvania legislature on grounds unrelated to the value of the concession.

Under a 50 year lease arrangement the Turnpike Commission was to pay the state DOT approaching a billion a year in a non-competed toll concession that was hurriedly organized by state legislators and the Turnpike Commission during an end-of-the-financial-year state budget crisis last summer.

Federal Highway Administrator Tom Madison said in a statement: "There is simply no evidence that the lease payments are related to the actual costs of acquiring an interest in the facility."

The announcement continued: "The Commission’s application... included no information or data justifying the proposed amount for the annual lease* payment or establishing that the level was based on an objective market valuation." (*An early version of the announcement refers mistakenly to an annual toll payment.)

FHWA noted that earlier this year it had asked for just such justification as it reviewed the tolling application. The Commission, however, sent no additional information supporting the lease payment amount or how it was justified, the agency said.

Interview with James Ray

In a telephone interview deputy highway administrator James Ray told us the agency had formed three teams to review the application:

- a financial team which looked at the traffic and revenue work and funding

- an engineering team which focussed on the condition of the highway and the plans for reconstruction

- a legal team looking at how the application fitted the requirements of existing federal law

Ray said that the second application by Pennsylvania was a formidable document which demonstrated that a "tremendous amount of work" had been done in support of the proposal as compared with the first application.

He said the first and second teams reviewing the proposal did "flag some issues" but these were not decisive.

"The legal analysis drove our decision. Lease payments (to the state DOT) we had determined can be a proper operations and maintenance cost, but they must be reasonable in amount. (The amount) needs to be determined in an arms length transaction. It could be the result of a competitive process. They might be the result of an independent professional valuation. There has to be some objective rationale for the amount. We just didn't get that."

Ray said it seemed clear the amount of the lease payments was simply the amount prescribed in state legislation (Act 44), and no one could point to any objective method used to arrive at amount.

"We favor tolling..."

The deputy administrator said the administration favors tolling interstates and sees toll financing and other forms of road pricing and user fees as the way of the future. But that requires extensive changes to the law, he said.

"Meanwhile we are sworn to uphold the law and the law is very clear," he said on the requirements for approval under the interstate reconstruction and rehabilitation pilot program (ISRRPP) under which approval for tolling I-80 was made.

Ray said that Secretary Peters reform proposals envisage a move away from the gasoline tax toward user fees such as tolls in the future, under changed law.

No "at this time"

The FHWA statement doesn't rule out the tolling of I-80 in the future. In several points it says they cannot proceed "at this time."

The Memorandum says: "...FHWA has concluded that the agency is unable to move the (Pennsylvania) application forward at this time."

Memorandum details legal problem

Lease payments were "pre-determined by the Pennsylvania General Assembly" based on "considerations unrelated to the true costs of a leasehold interest." Because FHWA could not determine that the lease payments were related to the value of the lease it was unable to make a determination that the costs were legitimate costs as required by the statute.

It says: "The application does not contain sufficient support that the lease payments have a rational relationship to the market value of I-80 or the actual market based cost to the PTC in acquiring an interest in the facility. The lease was not negotiated pursuant to an arms length transaction nor was the price established through a competition. Although not conclusive, evidence of an arms length transaction or a competitively determined lease payment would help support a finding that the lease payment is a (necessary) cost...

The memo says Pennsylvania should be commended for the "creative" effort to meet transportation funding needs. The administration believes the states need "broader flexibility to toll federal-aid highways than they are currently afforded under federal law."

"Unfortunately..." they say they can't approve the scheme under the requirements of the existing law on tolling for reconstruction and rehabilitation.

see announcement

http://www.tollroadsnews.com/sites/default/files/FHWApr.doc

see FHWA memo

http://www.tollroadsnews.com/sites/default/files/MemoNo.pdf


COMMENT: Getting permission to toll I-80 under the Interstate System Reconstruction and Rehabilitation Pilot Program law was always a legal stretch. The law is clear that the revenues of any existing free interstate being tolled must be used to pay for rehab and reconstruction work, necessary operations and maintenance, or a reasonable return on investment. There was no way the huge annual lease payments set by the Pennsylvania legislature - $750m, $850m, $900m etc - could be related to those criteria.

I-80 and other major interstates like it will have to be tolled in the future. They and the communities along them will benefit from tolling when it id designed to help them. Unfortunately the 2007 proposal for tolling I-80 wasn't intended for the benefit of the corridor but to generate surpluses to subsidize other highways in the state plus the insatiable loss-making transit systems of Philadelphia and Pittsburgh.

TOLLROADSnews 2008-09-11