Tag Archives: Pennsylvania Turnpike Commission

The beat goes on at the Turnpike Commission

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Summary: In early January, the Pennsylvania Turnpike Commission (PTC) raised tolls on the entire roadway system for the 15th consecutive year.  The annual increases will continue for the foreseeable future as the commission grapples with the enormous debt accumulated as a result of Act 44 of 2007.

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Background

Act 44 of 2007 called for tolling Interstate 80 and using the proceeds to fund repairs to highways and bridges and to provide funding for mass transit around the state, particularly the hugely expensive systems in Pittsburgh and Philadelphia (Policy Brief, Vol. 7, No. 59).  The plan was for the Pennsylvania Department of Transportation (PennDOT) to transfer ownership of I-80 to the PTC, which would collect tolls on the road and then hand the money over to PennDOT.

Even before the federal government could accept or reject the plan, the PTC technically had ownership of I-80 in Pennsylvania.  And under requirements of Act 44, the PTC was required to begin payments to PennDOT. The first three required annual payments, beginning in 2008, were $750 million, $850 million and $900 million.

But after the federal government denied the request to toll I-80, the Turnpike Commission was still obligated to make the payments. Under Act 44, after three payments, the amount dropped to $450 million per year through 2057.

Act 89 of 2013 changed the payment requirement from $450 million annually to $50 million beginning in 2022 (last July) and will remain at that level until 2057.  Furthermore, the money can no longer be borrowed; but must come from toll revenues.

And, according to a 2022 Performance Audit by the state Auditor General, the recipients of PTC funds were modified by Act 89 to support “transit capital, operating, multi-modal and other non-highway programs,” implying that the road and bridge repair component was removed from the equation.

Debt

The Turnpike Commission was forced to borrow against their toll revenues to make those PennDOT payments.  When Act 44 was passed in 2007, the PTC had $2.5 billion in total bonds outstanding with $1.66 billion in mainline bonds (tolls).  The PTC’s net position (assets over liabilities) in 2007 was a positive $1.76 billion.

The debt climbed quickly.

Note that for the PTC the fiscal year begins June 1 and concludes the following May 31. For fiscal year end (FYE) 2013, the mainline debt level had risen to $7.65 billion with total debt, adding oil franchise and motor license debts, at $8.88 billion, an increase of 360 percent and 255 percent, respectively, from 2007.

In the Turnpike Commission’s latest Annual Comprehensive Financial Report (ACFR) ending May 31, 2022, the mainline debt stood at $15.1 billion and overall debt was $17.2 billion.  The financial net position has fallen to negative $7.74 billion, a decrease of $9.5 billion in 15 years.  The 2022 performance audit noted the PTC has paid PennDOT a total of $7.95 billion as required by Act 44 and subsequently Act 89.  Once the final required payments are made in 2057 the PTC will have paid PennDOT $9.65 billion—unless of course the law changes again before 2057.

Based on the number of vehicles using the turnpike system, the mainline debt currently amounts to $75.41 per vehicle.  Debt service payments alone for FYE 2022 were $786.9 million which, on a per vehicle basis, comes to $3.93.

Again, according to the performance audit, the PTC plans to increase tolls each year through 2057 in order to meet Act 44/89 obligations.  All of the increases since 2009 have exceeded the rate of inflation with the exception of the most recent (January 2023).  That had more to do with the high inflation rate than any break on toll increases.

Traffic counts

The performance audit did express concerns that traffic levels will start to decline as tolls continue to increase.  The audit noted that traffic levels had been basically stagnant prior to FYE 2019.  In FYE 2012 there were a total of 192.83 million vehicles of all classes using the entire system.  By FYE 2019 that number was just 213.29 million—an increase of just 10.6 percent over seven years.  Then the pandemic dropped that count to a low point of 169.6 million in FYE 2021 before bobbing back up to 200.10 million in FYE 2022.

The PTC divides vehicle by classes:  class 1 passenger vehicles and class 2-9 commercial vehicles, for which tolls are higher.  In FYE 2012 there were 167.97 million passenger vehicles using the system (87.1 percent) paying $455.13 million and accounting for 57.1 percent of $797.78 million in total gross fare revenues.  In FYE 2022 the number of passenger vehicles was just 165.13 million, a decrease of 1.7 percent over the decade. It also represented 82.5 percent of all vehicles using the system.  They paid $819.78 million of $1.57 billion in gross toll revenues (52.2 percent of total). Thus, fewer passenger cars paid 80 percent more in tolls than a decade ago.

For commercial classes there were 24.86 million vehicles using the system in FYE 2012, paying $342.65 million.  They represented just 12.9 percent of all vehicles and paid 42.9 percent of the tolls.  A decade later the number of commercial vehicles using the system has increased to 34.96 million (up 40 percent)—the highest amount since 2012.  They also paid 118.7 percent more in tolls than in 2012 ($749.24 million) as their share of toll revenues increased to 47.8 percent.

Based on exit data from PTC reports, thus far through FYE 2023 (June – November) the projected level for the current fiscal year for all class of vehicles is 203.98 million—an increase of just 2 percent over the previous year, but still the lowest total since FYE 2015 (197.5 million) and 4.4 percent lower than the peak of FYE 2019.

Class 1 vehicles will still inch closer to the pre-pandemic count of 181.94 million in FYE 2019 and should reach 168.02 million in FYE 2023, up 1.5 percent over the previous year, while commercial traffic should hit a new high of 35.97 million—4 percent higher than last year.

It may be a few more years before passenger traffic levels top the pre-pandemic 2019 level, especially considering the continued toll increases.  Commercial traffic has the benefit of passing along at least a portion of, if not the full higher costs of transportation onto their customers.  And as noted in the performance audit, every annual toll increase is a burden for Pennsylvania consumers (and consumers in other states) because of the additional costs being passed through onto the price of goods.

