• Discussions between the executive and legislative branches could have been handled better.
Governor Edward G. Rendell, long interested in a lease of the Pennsylvania Turnpike to help the state generate some of the cash needed to fill its infrastructure funding gap, opted to pursue a public-private partnership just after the state had enacted Act 44, a landmark transportation funding bill. Members of the legislature, particularly supporters of Act 44, were confused by the timing of the governor's decision and felt they had been excluded from the process. Many were less inclined to look favorably on the lease, a sentiment that grew when the winning bid was billions less than many lawmakers expected.
• The financial assumptions related to the deal were overly optimistic.
$12.8 billion undoubtedly would have enabled Pennsylvania to invest more in its infrastructure. Governor Rendell intended to save most of the proceeds and to use the interest they generated to pay for infrastructure projects. The state assumed it would earn 12 percent annual interest on the principal, generating more than $1 billion in additional infrastructure spending a year.2 But a 12 percent annual return seemed highly unlikely, and far outstripped the returns projected by both the Pennsylvania State Employees' Retirement System (SERS) and Morgan Stanley, the state's advisor on the proposed lease.
• The state lacked a clearly articulated plan for how the proceeds would have been invested and spent.
Pennsylvania developed its financial assumptions based on the last 20 years of SERS returns. But not only did the proposed legislation not call for the state to invest the upfront sum in that particular pension system, it also did not set out any guidelines for how the funds should be invested. That uncertainty extended to how the money would be spent; unlike some other long-term lease proposals that described expenditures in detail, the Pennsylvania proposal lacked such a framework. That missing element raised questions about how long the money could support infrastructure investments.
• The proposed oversight mechanism for deciding where to invest the upfront payment and how to spend the proceeds raised questions about transparency, accountability and adequate planning.
The original legislation called for a three-member board consisting of the governor, the budget secretary and the transportation secretary to control investment and spending decisions, and oversight of the private operator's performance. The lack of legislative or public representation on the small board troubled some legislators, who used it as a reason not to support the lease-although they could have revised the legislation to propose a different approach.
• The debate lacked adequate consideration of the state's long-term interests.
Pennsylvania considered the proposal to lease the turnpike primarily as a way to generate a large, upfront payment that could pay for infrastructure improvements across the state. The short-term implications of that payment dominated the debate about whether to proceed with the lease-an experience that closely resembled the process in other states. Although it is impossible to know what ground transportation may look like decades from now, policy makers need to consider more seriously the long-term effects of a lease on their taxpayers, their economies and their environment.