PA Turnpike Commission Completes Reassessment of Construction Spending

Strategy calls for no immediate cuts; identifies six target projects to postpone as required.

HARRISBURG, PA. (Nov. 16, 2016) — The PA Turnpike Commission determined that an immediate reduction in capital spending is unnecessary for the time being; but commissioners yesterday approved a list of a half-dozen major projects — two new Turnpike extensions in the west and four new connections in the east — that it could suspend if future financial or economic conditions dictate.

“Our analysis shows that there’s simply no benefit to making deeper cuts to our capital spending right now,” said PA Turnpike Chairman Sean Logan of Monroeville. “Such a measure would have little or no impact on upcoming toll increases or on the debt needed to meet our funding obligations; furthermore, doing so would result in charging travelers more while they, in essence, get less value for their toll dollar and possibly even reduced safety. That just doesn’t add up.”

Earlier this year, Turnpike commissioners approved a reduced, 10-year capital plan that was more affordable in light of the yearly toll hikes and escalating debt required to satisfy the commission’s annual payments to PennDOT as mandated by Act 44 of 2007 and Act 89 of 2013. In fact, the new spending plan of $5.77 billion represents a cut of 14 percent or $1 billion in the next decade compared to the previous plan.

“Further reductions to investment in our system could lead to lower bond ratings and put us on unstable financial ground by increasing borrowing costs,” Logan said. “Even more importantly, underfunding our core asset could endanger the condition of our pavement and bridges and consequently the safety of travelers.”

The six projects targeted for possible suspension are considered to be “performance-driven projects” — meaning they go above and beyond what is required to safely maintain the existing, 552-mile PA Turnpike system. All six involve adding new extensions or new interchanges to the current PA Turnpike.

“We will continue to carefully monitor traffic and revenue to ensure sustained growth,” Logan said. “If and when a downturn should demand action, commissioners can select from the deferral list to quickly lower capital costs and better enable us to meet our other funding priorities — upkeep of our aging toll-road network and our $450 million annual payments to PennDOT.”

On July 19, Logan directed staff to complete the reevaluation of highway and bridge projects, including those under way, to confirm the commission is investing in projects that meet its strategic objectives. He said the commission is compelled to reassess spending because more than half of its toll revenues go to pay debt service. Toll revenues are projected to exceed $1 billion in Fiscal Year 2017, while debt service is $573 million and growing as the commission must continue borrowing.

“Without guarantees from the legislature that relief from annual payments to PennDOT is on its way, this reassessment is the most judicious step for the commission’s economic viability,” Logan said. “We simply cannot continue to burden motorists each year because of the obligation the general assembly has imposed upon the Turnpike Commission and our customers.”

A significant portion of 10-year capital plan goes to pay for total reconstruction and six-lane widening projects across the PA Turnpike, essential to ensure customer safety and to meet growing capacity needs on the toll-road system, parts of which turned 76 years old on Oct. 1.

A totally separate funding source is used to finance construction of new toll roads in southwestern PA. Since these projects were assigned to the PA Turnpike by the state legislature, lawmakers designated a specific revenue stream consisting of fuel taxes and vehicle fees to fund them. As these expansion roadways are the only projects for which the PA Turnpike spends revenues other than tolls, they are referred to “independently funded” projects.

Since the state legislature passed Act 44 in 2007, the PA Turnpike has delivered $5.2 billion in toll-backed funding to PennDOT. Approximately $2.25 billion of that has been dedicated to non-tolled state roadways and interstates while $2.95 billion supported mass-transit capital and operating budgets. Starting in 2015, the Turnpike’s $450 million per-year payments have almost exclusively funded transit operations.

“We are not questioning PennDOT’s need for supplemental funding, and we certainly understand that our customers’ toll dollars are crucial to support mass-transit agencies in communities statewide,” Logan said. “However, the safety of those who travel our system must remain our top priority by design. And this funding obligation is beginning to hamper our ability to maintain and improve an asset that has been in our care since 1940.”

The chairman pointed out that tolls have funded more off-Turnpike projects than on-Turnpike improvements since 2007.

“In the last nine years, Turnpike users have helped provide more than $5 billion for off-Turnpike transportation needs while we have invested $4.4 billion in our own system,” Logan said. “That is to say, paying customers — whose tolls had entirely been reinvested in the Turnpike for 67 years prior — have supported more in off-Turnpike needs than on-pike needs since the enactment of Act 44.”

An executive summary of the PA Turnpike Long Range Plan is available here: https://www.paturnpike.com/pdfs/about/PTC_LRP_ES_11_9_16_FINAL.pdf

Potential Deferment Projects

*All PA Turnpike projects are included in one of two funding programs, the 10-year Capital Plan and the Independently Funded Program. The Capital Plan is funded by toll revenues and bonding on projected future toll revenues. The Independently Funded Program is funded by a share of the Oil Company Franchise Tax (OCFT), part of the Motor License Fund (MLF) and bonding on projected future OCFT and MLF revenues.

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