Conclusion and recommendations

Based on the comments in the performance audit, it is believed that the Turnpike Commission will be able to make its debt payments over the next 20 years.  But that relies on the assumption of continued growth in traffic volume and consistent toll increases.  However, as the audit noted, the PTC for the last few years had been delaying some capital projects to improve the system and instead has focused more on protection projects that concern safety.  The audit states that, going forward, it will continue to be a challenge for the PTC to engage in capital projects and simultaneously pay off the debt incurred from Acts 44 and 89.

The PTC is working to collect unpaid tolls, as of FYE 2022 totaling $104.96 million, with other states and agencies.  The new toll hikes accompanied a new law that will suspend Pennsylvania registrations for anyone with unpaid tolls of over $250 or with four or more overdue toll-by-plate invoices.  But $104 million is just a small drop in the PTC’s debt bucket.

The state Legislature created this mess and should take steps to remedy the situation.  First, get control of mass-transit costs.  Enact a law that eliminates the right of those workers to strike and incentivize the agencies to adjust operations to fit the new post-pandemic realities of lower ridership (Policy Brief, Vol. 23, No. 1). While this won’t recover money already spent, it will lower costs and suppress the need for ever more state money for expensive transit agencies.  Perhaps then the state could allocate some of the money that would have gone to those agencies to be redirected to the PTC to help with debt.

Additionally, a registration fee should be added for electric and hybrid vehicles that are skirting the state’s gas tax which pays for road and bridge repairs.  The new fee could be split between PennDOT and the Turnpike Commission.  PennDOT can use the money for road and bridge repairs and the remainder can help retire PTC debt.

These may be relatively small steps initially but would grow in importance over time. They are needed to help the Pennsylvania Turnpike Commission get back to its mission of providing transportation on its system rather than bankrolling other agencies.

Turnpike toll hikes roll on

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Summary: The Pennsylvania Turnpike Commission (PTC) raised tolls on system users again.  The financial requirements of Act 44 of 2007 compels the PTC to send money to PennDOT to help fund mass transit and road and bridge projects across the commonwealth.  The result has been a ballooning debt load for the PTC and a shift in traffic composition.  _____________________________________________________________________________________________________________________________

Once again, the Pennsylvania Turnpike Commission (PTC) has raised tolls on system users.  It was a small consolation that the increase was just 5 percent instead of 6 percent, which was the annual increase from 2016 to 2021.  Indeed, there have been annual toll increases since 2009 and, unfortunately, they will likely continue into the foreseeable future as the PTC grapples with an enormous amount of debt built up over the past 14 years.  For regular commercial users of the turnpike, toll increases have added more and more to their already climbing transportation costs that must be covered at least in part by higher freight charges to shippers and, eventually, their customers.

Since the toll increase in 2009, the average toll per mile has risen for cash users, class 1 passenger vehicles only, from 7.9 cents to 26.5 cents in 2021—an increase of 235 percent.  For those using the PTC’s EZ Pass system the jump was less dramatic, rising from 7.9 cents to 13.1 cents (66 percent). 

The build-up of this massive debt load is largely the result of a legislative directive under Act 44 of 2007 which attempted to find money to shore up transportation funding issues with public transportation and road and bridge work.  In several previous Policy Briefs, most recently in Vol. 21, No. 2, it was noted that when Act 44 was passed the PTC had $2.5 billion in total bonds outstanding with $1.66 billion in mainline bonds (67 percent of total). According to the latest Comprehensive Annual Financial Report (CAFR, for years ending May 31, 2021 and 2020) the amount of mainline debt outstanding at the PTC was $14.31 billion as of May 31, 2021. This represents an increase of over 760 percent since the passage of Act 44 of 2007.  Total outstanding debt for the PTC stood at $15.80 billion with mainline debt comprising 90.5 percent.

Act 44 called for tolling Interstate 80 with the revenue to be used for public transportation and road and bridge work around the commonwealth.  The PTC was charged with the tolling and was required to pay $900 million to PennDOT per year under the original plan.  Once the federal government denied the plan to toll Interstate 80, those payments were reduced to $450 million per year with no provision other than PTC tolls to generate the funds.  Act 89 of 2013 lowers that obligation to $50 million beginning with fiscal 2022-23 (this July) and continues until 2057.  Act 89 also stipulates that this money is to be paid from current revenues and not more borrowing.

Over the last decade, fiscal 2012 to fiscal 2021, mainline debt increased 110 percent after rising 311 percent between 2007 and 2012 ($1.66 billion to $6.82 billion).  Note that two other revenue sources are used by the PTC to issue debt.  Of those, the debt retired by the oil franchise tax rose just 41 percent while the debt paid from motor license revenue fell by 20 percent.  Thus, the debt problem faced by the PTC is driven almost entirely by Act 44 of 2007. 

In the last ten fiscal years the mainline debt per vehicle has jumped from $35.35 in 2012 to $84.38 in 2021—a rise of 139 percent.  Of course, some of that was attributed to the drop in traffic due to the pandemic.

The fiscal year for the PTC runs from June 1 of one year to May 31 of the next year.  Fiscal 2021 ran from June 1, 2020, to May 31,2021, and missed the hardest hit pandemic lockdown months of March through May 2020.  It did cover the remainder of 2020 in which traffic was still constrained by the pandemic. 

In fiscal 2018 (June 2017-May 2018), there were 173.84 million vehicles (class 1 passenger and classes 2-9 commercial) using the system.  The count dropped 7.16 percent in fiscal 2019 (161.40 million) and another 12.21 percent in fiscal 2020 before bouncing up 3.29 percent in fiscal 2021 (146.35 million). 

