The Pennsylvania Turnpike Commission could default on billions of dollars of debt leaving taxpayers holding the bag if the commission fails to change or challenge a 2007 law, Act 44, that requires it to give $450 million a year to the state Department of Transportation to build, improve or repair roads and bridges, state Auditor General Jack Wagner said in a press release issued Friday.
Wagner suggested the commission is teetering on the edge of default.
"It is crystal clear that, with the passage of Act 44, the Pennsylvania Turnpike Commission has been placed in a position where its very existence is at risk," he said. "No entity can continue to operate with significant increases in long-term debt and the continued serious depletion of assets caused by Act 44. It is time to rescue the Pennsylvania Turnpike Commission by repealing Act 44."
Wagner said the commission's fiscal health has been deteriorating rapidly in the past few years. He pointed to the downgrading in 2008 of the commission's bond rating by one of three bond rating companies. In 1998, the commission had the highest rating of any turnpike agency at the time. But 10 years later, that picture had changed dramatically. The rating company cited Act 44 in its action.
But Turnpike Commission CEO Roger Nutt disputed Wagner's statements.
"The Pennsylvania Turnpike Commission is not facing any immediate financial crisis as the Auditor General states," Nutt said in a prepared statement. "The nation's major rating agencies have not changed their underlying ratings of Pennsylvania Turnpike bonds for more than three years. During that period, the turnpike has provided more than $3 billion to the commonwealth for statewide investment in transportation systems.
"Furthermore, the continued existence of the Turnpike Commission is not in jeopardy, as he alleges, because it has developed a sound, fiscally responsible approach to meet all of its financial obligations, including the $450 million annual payments to PennDOT under Act 44. Last June, the commission approved a funding plan for all of its financial obligations for the next three years," he said.
"Auditor General Wagner's assertion that the commission is in a financial crisis today is simply not true. To the contrary, the Turnpike Commission remains in a healthy financial position because it has taken the steps necessary to ensure its financial stability. The commission – at the same time it adopted its financial plan last summer – included an expanded capital plan to continue to enhance the highways and bridges under its jurisdiction," Nutt said.
The 50-year agreement between the commission and PennDOT under Act 44 requires the commission to make the scheduled annual payments to PennDOT. It also gave the commission the green light to toll I-80 in Pennsylvania as another source of additional revenue. But the tolling would have to be approved by the Federal Highway Administration, which rejected the plan in April 2010.
While tolling I-80 toll would have generated some $400 billion in revenue, the plan, favored by former Gov. Ed Rendell, has been controversial, drawing fire from the public at a series of public hearings held along the I-80 corridor. The issue was especially worrisome to those served by section of the corridor that runs through Monroe County, with its numerous ski resorts. One of the hearings, held in November of 2007 at Mountain Laurel Resort in White Haven, drew about 200 people, including employees who work at resorts along the corridor and worried that tolls would make their commutes too expensive, and firefighters and ambulance crews who were concerned that toll booths would delay emergency help.
The Federal Highway Administration's 2010 rejection left the commission "with the ability only to raise turnpike tolls and to increase borrowing as the only funding mechanisms for meeting its annual funding obligations to PennDOT," Wagner said.
He said the state's Comprehensive Annual Financial Report audit for the year ended June 30, 2011, which was jointly completed by his department and a private accounting firm, shows that the commission will be forced to borrow money to pay the Act 44 debt. That would "place a severe negative impact on the commission's financial position," he said.
Because the state relies on the annual Act 44 payments, Nutt said, some alternative funding would have to be put in place.
"To ensure that the commonwealth can continue to provide travelers with adequate transportation infrastructure, easing the Act 44 debt load of the Turnpike Commission is an issue that can only be resolved in a thoughtful, practical manner. The payments we make have become an integral part of the overall funding package needed to keep our state's roads, bridges and transit systems functioning sufficiently on a daily basis. We also understand that to replace Act 44 payments will necessitate a thorough analysis of available, and attainable, funding alternatives," he said.
State Rep. Doyle Heffley, R-Carbon, who serves on the House Transportation committee, said he's "concerned with the bond rating and debt levels of the commission. The majority of the issues were caused by Act 44. The Turnpike commission had agreed to make those payments and now the state depends on that. This is something that we'll have to address."
Nutt concedes that Act 44 put some strain on travelers, and acknowledged that some changes may eventually be in order.
"Since the first Act 44-necessitated toll increase on the Pennsylvania Turnpike in 2009, we have made it clear to our customers, to elected officials and to citizens of the commonwealth that annual rate hikes are needed to fund the Act 44 debt, as witnessed by wide coverage of that topic in the media over the past few weeks," he said. "We have been clear in public statements that the increases will be implemented annually to cover the debt-service cost of the payments to PennDOT.
"We agree with the auditor general that Act 44 funding may have a negative effect on turnpike traffic, toll rates, customer service and other traveler benefits sometime in the future," Nutt said. "We certainly understand that, in the long-term, the funding stream (toll increases) necessary to do so may not easily be sustained, and so subsequent amendments to the funding requirements may need to be considered. However, the commission remains committed to meeting all its financial obligations, including obligations to bondholders, by sound management of our debt load and by reinvesting in our toll-road system," he said.
"We look forward to any opportunity to work with the governor and state legislature to ensure the long-term financial stability of the Turnpike Commission while understanding that, at the same time, there must also be adequate funding to ensure the safe operation of the state's entire transportation network. As we have over the past 70 years of our existence, this agency stands ready to continue its role as a major funding and transportation partner to the commonwealth," Nutt said.