THE YELLOW BRICK ROAD REALLY IS GOLD:
THE PENNSYLVANIA TURNPIKE AND TRANSPORTATION IN THE COMMONWEALTH

During this past year, the Administration of Governor Rendell and the Pennsylvania General Assembly have been examining the present and future state of transportation in the Commonwealth. Clearly, this has been a policy question that cannot be deferred or delayed any longer. Indeed, numerous studies have appeared during the last year to spotlight this situation or to tout specific policy options for improving transportation in Pennsylvania.

National Infrastructure Concerns

The term “infrastructure” when used in discussions of public policy refers to the arteries of human activity across nature’s landscape. Infrastructure would include such things as roads, bridges, transit systems, parking facilities, water lines, sewage treatment facilities, telephone lines, cable TV lines, natural gas pipelines, and street lighting. Public policy analysts share the belief that infrastructure is essential to economic growth, societal productivity, public health and safety, and the quality of life. Nonetheless, our government, at all levels, has been slow to notice and react to the crumbling and decay of our infrastructure.

As early as 1983, some societal observers were already sounding the alarm bells regarding the state of America’s infrastructure. It was in that year that Pat Choate and Susan Walter authored a landmark study published by the Duke University Press entitled, America In Ruins. Twenty-four years have passed, and the condition of our nation’s infrastructure has only become worse. The collapse during the same year of the Mianus River Bridge on the Connecticut Turnpike with the death of three motorists made Choate and Walter’s work appear to be prophetic.

The federal government did respond to the nation’s infrastructure concerns the very next year by creating and releasing the report of the National Infrastructure Advisory Committee. This report was made to the Joint Economic Committee of the U.S. Congress, and it stated that the nation would have to spend $1.15 trillion by 2000 in order to repair and maintain the country’s infrastructure. Subsequently, this Congressional committee projected that $714 billion would be available from state and national sources for this purpose. A shortfall of $436 billion loomed over the nation with no quick solutions in sight. 1

In response, Congress created the National Council on Public Works Improvement so that this problem could be examined more closely. Its 1988 report, Fragile Foundations: A Report on America's Public Works, declared that the country's infrastructure barely met the nation's needs and that it would not be able to meet the country's economic development needs in the future. The report called for Congress to create its own agenda on infrastructure with which it could respond to the situation. This situation, however, continued to be neglected so that in 2001, the American Society of Civil Engineers (ASCE) believed that the nation's infrastructure would require $1.3 trillion spent over five years to be minimally adequate. In 2003, it increased this estimate to $1.6 trillion. 2

America's infrastructure crisis stems from a combination of declining capital investment in response to public budgetary crises; aging central cities; voter opposition to infrastructure projects; and, since 9/11, the diversion of infrastructure maintenance funds to infrastructure security measures. Much of America's primary infrastructure was built more than a century ago and has already exceeded the life-span it was designed to meet. Further, much of America's new infrastructure investment has been directed to the suburbs.3 Federal investment in infrastructure increased substantially during President Roosevelt's New Deal of the 1930s, and infrastructure investment by the federal, state, and local governments went up during the post-World War II era between 1945 and 1961. Throughout the time period from the establishment of the Great Society until the latter portion of President Clinton's Administration, infrastructure was increasingly neglected in favor of other investments. Consequently, the nation's infrastructure problems have become magnified with inflation in building construction costs--an inflation rate that is normally higher than the national inflation rate. 4

Today, one finds that the most readily apparent and most acute infrastructure problems in the country are found with our mass transit systems and our highways. Rush hour traffic on our highways that creates "official" congestion--traffic moving an average of 35 miles per hour or slower--was not generally found in the 1960s. However, by 1975 as new car and truck registrations outstripped highway capacity and exceeded highway construction, official congested traffic represented 41 percent of highway rush hour traffic, and this figure grew to 56 percent in 1985.5 Congestion has continued to increase since that time due to the growth in car and truck registrations and the strong trend of decentralizing residences and workplaces. Also contributing to this congestion would be the increase in freight movement by truck, population growth, the number of licensed drivers, and vehicle miles driven.

Mass transit systems in America have stopped traffic congestion from becoming worse as ridership has grown at the rate of 15 percent from 1995 to 2001.6 Americans, however, remain overwhelmingly dependent upon the automobile since 30 percent of our nation's suburbs have no mass transit and 25 percent of our nation's urban population do not live within walking distance of it.7 How can our federal and state governments meet our needs for available and affordable transportation in the future? This report will take a look at how Pennsylvania can best use its Turnpike to improve transportation in the Commonwealth.

Brief History of the Pennsylvania Turnpike

The idea of improving transportation in Pennsylvania through the use of a Turnpike is not new. Pennsylvania's first "Turnpike" was opened in 1794. This road eventually spanned the distance between Philadelphia and Columbia and was paved with logs. The development of this turnpike and other roads became obsolete, however, with the emergence of a canal system for our fledgling country.

The advent of the Twentieth Century saw Pennsylvania become one of the first states to found a highway department; this was accomplished in 1903. As the century progressed, the world and the nation experienced the Great Depression. President Franklin D. Roosevelt's New Deal program to mitigate the worst effects of this economic dislocation eventually gave birth to our Pennsylvania Turnpike.

