Doubts snarl Pa. Turnpike lease
HARRISBURG -- A 99-year lease of the Pennsylvania Turnpike could yield a one-time fee of up to $18 billion that, once invested, could provide about $1.6 billion annually to fix roads, bridges and bolster mass transit, says a report released Monday by a state financial consultant.
But political and legal problems surfaced immediately.
Democratic Gov. Ed Rendell is preparing to ask the Legislature to conceptually approve a turnpike deal with few specifics in place. Republicans, who control the Senate, likely won't approve "a pig in a poke," said Stephen MacNett, general counsel for the Senate GOP.
Secrecy surrounding the preliminary proposals of companies interested in a turnpike lease also complicates the issue.
"Let us look at the 47 proposals that came in. We need to see that," Senate President Pro Tempore Joe Scarnati, R-Jefferson County, told the Pennsylvania Press Club yesterday.
"Based on the advice of our financial advisors we have decided not to release those," Roy Kienitz, Rendell's deputy chief of staff, said after presentation of the report by Morgan Stanley, which Rendell hired to evaluate the turnpike lease and other options. Rendell's office said the companies' information is proprietary.
Senate Republican leaders allege the state's contract with Morgan Stanley, which could make up to $15 million on a turnpike lease, poses potential legal problems.
"We have significant concerns of a conflict with Morgan Stanley," Scarnati said.
The contract employing Morgan Stanley allows the firm to serve as an investment banker, "thereby eliminating other companies from competing for this business," said a letter from Senate GOP leaders, including Scarnati. That might pose a conflict and violate the state's Adverse Interest Act, states the letter, also signed by Senate Majority Leader Dominic Pileggi, R-Delaware County, and Senate Transportation Chairman Roger Madigan, R-Towanda.
Kienitz, in an e-mail, countered: "The contract was approved by the attorney general and we're confident it is fully legal."
Republicans also assailed a sliding scale fee arrangement for Morgan Stanley.
"Given the arrangement there is an incentive for the financial adviser to recommend the largest transaction possible, rather than a course of action which may be more balanced and more prudently serve the needs of the commonwealth and its residents," the Senate GOP letter said.
Morgan Stanley and Rendell officials denied any potential conflict.
"The general counsel's office vetted it and the attorney general's office approved it," said Stratford Shields, a managing director for Morgan Stanley.
General Counsel Barbara Adams is Rendell's top lawyer. Attorney General Tom Corbett, a Republican, approved the contract for "form and legality only," said Corbett's spokesman, Kevin Harley. That review was limited to whether it is a valid legal contract -- not the substance of it, Harley said.
Morgan Stanley is providing advice and analysis and "isn't going to determine what happens," Kienitz said. That's up to the General Assembly and the governor, he said.
Morgan Stanley doesn't get paid a dime if a deal falls through, officials said.
The Wall Street firm's report examined three options:
• A 50- to 99-year turnpike lease that could generate between $840 million to $1.6 billion a year;
• The turnpike commission's plan, calling for increased mainline fares, putting tolls on Interstate 80, borrowing money for highways and adding a $1 per vehicle "congestion" tax in urban areas, including Pittsburgh, to raise about $965 million a year;
• Creating a public corporation to issue debt, which could bring in $965 million a year.
For the long-term lease proposal the study assumed there would be no toll increases until 2010. After that tolls would increase at the rate of inflation or 2 percent, whichever is greater.
The turnpike's package would cost consumers more in fares for the first 29 years, the report said.
