Leasing Pike may pay off, but at cost

Lawmakers cautious of a quick debt fix

Private investors from Australia and Spain paid the City of Chicago $1.83 billion for a 99-year lease on a toll bridge three years ago. The State of Indiana took in $3.8 billion for its main toll route. Governors in New York and Florida, desperate for cash, are considering similar deals.

Now, as Massachusetts ponders leasing the turnpike and the Big Dig tunnels to the highest bidder, questions are being raised about whether an abundant short-term gain would outweigh the long-term loss of one of the state's most valuable assets with the likelihood of frequent, incremental toll increases for decades to come.

Senator Steven A. Baddour, who will preside over a public legislative hearing on privatizing the turnpike today, believes that such a plan must be considered as the state tries to decide how to fund its financially troubled transportation agencies. He and other Senate leaders have proposed privatization as a way to minimize a recently proposed toll increase and avoid a gas tax hike.

"If there's a way for the Commonwealth getting billions of dollars in up-front money that allows us to pay off the Big Dig debt and allows us to make a dent in the MBTA debt, we should at least take a look," said Baddour, a Methuen Democrat and cochairman of the Legislature's Joint Transportation Committee.

But many urge caution. Though popular in other parts of the world for decades, lease contracts on existing US highways have been limited to about a half-dozen very recent cases, whose full impact is unclear.

Opponents worry about losing control of public property and point to deals with private firms that have soured in the past when desperate politicians failed to anticipate long-term risks. Even proponents say lawmakers need to clearly understand what they want out of the partnerships and make sure they are getting good advice when they sit across the negotiating table from some of the world's most sophisticated multinational companies.

One 2005 report estimated the state could collect $5 billion to let someone else collect tolls and maintain its main east-west route for the next century. But no one really knows what the road would fetch on the open market.

The Patrick administration spoke with financial advisers and investment bankers early last year about the potential to lease the turnpike. But officials did not take the discussions further, in large part because of concerns about losing control of a major asset for a long period, said Jay Gonzalez, undersecretary of administration and finance. Gonzalez said the administration remains open to the idea, but pointed out that a big cash infusion depends on contracts that would allow tolls to increase for decades.

"What are you letting them do in return for that up-front payment?" Gonzalez said.

The City of Chicago was the first American government to lease an existing road, the 7.8-mile Chicago Skyway, in 2005.

The agreement allowed the private consortium to raise rates yearly, with hikes tied roughly to the rate of inflation.

That is far less than the recent proposal favored by the Patrick administration, which would double tolls at the Ted Williams and Sumner tunnels early next year.

Private deals can prevent toll rates from spiking erratically because the contracts often require steady increases. That can be attractive to public officials because they no longer have to immerse themselves in politically difficult decisions to raise tolls every few years.

But that also means tollpayers have no recourse once the contracts are signed. And it guarantees that tolls continue for 50, 75, or 100 years, depending on the life of the lease.

The Massachusetts Turnpike's bonds are scheduled to be paid off in 30 years, but the state could eliminate tolls before that if it found another way to pay them off.

Whoever agrees to take over the turnpike would also have to consider the price of maintenance, estimated at $1 billion over the next 10 to 20 years.

Robert Poole, a transportation specialist with a free market think tank that supports such projects, said the state could make more money by allowing a private vendor to add electronic tolls to the Tip O'Neill Tunnel, timed to charge more during peak driving hours. In addition to increasing potential bids, it could tame congestion in future years as traffic volume increases in the tunnels, he said.

"I know it would be politically difficult, but it would really make sense," said Poole, of the Reason Foundation.

But suggestions to add tolls have helped to make private partnerships a tough sell. Commuters worry they will pay more, and lawmakers say that if someone is going to make more money on tolls, it might as well be the state.

In September, a deal to lease the Pennsylvania Turnpike for $12.8 billion fell through, despite support from Governor Edward G. Rendell, after the Legislature refused to endorse it.

"What a lot of us here determined was that we in fact are selling one of our most valuable assets for a bargain-basement price," said Joseph F. Markosek, a Pennsylvania state representative who leads the Transportation Committee there. "Yeah, we get 8, 9 billion net up-front here, . . . but that has to last us 75 years."

The long-term implications also trouble Representative Joseph F. Wagner, a Chicopee Democrat and House chairman of the Transportation Committee.

He points to the Turnpike Authority's decision in the late 1990s to enter into complicated financial deals with investment bankers called swaptions, agreements that crumbled with the financial markets and has put taxpayers at risk of owing hundreds of millions.

"There was a time when that idea just seemed terrific," Wagner said. "But nobody is talking about that today. When you are talking about state assets and the leveraging of those state assets for cash, I think you need to, A, be thoughtful and, B, be careful."

The hearing is at 1 p.m. today in Room B-1 at the State House.

Noah Bierman can be reached at nbierman@globe.com.