Victor Lecoq, an employee of the Pennsylvania State Planning Board, and William Sutherland, a representative of the Pennsylvania Motor Truck Association, proposed turning the old Vanderbilt roadbed and tunnels into a toll highway. State Representative William Patterson introduced House Resolution No. 138 to authorize a feasibility study for this proposed project. Subsequently, surveyors and engineers began collecting information about the Commonwealth's topography that would be needed to construct such a roadway. This activity caught the attention of the Associated Press that called the proposed project, "the weather-proof tunnel highway" and the "forget-the-weather highway."

A Works Progress Administration (WPA) grant from the Roosevelt Administration was awarded along with a loan from the Reconstruction Finance Corporation, and this funding provided the needed "seed" capital to begin the planning for the construction of the Pennsylvania Turnpike. In order to oversee this new part of the Commonwealth's infrastructure, the Pennsylvania Turnpike Commission was established in 1937 when Governor George Earle signed the bill passed by the General Assembly. This measure, however, did not provide funding for the construction of the roadway, and all funding had to come from bonds, tolls, and federal grants. On 19 September 1937, the Turnpike Commission awarded the construction contract to George Vang, a Pittsburgh contractor. Nonetheless, financing the Turnpike was not without difficulties. Finally, President Roosevelt directed the Reconstruction Finance Corporation to buy $40.8 million worth of Turnpike bonds. By 10 October 1938, the final approval of federal financing was completed. Groundbreaking for the Turnpike took place within the month from the date of this approval--27 October 1938.

The Turnpike was spotlighted at the 1939 World's Fair, and it was portrayed to be similar to Germany's Autobahn, a highway with no speed limits. Indeed, the Turnpike, like the Autobahn, was designed for the user rather than being dictated by the route's terrain. The original Turnpike, which extended from Middlesex to Irwin, had more than 300 bridges and culverts, nine interchanges, ten service plazas, and eleven toll booths. Drivers could buy fuel or eat a meal at the service plazas that were built 25-30 miles apart.

Midnight on 1 October 1940 was the time chosen for the Turnpike's opening. This new roadway had no speed limits despite the fact that the Governor had suggested 50 miles per hour as a reasonable pace. State troopers assigned to the Turnpike, however, ignored the Governor's suggestion. While transportation planners had projected that 1.3 million vehicles per year would use the Turnpike, the actual number was 2.4 million. This usage rate allowed the Turnpike to pay for itself quickly.

Due to the success of the Turnpike, there was heavy pressure to extend it to Philadelphia and Ohio. Governor James H. Duff signed a law in 1947 that made the existing Turnpike and the two new extensions into one entity. Less than a decade later, a Northeastern Extension was proposed in 1955, followed by its expansion to the Wyoming Valley in 1958.

A maximum speed limit of 60 miles per hour was implemented in 1957 after traffic volume had increased to 22.7 million vehicles per year. The need for the speed limit arose from the number of fatal traffic accidents; these accidents were rising at a rate that was out of proportion to the increases in traffic volume. The Turnpike also increased the number of Pennsylvania State Police patrols to address this issue.8

During the last half-century, the Turnpike's traffic volume has continued to increase. The ideas on how to expand our state's premier highway have also been plentiful. The Pennsylvania Turnpike, however, now finds itself being used as a bargaining chip by some state politicians and political pundits as they finally seek an effective way to manage and address the transportation infrastructure crisis that has emerged in the Commonwealth.

The Ultimate Question of Politics and Government

The question of "What is the proper role of government?" is at the heart of every discussion of privatization/leasing/outsourcing of government functions to the private sector. In fact, this question of what government should do represents the ultimate focal point of every political campaign and political ideology.

Indeed, why has mankind created government? Bluntly stated, there are several societal tasks that private citizens and the private sector simply cannot or will not tackle and accomplish. The British Welfare School of Economics has presented an answer to this question that this writer finds convincing. This body of economic theory argues that there are seven instances where government (public sector) intervention is helpful to mankind. These seven instances include the following:
1) Protection of vulnerable population segments, such as the very old, the very young, or the handicapped;
2) Consumer ignorance;
3) The presence of monopoly;
4) The presence of negative externalities;
5) The immobility of the factors of production;
6) The redistribution of some wealth in society to prevent revolutionary situations; and
7) The provision of public goods.

"What is a public good?" is another question that should be addressed. A public good is a service or a commodity that is considered desirable by mankind, is too expensive for ordinary men to provide; is available to all men; and is nondivisible so that all members of society consume equal amounts of it. Inflexible and pedantic economic theorists will correctly note that there is only one true public good, and that is national defense. Most economists and public administrators, however, use this term in a far less rigid manner so that other facilities such as parks, concert halls, libraries, and roads also fall under this categorization. These are all items that most men find useful, enjoyable, and desirable, but without government intervention in societal affairs, all of these items would be well beyond the grasp of ordinary citizens to establish. Since the private sector's foremost concern is the profit motive and the maximization of profit, one discovers that the private sector is poorly prepared to pinpoint many of the needs of citizens, as well as planning, maintaining, and preserving these public services into the future.

This very fact should warn policymakers as well as the general public about why private investment firms are currently clamoring to seize the nation's transportation infrastructure.

