Coping with crisis

Pennsylvania Governor Ed Rendell is a little miffed when he strolls into his office one late afternoon in August. Not because he is about to meet with Infrastructure Investor, but because the US government has just given away $3.25 billion in education grants to nine states. Nine states ex-Pennsylvania.

“We should have won,” he says and positions himself next to the phone in anticipation of a call from Arne Duncan, the US Secretary of Education. He’s intending to give Duncan a piece of his mind.

It’s one of the rare moments when Rendell has something other than infrastructure in his thoughts. When talking about “radically increased state spending” he even refers to education when he means to refer to infrastructure. 

No matter. It doesn’t take long before he hits a familiar stride, and the focus is once more on perhaps his most beloved subject.

In May, Rendell declared Pennsylvania to be in a “transportation funding crisis” thanks to the implosion of a funding plan known as Act 44. The state has 5,646 structurally deficient bridges in need of repair – the most of any US state. That’s to say nothing of 7,000 miles of roads in need of repair, enough to cross the continental US three times. And the list goes on.

“There can’t be much dispute about the need,” he says. “It’s a question of how to fund it.”

It’s a question that, amid record budget deficits, much of America is struggling with. So the story of Pennsylvania’s crisis – and its potential solutions – is, in no uncertain way, the story of the US.

It’s also a story that has a personal dimension for the two-term Democrat, now in his final months in office. Come January 2011, there will be a new Governor. But Rendell doesn’t want to pass the buck. Building infrastructure has been his signature issue, his national call for action, his passion and his struggle. To leave office with the state’s infrastructure in a state of crisis would simply be unacceptable.

So Rendell has rolled up his sleeves and is making a final push to get the legislature to find a solution to the problem. The goal is to find new revenues to fill a portion of the state’s $3.5 billion-a-year transportation public funding gap and also, for the first time in modern Pennsylvania’s history, get the private sector involved too.

“This is a problem that’s so enormous and the need for funding is so great that we can’t reject anything. And I am absolutely a strong believer that private investment can fill a percentage of our needs,” he says.

How it happened

Part of Pennsylvania’s problem simply comes with the territory. The state is a major link for truck and rail traffic going into and out of the Northeast. So its stock of roads, bridges and highways, already some of the oldest in the country, is constantly taking an extra beating that slowly, but surely, builds into a significant liability. In 2006, a transportation funding commission said Pennsylvania needed $1.7 billion a year in new revenues to meet its transportation needs.

Eager to avoid raising gas taxes, state legislators came up with an alternative known as Act 44. “Act 44 was premised on two funding streams,” Rendell explains. The first was an increase in tolls on Pennsylvania’s state-owned, 537-mile turnpike, “which was done”. And secondly, Pennsylvania would seek the US government’s approval to toll its portion of I-80, a federal highway that crisscrosses the US from east to west. Those tolls would be used to create a bondable, long-term funding stream for the state’s transportation needs.

Rendell saw Act 44 as an innovative solution to the problem, so he signed it into law in July 2007. But, as a plan B, he championed another proposal: leasing the turnpike to a private operator for 75 years and using the upfront rent payment to invest in infrastructure. It was a plan akin to what Indiana’s Republican Governor Mitch Daniels did in his state when he leased the Indiana Toll Road in 2006 for $3.8 billion – except Pennsylvania got offered $12.8 billion by a group of private investors led by Abertis of Spain.

But leasing the turnpike didn’t sit well with everyone.

“I stood toe-to-toe against the governor doing that,” says Joseph Markosek, the Democratic majority chairman of the Pennsylvania House of Representatives’ Transportation Committee. The $12.8 billion was “far too low” and “would never last the 75 years of the lease”.

The lease’s approval never made its way out of Pennsylvania legislature. And so in October 2008, after a summer of waiting, Abertis let the offer expire.

“If the lease had gone through, the state would have had that $12.8 billion to invest in infrastructure,” says Jim Courtovich, Abertis’ public affairs advisor on the deal.

