Pew Report Finds Major Flaws in Pennsylvania's Effort to Lease Turnpike

Openness, Long-Term Planning Recommended for Future Public-Private
Infrastructure Partnerships

PHILADELPHIA, March 24 /PRNewswire-USNewswire/ -- The unsuccessful effort last
year to lease the Pennsylvania Turnpike to private investors provides valuable
lessons for other cash-strapped states seeking to fund their highways and
bridges, according to a new report by the Pew Center on the States. With an
annual funding gap of $47 billion between the roadway projects the nation
needs and those it can afford, states with large deficits and an urgent need
to fix aging infrastructure are looking closely at public-private partnerships
- a financing approach used in other countries for years but only recently
adopted in the United States.

In Pennsylvania, lawmakers debated a proposal to lease the cross-state
turnpike to Citi Infrastructure Investors and the Spanish firm Abertis
Infraestructuras for an upfront payment of $12.8 billion. The high-profile
deal was shelved last fall after a number of legislators refused to support
the plan over concerns about the state's financial assumptions and oversight,
among other reasons. Pew conducted an in-depth analysis of the state's effort
to help policy makers around the country learn from the Pennsylvania
experience. The report identifies the information states need and the issues
they should consider when evaluating proposed agreements with private
companies to fund infrastructure improvements.

"If states want to compete economically, they need sound infrastructure that
helps businesses thrive and improves residents' quality of life," said Susan
Urahn, managing director of the Pew Center on the States. "The failure of the
Pennsylvania Turnpike lease proposal offers important lessons because private
capital is likely to play a growing role in helping states pay for their
infrastructure needs."

Evaluating the Pennsylvania Turnpike Proposal
Public-private partnerships are complex, with no one element automatically
rendering a deal "good" or "bad." The Pew analysis found both positive and
negative aspects of the Pennsylvania experience.

Pennsylvania acted responsibly in some key ways:
-- The state thoroughly identified its infrastructure needs and conducted
due diligence before negotiating with bidders.
-- The bidding process was well run and produced the highest possible
bid,
given the lease terms set by the state and prevailing market
conditions
at the time.
-- Detailed performance standards were set for the life of the lease.

But in other ways, Pennsylvania could have done better:
-- Discussions between the executive and legislative branches could have
been better handled.
-- The financial assumptions related to the deal were overly optimistic.
-- The state lacked a clearly articulated plan for how the proceeds would
have been invested and spent.
-- The proposed oversight mechanism for deciding where to invest the
upfront payments and how to spend the proceeds raised questions about
transparency, accountability and adequate planning.
-- The debate focused disproportionately on the state's short-term
financial interests, and lacked adequate consideration of the
long-term
effects of a lease on taxpayers, the economy and the environment.

Lessons Learned for Future Public-Private Partnerships
Although the federal stimulus package provides $27.5 billion for highway and
bridge projects and other legislative proposals promise additional assistance,
states still face a considerable funding gap. State and local governments
continue to provide more than half of highway and transit funding in America.
The share of state government highway funding paid by user fees has declined
by nearly 20 percent since 1965, putting more pressure on states' general
revenues to close that gap. With as much as $180 billion in private dollars
targeted for infrastructure investment, an increasing number of states are
likely to consider public-private partnerships in the coming months.

States investigating the feasibility of public-private infrastructure deals
should apply the following lessons drawn from the Pennsylvania experience,
according to the Pew analysis.

1. Passage of enabling legislation that establishes the state's general
interests and terms for a public-private partnership before
negotiations
begin can help set the ground rules as a state considers a specific
proposal.
2. Transparency and inclusion are crucial to achieving buy-in from policy
makers, the public and other stakeholders.
3. A state's decision makers must have a clear understanding of the
principal goals of a deal, because different goals will require
different
tradeoffs.
4. A proposed deal must be based on realistic financial assumptions.
5. Proposals should specifically describe how the revenues a lease will
generate will be invested and spent, and how the private operator's
performance will be monitored.
6. States should consider a long-term lease's effects on the economy,
the environment and the next generation of taxpayers.

"Long-term infrastructure deals are often debated with a short-term
perspective," said Michele Mariani Vaughn, a Pew Center on the States
researcher who led the effort. "These proposals typically involve billions of
dollars and stretch over decades. It's critical that state policy makers and
the public have all of the information and answers they need to make a
thoughtful and sound decision."

For the report, Pew Center on the States analysts, working with national and
state-level experts, interviewed Pennsylvania officials and advisors,
legislators, representatives of the bidders and the Turnpike Commission, and
transportation and finance experts. Pew reviewed the lease proposal and
relevant documents, and researched similar deals in other states and
countries.

About the Pew Center on the States
The Pew Center on the States (PCS) is a division of The Pew Charitable Trusts
that identifies and advances effective policy approaches to critical issues
facing states. By researching emerging topics, PCS highlights innovative
policy approaches to complex problems for states. When the facts are clear,
PCS advocates for nonpartisan, pragmatic solutions. Visit
www.pewcenteronthestates.org for more information.

SOURCE Pew Center on the States

Andrew McDonald, +1-202-552-2178, amcdonald@pewtrusts.org, or Janet C. Lane,
+1-202-552-2037, jclane@pewtrusts.org, both of Pew Center on the States