"Roads to Riches" In a New Economic World

In the 7 May 2007 edition of BusinessWeek, this new trend of the investment community moving to take control of the country's transportation infrastructure is outlined. The report's author, Emily Thornton, details how banks and private investment firms have fallen in love with public transportation infrastructure. She relates how these institutions are, "smitten by the rich cash flows that roads, bridges, airports, parking garages, and shipping ports generate--and the monopolistic advantages that keep those cash flows as steady as a beating heart."9 She reports that banks and investment firms are so "enamored" with these investments that they are beginning to consider infrastructure a new asset class in itself.

Public transportation infrastructure is becoming a separate asset class due to the fact that these investments are safe like high-grade bonds, but they yield returns like one would find in the stock market. Goldman Sachs created a new infrastructure fund with the hopes of attracting $3 billion; however, the fund quickly generated a fund of $6.5 billion.10 Infrastructure investing is based on lavish flows of cash, substantial amounts of debt, very low risks, and an investment time span of decades. The director of infrastructure mergers and acquisitions at Morgan Stanley, Mr. Rob Collins, notes the creation of more than 30 public infrastructure funds world-wide with potential assets of as much as $500 billion for the leasing and/or purchase of American roads, bridges, and other transit infrastructure.11

By leasing or selling public transportation infrastructure, local and/or state governments are addressing short-term maintenance problems. Since much of America's public transportation infrastructure was built between the 1930s and the 1950s, the demands upon government to patch potholes and replace aging steel girders in bridges, for example, are daunting. In 2007, an estimated $155.5 billion is needed nationwide by federal, state, and local governments to maintain our highways and bridges. The estimated costs for transportation infrastructure maintenance, therefore, have risen by 50 percent in the last ten years.12 These needs have been occurring during a time when governments also find it extremely difficult to raise taxes.

While the advantages of selling or leasing public transportation infrastructure for the public sector can be seen in cash infusions, the disadvantages of this approach can be seen in the cost of the provided services; the long-term maintenance of these facilities; the quality of services; the inevitable onset of innovative pricing or service arrangements to extract larger amounts of cash from private users of these facilities; and the distribution of benefits from this activity among our general public. The last disadvantage spotlights the fact that this form of privatization greatly benefits a small circle of private investors while the remainder of society struggles to pay ever-increasing tolls for access to highways of ever-decreasing quality. Is this type of arrangement truly promoting the public interest?

Toll increases are likely to come quickly and will be relentless. One example of a leased facility is the Chicago Skyway, and this roadway will see tolls increase from two dollars in 2005 to five dollars in 2017. If applied to the Pennsylvania Turnpike during its 67 year history, the toll for driving the length of the east-west span from the New Jersey border to the Ohio border would have risen to $553 instead of the current $22.75.13

The quality of service is also enumerated above as a possible disadvantage of privatization. While one would expect to find the private vendors extending good quality services to consumers during the beginning portions of their lease/purchase, is it reasonable to expect that this situation will endure? New owners could sell or lease these facilities to other vendors with the possibility of mixed results. Our experiences with service quality for privatized toll roads is already varied, and other privatization projects have fared poorly. One such failure was the privatization of the Atlanta water system. The management of this water system was so shoddy that the city government needed to reclaim it. 14

Privatization is a prominent feature of the prevailing international economic thought (globalism) during this period of world history. The Susquehanna Valley Center for Public Policy and this author have written extensively and spoken publicly in support of privatization for more than 15 years. However, the manner in which privatization is applied and the extensive economic changes during this period of world history have forced this writer to temper his formerly universal endorsement of this concept. To apply this concept to the Commonwealth's premier roadway at this time, needs to be carefully studied. Former Prime Minister Margaret Thatcher has reflected that "nothing is more insidious than a fashionable consensus....surely there is something logically suspect about a solution which is always correct whatever the problem." 15 In fact, advocates for prevailing international economic thought who at every turn would formerly say, " 'Privatize, privatize, privatize', now say they were wrong...."16

A profound question in the study of political science remains, "What should government own?" The public sector has always owned--directly or indirectly--a significant fraction of the economy. Understandably, the national government has traditionally owned the armaments industry, and during the Industrial Revolution steadily gained ownership of much of the country's infrastructure, such as the post office, ports, water facilities, sewage plants, and roads. Leading businessmen did not trust the private sector to manage these natural monopolies efficiently, effectively, and fairly so they argued for public ownership of infrastructure monopolies.17

Lawmakers frequently turned to private sector ownership with extensive government regulation in order to have "the best of both worlds." One such example was the creation of the Canadian Pacific Railway (CPR) in the 1870s and 1880s. The railway was built by the Canadian government by a "carefully chosen and shaped private market."18 As the privatization movement gained steam in the 1980s and 1990s, however, there was no true analytical method to apply to determine which enterprise to privatize.19 In many instances, this change injected natural competition or competition created by a set of stringent regulations. Some of the enterprises that were privatized were chronic money losers, but others possessed long-term sources of revenue. Further, many of these entities represented natural monopolies, and it is important to remember that when natural monopolies are privatized that fair prices can only be maintained with the most stringent rules and regulations. Finally, a note for the future, when natural monopolies have been privatized for some time, they can become institutionalized points for political corruption.

