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Taking a Toll: Highway Financing Failures and the Pennsylvania Turnpike

December 20, 2016
The Pennsylvania Turnpike operates on a concept of “pay to play”. In order to use the limited access toll road that traverses the state, drivers must pay a fee that varies based on distance travelled and entrance and exit locations. The simple idea behind the turnpike (or any toll road) is that any money spent maintaining/staffing the road comes from people who use the road, not from taxpayers. So how does a road that people pay to use, come to a net position of $ -4.11 billion?

By Katie Fazio, W’20

The Pennsylvania Turnpike first opened in October of 1940 and originally only measured 130 miles. The Turnpike System has since expanded to its current length of 553 miles which includes I-276 from New Jersey to Valley Forge, I-76 from Valley Forge to Ohio, and I-476 from Valley Forge to Scranton. While the Pennsylvania Turnpike System includes all three roads, I-476 is not considered as part of the “Turnpike” itself. Its initial construction coincided with the beginning of a great shift in American transportation towards limited-access superhighways—the Interstate Highway System. Lessons learned in Pennsylvania were instrumental in the “forgiving road” concept that influenced highway design for the next half a century. The majority of these groundbreaking highways originated with President Dwight D. Eisenhower’s 1956 Federal-Aid Highways Act which aimed to finance the construction of more than 42,000 miles of roads in just 12 years. In 1993, 25 years after Eisenhower’s initial deadline, the last piece of the Federal Aid Highways Act was completed at an estimated cost of $425 billion dollars (in 2006 dollars)[1]. The successful elements of the Pennsylvania Turnpike’s design and the idea of an efficient network of superhighways is seen in the physical product of the 1956 Act. However, there is a salient difference between the highways authorized by the Federal-Aid Highways Act under Eisenhower and the Pennsylvania Turnpike: tolls. And recently, where those tolls go.

 E-ZPass toll plaza on the Pennsylvania Turnpike

E-ZPass toll plaza on the Pennsylvania Turnpike[2]

A majority of Interstate highways in the United States are still toll-free. This is despite the Obama Administration’s 2014 announcement that states would be allowed to toll drivers on interstate roads in order to raise funds for road repairs[3]. For years, tolling drivers had been unnecessary and generally prohibited because any maintenance was paid for by the Highway Trust Fund (HTF). However, the HTF has dried up. The Fund relies on an 18.4 cent federal gas tax to finance surface transportation projects. Unfortunately for state transportation departments, the federal tax is not indexed to inflation so every year that 18.4 cents buys less concrete, steel, and labor. Furthermore, as vehicles have become more efficient, vehicle owners are paying less into the Fund while their cars and trucks damage and clog roads[4] In 2015, President Obama signed the Highway and Transportation Funding Act of 2015[5]which allows states to toll drivers on new interstate lanes—such as tolled High-Occupancy Vehicle lanes—but restricts tolling entire roads. Further, federal statute still requires that toll funds be used for, “any costs necessary for the improvement and proper operation and maintenance of the toll facility.”[6] But in the case of the Turnpike, the money drivers pay for a toll does not necessarily get used for the “maintenance of the toll facility.” 

The Pennsylvania Turnpike is operated by the Pennsylvania Turnpike Commission (PTC), an independent agency of the Commonwealth of Pennsylvania. The Commission operates separately from the Pennsylvania Department of Transportation (PennDOT). It is governed by five chairpersons and employs the more than 2,000 individuals who work on the Turnpike (and other Commission-run roads) such as the Northeast Extension/Interstate 476.[7] A majority of the operating revenue for the Pennsylvania Turnpike Commission comes from what the Commission calls the “Mainline Fund.” The tolls and fees that contribute to this fund make up more than 80 percent of the total revenue. The Commission is also funded by state taxes on motor license registration fees and oil company franchise taxes received as annual capital contributions.[8]Emphasizing the scale of the Commission’s operations, the Commission generates significant revenue through tolls. In 2015, 192 million unique trips were made on the highway, contributing 98.4 percent of the $949,735,000 in Mainline Revenues (primarily composed of tolls and fees) for the Commission.[9] Although $950 million dollars should be sufficient to pay workers and maintain the Turnpike, the Commission is in debt.

Why does the toll increase every year?

With the passing of Act 44 in 2007 (and revision with Act 89 in 2013), the PTC and PennDOT created a “public-public” partnership in which the Commission was required to start contributing annual payments to PennDOT to help fund infrastructure projects across the state. Act 44 requires the Commission to pay $9.65 billion through 2057, and so far, the Commission has already paid PennDOT more than $5.2 billion. As a result, the Commission has accumulated approximately $5.6 billion in new debt and has had to raise tolls on the Turnpike each year since. Concurrently, the Commission also needs ridership to increase in order to cover debts completely, but as tolls increase and more riders choose alternative routes, the Commission will not be able cover its debts.[10] As Pennsylvania Auditor General, Eugene DePasquale, describes in his September 2016 audit of the Commission, The Turnpike Commission’s ability to raise toll revenue to cover Act 44/89 payments to PennDOT and expenditures for capital projects is potentially unsustainable.”[11]

Under Act 44, the Commission pays PennDOT $450 million a year. There is some hope for the Commission in that under Act 89, starting in 2022 and continuing to 2057, the Commission’s payments will be lowered by $400 million to $50 million per annum. However, this does not help the debt that the Commission has already accumulated. Currently, the net position of the Commission (Net assets - Net liabilities) is -$4.11 billion as reported by the Commission’s 2015 financial report.[12]This will lead to major problems in the coming years.

