Pa. hopes turnpike can turn big profit

Privatized roads might also become an option for Md.

Pa. on the road to privatization

December 22, 2006|By Michael Dresser | Michael Dresser,SUN REPORTER

Bringing a fledgling privatization trend from the Midwest to Maryland's doorstep, Pennsylvania Gov. Edward G. Rendell is seeking offers for the sale or long-term lease of the Pennsylvania Turnpike - a nearly 70-year-old icon of innovative American engineering.

Rendell's objective is to raise billions of dollars for Pennsylvania transportation projects that otherwise might require increased taxes. His model: Indiana, where an Australian-Spanish conglomerate owns a toll road.

The turnpike was the first major U.S. toll road of the automobile era and a prototype for the Interstate Highway System. If Pennsylvania goes through with such a move, it would be the largest U.S. toll road privatization deal to date. Experts in transportation financing say it could open the door for similar initiatives in other states, including Maryland, which charges tolls for several bridges and tunnels as well as a portion of Interstate 95.

"It does have national impact and national consequences," said C. Kenneth Orski, editor and publisher of Innovation Briefs, a transportation newsletter based in Potomac. "It's a big fish."

In Maryland, Gov.-elect Martin O'Malley, a Democrat like Rendell, has expressed misgivings about using tolls to finance future road projects but is leaving the door open to the sale or lease of existing toll facilities. "It's something the Transportation Work Group will consider during the transition, and at the appropriate time they will make recommendations to the governor-elect," said spokesman Rick Abbruzzese.

Robert Poole, director of transportation studies for the Los Angeles-based Reason Foundation, agreed that Pennsylvania's initiative is potentially influential. "If Rendell can pull this off, that will be a major encouragement to governors and others in other states," Poole said.

Officials in the Keystone State are accepting offers through the end of this week. Among the companies expected to make a proposal is the alliance of Australia's Macquarie Infrastructure Group and Spain's Cintra, which together leased the Indiana Toll Road for 75 years for $3.8 billion. The same group started the ball rolling in 2004 by striking a deal to pay $1.83 billion to lease the Chicago Skyway for 99 years.

Since then, governors and transportation officials around the country have been floating the notion of bringing in private investors to take over the operations of existing toll facilities in return for a mound of cash.

Among the states actively considering the idea - without going so far as to solicit proposals - is New Jersey. According to Orski, the New Jersey Turnpike and the Garden State Parkway could be viewed by investors as even sweeter "plums" than the Pennsylvania highway because of their heavy volumes.

With Rendell's announcement that his state would entertain "expressions of interest" from would-be operators, the Pennsylvania Turnpike becomes the largest toll facility - and the one closest to Maryland - to go on the market. Orski said the value of a deal for the turnpike, with annual revenues of more than $545 million, has been estimated at $3 billion to $10 billion.

Orski said the John F. Kennedy Memorial Highway on Interstate 95 northeast of Baltimore could be an attractive property.

The administration of Republican Gov. Robert L. Ehrlich Jr. did not embrace the notion of privatizing existing toll facilities after the earlier deals, but Transportation Secretary Robert L. Flanagan said his office has kept a close eye on privatization agreements around the country.

Flanagan said nothing in Maryland law would preclude the state from striking a lease agreement for its toll facilities with a private group, but he noted that any deal would require the assent of current Maryland Transportation Authority bond holders.

"Clearly the bond holders would have to be paid off. That can be done and would have to be done," he said.

The move by Rendell could give O'Malley an opportunity to watch how a privatization scheme plays politically in an adjoining Mid-Atlantic state. Many Maryland residents use the Pennsylvania Turnpike.

Privatization became a touchy issue in Indiana, where Republican Gov. Mitch Daniels promoted the lease over objections about putting an important state asset in the hands of foreigners in return for a short-term cash infusion. The deal is believed to be one of the reasons Daniels' party lost control of the Indiana House in last month's election.

"The state is receiving between $3 billion and $4 billion in a one-time-only payment," B. Patrick Bauer, the incoming Democratic speaker, wrote in an opinion piece in the South Bend Tribune. "In return, the foreign investors are getting control of an asset that they expect will generate more than $130 billion in profits over the course of this deal. Does that seem like a fair trade to you?"

"It's significant that a Democratic governor is taking this step," Flanagan said of Rendell, who previously was mayor of Philadelphia and chairman of the Democratic National Committee.

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