Turnpike tolls rise for the 10th consecutive year

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

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.