'Flimflam finance' used by Pa. Turnpike, Wagner charges

Jack Wagner called it "flimflam finance."
Jack Wagner called it "flimflam finance."
Posted: September 27, 2012

HARRISBURG - Pennsylvania Turnpike officials are using "flimflam finance" to cover increasing debt and the toll road could be bankrupt in "a couple of years," state Auditor General Jack Wagner told legislators Tuesday.

But turnpike chief executive Roger Nutt said toll increases on motorists and truckers every year will provide enough money to prevent financial calamity.

State lawmakers are considering whether to rewrite a 2007 law called Act 44, which that requires the turnpike to provide $450 million a year for public transit and road and bridge projects around Pennsylvania until 2057 in addition to paying for the costs of operating the 545-mile turnpike system.

To meet that obligation, the turnpike has borrowed billions and boosted cash tolls by 48 percent. Tolls will rise again in January and every year as the turnpike tries to raise enough money to pay its debt.

The turnpike is more than $7 billion in debt, up from $2 billion in 2002 and $4 billion in 2009. The burden continues to grow, with the turnpike required to make payments for statewide projects until 2057.

"You can't just keep borrowing to get out of debt," said State Sen. John Rafferty Jr. (R., Montgomery), chairman of the Transportation Committee, which held Tuesday's hearing with the similar committee from the House.

"All of us are concerned about the debt. ... The red flags were raised."

Wagner, who has been warning about turnpike finances for months, told lawmakers they should repeal Act 44 and find other ways to pay for the state's transportation needs.

But many lawmakers and Gov. Corbett are reluctant to raise gas taxes or other fees to pay for roads and bridges and mass transit.

SEPTA receives about $162 million of its $616 million annual state subsidy from the turnpike funds, and without that money, would face a 25 percent budget cut that could require fare hikes and service cuts for local bus and train riders.

The turnpike has borrowed about $3.3 billion since 2008 to pay for its statewide obligations and plans to borrow an additional $4.3 billion in the next decade to make those payments, according to the Turnpike Commission's financial plan presented in June to state Budget Secretary Charles Zogby.

Wagner said the turnpike's borrowing to pay for other transportation obligations "is the very definition of robbing Peter to pay Paul ... and it is saddling the Pennsylvania Turnpike with crushing debt that may ultimately fall on the shoulders of Pennsylvania taxpayers."

Turnpike Commission chief executive Roger Nutt said "there is no disagreement with the auditor general about the debt. But we believe there is not an immediate financial crisis."

Nutt and state Transportation Secretary Barry Schoch said cost-cutting and annual toll increases of about 3 percent will allow the turnpike to raise enough money to make debt payments without prompting motorists and truckers to find cheaper routes across Pennsylvania.

Turnpike officials believe "there is no tipping point" at which drivers would divert to other roads because of high toll costs, Nutt said.

Wagner said the turnpike's financing plan was analogous to a homeowner paying his own mortgage and his neighbor's, borrowing constantly to do so.

"The turnpike isn't going to survive if this continues," Wagner said.

Schoch, defending the financing model, used a different analogy: He likened it to the owner of a $1 million house taking out a $100,000 home-equity loan every year and using his rising salary to cover the payments.

He predicted that with rising tolls, turnpike revenues would eventually exceed debt costs and allow the Turnpike Commission to begin reducing its debt. Nutt noted that financial rating agencies continued to assign high ratings to turnpike bonds.

Rafferty said lawmakers were convinced additional transportation funding needs to be raised, but that Corbett has not agreed. A commission appointed by Corbett recommended last year raising fees and taxes, including a portion of the gas tax, to provide $2.5 billion a year more for transportation projects.

Corbett spokeswoman Kelli Roberts said Tuesday, "The governor will not increase taxes."

Rep. Richard Geist, (R., Blair), chairman of the House Transportation Committee, reminded turnpike officials Tuesday that they had advocated for creation of Act 44 five years ago expecting to win federal approval to place tolls on I-80.

The federal government rejected the state's request to toll I-80, leaving the turnpike to bear the costs.

"I agree Act 44 needs to be rewritten," Geist said. "But this is a tough business, and we're broke."


Contact Paul Nussbaum at 215-854-4587, or pnussbaum@phillynews.com.

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