As Pennsylvania considers privatization or long-term leasing for the Turnpike, it is important to understand some of the background of and motivation for this movement. For more than thirty years, the private sector had enjoyed steady growth despite burdensome taxation and regulations. These conditions disappeared during the mid- to late- 1970s, and economic growth stagnated. As the renowned economist, Joseph Schumpter observed, however, a vast contingent of business leaders in the Western World were no longer predisposed to risk-taking or creativity, increasingly, they were managers and technocrats rather than leaders.20 Some privatization was not about introducing market incentives into sluggish public sector entities, but instead it was about shifting the free market away from capitalism toward simply bringing good and steady management into one of the safe public sector enterprises that was almost guaranteed to generate long-term returns.21 The new mindset of the predominant international and national economic thinking is one that wishes to replace or reduce risk-taking, competition, innovation, and production with steady management, guaranteed returns, and wealth accumulation.

If the world is predestined to be one gigantic market, then corporations must be as large as possible so that they will be able to have an effect on that marketplace. This managerial mindset is one that seeks power through organization and the extension of that organization. But, as many administration theorists note, organizations tend to become slow, non-creative, risk averse, and stagnate in its top leadership as these organizations grow in size. Why the growing number of mergers of large businesses across the globe? The easiest way to energize any organization is to buy another organization and bang the two together-- managerial shock treatment. This process of managerial shock treatment along with the belief in a predestined single, global marketplace leads to gigantism so we see a world of acquisitions and mergers where precious little is accomplished, but large pieces of our economy are moved around. Ultimately, size replaces risk, innovation, and even the need to think. Public transportation infrastructure is ideally suited for this process. 22

An excellent example of these trends can be recounted from New Zealand. This country is a small, highly centralized democracy in the Southern Pacific Ocean. Like many other countries, New Zealand was experiencing economic problems at the beginning of the 1980s due to the international economic climate combined with excessive spending by New Zealand's national government. A Labor Government was elected during this time, and the new Labor Finance Minister, Ruth Richardson, responded to the economic conditions with globalist prescriptions such as trade liberalization, broad deregulation, and the sale of state corporations. Forty corporations were sold off in New Zealand in areas such as communications, energy, railways, roads, and water facilities. 23

The globalist experiment failed in New Zealand. It had been tested for 15 years—the length of three world wars—and the results were unmistakable. The New Zealand economy had been through two complete business cycles without a recovery. The vast majority of the privatized companies continued to be economic “basket-cases,” and 11,000 New Zealand citizens were leaving the nation yearly. In addition, the nation had low levels of savings, one of the highest levels of national debt in the developed world, one of the lowest levels of private sector research and development, one of the most rapidly growing levels of inequality in Western World, and was as dependent as ever on commodity exports.24 Poverty boomed in New Zealand with 20 percent of the working-age adults dependent upon state benefits. Median wages for the youngest working-age adults fell from $14,700 to $8,100.25 Additional examination shows that under this new globalist economic policy, New Zealand had real wages that were lower in the late 1990s than in the mid-1970s; public services that fell into decline; and a growing international trade deficit, partially caused by the large degree of foreign ownership of former state corporations.26

The New Zealand experience can also answer how public assets may be treated when they come under the control of private investors. This answer was provided by Mr. David Mirams of New Zealand on 17 March 2007 in the “Cities On A Hill” website operated by the Manhattan Institute. Mr. Mirams is quite definite on what will happen to the Pennsylvania Turnpike, or any other significant public infrastructure, if it is sold or leased on a long-term basis to private investors. His answer is based on his country’s experience of selling the New Zealand Railways:

Our NZ Railways are falling over from the lack of repairs and maintenance.
When a private company bought our national and local railways system,
they stripped them bare. Lines were closed, and tracks ripped out and sold
for scrap. Plus trendy garden walls are now all over the place made from
old railway sleepers. Services were cut and the old rolling stock just got
a lot older….Yet again the stupid taxpayers will be milked to rebuild the
ruined national and local railway systems they now own again….the rail
systems are in such a terminal state that the alternative to this government
bailout was the closure of nearly all of our national lines, and definitely
our local lines. No other private investor was prepared to bid on or buy
the NZ rail system in its dilapidated condition….

One of the central questions about New Zealand’s privatization of state corporations also is one of great importance as the Commonwealth ponders the possible sale and/or long-term leasing of the Turnpike. That question is “What is the true value of this asset?” Certainly in New Zealand many of the state corporations were undervalued. Would the Commonwealth of Pennsylvania have competent appraisal of its assets’ value? If these appraisals of value are competent, how can Pennsylvanians be sure that the value has not been set, at least in part, in order to be an intentional handout to friends?

Of course, as many investment firms know, the real value of public infrastructure can be discovered in its long-term value. John Ralston Saul summarizes this critical point succinctly: “The state—the citizenry—had spent decades building up these industries….Privatization meant a one-time payment, which the state could not invest with equal success. And so the citizenry lost the advantage of the long-term capital worth of their nation-state.”27 Obviously, we should have exactly the same concerns about possible transactions with private sector interests that may involve the leasing or sale of the Turnpike.

Would the Commonwealth of Pennsylvania obtain a fair price? Estimates of the Turnpike's value range from $2 billion to $30 billion. Would the state proceed to invest this one-time financial windfall wisely in a manner that would ensure its citizens against any negative long-term repercussions?

One can see from this summation of financial investment and economic trends that the Pennsylvania Turnpike is indeed a tempting target for our new breed of international businessman who is risk averse, but longing for guaranteed long-term returns. Is it sound public policy to sell or lease the Commonwealth’s premier roadway?

