Rendell Says He’s Close to Deal to Lease Pennsylvania Turnpike
By Sean McNally, Senior Reporter
This story appears in the May 19 print edition of Transport Topics.
With the fate of a proposal to toll Interstate 80 still up in the air, Pennsylvania Gov. Ed Rendell (D) said his administration was close to finishing a plan to privatize the 524-mile Pennsylvania Turnpike, last week taking bids from investors that could provide the state about $12 billion.
A number of transportation and finance officials said they thought the bids were below the levels Rendell had expected after a study estimated leasing the pivotal truck route could bring in as much as $19.8 billion.
Rendell said he would present the winning bid to the state legislature, the General Assembly, which last year rejected turnpike privatization in favor of a plan to raise tolls on the 68-year-old route and to impose them for the first time on the parallel Interstate 80.
A Rendell aide said May 15 that his administration was moving forward on a lease because Rendell believes that the I-80 tolls plan wouldn’t raise enough money.
“On May 9, we received multiple bids to lease the Pennsylvania Turnpike under the terms and conditions we set,” Rendell said in a statement. “Because some bids were within 10% of the highest bid, we are obligated to solicit best-and-final offers due [May 16]. We’ll be back next week.”
“The thought is, he’s trying to wait for one that might be more suitable,” said Jim Runk, president of the Pennsylvania Motor Truck Association. “That’s kind of the conventional wisdom right now: They may be coming in too low, and he’s trying to wait and see if they’ll improve.”
Bidding terms included a 75-year lease with annual toll increases capped at 2.5% or the consumer price index, whichever is higher, after allowing a 25% initial toll hike.
The current toll for an 80,000-pound, five-axle truck running from the Ohio border to New Jersey is $155. In 2005, 68,792 trucks a day traveled on the turnpike.
The state trucking association has opposed leasing the turnpike and spoke out against tolls on I-80 (12-17, p. 4).
“Everyone expects them to be below the range of $12 billion to $18 billion that Morgan Stanley” gave the state, said Brian Chase, vice president of the Carlyle Group’s infrastructure unit, which has not bid on the turnpike lease.
Last June, Rendell said investment bank Morgan Stanley estimated the state could receive as much as $19.8 billion for a 75-year lease but was likely to receive between $12 billion and $18 billion (6-4, p. 5).
“With the credit crisis, it’s much harder to get the kind of loan commitments you could have a year ago,” Chase told Transport Topics. “That’s the main reason I think it’s going to be below that range.”
Highway privatization projects require investors to borrow significant sums of money (4-21, p. 1).
Rendell, when asked during a press conference whether he was pleased with the bids, said that “given what’s happened to the market recently, absolutely,” but he acknowledged that financial market problems had affected the size of the state’s potential payout.
“It’s not a great time to be doing this, and would that we had done it a little earlier, but it is what it is,” he said, adding that “the bids are sufficient that I think the legislature has to give this a hard look.”
The state legislature would have to approve a lease, but last year it rejected plans to lease the turnpike in favor of Act 44, under which the Turnpike Commission would issue bonds on behalf of the state Transportation Department and expand tolls to I-80.
Roy Kienitz, Rendell’s deputy chief of staff, told reporters in Washington that the governor “believes that the amount of money that was provided in Act 44 that is now on the books is not all that it could have been.”
Carl DeFebo Jr., a spokesman for the turnpike commission, said the group was “moving forward with implementing” Act 44, and had “already provided $750 million to PennDOT for transportation.”
Pennsylvania and the U.S. DOT have gone back and forth on the state’s application to toll I-80.
Kienitz said that approval for the new tolls “is not necessarily a pro-forma, sign-here kind of thing. There are standards that a proposal has to meet, and that’s now under scrutiny.”
Kienitz indicated that the process was down to two bidders only, mostly because of the weak credit market.
“If this was done a year ago, that might not have happened, but given where we are now, it’s not surprising,” he said.
Several financial insiders and published reports indicated that the Spanish-Australian consortium of Cintra-Macquarie, which has leased the Indiana Toll Road and Chicago Skyway, had dropped out of the Pennsylvania Turnpike bidding.
A spokesman for Macquarie Group declined to comment on the bidding process.