Regardless, last April, with plan B no longer an option, the Feds told Pennsylvania for the third and final time that they would not let them toll I-80. That’s because the tolling plan would “have the effect of diverting revenues collected from I-80 to projects on other facilities,” US Transportation Secretary Ray LaHood explained to Rendell in a letter on 6 April. That would be “inconsistent” with the permitted uses of toll revenues under a 1998 transportation bill passed by Congress, LaHood concluded.
Rendell was surprised by the rejection.

“It’s a direct conflict to the statute,” he says. “The statute says you can’t use it for mass transit but says you . . . can use it for other roads and other interstates in Pennsylvania.”

Legalities aside, the damage is now done: as a result of the failed tolling plan, Pennsylvania lost out on $60 billion that would have been available for its bridge, highway and transit needs over the next 46 years Rendell told legislators. The shortfall this year alone is $472 million and threatens to force 449 bridges and 806 miles of road projects to go unfunded, according to the state’s transportation funding website. Meanwhile, the additional $1.7 billion a year needed in 2006 has now ballooned to $3.5 billion a year, according to the website.

In this context, the turnpike lease would have been “a home run”, says Representative Rick Geist, Markosek’s Republican counterpart on the Transportation Committee. But “we can’t look back,” he adds. “We have to look forward.”

One good omen is that, despite their differences on the turnpike lease, Markosek and Geist both agree the legislature needs to pass a bill enabling public-private partnerships, or PPPs, for transportation. Doing so would give private developers and investors a way to systematically help build and improve the state’s transportation infrastructure.

Geist says it’s the third consecutive legislative session he has sponsored such a bill, and this time, it’s different.

“I think it has a lot of horsepower right now. More than it’s ever had,” he says.

The big question is whether he can get it done before Rendell leaves office. There is probably no governor in the entire country who has been more supportive of PPPs than Rendell. If it lands on his desk before he leaves office, Rendell says he’ll sign it, but with one big caveat: “Many of the Republicans in the Senate will say, ‘we’ll pass that and we fix transportation’. That’s not true and that would be misleading the public.”

That’s because not all the projects in the state are fit for private investment. “The only time the private sector’s interested in investing in transportation is obviously when there’ s a return on investment. They don’t give money away – nor should they,” Rendell says.

Take, for instance, two bridges in need of replacement on the Delaware River: Scudder Falls and Pond Eddy.

Scudder, located just north of Philadelphia, handles about 60,000 vehicles a day, and is in critical need of expansion and modernisation. The improvements would cost about $310 million – more than the local bridge authority can afford at the moment, so Rendell and New Jersey Governor Chris Christie have announced a PPP that will foot the bill to a private investor and let the investor recoup the cost via
tolls.

“Scudder Falls will get done. We’ll choose the vendor [preferred bidder] on Scudder Falls before I leave,” Rendell says. And, with one in place, construction could begin within months – all thanks to the high toll volume that is likely to interest private investors.

Not so in Pond Eddy. The isolated city is home to only about 22 households who rely on the Pond Eddy Bridge as their only link across the Delaware. But the 107 year-old structure is in such bad shape that nothing larger than a regular van can cross it. 

“I can’t get my sewage pumped because the sewage truck can’t get across the bridge,” says Lori Ayers, a 22-year resident of Pond Eddy. “If we have a fire, no fire truck – sorry,” she adds. Even kerosene deliveries have long been a thing of the past: Pond Eddyers now transport the highly flammable heating oil in their cars. So the quaint clack-clack-clack that accompanies the bridge’s crossing is suddenly a very dangerous sound.

“Now when you hear that clack-clack-clack, it’s ‘oh my god!’” she says.

But, without the clink-clink-clink of tolls, the project is unlikely to interest investors. And even then, its small size, at $8 million would probably preclude a PPP. So the bridge will likely remain on the books of the Pennsylvania and New York State Departments of Transportation, which currently have about half the funding secured for the project, slated for construction in 2013.

Consider the fact that Pennsylvania has 25,000 state-owned bridges and it’s easy to see why Rendell believes that, even with PPPs, “80 to 85 percent of our transportation funding needs still have to come from the public sector”. The PPP bill “should be part of a larger, comprehensive package” of infrastructure funding solutions, he insists.

