Pennsylvania Turnpike is dodging fiscal potholes - Analyst Snapshot - Debtwire

Pennsylvania Turnpike is dodging fiscal potholes – Analyst Snapshot

11 April 2019 - 12:00 am

On Thursday 4 April, the Pennsylvania Turnpike Commission won dismissal of litigation brought by truckers and other plaintiffs who are attempting to stop the commission’s USD 450m annual payment to the Pennsylvania Department of Transportation (PennDOT). The plaintiffs, which include the Owner Operator Independent Drivers Association, Inc. and the National Motorists Association, plan to appeal the federal court’s decision.


Monies transferred to PennDOT were initially used for a variety of non-turnpike projects, including highways, bridges, and public transit. Subsequent state law provided that the funds would be used for public transit only.


The plaintiffs, who seek a refund of up to USD 6bn in tolls already collected as well as an end to the annual payments, contend that using tolls for non-turnpike purposes is a violation of federal law.


Payments to PennDOT have been made primarily from bond proceeds, a practice which causes substantial toll increases in order to pay debt service on those bonds.


Before the PennDOT transfers began, tolls had been raised only five times in the prior 64 years. Since 2009, annual toll increases of 3% to 25% have occurred and additional annual increases are expected. A passenger car using E-ZPass to travel the turnpike’s mainline from New Jersey to Ohio is now billed USD 41.50 but without E-ZPass the rate is USD 57.60.


In a March 2019 report, Pennsylvania Auditor General Eugene DePasquale (D) questioned the turnpike’s continued ability to raise tolls for both its own capital projects and PennDOT payments. He noted not only that earlier traffic projections had not been met but that the economic burden on the state and its residents grows as tolls are increased. Third-party sources cited by the auditor general indicate that turnpike tolls are higher than those for similar roads in New York, New Jersey, Ohio, and Massachusetts.


The turnpike’s dilemma was the subject of a legislative budget hearing last month, prior to the 4 April court decision. At the hearing, state Representative John Lawrence (R) asked Leslie Richards, PennDOT secretary and chair of the turnpike commission, whether the turnpike’s bankruptcy was possible. The secretary responded that a refund of USD 6bn in previously collected tolls would be “catastrophic.” State law does not authorize the commission to file for Chapter 9 bankruptcy.


Analyst takeaway


Even if the truckers’ association and other plaintiffs are unsuccessful in their litigation, the turnpike will continue to dedicate a large portion of its revenues to pay debt service on non-asset bonds.


Of the turnpike’s USD 11.3bn total bonds at the close of FY18, on 31 May, USD 6.1bn or 54.4% represented bonds issued to make PennDOT payments. Although PennDOT subsidies will decrease to USD 50m annually in FY23 from the current USD 450m, PennDOT-related debt is still expected to be 32.6% of turnpike debt in FY38. This ongoing financial burden gives the turnpike less ability to finance and maintain its facilities.


Despite these problems, as seen in the table below the turnpike continues to enjoy high ratings on its revenue bonds. The trading graph, also shown below, indicates that most trading activity occurs among various liens of the turnpike’s revenue bonds rather than its oil franchise tax bonds. The beginning date of the graph, 11 May 2018, is two months after the plaintiffs’ complaint was filed. All bond types other than motor license fund bonds have the same or somewhat improved trading levels in the last year. Bondholders may be reacting to the second subordinate lien status of these bonds, in conjunction with the ongoing litigation, despite the availability of payments from the motor license fund.






by Greg Clark