The Associated Press contributed to this report.
This story appears in the May 19 print edition of Transport Topics.
With the fate of a proposal to toll Interstate 80 still up in the air, Pennsylvania Gov. Ed Rendell (D) said his administration was close to finishing a plan to privatize the 524-mile Pennsylvania Turnpike, last week taking bids from investors that could provide the state about $12 billion.
A number of transportation and finance officials said they thought the bids were below the levels Rendell had expected after a study estimated leasing the pivotal truck route could bring in as much as $19.8 billion.
Rendell said he would present the winning bid to the state legislature, the General Assembly, which last year rejected turnpike privatization in favor of a plan to raise tolls on the 68-year-old route and to impose them for the first time on the parallel Interstate 80.
A Rendell aide said May 15 that his administration was moving forward on a lease because Rendell believes that the I-80 tolls plan wouldn’t raise enough money.
“On May 9, we received multiple bids to lease the Pennsylvania Turnpike under the terms and conditions we set,” Rendell said in a statement. “Because some bids were within 10% of the highest bid, we are obligated to solicit best-and-final offers due [May 16]. We’ll be back next week.”
“The thought is, he’s trying to wait for one that might be more suitable,” said Jim Runk, president of the Pennsylvania Motor Truck Association. “That’s kind of the conventional wisdom right now: They may be coming in too low, and he’s trying to wait and see if they’ll improve.”
Bidding terms included a 75-year lease with annual toll increases capped at 2.5% or the consumer price index, whichever is higher, after allowing a 25% initial toll hike.
The current toll for an 80,000-pound, five-axle truck running from the Ohio border to New Jersey is $155. In 2005, 68,792 trucks a day traveled on the turnpike.
The state trucking association has opposed leasing the turnpike and spoke out against tolls on I-80 (12-17, p. 4).
“Everyone expects them to be below the range of $12 billion to $18 billion that Morgan Stanley” gave the state, said Brian Chase, vice president of the Carlyle Group’s infrastructure unit, which has not bid on the turnpike lease.
Last June, Rendell said investment bank Morgan Stanley estimated the state could receive as much as $19.8 billion for a 75-year lease but was likely to receive between $12 billion and $18 billion (6-4, p. 5).
“With the credit crisis, it’s much harder to get the kind of loan commitments you could have a year ago,” Chase told Transport Topics. “That’s the main reason I think it’s going to be below that range.”
Highway privatization projects require investors to borrow significant sums of money (4-21, p. 1).
Rendell, when asked during a press conference whether he was pleased with the bids, said that “given what’s happened to the market recently, absolutely,” but he acknowledged that financial market problems had affected the size of the state’s potential payout.
“It’s not a great time to be doing this, and would that we had done it a little earlier, but it is what it is,” he said, adding that “the bids are sufficient that I think the legislature has to give this a hard look.”
The state legislature would have to approve a lease, but last year it rejected plans to lease the turnpike in favor of Act 44, under which the Turnpike Commission would issue bonds on behalf of the state Transportation Department and expand tolls to I-80.
Roy Kienitz, Rendell’s deputy chief of staff, told reporters in Washington that the governor “believes that the amount of money that was provided in Act 44 that is now on the books is not all that it could have been.”
Carl DeFebo Jr., a spokesman for the turnpike commission, said the group was “moving forward with implementing” Act 44, and had “already provided $750 million to PennDOT for transportation.”
Pennsylvania and the U.S. DOT have gone back and forth on the state’s application to toll I-80.
Kienitz said that approval for the new tolls “is not necessarily a pro-forma, sign-here kind of thing. There are standards that a proposal has to meet, and that’s now under scrutiny.”
Kienitz indicated that the process was down to two bidders only, mostly because of the weak credit market.
“If this was done a year ago, that might not have happened, but given where we are now, it’s not surprising,” he said.
Several financial insiders and published reports indicated that the Spanish-Australian consortium of Cintra-Macquarie, which has leased the Indiana Toll Road and Chicago Skyway, had dropped out of the Pennsylvania Turnpike bidding.
A spokesman for Macquarie Group declined to comment on the bidding process.
The Associated Press contributed to this report.
