PA Turnpike Privatization: A Watershed?

The Pennsylvania Turnpike is about to get privatized, in a deal co-led by Citigroup and Spain’s Abertis Infraestructuras. I wonder if that sum includes any rights to the abandoned World of Pigeons barn, which used to be the PA Pike’s version of South of the Border (just as depressing, but with the smell of bird feces).

Ok, maybe a more pertinent question is if this deal will prove a watershed. If approved by the PA legislature, if would be the largest toll-road privatization in U.S. history. It also would come at a time when there is a record amount of capital raised for private equity infrastructure funds (and more on the way).

So all the stars seem to be lined up, but sources tell me that the PA Turnpike transaction is more an indicator of market health than an actual market driver.

“State governments built a lot of very good infrastructure in the 1950s and 1960s,” explains a senior infrastructure investor in New York. “But now they need to maintain that infrastructure, and they don’t have the money to do it… They can privatize the existing assets, and then use the extra money to build new projects. The U.S. has a very good municipal finance system – probably the best in the world – but there are limits to it.”

I also suggested that press attention to the PA Turnpike deal could prompt other state governments to examine their own infrastructure assets. This too was shot down as being too late.

“I don’t think there is a governor or state legislature out there that either hasn’t done a privatization, or hasn’t seriously considered one,” says one member of a Wall Street infrastructure team.

He and others add that the real watershed moment for U.S. infrastructure privatization may have come last year, in the form of the sub-prime meltdown. The resulting loss of property tax revenue has exacerbated state budget shortfalls, which in turn have generated more interest in alternative financing solutions.