The positive news for the PTC is that from June through September 2021 (fiscal 2022) traffic levels have exceeded the same months in fiscal 2018 (70.59 million vs. 70.50 million).  Of course, that is the most recent data available and before the latest variant of the virus peaked.  But a positive development none-the-less. 

While the totals above are for all classes of vehicles the mix of these vehicles has changed over the last few years, perhaps a result of the increasing tolls.  Commercial operators can pass along the cost of travel to their customers. 

In fiscal 2012 passenger vehicles comprised 87.11 percent of the vehicles using the turnpike with commercial vehicles the remaining 12.89 percent.  A decade later that percentage has shifted with passenger vehicles making up 81.20 percent and commercial the remaining 18.80 percent.  While a six percent swing may not seem like much, it points to a shift in usage.  Does this imply more passenger vehicles are taking to non-tolled roads?  If so that puts more wear and tear on local roads. And the growth in heavy truck usage of the turnpike causes significantly more wear on roadways. 

The vehicle usage change is also seen in the composition of revenues.  Ten years ago, passenger vehicles accounted for 57.05 percent of the turnpike’s toll revenues.  In fiscal 2021 it has fallen to 48.49 percent.  Passenger vehicles are more responsive to the increase in tolls and are perhaps choosing alternative routes. 

As a response to the pandemic the PTC went to an all-electronic fare collection system.  The result was a reduction of 510 employees (85 percent) in the fare-collection function leaving just 91.  The criticism of this change is the amount of toll revenues being lost as some drivers, mostly out-of-state, skip out on paying.  A news report from fall 2021 notes that 11 million out of 170 million turnpike rides skip out on the fares—about 6.5 percent—costing an estimated $104 million since the switch to all electronic tolling and bill-by-plate.  In fiscal 2021 net fares amounted to $1.19 billion, thus a loss of $104 million is about 9 percent of collected fares. 

While this is a problem that needs to be addressed, surely there was a substantial offset with the reduction in compensation from the cutback in toll collectors, not just wages, but also benefits and legacy costs.

The PTC was put into an awkward financial position with the passage of Act 44 of 2007.  Federal law was clear that tolling an interstate and spending the money elsewhere was not allowed (Policy Brief Vol. 7, No. 59) and yet that was the path the Legislature and governor at the time took. 

No serious consideration was given to reducing costs or improving efficiencies in the way transportation is provided.  Many Policy Briefs have documented the expensive Port Authority of Allegheny County which receives a large allocation of state funding, yet nothing has been done in that area to reducing the system’s outlandish compensation packages. We have recommended eliminating prevailing wages to reduce costs of rebuilding state-owned roads and bridges.  There has been no response and seemingly no interest even in discussing it. 

And now, nearly 15 years after the failed attempt to fix transportation funding through Act 44, the commonwealth is back again with the same problem.  The latest proposed solutions are to tax vehicles on a per-mile-driven basis and tolling interstate bridges to fund their replacement.  Yet, there’s still no discussion of costs and efficiencies.  What happened to the money from the big jump in fuel taxes from Act 89?  Here we go again. Apparently, there will never be enough.

Another new year, another turnpike toll hike

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Summary: The Turnpike Commission raised tolls again in 2021.  It did so to meet the funding mandate placed on it to pay for mass transit and road and bridge projects across the commonwealth.  The commission issues debt against toll revenues to pay PennDOT $450 million per year.  The commission’s debt level has reached nearly $15 billion and is likely to keep rising. 

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It’s that time of year again.  No, not for making resolutions but for the Pennsylvania Turnpike Commission (PTC) to increase tolls.  It has increased tolls annually since 2009 to satisfy a funding requirement under Act 44 of 2007, which was created to provide money for public transit, roads and bridges.  The commission’s annual commitment is for $450 million with $250 million going toward public transit and the remainder for road and bridge repair.

Act 44’s original intent was for the PTC to lease Interstate 80 from PennDOT pending federal approval (Policy Brief, Vol. 7, No. 59) at a price of $900 million per year (the payments increased over time from $750M in 2008 to $900M in 2010).  Once the federal government denied the request to toll I-80, the payments from the PTC to PennDOT remained, although lowered to $450 million through 2057, leaving the PTC no alternative than to use existing toll revenue from the turnpike. 

Even though the payments were reduced to $450 million, the PTC’s plan was to float bonds against toll revenues and pay the debt service with toll increases which were to continue annually until 2050.  Act 89 of 2013 amends the earlier requirement so that the $450 million payment will end in fiscal 2022; it also specifies that $30 million of the $450 million is to come from current PTC revenues with the remainder to be funded through bond issues (PTC Comprehensive Annual Financial Report (CAFR) for fiscal years ended May 30, 2020 and 2019).  Beginning with fiscal 2023 that payment falls to $50 million, which is to be paid from current revenues. 

But as previous Briefs have documented this borrowing has resulted in deterioration of the PTC’s financial position as the debt has climbed rapidly. 

When Act 44 of 2007 was passed, the PTC had $2.5 billion in total bonds outstanding with $1.66 billion in mainline bonds (67 percent of total)—the bonds financing the Act 44 payments.  The remainder are bonds issued against revenues from the oil franchise tax and motor license fund.  By fiscal 2011 that amount tripled to $7.7 billion with $6.5 billion in mainline bonds (84 percent).  The latest CAFR shows that for fiscal 2020, which ended May 31, 2020, total outstanding debt is now approaching $15 billion ($14.96 billion) with 90 percent ($13.43 billion) comprised of mainline debt. 

Mainline debt is issued against toll revenues and the ability to pay depends upon traffic.  In fiscal 2007 the PTC noted that 185.4 million vehicles used the turnpike.  With $1.66 billion in mainline debt, the per vehicle debt for mainline bonds stood at $8.93.  By fiscal 2011 the per vehicle debt rose nearly 400 percent to $34.29 and then to $57.57 in fiscal 2019 when 214.6 million vehicles used the turnpike and the mainline debt was $12.35 billion. 