A damning answer to this question is found in Saul’s treatise on contemporary economics:

Perhaps the simplest example was the outcome of the broad privatization
of state corporations and the resulting movement of trillions of dollars….
Privatization brought no pattern of success….As for the vast sums injected
into public coffers across the world, they seemed to evaporate without
particular effect. There was no economic surge, no particular improvement
in public economic health. Just a one-time payout in return for removing
large blocks of long-term value from public wealth.28

Sovereign Wealth Funds

Another largely unknown potential peril to the long-term leasing and/or sale of the Pennsylvania Turnpike is the recent emergence of Sovereign Wealth Funds (SWFs). These are vast capital funds controlled by specific nations that have begun to flex their monetary muscles in world financial markets. SWFs have been created from the mammoth trade deficits that America has registered. For example, in 2006, the United States rang up a merchandise trade deficit of $836 billion and a current account deficit of $857 billion—6.5 percent of America’s entire GDP (gross domestic product).29 Numerous foreign countries that have accumulated large cash reserves from America’s trade deficits are creating these investment pools.

The U.S. Treasury Department estimates that there is anywhere from $1.5 to $2.5 trillion in these pools at present.30 SWFs, however, are only going to increase in size. Former Treasury Secretary Larry Summers expects total SWF funds across the globe to double to $5 trillion by 2010 and double once more by 2015 for a total sum of $12 trillion. At the present time, the United Arab Emirates has $500 billion in SWFs; Norway, $400 billion; Singapore, Saudi Arabia, and China, $200 billion.31

Rather than keeping their cash in U.S. Treasury bonds that earn five percent yearly, a number of nations have created SWFs in order to pursue higher rates of interest and to acquire corporate assets to further their national interests. Certainly, the SWFs provide an attractive source of funding for transportation infrastructure acquisitions.

SWFs differ from conventional investments of the past in that all of these funds are owned by or answerable to a country. One or more of these countries may decide not to use their funds to produce the maximum income available but to secure the maximum strategic benefit for the nation. The transparency of these funds will continue to be a concern with these funds into the foreseeable future. Some of the funds are very murky, and no analyst can accurately predict if it will be ever become motivated primarily by politics rather than market conditions.

Who in America will decide what national assets and companies will not be allowed to fall under the control of a foreign country? Will the Pennsylvania General Assembly continue to protect the state’s Turnpike as an indispensable state asset for the Commonwealth’s future? How will Pennsylvania react if a SWF attempts to secure this invaluable chunk of the state’s economy?

Public Opinion in the Commonwealth

Since the government of the Commonwealth of Pennsylvania is a representative democracy, its public policy should reflect public opinion over time. In the case of selling or leasing the Turnpike, public opinion is crystal-clear. A convincing majority of state residents are opposed to these ideas.

In fact, there are few public policy questions that manifest such clear-cut and unquestioned majority support. Susquehanna Polling & Research conducted a survey across the Commonwealth from April 12 to April 17 of this year. (Susquehanna Polling & Research has no affiliation or connection to Susquehanna Valley Center for Public Policy.) This poll was commissioned by the Pennsylvania Motor Truck Association, and it surveyed 800 registered state voters.

The poll discovered that Pennsylvanians of all political parties, ideologies, genders, and ages oppose a proposed sale or a long-term lease of the Turnpike.32 Rarely does such an issue unite Keystone State residents. The survey also found that the majority of state residents reject the argument that revenues gained from a lease agreement would help avoid a state tax increase and that private sector operation of the Turnpike would result in more efficient operation of the roadway.

Expectations and Outcomes

Common sense seems to be a commodity that mankind always strives to inject into government and politics. Certainly, common sense is frequently missing in the day-to-day operations of our federal and state governments. The study of public administration is replete with examples of management tools and techniques that are little more than the application of common sense.

Common sense was lacking from the very beginning of the examination of the Turnpike Commission and its operations during this recent controversy over the privatization of the roadway. Advocates of privatization or a sale of the roadway constantly bemoaned the costs of the Turnpike or its rate of return.

All of Pennsylvania should be clear about one point: The Turnpike Commission has simply and always done what we have asked of it. The Turnpike Commission was established, as discussed above, to arrange for the financing, building, expansion, and maintenance of the roadway. It has been asked to be largely self-sufficient, and it has accomplished that goal along with all of the other ones that have been set for it.

In fact, the Turnpike Commission has done an exemplary job of operating and maintaining its roadways. This point is clearly illustrated by evaluations of the Turnpike that have been made by Moody's Investors Service and Fitch Ratings. Moody's publicly published reports reveal that the Turnpike's operating expenses per roadway mile are significantly lower than the median for similar turnpikes. Fitch Ratings, on the other hand, report that the Pennsylvania Turnpike has operating expenses that are 18 percent lower than the median for similar turnpikes.