But what about the rest of the revenue?

The Commission brought in $950 million and is projected to bring in more than $1 billion dollars in toll revenue in the year to come.[13] However, after operating expenses, Act 44 payments, and debt payments, the commission again comes out at a net loss. For example, in the fiscal year ending in May of 2015, the Commission had brought in $934 million in tolls and fees. After paying for operating expenses, the Commission had $487 million to pay the $450 million they owed under Act 44 and $422 million in outstanding debt payments.[14]

Looking at other states, there is clearly a more effective way to pay for roads and highways in the rest of the state without putting the Turnpike system into debt. The graph below compares the net positions of the Turnpike Commissions of Ohio, West Virginia, New York, New Jersey and Pennsylvania from 2006 to 2015.[15]

<p>Figure 1: Net Position Comparison of Pennsylvania Turnpike to similar states' systems as developed by the Department of the Auditor General of Pennsylvania from states' comprehensive annual financial reports</p>

Figure 1: Net Position Comparison of Pennsylvania Turnpike to similar states’ systems as developed by the Department of the Auditor General of Pennsylvania from states’ comprehensive annual financial reports[16]

Act 44 and 89 were put in place to create a source of revenue to help fund other infrastructure projects in Pennsylvania. Particularly those that are un-tolled. The need to create this funding is necessary, but the burden of footing said funding has fallen unjustly on those who use the Turnpike and it has hurt the development of the infrastructure itself. A recent article in the Pittsburgh Gazette quotes Commission Chairman Sean Logan describing that “the safety of those who travel our system must remain [the Commission’s] top priority by design”. He went on to describe how Act 40 was “beginning to hamper [the PTC’s] ability to maintain and improve an asset that has been in [the Commission’s] care since 1940.”[17] Though the Commission moves forward with maintenance and road repairs, it plunges itself further and further into debt, and will be unable to sustain operations if projections are sustained.

According to the Commission, the current debt will eventually be paid off, but only if it can increase ridership as it projects in its reports. Ultimately, the burden of funding road projects across the state will fall unjustly on the shoulders of those who use the Turnpike. Act 44 hurts a transportation system it was designed to help and strains a system of cash it requires to maintain and improve a vital transportation corridor for the Keystone State and the American economy.

References

  [1] “America’s Splurge.” The Economist. February 14, 2008. Accessed December 06, 2016. http://www.economist.com/node/10697196.

  [2] https://commons.wikimedia.org/wiki/File:EZ_Pass_Pennsylvania_Bensalem.jpg

  [3] Ashley Halsey III. “White House to tolls on interstate highways, removing long standing prohibition”. The Washington Post. April 29, 2014. Accessed December 06, 2016. https://www.washingtonpost.com/local/trafficandcommuting/white-house-opens-door-to-tolls-on-interstate-highways-removing-long-standing-prohibition/2014/04/29/5d2b9f30-cfac-11e3-b812-0c92213941f4_story.html?utm_term=.109d9438ad1e

  [4] Ibid

  [5] Keith Lang. “Obama signs $305B highway bill”. The Hill. December 4, 2015. Accessed December 06, 2016. http://thehill.com/policy/finance/262171-obama-signs-305b-highway-bill

  [6] “Appendix B §129 23 U.S.C. ­– Toll roads, bridges, tunnels, and ferries”. US Department of Transportation. September 2016. Accessed December 6, 2016. http://ops.fhwa.dot.gov/freewaymgmt/hovguidance/appb.htm

  [7] Eugene A DePasquale. “Performance Audit: Pennsylvania Turnpike Commission” (Performance Audit presented September 2, 2016). Accessed December 6, 2016. https://www.paturnpike.com/pdfs/business/finance/AuditorGeneralsPerformanceAuditSept2016.pdf

  [8] Ibid 

  [9] Ibid

  [10] Ibid

  [11] Eugene A DePasquale. “Performance Audit: Pennsylvania Turnpike Commission” (Performance Audit presented September 2, 2016). Page 6. Accessed December 6, 2016. https://www.paturnpike.com/pdfs/business/finance/AuditorGeneralsPerformanceAuditSept2016.pdf

  [12] Simmons, Will, et al. “Pennsylvania Turnpike Commission: Comprehensive Annual Financial Report”. September 2, 2016. Accessed December 6, 2016. https://www.paturnpike.com/pdfs/business/PTC_CAFR_16-15.pdf

  [13] Eugene A DePasquale. “Performance Audit: Pennsylvania Turnpike Commission” (Performance Audit presented September 2, 2016). Accessed December 6, 2016. https://www.paturnpike.com/pdfs/business/finance/AuditorGeneralsPerformanceAuditSept2016.pdf

  [14] Ibid

  [15] Ibid

  [16] Eugene A DePasquale. “Performance Audit: Pennsylvania Turnpike Commission” (Performance Audit presented September 2, 2016). Page 10. Accessed December 6, 2016. https://www.paturnpike.com/pdfs/business/finance/AuditorGeneralsPerformanceAuditSept2016.pdf

  [17] Ed Blazina. “Financial Concerns won’t halt Pa. turnpike road projects”. Pittsburgh Post-Gazette. November 16, 2016. December 6, 2016. http://www.post-gazette.com/news/transportation/2016/11/16/Financial-concerns-won-t-halt-Pa-turnpike-road-projects/stories/201611160095

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