The final quarter of fiscal 2020 (March, April and May) was heavily impacted by the pandemic (see Policy Brief Vol. 20, No. 17).  For fiscal 2020, the PTC shows that 190.5 million vehicles used the turnpike, an 11 percent decline from fiscal 2019, for a mainline debt per vehicle of $70.51.  Bear in mind that most of fiscal 2020 was over before the pandemic started.

As mentioned above, the Turnpike Commission relies on toll revenues to retire the debt.  For the first six months of fiscal 2021 (June through November 2020) traffic totals are well off the pace from previous years.  Using the data from the PTC’s monthly traffic reports, exit data for these months show that 64.3 million vehicles (all classes) used the system—23.4 percent fewer than during those same months in 2019 (June through November of fiscal 2020). 

Traffic is broken out between passenger (class 1) and commercial (classes 2-9).  According to the CAFR, passenger vehicles in fiscal 2020 paid 53 percent of the toll revenues while commercial vehicles paid the remaining 47 percent.  This ratio has changed over the last few years when from 2011-2017 passenger vehicles paid approximately 57 percent with commercial vehicles paying the remaining 43 percent of toll revenue.

This is likely to change even further as the drop in passenger traffic during those first six months of fiscal 2021 is greater than that of commercial vehicles (27.3 percent vs. 1.5 percent) as more people choose not to travel for either business or pleasure.  However, during the pandemic deliveries of goods to stores and factories were largely maintained while passenger traffic slowed significantly due to state ordered restrictions and fewer commuters. 

And with pandemic conditions still prevalent, traffic levels are not likely to rebound in the second half of fiscal 2021 which will leave the PTC with even fewer toll dollars to meet expenditures.  In fact, outside consultants have estimated that it will be a couple of years, perhaps by 2025, before traffic volumes return to pre-pandemic levels.

This is going to put more strain on the commission’s ability to pay down this debt.

The current total net position (assets minus liabilities) of the PTC is a negative $6.69 billion.  Total net position was first reported for the PTC in fiscal 2012 when it was a negative $2.05 billion.  The metric prior to that was called total net assets.  The last positive amount occurred in 2009 ($156.48 million).  The PTC has been running a negative net position for the last 11 years.  At some point this will affect the commission’s ability to borrow—either through a higher interest rate or even at all. 

The PTC has taken some cost-cutting measures.  According to the CAFR, it “instituted a hiring freeze for both management and union positions.”  But more importantly the PTC “approved a measure … to lay off approximately 500 employees, primarily fare collection-related employees.”  This continues a trend.  In fiscal 2011 there were 852 employees in toll collection.  By fiscal 2020 that number declined to 601—a nearly 30 percent drop.  An additional 500 employees will leave just around 100 employees in that function. 

The CAFR also claims the PTC will be cutting “capital spending by 25.0% to include Turnpike System protection projects only.”   It also states that “(t)he Commission has no legal obligation to complete the unfinished portions of the Mon/Fayette Expressway and Southern Beltway projects at this time.”  We questioned the rationale and justification of extending the Mon/Fayette Expressway (Policy Brief Vol. 17, No. 27) and this project should be dropped.

The PTC has been placed in an awkward position in having to borrow against toll revenue to meet an obligation to fund mass transit and PennDOT’s road and bridge projects.  The inescapable results are annual toll increases on the turnpike system.  This strategy has plunged the PTC deeply into debt.  The pandemic has already added to the funding difficulties and is expected to hamper toll revenues for quite a few years more.  The PTC has taken some steps in reducing personnel costs that should help going forward.  While it will see some relief as required payments will fall next year, travelers of the turnpike will not be so fortunate as tolls will continue to rise for the foreseeable future.

Estimating lost turnpike revenues from virus lockdown

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Summary: As the coronavirus-mandated lockdown enters its third month, it is quite clear that revenue losses for state and local governments have been enormous and will continue to fall well short of what was expected for some time to come. Previous Briefs, (Vol. 20, Nos. 14 and 16), looked at the estimated revenue losses in the City of Pittsburgh and Allegheny County. This Brief examines the potential loss of revenue at the Pennsylvania Turnpike resulting from the sharp drop in traffic due to the economic and travel restraints imposed by the state.

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Keep in mind that toll revenue from the turnpike is used not only for the state Turnpike Commission’s expenses but is also being used to fund mass transit across the state.  The commission has been borrowing huge amounts of money against toll revenues to meet the legislatively mandated payments to the PA Department of Transportation (PennDOT).

For the past several years the annual payment owed is $450 million (of which $400 million goes to mass transit and the remainder to the multimodal transportation fund) per year until 2022 when the payments dip to $50 million until 2057 (see Policy Brief Vol. 12, No. 5 for details). 

In early May, the Turnpike Commission requested a postponement of its scheduled July payment of $112.5 million to PennDOT in wake of a “sharp decline in traffic due to virus restrictions.”  How much of a sharp decline is unknown since traffic data on the turnpike’s website are available only through February 2020 (as of this writing).  However, by using monthly commission data from the last three years (2017-2019), the traffic volume and toll revenue over the March-to-June period that would have occurred absent the lockdown orders have been estimated for cars (Class 1) and for commercial traffic (Classes 2-9).  The analysis continues with estimates of the traffic and revenue that are likely during the shutdown and reopening months of March through June. The projected revenue shortfall is the difference between these two estimates.    