As these reports are examined in greater detail, one finds that Moody's Investors Service ascertained on 1 May 2007 that the Pennsylvania Turnpike has the lowest operations, maintenance, and administrative expenses per roadway mile of any comparable turnpike examined by Moody's. In fact, the operating expenses of the Pennsylvania Turnpike per roadway mile are 9.5 percent lower than the median for its comparable group of Turnpikes. Our neighbors, Maryland and New Jersey, have total turnpike expenses per mile that are more than three times that of the Commission. Moody's also tells us that the Pennsylvania Turnpike has total expenses per mile that are only one-third of the roadways operated by the Maryland Transportation Authority and the New Jersey Turnpike Authority. The 1 May 2007 Municipal Financial Ratio Analysis produced by Moody's Investor Service also showed the existing quality of service on the Pennsylvania Turnpike in a few other indices. The Commission has the lowest debt per roadway mile in comparison to similar roadways, and the Commission's five-year growth rates for toll revenue and total transactions are well above the median when compared to other comparable roadway systems, such as the ones found in Florida, Illinois, Maryland, New Jersey, New York, and Ohio. Finally, when examining all of these turnpike systems, one also discovers that the Pennsylvania Turnpike Commission only uses 38 percent of its gross revenue to fund operating expenses, while the median for these systems is 42.7 percent.

Fitch Ratings' 2006 Credit Report for the Commission completed on 1 June 2006 compared the Pennsylvania Turnpike to a number of road agencies and other turnpikes such as Florida, Ohio, Oklahoma, Massachusetts, Miami-Dade County Expressway Authority, and New Hampshire. This report uncovered that Pennsylvania's Turnpike has the lowest debt service per lane-mile. Our Turnpike also showed similar operating expenses per lane-mile as the other roadways and significantly lower operating expenses per-lane mile than the Florida and Massachusetts Turnpikes. According to Fitch Ratings, the Turnpike has achieved a solid financial performance. It shows a net income (the operating surplus after paying for operating costs and debt service on the toll revenue bonds) ranging between 31 percent in 2001 to 47 percent in 2005.

If the Administration, the General Assembly, or the general public desire certain levels of performance from the Turnpike Commission, then it would be useful to inform the Turnpike Commission of those expectations. If directed to operate within certain parameters or generate a certain level of return for the state, the Turnpike Commission would probably achieve the tasks it was given. This has been true throughout its history, and the organization and its employees deserve the opportunity to show that they can meet the expectations set forth for them.

Instead, in this case the Governor joined by a handful of legislators and anti-government activists simply stated the Commonwealth’s need for revenues for transportation infrastructure and threw the idea of selling the Turnpike into the public square. No effort was made to meet privately with Turnpike Commission officials and employees to study what other courses of action might be available and what levels of performance could the roadway achieve if put to the test.

Organizations are frequently like children; they “live up” to our expectations of them. The Turnpike Commission has the ability to adapt and become whatever we wish it to be. First, we need to achieve a consensus on that question so the organization can be given the opportunity to meet whatever performance indicators it is given. This author believes that the Turnpike Commission staff possesses adaptability and organizational skill that has not been recognized to this point.

Before we continue to thrash about somewhat aimlessly on this issue of transportation infrastructure repair, should we not have a clear understanding of what repairs are needed, what is the time frame in which they should be accomplished, and what are the costs and benefits of all the different ways of achieving these goals? Before we dismantle an organization that has served the Commonwealth well over many years and accomplished everything we have asked of it, should we not give that organization an opportunity to achieve whatever our new goals are for state transportation? Where is our common sense?

Tolling Expressways

We can also benefit from an application of common sense when we study the advantages and disadvantages of applying tolls to Pennsylvania roadways. While we can reasonably expect the public sector to provide normal roads and streets for us as a public good, a “superhighway” or expressway that allows drivers to travel at higher rates of speed and arrive at our destinations more quickly is a project above and beyond the normal provision of governmental services. Therefore, if we desire to travel at an accelerated rate of speed and have access to government facilities not normally provided, we should have to pay for them if we use them. This is the rationale for highway tolls. A highway toll is nothing more than a user’s fee.

Tolls can be used to pay for the construction and/or maintenance of the roadways upon which they are collected. These fees have been used since the establishment of the first civilizations as a means to pay for the provision of those special facilities.

The idea of having Pennsylvania State government toll Route 80 is not new. Many state policymakers have discussed this proposal in different forums over the last two decades. In fact, Lieutenant Governor William Scranton’s campaign for governor in 1986 proposed that the state should consider imposing tolls on at least portions of the major congested interstate highways in the Commonwealth: Routes 80, 81, 83, 78, and 95. This idea attracted no opposition at the time, and it was simply explained as a user’s fee.

Since the revenues that are raised on our federal interstate highways such as these can only be used on those highways, we will have the funding that is necessary to repair and maintain those freeways. Hence, these roads will become self-sufficient, and that fact will allow the Commonwealth to use the transportation money that it would have used on maintaining those roads on maintaining other state roads, bridges, and mass transit. Users fees have been part of government reform movements for many years, and it appears sensible to consider greater use of them in Pennsylvania. Whatever the aggregate fees might be for these roadways, one can at least safely assume that these fees will be less than the revenues that would be collected by private operators for any Turnpike privatization scheme.

