DRPA divided on delays in fee hikes

Delaware River Port Authority officials are looking for cuts in the agency's proposed budget for 2011 to delay increases in bridge tolls and PATCO train fares.

With a 10 percent hike in PATCO fares looming in January and a $1 increase in bridge tolls planned for July, the board may seek to reduce operating costs, delay some big-ticket construction projects, and shift economic-development money to capital projects.

"It's a very bad time to reach back out to our customers for more money," said Jeff Nash, the Camden County freeholder who is vice chairman of the DRPA board and chairman of its finance committee. "I think there's a strong possibility that we can hold tolls and fares through 2011.

"But it would be premature to set that in stone. We have to hear from our financial advisers."

The DRPA board will get its first crack at the proposed 2011 operating and capital budgets on Wednesday, when the finance committee is to vote on them.

The committee also will consider a proposal by board member and Philadelphia labor leader John "Johnny Doc" Dougherty to delay the proposed bridge-toll increase.

The full DRPA board is to vote on the budgets Dec. 8.

The proposed 2011 operating budget released Monday was $278 million, an increase of 3.21 percent over this year's $270 million. That included $128 million for the annual payment on the DRPA's considerable debt.

The proposed capital budget for 2011 is $165 million, part of an ambitious five-year construction plan of $1 billion that envisions extensive bridge repairs and rebuilt PATCO cars.

The proposed budgets assume increases in both the bridge tolls and PATCO fares this year.

Efforts to postpone the bridge-toll increase, and use unspent economic-development funds to fill the budget gap, have met with resistance from Board Chairman John Estey and several other board members. Some analysts have warned that delaying the increase could jeopardize the DRPA's financial ratings and trigger multimillion-dollar defaults.

"If you can show to Wall Street that you can cut your operating costs and your revenues are still strong and you defer some capital costs, Wall Street, I believe, would look at a toll-increase delay more favorably," Nash said.

Nash said he would recommend an operating budget - including debt service - that holds the line at 2010 levels.

To meet that goal, the debt-service payment would be cut by $5 million and an $8 million payment for retirees' benefits would not be made. That would bring the proposed operating budget down to $265 million, about 0.5 percent below the current budget.

About 42 percent of the agency's total revenue - and about 47 percent of its toll revenue - is scheduled to go for debt service in 2011.

The actual costs of running the bridges and PATCO is slated to decrease by about 2 percent, to $127 million from the current $130 million, in the proposed budget.

Some board members, including Dougherty and Pennsylvania Auditor General Jack Wagner, have called for a delay in the $1 bridge-toll increase, with the anticipated revenue to be replaced by unspent "economic-development" funds.

The DRPA has more than $50 million in unspent economic-development funds, and about $28 million of that is not contractually obligated for projects. That $28 million would provide as much revenue as six months' worth of a $1 toll increase.

The DRPA has already delayed the bridge-toll increase once. Originally, the increase, from the current $4 to $5 for cars, was to take place last September. It was put off for 10 months when the DRPA board reallocated $8 million in economic-development funds last December.

But Estey and chief financial officer John Hanson have warned that financial-rating agencies could punish the DRPA for further postponing the toll increase.

"The rating agencies would be happy to see us move economic-development money to other uses," Hanson told the DRPA board earlier this month. "They would not be happy to see us delay a toll increase."

"If you move the toll increase again, the question is, 'How will they view us?' " Hanson said, noting that Moody's Investors Service had lowered the credit outlook for the DRPA to "negative" from "stable" in March.

Moody's wrote in its March analysis: "The postponement in additional toll increases will be an important factor in the rating moving forward, given the size of the anticipated capital program and the revenues needed to support such a large program."

Analysts at Standard & Poor's, another major financial-rating service, have been less concerned about the prospect of a postponed toll increase, as long as revenues keep pace with debts.

"We're looking more at the bottom-line results," said Kurt Forsgren, managing director of Standard & Poor's transportation group. He said he was speaking about authorities in general and not about DRPA specifically.

Moody's and Standard & Poor's rate the DRPA's debt at their fourth-lowest investment grades, A3 and A-, respectively.

Hanson said analysts may look askance at efforts to delay toll increases while going forward with expensive plans to repair bridges and rebuild rail cars. Those construction plans are included in the DRPA's five-year, $1 billion capital budget.

"The question will be whether the board is meeting its fiduciary responsibility," Hanson said. "We announced a $1 billion capital program. We do not appear to be backing off the capital program, but are we backing off the financing plan?"

A toll increase, Hanson said, would lock in increased revenues for the future, but shifting unspent economic-development funds to postpone a toll increase would not provide any additional future revenue.

He said that without the toll increase, the "risk is very great" that financial agencies could downgrade DRPA's bond rating, pushing the DRPA into default on some financial instruments and prompting a demand for repayment of about $240 million.

Pennsylvania's Wagner said the DRPA continues to pay the price for its past borrowing for economic-development projects.

In the last 12 years, the DRPA has spent about $500 million on economic-development projects, such as sports stadiums, museums, and concert halls, contributing significantly to its total debt of $1.4 billion.

"There has been excessive use of bond money for projects unrelated to the core mission of the DRPA," Wagner said. "Without that $500 million, there would be a substantial reduction in tolls."

Wednesday's board meeting will be at 9 a.m. at DRPA headquarters, One Port Center, Camden, adjacent to the Adventure Aquarium.