All traffic data are taken from the commission’s website and include the count of vehicles exiting the mainline system (toll 76, 276 and 476).  The 2018-20 data did not include figures from the toll spurs—576, 43, 66 or 60—so those exits were eliminated from the 2017 data set for consistency.  It is worth noting that about 50 percent of the turnpike’s Class 1 traffic count and 33 percent of the Class 2-9 traffic takes place in District 4, the southeast counties of the state which have been hardest hit by the virus.

Class 1 passenger vehicles

In early May turnpike officials noted a “sharp decline” in traffic—presumably for March and April.  But how sharp?  The state’s shutdown rules eased up in early May for the northern and central counties.  But the mainline turnpike doesn’t go through those areas.  Southwestern counties, where the mainline road does travel, had restrictions loosened in mid-May.  But the bulk of traffic runs through the Philadelphia area, which remains on lockdown perhaps through the end of May. 

From 2017 to 2019, January’s traffic count was relatively stable ranging from 10.11 million cars per month in 2018 to 10.05 million in 2019.  In 2020, January’s traffic count came in at 10.22 million, 1.7 percent above 2019’s level.  February’s count rose from 9.35 million in 2017 to 9.58 million in 2018.  February 2020’s traffic of 9.94 million was up 4.5 percent over 2019’s count (9.51 million).  The average increase over the first two months is 3.1 percent.  Some of 2020’s increase could be attributed to a mild winter.  But some could be attributed to a strong national economy before the coronavirus arrived.  

To estimate the traffic for March through June of this year if there had been no lockdown, a 2 percent year-over-year growth rate is assumed.  The reason for a lower rate than January and February is that from 2017 to 2019 the traffic counts for each forecast month had been relatively unchanged from the year-earlier figure, especially in April and May with a slight decrease in June.  The following table shows the actual monthly counts and the estimated counts (in italics).

Class 1 traffic counts (millions)

  March April May June
2017 10.73 11.42 12.06 12.24
2018 10.78 11.43 12.14 12.28
2019 11.15 11.42 12.10 11.92
2020 (est. w/o lockdown) 11.37 11.64 12.35 12.16

The Turnpike Commission’s 2019 Comprehensive Annual Report calculates the gross fare revenue per vehicle transaction.  As is well known, the commission has raised toll rates by 6 percent (both cash and EZ-Pass) each year from 2016-2020.  The gross fare revenue per Class 1 vehicle transaction from 2016 through 2019 was as follows: $3.32, $3.56, $3.77 and $4.04.  The average annual increases during this time were 6.8 percent.  Using this percentage increase to estimate 2020’s gross fare revenue per Class 1 vehicle gives $4.31.  With this value and the estimated traffic count in the above table, estimated monthly revenues from mainline turnpike tolls for each month are calculated.

Since the lockdown commenced, leisure travel has been way off, if not close to zero, as unnecessary travel was prohibited.  However, essential personnel were allowed to travel and people were allowed necessary travel to check on relatives or to gather supplies.  Some may have used the mainline turnpike to do so. 

Since the lockdown began mid-March, we will assume a 50 percent reduction in activity for that month but a 70 percent reduction (30 percent usage) for both April and May.  For June, we will use a 40 percent usage rate as the lockdown will most likely start to ease restrictions and people will begin summer travel.  These reductions will be used to approximate the revenues received on the mainline turnpike while on lockdown. 

Class 1 monthly revenues (millions)

  March April May June
2017 $38.19 $40.65 $42.92 $43.56
2018 $40.63 $43.10 $45.77 $46.28
2019 $45.03 $46.12 $48.90 $48.15
2020 (est. w/o lockdown) $49.04 $50.23 $53.25 $52.43
Revenue projections with lockdown $24.52 $15.07 $15.98 $20.97
Lost revenue due to lockdown $24.52 $35.16 $37.27 $31.46

As the table above shows, the loss of revenue is estimated to be about $128.41 million over the mid-March through June period. Of course, actual losses will depend on how fast traffic returns to the turnpike as the lockdown eases.  Bear in mind that even in the “yellow phase” unnecessary travel is still not encouraged.  Thus, it is unlikely that the road’s usage will return to normal until the state enters the “green phase.”  Even at that, it may be a while before people feel comfortable enough to travel for leisure.  It likely will take perhaps as much as a couple of months before passenger vehicle counts return to normal levels, and thus the revenue shortfall from what had been expected will likely persist.

Commercial vehicles

As the push for supplies and online shopping picked up during the lockdown the demand for commercial vehicles to transport these products increased.  However, since construction and most manufacturing were curtailed, as were car sales, furniture sales and other retail shopping outlets, there was a drop in the transport of items related to these industries.  

Commercial traffic was up 2 percent each month for both January and February over last year’s counts.  In January 2020, 1.88 million commercial vehicles exited the mainline turnpike compared to 1.84 million in 2019.  For February 2020, 1.74 million commercial vehicles exited compared to 1.71 million in 2019. 

For estimations of commercial traffic, a 2 percent year-over-year growth rate is used for the months of March through June.  The 2017 through 2019 monthly data and the 2020 estimates are shown in the table below.

 Commercial traffic counts (millions)

  March April May June
2017 1.80 1.83 2.03 2.21
2018 1.85 1.91 2.12 2.08
2019 1.91 2.27 2.16 2.05
2020 (est. w/o lockdown) 1.95 2.31 2.20 2.09

Looking at the past four years of gross fare revenue per vehicle transaction for commercial traffic (2016-2019) shows the following amounts: $15.51, $16.38, $17.38 and $18.85.  The average annual increase was 6.7 percent.  Using this percentage as the expected 2020 increase over 2019’s gross fare revenue per commercial vehicle transaction places the 2020 gross fare receipt per vehicle at $20.12. 

Note that different classes of commercial vehicles are assessed different tolls. The assumption is that the percentage decline in commercial traffic affects all classes equally.  The following table shows the estimated monthly revenues from 2017 through 2020 for the four months. 

