Turnpike subsidies may cease under PA transportation bill – but when?

HARRISBURG — As lawmakers negotiate how much they want to spend on road and bridge repairs throughout Pennsylvania, they've got a $450 million elephant in the room.

The Pennsylvania Turnpike Commission annually subsidizes the Pennsylvania Department of Transportation with $450 million worth of improvement to state roads as part of Act 44 of 2007. But the payment has beleaguered the indebted turnpike, in part triggering toll increases for the past five years, and contributing in part to a ratings downgrade.

So when Gov. Tom Corbett announced a major transportation funding initiative as part of his to-do list for this budget season, his administration called for a 10-year phase-out of those payments. Ten years, the administration surmised, would give lawmakers enough time to figure out how to make up for that annual $450 million from other monies.

But now some want to cut off the state from the turnpike's payments sooner rather than later. They just have to figure out how.

House Transportation Committee Chairman Dick Hess, R-Bedford, said he's a strong proponent of phasing out Act 44 payments within three to five years. That, he said, allows enough time to figure out how to make up the payments.

"I think either one of those may work as we work through this right now to see exactly how much money it takes to backfill," he said.

Hess discussed Act 44 during a Monday morning hearing on Senate Bill 1. The $2.5 billion transportation funding plan, sponsored by Senate Transportation Chairman John Rafferty, R-Montgomery, would cut off Act 44 payments from the turnpike in 2021. Before that time, the Joint State Government Committee would have to come up with a plan on how to replace that money.

If the committee had no plan, the $450 million would automatically come from sales tax on vehicle legislation — money that would otherwise go to the state's general fund.

Hess said he would prefer a phase down, rather than ending payments in "one fell swoop," which could leave the state shorthanded on planned projects.

Jim Smith, executive managing director in the municipal securities division of investment firm Sterne, Agee and Leach, testified that the turnpike's financial problems should be dealt with "sooner rather than later."

He pointed to the recent credit downgrade from Moody's Investor Services that foretold trouble for the turnpike's long-term fiscal health.

"When you look at some of the risks they point out, they are more long-term in nature," Smith said. "But if something's not done in the near future, the credit worthiness of the turnpike could impact the borrowing for the mainline system."

Smith said the legislature has options when it comes to replacing that $450 million, though it's hard to predict without knowing what will happen to future gas prices.

House Transportation Minority Chairman Michael McGeehan, D-Philadelphia, said his caucus supports using bonds to make up the difference because of low interest rates offered at this time.

"In a macro sense, bonding seems to me to make a lot of sense because you're not dealing with a thousand moving parts," he said.

But Hess said there's no agreed upon strategy on how to deal with Act 44 in the House Republican caucus.

But a resolution could be close; Hess said he hopes to have the bill ready for a committee vote by the end of the week.

"I can't give you the exact number (of years), whether it will be three or six or nine," he said. "We are working on progress right now."

Contact Melissa Daniels at melissa@paindependent.com