Pennsylvania’s Turnpike Commission Toll Grab Raises Concern
Pennsylvania’s reliance on toll revenue from the nation’s oldest turnpike to fund other road and mass-transit projects is starting to worry Janney Montgomery Scott’s Alan Schankel.
The Pennsylvania Turnpike Commission is selling about $650 million of revenue refunding bonds Sept. 22, taking advantage of near record-low borrowing rates to reduce costs. While the timing is good, Schankel said that projected future toll increases needed to pay off the securities risks are sending drivers to alternative roadways.
"I have concerns about the massive amount of debt they’re accumulating to fund transportation projects in the state unrelated to the turnpike," said Schankel, a municipal strategist for Janney in Philadelphia. “That bothers me because it accumulates a lot of debt, and they’re going to have to pay for that with regular toll increases."
The turnpike commission has been on the hook for $450 million in annual payments to the Pennsylvania Department of Transportation since 2007, and will be until 2022, when the annual transfer is reduced to $50 million. Financing of annual debt payments has been done primarily with new debt, he said.
The money siphoned from the toll road supports non-turnpike transportation projects, such as state infrastructure and public transportation. In addition to refunding part of its $10 billion outstanding debt, the turnpike commission plans to hike toll rates every year until 2044 for debt service.
A Moody’s Investors Service report estimated before the sale that the refunded bonds will result in a net present value savings of 12 %. Moody’s gave $258 million of the bonds an A2 rating, the sixth-highest investment grade, while the remaining $392 million of debt received an A3 rating.
The A3 rated bonds from the third series were priced to yield as much as 3.43 % in 2041.