Commercial traffic monthly revenues (millions)

  March April May June
2017 $29.53 $29.98 $33.25 $36.28
2018 $32.09 $33.21 $36.85 $36.11
2019 $35.96 $42.70 $40.67 $38.59
2020 (est. w/o lockdown) $39.18 $46.52 $44.31 $42.05
Revenue projections with lockdown $31.34 $32.57 $31.02 $33.64
Lost revenue due to lockdown $7.84 $13.96 $13.29 $8.41

The table above shows the estimated monthly revenues for March through June 2020.  The estimates of turnpike usage as a percentage of what it would have been with no lockdown will vary by month.  For March and June traffic counts are placed at 80 percent of the no-lockdown amount; for the harder hit months of April and May, the estimate is 70 percent.  For the four-month period, the toll revenue is estimated to be down by $43.50 million owing to the decline in commercial vehicle traffic.

The total loss over these four months from both classes of vehicle is estimated to be $171.91 million.  In 2019 the net fares for the year were $1.33 billion or about $110.59 million per month.  Our estimate amounts to a loss of about a month and a half of revenue. 

To reiterate, the losses are predicated on a shutdown lasting from mid-March through June.  If the state enters the “green phase” sooner and people have the confidence to travel again, then the estimated losses could be lower. 

That confidence is going to be key.  People travel when they not only feel safe medically, but also when they feel financially sound.  With more than 1.8 million-plus Pennsylvanians having filed for unemployment compensation and others waiting to see if their jobs are going to be secure going forward, that could take some time causing the weakness in traffic counts and revenues to linger well into the summer.

Recommendation

While the federal government is going to be sending money to state governments to assist during this pandemic, it’s unlikely that they will cover all losses.  What can the Turnpike Commission do going forward?

First and foremost, the Legislature needs to remove the Act 44 mandated payments to PennDOT.  To make these payments, the Turnpike Commission has been borrowing money heavily and has seen its debt load explode over the last decade. 

In 2010 the agency had $5.1 billion in mainline outstanding debt. By 2019 that amount more than doubled to $12.4 billion with a large share of the increase due to required payments to PennDOT.  Total debt outstanding, including oil franchise tax and motor license debts, stood at $13.92 billion.  On a per vehicle basis mainline debt ballooned from $26.88 in 2010 to $57.57 in 2019. 

The pandemic has dramatically exposed the ill-conceived reliance on toll revenues to fund mass transit.  The estimated loss of $158.56 million will hurt the Turnpike Commission’s ability to make payments on current mainline debt (a $725.6 million payment in 2019). 

The longer the pandemic lingers, and Pennsylvania remains in lockdown—even if modified—and the economy fails to rebound quickly the larger these losses will be. 

If nothing else, it could hamper the agency’s ability to borrow money in the future.  The more toll revenue that needs to be used for debt repayment, the less that will be available for other needs such as maintenance and operations, which are very expensive. 

The state needs to end the lockdown quickly so that economic activity can begin to return to the pre-virus level. 

Turnpike tolls rise for the 10th consecutive year

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Summary: For the 10th straight year the Pennsylvania Turnpike Commission (PTC) is raising tolls. It is doing so and will continue to do so for the foreseeable future, as a result of legislation from 2007 that mandates the PTC to remit $450 million annually to PennDOT.  While many decry the rate increases, they also forget the misguided legislation that creates this situation.

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While we have written about this before (Policy Briefs: Vol. 7, Nos. 18, 38, 46 and 59; Vol. 12, No.5; Vol.13, No.3 and Vol. 14, No.2), it is worth repeating how the PTC arrived at this point.

In 2007 then-Governor Rendell sought to lease the mainline turnpike to fund the state’s transportation system of roads, bridges and mass transit.  That plan met with heavy resistance from all sides.  The Legislature then crafted what would become Act 44 of 2007.  The crux of Act 44 was to transfer ownership of Interstate 80 from PennDOT to the PTC.  The PTC would then toll Interstate 80 and give PennDOT $900 million per year beginning in fiscal 2009 and then rising 2.5 percent each year thereafter.  That money would then be split between road and bridge projects and mass transit.

But, as the Institute warned on several occasions at that time, tolling Interstate 80 required permission from the federal government.  Federal government guidelines require that any toll revenue from a federal interstate highway must be reinvested in that highway—and not on other purposes as was proposed in Act 44.  After asking for permission and being denied three times, Act 44 had to be revised. Even though permission to toll Interstate 80 was not granted, the revised legislation kept the PTC on the hook for payments to PennDOT, albeit at a reduced rate of $450 million per year starting in fiscal 2011 (after paying $750 million in fiscal 2008, $850 million in fiscal 2009 and the full $900 million in fiscal 2010).  Act 89 of 2013, which raised the oil company franchise (gas) tax to help fund road and bridge work across the commonwealth, reduces PTC’s remittance obligation to PennDOT to $50 million starting in fiscal 2023.

As mentioned above, the money from turnpike tolls was to be shared between road and bridge work and mass transit. Strangely and perhaps questionably, the money going to support mass transit is not mentioned in recent news reports although is clearly a vital part of the revised Act 44. Of the current $450 million payment made to PennDOT, the PTC’s Comprehensive Annual Financial Report (CAFR) from fiscal 2018 notes that $200 million of the scheduled annual payment supports road and bridge projects and $250 million supports transit throughout the commonwealth.

Thus, more than half of the mandated payment goes to the state’s transit systems. It does so by placing this money in the Public Transportation Trust Fund, which was created through Act 44, along with money from the state sales tax, lottery funds for the Free Transit for Senior Citizens Program, state bond funding for capital projects and the remainder of the Public Transportation Assistance Fund (after funding payments on existing debt).  According to the Port Authority of Allegheny County’s Single Audit for fiscal 2017 (most recent available), it received $205.9 million from the Public Transportation Trust Fund (requiring a local match of $33.7 million) that year.