Pennsylvania's Transportation Outlook

In addition to the Pennsylvania Turnpike and our interstate highways, we find that the Pennsylvania Department of Transportation manages more than 40,000 miles of highway and owns some 25,000 bridges. A 2006 report card done on Pennsylvania's infrastructure by the American Society of Civil Engineers noted that 25 percent of the Commonwealth's bridges are structurally deficient and that 18 percent of the bridges are functionally obsolete. Across Pennsylvania, one finds 5,913 structurally deficient bridges. In fact, the Keystone State leads all other states in this category. Overdrive, a national trucking magazine, graded our state's roads as the second worst in the country. 33

The Commonwealth's municipalities maintain almost two-thirds of the state's roads, so local governments care for 76,000 miles of roads versus the 44,000 miles of roads that are entrusted to the Pennsylvania Department of Transportation. Decades ago, the state had agreed to pay 20 percent of gas tax revenues to townships, but the state has reduced the percentage of assistance to 14.6 percent in recent years. 34

During 2005, Governor Rendell established the Pennsylvania Transportation Funding and Reform Commission to investigate the needs and financing arrangements for the state's transportation infrastructure--highways, bridges, and transit systems. In 2006, the Transportation Commission released its study after finding that the Commonwealth's highways need another $536 million per year while the state's 73 transit systems need an additional $497 million per year. In its final report released in November 2006, the Commission reported that the transportation funding gap is approximately $1.7 billion per year. The Commission recommended that the highways and bridges receive an additional $900 million per year in funding while an additional $760 million per year is needed for the state's mass transit systems. This report enumerates a number of potential solutions to address this financial shortfall without having to raise taxes, and the solution that seems to attract the most attention is long-term leasing of the Turnpike, a form of public-private partnership. In December 2006, the Administration collects information from private firms interested in leasing the roadway. This collection process is an attempt to estimate how much revenue can be raised from leasing the Turnpike as well as analyzing all of the advantages and disadvantages of such a course of action. Formal proposals have been filed by 48 private businesses, and it appears as if the Commonwealth might be able to raise between $10 to $12 billion upfront from a long-term lease of the Turnpike.

After 2007 arrives, the Governor proposed leasing the Turnpike to the private sector as part of his 2007-08 budget proposal for the General Assembly. The Governor believed that about $965 million per year could be earned from a long-term lease for maintaining and rebuilding our highways, bridges, and mass transit. In March 2007, the Pennsylvania Turnpike Commission unveiled its own state transportation financing alternative. The Turnpike's alternative to leasing the roadway called for leveraging state revenues from the Motor License Fund in order to issue $4 billion of bonds over ten years, beginning in 2008. Other elements of the Turnpike's alternative also included imposing a one dollar congestion fee in four metropolitan areas; increasing its tolls on the Turnpike by 25 percent, beginning in 2010; and tolling Interstate Route 80, beginning in 2011. The Governor responded by choosing Morgan Stanley & Company as the Administration's principal financial advisor that would assist in setting the terms and creating a contract for any lease of the Turnpike.35

Other alternatives quickly appeared on this issue. For example, the Associated Constructors of Pennsylvania set forth its own multi-pronged option that involved raising the $1.25-a-gallon ceiling on the oil company franchise tax, turnpike tolls, and motor vehicle fees--in addition to tolling I-80. Another alternative forwarded by the Pittsburgh Post-Gazette and State Representative Tim Solobay was "The Getting Around Plan" (GAP). This plan would transform the Pennsylvania Turnpike Commission into a new Interstate Highway Authority that would handle all of the planning, maintenance, operating, and safety issues for the Turnpike as well as all other interstate highways in the Commonwealth, which encompasses another 21 routes and 1,390 miles of roadway in addition to the Turnpike. PennDOT would be completely freed from any responsibility for interstate highways and could place its entire focus on the remaining 38,000 miles of state-owned highways and 22,000 bridges. Gateway tolling would provide the funding for the maintenance of the interstate routes with relatively low flat fees for cars and trucks that would only be collected at the state's borders on all interstate highways, such as 70, 79, 80, 81, 83, 90, and 95. The supporters of this plan noted the contribution that out-of-staters would be paying for the advantages of the time and energy saving that they realized through interstate highway travel. The GAP plan, while gaining the financial support of out-of-staters for the highway usage that they register, would be less burdensome to state residents than some of the other plans, according to its authors. Nonetheless, detractors point to the fact that any single organization responsible for multiple roadways could "play favorites" with a few of the roadways while taking the monies raised on others and not maintaining them as well.36

Act 44

After extensive discussion and analysis of all of the highway options, the Administration joined with the General Assembly in forging a solution that seems to take the best elements from several of the alternative plans for meeting the Commonwealth's transportation needs. Act 44 of 2007 creates a public-public partnership between the Pennsylvania Turnpike Commission and the Pennsylvania Department of Transportation.

This arrangement provides an average of $973 million for the next 12 years for roads, bridges, and mass transit. Fixed payment levels from the Commission to PennDOT for 1) roads and bridges and 2) mass transit were agreed upon along with set automatic increases for future years. Finally, tolling I-80 was permitted, beginning in 2010. While no statutes or proposed legislation can ever be perfect, for mankind is imperfect, Act 44 does appear to be the best compromise solution that the Commonwealth can develop at present, and it should be put to the test to see if it will work in the manner that the Administration and the General Assembly expect.

Accountability is also addressed in Act 44. The Turnpike Commission is required to file a financial plan with the state's Budget Secretary by 1 June of each year. Further, the Commission is required to file quarterly reports and periodic updates about the tolling of I-80 and to the majority and minority chairs of the House and Senate Transportation Committees. Traffic studies are also mandated in this legislation to determine if there is any diversion of traffic away from I-80, and if so, how much of a diversion exists. Lastly, the Turnpike Commission is required to pay for an audit every four years by the state's Auditor General and a comprehensive code of conduct for Turnpike Commissioners and executive employees of the Commission must be completed within the next three months.

