Pennsylvania Starting Major Highway Rebuild, As Are Many Other States

LCT Staff
Posted on August 27, 2008

DONEGAL, Pa. – Hobbled by the credit crisis, Wall Street firms and many state governments are hoping that a pockmarked strip of Pennsylvania highway could provide a road out.

Next month, the Pennsylvania legislature is expected to vote on a $12.8 billion deal struck between the governor and a group of private investors to lease America's oldest major toll road, the 537-mile Pennsylvania Turnpike.

If it passes, the deal would be by far the largest ever of its kind in the U.S. Under these arrangements, known as public-private partnerships, investors lease or buy roads, bridges or other infrastructure, operate them independently and collect tolls.

A green light in Pennsylvania could bolster the political will of officials in other states trying to hash out similar deals. That in turn could jump-start projects in waiting, from Florida's Alligator Alley to Chicago's Midway Airport. Last month, New York Gov. David Paterson urged legislators to consider leasing some of his state's roads, bridges and tunnels to help shrink a budget deficit projected at $26.2 billion by 2011.

Proponents say the lease approach could provide financial relief to state governments struggling with foreclosures, ballooning pension obligations and reduced tax bases. That's not to mention crumbling roads – and lately, a drop in tax revenue to pay for repairs, owing to high gasoline prices that have reduced driving.

The U.S. needs about $1.6 trillion in investment over the next several years to bring infrastructure conditions to acceptable levels, according to the American Society of Civil Engineers.

Pennsylvania's needs rank among the highest in the nation; the state's Department of Transportation estimates it will cost $11 billion just to repair the state's bridges. Drivers complain about the turnpike's potholes, insufficient shoulder room, and continual construction.

More broadly, in a country that has often mythologized the car and the open road, the deal is sparking debate about whether America's highways are too much a part of the national fabric to be controlled by anyone but the public.

Adding to the backlash: Many of these private funds come from outside the U.S., where investors have reaped huge profits from rising oil and commodities prices and are looking for new places to put their money. The consortium vying to lease the Pennsylvania Turnpike includes Citigroup Inc. and Abertis, a Spanish toll-road operator.

Crowds opposing the deal have gathered along Route 209, in the northeastern part of the state, waving signs like "Pennsylvania's Not For Sale," as truckers honk horns in approval. "Americans built this turnpike," says Catherine Johnson, a nurse in Tarentum, Pa., who regularly drives the turnpike. "Why do we need someone else to operate it?"

While private investment in state infrastructure has been around for decades in other parts of the world, it hasn't caught on in a significant way in the U.S. State governments have turned instead to the municipal-bond markets for much of their funding. But this decade, costs for health care, education and pensions mushroomed.

Since 2005, eight states have enacted legislation enabling officials to sell or lease highway or transit infrastructure, bringing the total to 25 states, according to the U.S. Department of Transportation.

Infrastructure funds recently acquired long-term leases for the Indiana Toll Road and the 7.8-mile Chicago Skyway bridge. Chicago has used about half of the $1.8 billion in lease fees to retire debt and to boost emergency reserves. It has also used the money to fund homeless programs and job-training initiatives.

Pennsylvania Governor Edward Rendell has found little enthusiasm in the state legislature. Then in August 2007, the collapse of a Minneapolis bridge across the Mississippi River, with 13 deaths, sparked a nationwide re-examination of structurally deficient bridges. The tragedy brought a new sense of urgency to find funds for repairs, and the governor renewed his effort to lease the turnpike.

By early 2008, the field of bidders had been narrowed to two groups: the Citigroup-Abertis team and one led by Goldman Sachs Group Inc. In a second round of bidding, Pennsylvania gave the teams one week to come up with their final offers. The Citi group's $12.8 billion bid won.

With less than three weeks to go until the Pennsylvania legislature returns from summer recess, Gov. Rendell says he plans to meet with as many lawmakers as he can to win them over. Most opposition comes from his own party. Prominent unions have also condemned the plan. The governor sounds less than enthusiastic about its odds. "This is very high on my list of priorities," he says. "There's still a decent chance it will pass."

Source: Wall Street Journal

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