In order to make this $450 million payment to PennDOT, the PTC has been issuing debt for that purpose for several years.  Total debt issued by the PTC includes non-traffic related debt linked to the Oil Franchise Tax revenues and Motor License Fee revenues (PTC’s fiscal 2018 CAFR).  Only debt issued against mainline tolls are used for the Act 44 payments.  In fiscal 2007 the total mainline outstanding debt was $1.7 billion ($8.93 per vehicle).  For fiscal 2018 that amount has ballooned to $12.2 billion ($60.70 per vehicle)—more than seven times greater in just 11 years.  So far, the PTC has paid PennDOT $6.1 billion in Act 44 payments since fiscal 2008.  Thus, of that debt total of $12.2 billion, 50 percent is the borrowing to cover the mandated payments to PennDOT.

Meanwhile, gross toll revenue has nearly doubled, rising from $624.5 million in fiscal 2008 to $1.2 billion for fiscal 2018.  While toll revenue may be able to cover the mandated $450 million payment to PennDOT and even the total interest and bond expenses, the PTC still has its own expenses to meet.  Total operating expenses for fiscal 2018 were $874.1 million.  The loss before capital contributions (operating revenues minus operating expenses plus PennDOT payments and the total interest and bond expense) for fiscal 2018 was $647.9 million.

All this borrowing has severely eroded the PTC’s financial position.  In fiscal 2018 the PTC had total assets of $8.9 billion and total liabilities of $14.5 billion for a total net position of -$5.6 billion.  With an increasingly negative net position—and the decreases in the net position have been happening annually since fiscal 2008—the cost of borrowing will almost certainly rise over time.

So how have the toll increases affected traffic on the system?

In fiscal 2008 there were 189.6 million vehicle transactions on the turnpike system with 164.1 million passenger vehicles and 25.5 million commercial vehicles.  By fiscal 2018 the number of vehicle transactions bumped up by just 6 percent (201.2 million).  Passenger vehicles transactions rose by just 5 percent over the period while commercial vehicle transactions jumped by 12.5 percent.  It has affected the composition of traffic as 86.6 percent of vehicles using the turnpike in fiscal 2008 were passenger (class 1) vehicles and in fiscal 2018 that had declined by nearly one percent (85.8 percent).

Importantly, however, the number of miles traveled has declined for both classes of vehicles. In fiscal 2008 revenue miles per passenger vehicle stood at 27.2 miles and for commercial vehicles it was 51.3 miles.  In fiscal 2018, passenger revenue miles per vehicle fell slightly to 26.7 while for commercial vehicles it fell more dramatically to 45.2 miles (12 percent).  Perhaps commercial vehicles are not able to pass along to their customers the increased cost of using the turnpike and may be finding alternatives to using the system.

The decision to use toll money to fund Pennsylvania’s transit problems—both road and bridge and mass transit—was a very poor one.  It has placed the PTC at a disadvantage as it needs to keep borrowing to meet obligations and raising tolls to make it work. At some point the toll increases will start to adversely affect the usage of the system, as the revenue miles traveled data is starting to show, especially with the commercial vehicles.

Another problem soon to face the commonwealth is a lawsuit filed by a truckers’ association that the strategy to use toll revenues to fund something other than the road itself runs afoul of federal law.  It was successful in suing New York, which used tolls to fund improvements to its canal system and have now turned their attention to Pennsylvania.

As a result, the PTC is not making current payments to PennDOT and instead putting that money aside pending the outcome of the lawsuit.  What if federal courts find for the truckers again?  Will they win back-tolls? And how will the current governor and Legislature react regarding transportation funding?  Needless to say, this lawsuit and possible ramifications of a ruling against the Pennsylvania Turnpike Commission will be extraordinarily important and will require close monitoring and analysis.

Mon Fayette Expressway on Hold—Again and Maybe Permanently

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Summary:  Lack of key political support and inadequate economic benefit analysis of the proposed extension of the Mon Fayette Expressway to Monroeville have caused the project to be put on hold again. Given the concerns expressed by members of the Southwest Pennsylvania Commission and difficulties with the justification arguments, the project might have been permanently shelved.

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The story of the proposed Mon Fayette Expressway (MFE) is a long running saga that may have just come to an end.  The 14 mile toll road from the current terminal point of Turnpike Route 43 at Route 51 to I-376 at Monroeville would complete the Mon Valley system from West Virginia to Monroeville. The project’s estimated cost of nearly $2 billion would be the most expensive of the four part plan to connect I-376 to West Virginia’s I-68.

On March 20th, the Southwest Pennsylvania Commission (SPC) voted to table the MFE project. On March 21st, the Pennsylvania Turnpike Commission (PTC) announced “that it will stop engineering-design activities on the 14 mile MFE project in Allegheny County in light of the SPC recent decision to table the project.” The press announcement went further, “The Turnpike Commission has a legislative mandate to develop the Mon Fayette Expressway but our role is not to serve as an advocate for the project,” said the Turnpike CEO. “This is a regional project, and the decision as to whether it is of value to the region should be made by those who live there.”

The planning and design of the 14 mile leg of the MFE began in 2004 after the so called western leg of the expressway to I-376 in Pittsburgh was scrapped.  Design work was halted in 2009 owing to a lack of funds. However, Act 89 of 2013 (section 9502(a), para 2 (vi)) provides the PTC a 14 percent share of revenue collected from a 55 mill oil company franchise tax levy. This money is to be used for projects specified in the Turnpike Organization, Conversion and Extension Act of 1985.  Apparently, the PTC in 2015 decided the MFE extension qualified as an Act 89 recipient and put it on the active list of projects to receive those funds.

