A Unique Opportunity. On July 5, 2012, Gov. Tom Corbett signed Pennsylvania’s Public Private Transportation Partnership Act into law (the Pennsylvania P3 Act). The next day, President Obama signed the transportation funding two-year extension into law (MAP- 21), providing $600 million in capital for both FY 2013 and FY 2014 for the TIFIA credit assistance program, up from $120 million in FY 2012. Taken together, these two transportation measures provide a mechanism for repairing, restoring and replacing Pennsylvania’s structurally deficient bridges by harnessing private investors through a public-private partnership.

The Problem. Pennsylvania leads the nation in structurally deficient bridges: more than 4,800 as of March 20121. And this is despite the expenditure of $570 million by PennDOT over the past four years to address this troubling problem. According to the Federal Highway Administration, 39 percent of bridges in the Commonwealth are structurally deficient or functionally obsolete. A proposal under the Pennsylvania P3 Act to address failing bridges in return for the right to toll such bridges — the Bridge to the Future Proposal — will capitalize on the simultaneous passage of the Pennsylvania P3 Act and MAP-21 to help accelerate project delivery, while avoiding a tax increase.

The Bridge to the Future Proposal. The Bridge to the Future Proposal would relieve the Commonwealth from the burden of restoring structurally deficient bridges by leasing identified bridges for up to a 99-year period in return for toll revenues collected at such bridges. The Pennsylvania P3 Act specifically authorizes revenuesharing, so once the bridges are repaired and operating and maintenance costs provided for, there is no bar to the Commonwealth using additional revenue from the P3 to support untolled bridges2.

A key element of the Bridge to the Future Proposal would be to combine it with a subordinated loan under the expanded TIFIA Program pursuant to MAP-21, which can fund the lesser of a third of the program or $50 million. The term of the TIFIA loan can be 35 years from the date the bridges are placed in service, and the loan can be interest only for five years after substantial completion. Since it is subordinated to any bank debt incurred by the P3, it facilitates the P3 obtaining an investment grade rating from at least one rating agency, a requirement under the TIFIA program. This helps ensure that the P3 is capitalized sufficiently to provide for the financial stability of the tolled bridges throughout the P3 concession period.

The Pennsylvania P3 Act. The requirements of the Pennsylvania P3 Act are important to understand in creating the Bridge to the Future proposal. First, a sevenmember Public-Private Transportation Partnership Board (the Board) is created to consider all P3 proposals, consisting of the Pennsylvania Secretary of Transportation, the Secretary of the Budget, one member from each of the four Legislative Caucuses, and one member appointed by the Governor. If the proprietary public entity entering into the P3 with a private party would be the Commonwealth, the Legislature has the longer of 20 days or nine legislative days to disapprove any P3 approved by the Board.

Importantly, any P3 which is approved benefits from static tax treatment, with new taxes barred. Further, it is exempt from real estate transfer taxes, ad valorem property taxes and special assessments. The private entity will be granted the same electronic tolling enforcement powers as the Pennsylvania Turnpike Commission.

The Pennsylvania P3 Act has some limitations worth bearing in mind. First, any public employee in good standing who would lose his job as a result of the P3 must be offered a job with substantially identical salary, retirement and health care benefits. Any employee who declines such a position must be reassigned to an equivalent position at a nearby worksite without loss of seniority. P3 employees must be paid prevailing wage, and construction projects must comply with the Separations Act, requiring separate four-part bidding for the trades. Assets leased under a P3 must be returned at the end of the agreement in satisfactory condition at no further cost to the proprietary public entity. And a payment and performance bond will be required for construction projects. The P3 must also comply with the Steel Products Procurement Act, and there is a preference for P3s headquartered in Pennsylvania.

The Pennsylvania P3 Act requires that all funds derived thereunder be used for transportation purposes, ensuring that toll revenue will not be diverted to nontransportation needs. To guard against diversion, all funds the Commonwealth receives will be deposited in a Public- Private Partnership Account in the Motor License Fund, ensuring their use for transportation purposes. Under the Bridge to the Future Proposal, those funds could be used to repair bridges in rural communities where traffic would not support tolling. More than 40 percent of the bridges are structurally deficient in McKean, Potter, Clearfield, Lawrence and Schuylkill counties.

Federal Requirements. Federal Law similarly requires that toll revenue derived from such a P3 be used for transportation purposes:

… all toll revenues received from operation of the toll facility will be used first for debt service, for reasonable return on investment of any private person financing the project, and for the costs necessary for the proper operation and maintenance of the toll facility, including reconstruction, resurfacing, restoration, and rehabilitation. If the State certifies annually that the tolled facility is being adequately maintained, the State may use any toll revenues in excess of amounts required under the preceding sentence for any purpose for which Federal funds may be obligated by a State under this title. 23 U.S. 129(a)(3).

Conclusion. The Bridge to the Future Proposal would use the simultaneous passage of the Pennsylvania P3 Act and MAP-21 to cost-effectively address the problem of Pennsylvania’s aging bridges. A P3 could borrow up to $100 million on a subordinated basis under the TIFIA Program, with the ability to borrow an additional $200 million pursuant to a rated bond financing. With tolling of bridges permitted under Federal law, the toll revenues on highly-travelled bridges would not only provide for repair, operation and maintenance of the tolled bridges, debt service on the bonds and the TIFIA loan, but also revenues to repair structurally deficient bridges in more rural areas. Such a program would provide $300 million to further leverage PennDot’s extraordinary efforts to remedy the challenge that a system of 50-year old bridges brings.