Conclusion

Leasing the Pennsylvania Turnpike is an attempt to release the "hidden value" of this public asset so that the public can benefit from it at an earlier date. This process is called "monetization" by some observers.

Since New Jersey has also been studying the possibility of monetizing its Turnpike, this topic has also attracted much public scrutiny in the Garden State. The New Jersey Public Interest Research Group has maintained that the public has been shortchanged in these transactions. Therefore, this organization has formulated what it considers to be the six principles of monetization: public control, fair value, 30 year maximum deal length, unquestioned standards for excellence in maintenance and safety, transparency in the negotiation of the final contract, and fiscally responsible use of highway proceeds.37

While Governor Jon Corzine of New Jersey has pledged to adhere to these six principles if New Jersey should attempt to proceed with any long-term lease or sale of any of its transportation infrastructure, the leasing schemes that our state government, its representatives, and the private sector were contemplating until the passage of Act 44 did not fully meet ANY of the principles listed above. The creation of any such long-term lease agreement for the Pennsylvania Turnpike would have been the nation's most ambitious effort to privatize an existing highway, and it was attracting criticism from public interest groups and legislators from around the state. Many legislators were opposed to this "deal" because of the wide latitude it would have given the Administration to close the deal without a final review or participation by the General Assembly.

The Susquehanna Valley Center for Public Policy will continue to follow the developments in transportation infrastructure in our Commonwealth and issue future op-ed essays as well as additional reports as the need arises. To conclude, however, it is useful to summarize the arguments against placing the Pennsylvania Turnpike in a long-term lease arrangement:
1) The American public sector has only been selling and engaging in long-term leases of public highways for about two years. Additional time for study of monetization is needed for after initial good reports about the Chicago Skyway and the Indiana Toll Road arrangements; more recent reports are being issued that call the wisdom of these agreements into question.
2) Money that is earned by the Turnpike should stay in public hands not be sent to private sector investors as profit while denying the public the opportunity to benefit.
3) The safety, security, and service given to users of the Pennsylvania Turnpike is better than that of any other highways in the state. This was vividly illustrated last winter during the snowstorm that stranded thousands of motorists on I-78 for more than a day.
4) If Turnpike users are willing to pay higher tolls, the extra revenue generated should be dedicated to improving that roadway and the state's transportation infrastructure as opposed to being used as profits that are streamed away to private investors.
5) The responsibility of repairing and building new transportation infrastructure in Pennsylvania should not rest solely on the shoulders of Turnpike customers. Those who use other highways and bridges should also be asked to shoulder some of this burden and contribute to this effort.38

David Lutterick, an American writer for the London-based Telegraph warns us. He noted that the Australian bank, Macquarie, a partner in the Indiana Toll Road lease, longs to "take over the world" based on his contacts with them. He warns his readers to consider such private-public partnerships carefully and not lose sight of the public interest.39


ENDNOTES

1. Paul L. Knox and Linda McCarthy, Urbanization: An Introduction to Urban Geography (Upper Saddle River, New Jersey: Pearson/Prentice Hall, 2005), p. 445.
2. Ibid., p. 447.
3. Ibid.
4. Ibid.
5. Ibid., p. 448.
6. Ibid., p. 449.
7. Ibid.
8. Dan Cupper, A History of the PA Turnpike (Lebanon, Pennsylvania, 1990).
9. Emily Thorton, “Roads to Riches,” BusinessWeek, (May 7, 2007), p. 50.
10. Ibid., p. 53.
11. Ibid., p. 52.
12. Ibid., p. 53.
13. Ibid.
14. Ibid., p. 52.
15. Lady Margaret Thatcher, speech given to the National Press Club, Washington, D.C., November 5, 1993.
16. John Ralston Saul, The Collapse of Globalism: And the Reinvention of the World (New York, N.Y.: The Overlook Press, 2005), p. 3.
17. Ibid., p. 74.
18. Ibid.
19. Ibid., p. 75.
20. Ibid., p. 76.
21. Ibid.
22. Ibid., p. 81.
23. Ibid.
24. Ibid., p. 213.
25. Ibid., p. 71.
26. Ibid., p. 212.
27. Ibid., p. 76.
28. Ibid., p. 140.
29. Patrick Buchanan, “The SWF’s are Coming,” The American Cause Website, ( July 31, 2007).
30. “China Takes the Bank,” The Economist Website, (July 26, 2007).
31. Buchanan.
32. Jessica Bair, “Survey: PA residents oppose privatizing the Turnpike,” Central Penn Business Journal, (May 14, 2007).
33. Albert Paschall, “Pennsylvania can’t build its way out of congestion,” The Patriot News, (May 14, 2007).
34. Matt Casey, “Road Plan Irking Locals,” Evening Sun, (May 5, 2007).
35. Jessica Bair, “Turnpike Proposal,” Central Penn Business Journal, (April 27, 2007).
36. “Proposed ‘Highway Authority’ Could Deal With Interstates,” Pittsburgh Post Gazette, Regional Edition, (May 6, 2007).
37. Matt Friedman, “NJPIRG Wants Corzine to Sign Monetization Pledge,” Politics NJ.com, (May 15, 2007).
38. Jessica Bair, “Experts Sound off on possible public-private partnership,” Central Penn Business Journal, (May 6, 2007).
39. Fort Wayne Journal-Gazette, (May 15, 2007), p. 8.