Study looks at problems with PA Turnpike deal

A new report on last year’s unsuccessful effort to lease the Pennsylvania Turnpike to private investors illustrates the good and not-so-good elements of using large scale public-private partnerships to fund roadway infrastructure.

“If states want to compete economically, they need sound infrastructure that helps businesses thrive and improves residents' quality of life," said Susan Urahn, managing director of the Pew Center on the States, an organization that works to advance state policies that serve the public interest, which compiled the report.

“The failure of the Pennsylvania Turnpike lease proposal offers important lessons because private capital is likely to play a growing role in helping states pay for their infrastructure needs.”

Pennsylvania lawmakers debated a proposal to lease the historic and crucially important cross-state highway to Citi Infrastructure Investors and the Spanish firm Abertis Infraestructuras for an upfront payment of $12.8 billion. But the high-profile deal was shelved last fall after a number of legislators refused to support the plan, largely over concerns about the state’s financial assumptions and oversight of the public-private partnership deal, noted Urahn.

The proposal of Pennsylvania Gov. Ed Rendell (D) for leasing the roadway initially claimed the deal would net the state $30 billion in funding. However, that figure was revised down to $18 billion, and finally to $12.8 billion.

That overly optimistic funding estimate is one of the fatal flaws in Pennsylvania’s approach to the highway leasing issue, the Pew Center report found. “Public-private partnerships are complex, with no one element automatically rendering a deal ‘good’ or ‘bad,’” Urahn said. “As a result, our analysis found both positive and negative aspects of the Pennsylvania experience.”

On the plus side, the Pew Center found Pennsylvania thoroughly identified its infrastructure needs and conducted due diligence before negotiating with bidders; that the bidding process was well run and produced the highest possible bid, given the lease terms set by the state and prevailing market conditions at the time; and it laid down detailed performance standards for the life of the lease.

But the Pew report found Pennsylvania could have done better, said Urahn, in these regards:

- Discussions between the executive and legislative branches could have been better handled.

- The financial assumptions related to the deal were overly optimistic.

- The state lacked a clearly articulated plan for how the proceeds would have been invested and spent.

- The proposed oversight mechanism for deciding where to invest the upfront payments and how to spend the proceeds raised questions about transparency, accountability and adequate planning.

- The debate focused disproportionately on the state's short-term financial interests, and lacked adequate consideration of the long-term effects of a lease on taxpayers, the economy and the environment.

With an annual funding gap of $47 billion between the roadway projects the nation needs and those it can afford, states with large deficits and an urgent need to fix aging infrastructure are looking closely at public-private partnerships – a financing approach used in other countries for years but only recently adopted in the US, the Pew Center noted in its report.

“Long-term infrastructure deals are often debated with a short-term perspective,” said Michele Mariani Vaughn, the Pew researcher who led the effort. “These proposals typically involve billions of dollars and stretch over decades. It's critical that state policy-makers and the public have all of the information and answers they need to make a thoughtful and sound decision."
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