Public sector solutions

Sensing a need for compromise, Rendell is flexible on how legislators find a way to pay for the additional state infrastructure money – but less so on the dollar amount.

“What I’ve told the legislature is I will accept any funding plan that they send to me as long as it reaches the threshold of at least half a billion dollars and I recommended that we not settle for anything less than a billion and a half,” he says.

“There are a whole plethora of ways to do this but every one of those ways takes a degree of vision, foresight and some…I would say only a modicum of courage,” he adds.

Only a modicum because he believes the public is willing to pay more to fix its infrastructure.

“You could raise over $700 million in Pennsylvania by raising fees to inflation [and the] gas tax to inflation. And the fees would cost 33 cents a week for the average driver who drives 12,000 miles. The gas tax would be 46 cents. That’s 79 cents a week. That’s less than one cup of coffee a week at a 7-11 – not Starbucks,” he says.

“When you put it that way, almost anybody would pay it,” he adds.

Not Chris Sybo, owner of Trio Trucking, a heavy equipment hauling company in Pittsburgh. For one job hauling equipment from Pittsburgh to Harrisburg he had to use 33 different routes. “All because of the bridges,” he says. Despite this, he wouldn’t pay more in gax taxes: he believes they’re high enough as they are and the state still has “the worst roads” in the nation.

Rendell, always ready with a plan B, offers another solution: an 8 percent tax on the gross profits of oil companies doing business in Pennsylvania. That alone would raise $576 million, he claimed in a plan he submitted to the legislature.

“We’re trying to do it here with a bar on passing it through to the consumer at the pump,” he says. Rendell is always ready with a poll: a recent press release from the office of the Governor indicates that 74 percent of Pennsylvanians would support such a tax.

Markosek and Geist are both more skeptical. Markosek doubts that there is even the “political appetite” in Harrisburg to get “anything significant passed prior to the new government getting here”. A Republican staffer offers a similar explanation: “Rendell fatigue” among some members of the legislature.

That’s the political reality not just of Harrisburg, Pennsylvania, but also of Washington DC. There, politicians are struggling precisely with the same problems: a crumbling infrastructure, a fear of raising taxes and a political gridlock that puts Harrisburg in the shade. Even Rendell’s oil tax has its mirror image in a per-barrel oil tax being mulled by Congress.

“The parallels are incredible,” Rendell said.

In the end, the impending call from the Secretary of Education didn’t come. But it’s safe to say that even if Washington DC won’t be calling on him, he’ll keep calling on Washington DC. He remains committed to Building America’s Future, a Washington DC-based infrastructure advocacy group he co-chairs with California Governor Arnold Schwarzenegger and New York City Mayor Michael Bloomberg.

“It is my belief that the needs of our transportation infrastructure – all infrastructure: water, wastewater, ports, airports, dams, levees, locks – the needs are so great that we need both enhanced state funding and enhanced federal funding,” Rendell says. So even if he can no longer fight for state funding, he’ll be sure to keep the pressure on the Feds once he leaves office.

Chances are he’ll do so on TV as much as he will in person. Rendell’s a favourite guest on a plethora of cable TV talk shows, like the Rachel Maddow Show. And he doesn’t shy away from providing sharp commentary: “Tonight Rachel Maddow is about extremism in the GOP. Do you still want to do it?” asks his assistant at one point. “Sure”, he replies.

Geist jokingly offers another post-gubernatorial occupation for Rendell: “Baseball commissioner”.

No matter what the 66 year-old Rendell gets up to or how the state’s transportation crisis pans out, no one will deny the efforts he made to fix the state’s infrastructure. Nor the leadership he provided on the issue.

As longtime Philadelphia Inquirer columnist Steve Lopez said of the former Philadelphia Mayor in 1993: “He’s supposed to have the solutions to every problem, maybe even a miracle now and then”.
Even if he ends up with neither, Edward G. Rendell will have accomplished a lot.