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Pennsylvania House of Representatives
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House of Representatives
Session of 2017 - 2018 Regular Session

MEMORANDUM

Posted: December 9, 2016 02:58 PM
From: Representative John A. Lawrence
To: All House members
Subject: Reducing and Eliminating the $450 Million Annual Transfer from the Pennsylvania Turnpike Commission to PennDOT for Mass Transit Projects, Lowering Borrowing Costs for the Turnpike, Putting the Turnpike on Fiscally Sustainable Path for the Future
 
Dear Colleagues –

The Pennsylvania Turnpike Commission is required under existing state law to pay $450 million annually towards mass transit projects around the state. To make these required payments, the PTC has issued billions of dollars in bonds and plans to issue billions more. Principal, interest, and fees on these bonds is repaid solely by tolls paid by Turnpike motorists. As a result, Turnpike tolls are projected to dramatically increase every year for decades. My proposal reduces and eliminates the payments from the PTC to mass transit over the next few years, putting the Turnpike on a more financially sustainable path.

Details:

Act 44 of 2007 as amended by Act 89 of 2013 requires the Pennsylvania Turnpike Commission to pay $450 million per year to PennDOT to fund mass transit needs across the state. These payments are scheduled to continue every year until 2022, when the annual payment amount is scheduled to drop to $50 million every year into the future. To make these payments, the Turnpike has been borrowing money by issuing bonds. Tolls on the Turnpike have dramatically increased over the past few years, and are predicted to increase every year for the next few decades – all to pay for the continued issuance of this debt to fund mass transit. According to data publically available from the PTC, $4.8 billion in bonds have already been issued, and an additional $3.6 billion in bonds will be issued by the Turnpike over the next few years (total $8.4 billion) just to fund the requirements of Act 44 and Act 89.

You may have seen newspaper articles concerning significant annual toll increases on the Turnpike. Many of these articles speculate that the reason for the toll increases are Turnpike construction projects and regular maintenance needs. In actuality, eventually the Turnpike will have to defer maintenance and expansion projects, and tolls will still increase annually – all to service the debt being piled on to the Turnpike Commission to fund the $450 million annual payment for mass transit funding.

Without a doubt, mass transit agencies across the Commonwealth have real funding challenges and infrastructure needs. However, under the current law, we are using the Turnpike Commission to incur billions in debt in pursuit of mass transit funding. The payment scheme mandated under current law is actually putting the Turnpike on a path of financial disaster. It is also putting Turnpike motorists on the hook for mass transit needs that, it can be argued, have little or nothing to do with maintenance of the Turnpike.

Taking a step back, most people have probably heard that tolls were instituted when the Turnpike opened to pay for the newly-constructed road. These tolls continued over the years, with the tolls being used to fund road improvements, expansion, paving jobs, etc. At times, the PTC issued bonds to pay for big projects up-front, and serviced the bonds with tolls collected from motorists using the Turnpike. In financial markets, these bonds are called revenue bonds, since they are backed by a direct revenue source (tolls) from users of the system (Turnpike motorists.) However, in recent years the legislature has expanded the role of the Turnpike to include funding mass transit projects around the state, which has nothing to do with the PTC’s core competency or mission of maintaining a toll road.

As a state agency, the Turnpike Commission is authorized to issue bonds. Since the bonds are issued by the Turnpike (a state agency) and not the state itself, the bonds are not explicitly guaranteed to be repaid by the state. However, the financial markets assume an implicit guarantee that the Commonwealth of Pennsylvania will never let the Turnpike Commission default on its bonds.

As the Turnpike continues to issue mass-transit-funding bonds and raise tolls on Turnpike motorists to pay for it, at some point the road will become so expensive that many motorists will find free, non-toll road alternatives for trips. If the Turnpike Commission gets to the point where it cannot service its debt and maintain the Turnpike, there will be two options: 1) Default on Turnpike-issued debt, or 2) The PTC will turn to the General Assembly (and the Pennsylvania taxpayer) for a bailout. Neither of these options is attractive and both have serious ramifications.

To quote from a PTC press release issued July 7, 2015: “PTC Chairman Sean Logan said this 2016 toll increase, like others over the last seven years, is needed in part to repay the substantial borrowing require to meet the PTC’s financial obligations under state laws signed in 2007 and 2013.” The press release adds “annual [toll] increases of three to six percent will be required until 2044.

With all of this in mind, I am proposing legislation that will wean mass transit funding off of the Turnpike’s balance sheet. While I would prefer to do this all at once, the bill I am proposing would instead step-down the annual payments over the next few years until it is entirely eliminated in the year 2022. The proposed step-down would result in a savings of $1 billion dollars in principal and interest repayments over the years.

I would appreciate your support of this important initiative to put the Pennsylvania Turnpike Commission on a path towards financial sustainability.



Introduced as HB1948