The 1985 law says “The commission is also hereby authorized and empowered to construct, operate and maintain further extensions and improvements of the turnpike at such specific locations and according to such schedules as shall be deemed feasible … as follows: (1) From an interchange with Interstate Route 70 between existing interchanges at Lover and Speers extending northerly to an interchange with Interstate Route 376 in Pittsburgh.”   

The 1985 law wording was amended (parts of the law were repealed in a 2007 bill) but according to current statutes as of 2016, Title 75, section 8912, the extension to I-376 in Pittsburgh is still the designated project, not I-376 at Monroeville.  One hopes there is legislative wording somewhere that changes the designation.

Be that as it may, the MFE extension to Monroeville faces serious obstacles. First, major concerns and objections have been voiced by SPC members. Some members questioned whether going ahead with a project that could take as long as twenty years to complete is the best way to provide needed transportation solutions to the area’s residents now. Others, including the Allegheny County Chief Executive, wondered how well the recent Turnpike toll roads have performed relative to pre-construction forecasts.

On the other side of the argument, the County Council member representing the Mon Valley wrote an op-ed outlining his case for constructing the extension to Monroeville. In that op-ed he alluded to a supporting study as follows, “A report on the expressway project issued last August by the national transportation organization TRIP cited the creation of 20,780 permanent jobs as well as more than 5,000 annual construction jobs. These jobs would hopefully deter crime and create growth in Mon Valley depressed communities.” Note that the 20,780 figure includes employment projections resulting from completion of an East Busway extension.

Unfortunately, the TRIP study falls well short of being a credible evaluation of the extension’s benefits.  It is long on claims but short on useful data and analysis.

For one thing, basic information one would expect are not found in the study. There are no data indicating current traffic patterns in the region by type, volumes, or how much is through traffic or locally generated—say, between Clairton and Monroeville or Dravosburg to East Pittsburgh. And there are no estimates of future traffic using the extension over its various segments and how much would be of local origin or simply through traffic passing through the Mon Valley.  Indeed, for purposes of the traffic forecasts, what is the relevant geographic area?

In short, would the MFE extension require very large expenditures on other road and street networks in the Mon Valley communities to make the extension economically viable? Moreover, if a large portion of expected business growth is to be moved by trucks, the surface street and local highways are likely to be perpetually jammed and would need massive upgrades to roadbeds and surfaces to handle the weight.

Then too, the extension will be a toll road. At what level will the tolls be set and what impact will they have on usage levels? The experience of other new toll roads such as the Beaver Valley Expressway and the Turnpike Route 66 in Westmoreland and completed sections of Turnpike Route 43 could be a very useful as indicator of how successful the MFE extension would be.   Nor does the TRIP study discuss possible problems for local traffic trying to get to or away from extension interchanges or how travel within the area and specifically close to interchanges will be affected if much heavier vehicular traffic is getting on or off the extension.

But even more problematic for the study’s usefulness is the methodology used to project the number of jobs that will develop in the area as a result of the extension’s construction. The study opens the employment discussion by citing a survey in a report by the Construction Legislative Council. TRIP quotes the Council report as claiming there are 1,500 manufacturing and related firms in the study area with 22,000 employees.  Two problems: First, the survey provides no documentation and does not define the relevant geographical area.  Second, the Council report does not mention an employment figure as the TRIP study footnote implies. Moreover, there is no discussion of the size of firms, the industries involved or dollar value of payrolls.

And it gets worse. The TRIP study estimates the number of future permanent jobs on the basis of a highly questionable procedure. They use a nationwide study of 100 projects of all sorts (roads, bridges, interchanges, etc.) completed by 2005 that found on average one million dollars in spending led to the creation of 7.2 directly related permanent jobs and 4.4 indirect jobs.  TRIP simply took the projected $1.7 billion (1700 million) cost of the extension and multiplied by 7.2 and 4.4 to get direct and indirect jobs: 12,240 direct and 7,480 indirect for a total of 19,720 jobs resulting from the construction of the MFE extension to Monroeville.

Even if it were reasonable to use statistics from projects completed twelve years ago as a starting point, the analysis should have examined the range of outcomes by type of project and whether a project was leveraging existing infrastructure.  Were ramps in a populated, high traffic area far more productive in terms of employment growth than say a mile of highway in a very rural area? Were employment increases per million dollars spent larger in prosperous, growing areas than in older areas in long term decline or stagnation? Using the average jobs created per million dollars expended engenders no confidence in the estimate of employment gains the MFE extension will create. And by the time the MFE is completed in ten years say, the average jobs per million dollars spent based on 2005 project completions would be even more meaningless.

The TRIP study also fails to offer any analysis of the types of industries that might come to or expand in the area. At the very least some informed attempt at a forecast of industries and possible job growth would be useful to officials charged with making the decision to proceed or not proceed with construction.  Briefly stated, the TRIP employment estimates are sorely lacking in methodology and rigor.

Finally, note that sixty years ago there were many thousands more jobs in the Mon Valley producing enormously more product than today. How did all those people get to work and all the raw materials and finished products get transported over basically the road system that exists today?  No doubt rail and water borne freight played a large role. Will that not be possible in the future?

In summary, whatever the merits of the MFE extension from Route 51 to Monroeville might be, the TRIP study has provided no convincing evidence or reporting that would warrant spending many years and billions of dollars to build it. This is even more the case if there are efficient and less costly ways to improve transportation through widening existing key routes, traffic pattern improvements, enhancing connectivity with existing major regional arteries and set up more usable mass transit to serve locally within the area.

Putting all the eggs in the MFE basket is likely to be disappointing and could preclude efforts to fix urgent needs.