'Foreign' is not a dirty word: International firms should be welcome to bid on the Pennsylvania Turnpike lease

By Todd Malan

In the debate over leasing the Pennsylvania Turnpike, it's about time people stopped using the word "foreign" as if it were an expletive.

Gov. Ed Rendell's proposal to lease (not sell) the Pennsylvania Turnpike to private companies could raise from $12 billion to $18 billion for the state which can be allocated to other infrastructure priorities, including nearly 6,000 structurally deficient bridges, all while improving the quality of this vital transportation asset.

While there may be legitimate public policy issues involving private contracts for public infrastructure, opponents focus on excluding international companies from bidding by bandying the word "foreign" around. Fear mongering is not only cheap politics but also deeply contrary to Pennsylvania's interests.

First, none of the bids will lead to any private company, foreign or domestic, owning the Pennsylvania Turnpike. Consortia are competing to manage a long-term lease, under strict performance-based conditions, in exchange for turnpike toll revenue. If a company fails to fulfill its obligations the terms of the lease will terminate and the state keeps the proceeds. They can't shut down the turnpike, they can't fail to maintain the road and they can't take it anywhere.

Second, and perhaps most importantly, excluding potential bidders because they are based abroad would dramatically diminish the revenue the state receives in a competitive bidding process. Imagine selling your house but only letting left-handed people make an offer. It's just common sense: Limit the market and you get a lower price. If international players are excluded, it will mean less money for road improvements or other important budget priorities in the commonwealth.

Third, Pennsylvania has enjoyed important economic benefits from foreign investment or "insourcing." Under governors of both parties, Pennsylvania has worked hard to recruit international companies such as Bayer, Nestle and GlaxoSmithKline to invest in the state. The state recently won an investment from Spanish company Gamesa that put 1,000 full-time manufacturing jobs in a former Ebensburg steel plant making blades for wind turbines. U.S. subsidiaries of foreign companies employ more than 233,000 Pennsylvanians, according to the U.S. Department of Commerce. These include 78,700 jobs in manufacturing, which often have a strong multiplier effect in the economy by stimulating job creation among suppliers.

If Pennsylvania pulls back the welcome mat by passing legislation that would ban or limit international companies from one sector of the economy, it would send a terribly chilling signal to international companies considering investments in other sectors. Keep in mind that these companies have choices and you can bet other states like New Jersey or Alabama will make hostile legislation in Pennsylvania a cornerstone of their marketing pitches.

Consider how "foreign" these companies really are and if that is really so problematic. The international companies that are qualified to bid for the turnpike lease are from such scary places as Canada, Spain, Australia and Italy -- all countries allied with the United States. Moreover, these companies bring decades of expertise in managing public infrastructure. Writing in the City Journal, Steven Malanga noted that within three months of closing a deal to manage the Chicago Skyway, Australia's Macquarie Bank and Spain's Cintra "had installed an electronic toll-collection system to help zoom traffic along and assigned additional collectors during rush hour to gather cash more quickly ... Chicago didn't bother with any of these reforms when it managed the road."

Moreover, the way these deals are structured, the lease is awarded to a "manager" who in turn builds a fund of investors. Participants in these funds usually are government pension funds or money managers looking for long-term steady returns backed by assets in dependable legal environments. So while companies like Abertis or Babcock & Brown may be based in Spain or Australia, they have operations and employees in Virginia, California and Pennsylvania, and the beneficial investors behind them could be any of a number of Pennsylvania state pension funds.

Finally, if the bidding process is robust, the likely value of the lease would be so large that no company leading a consortium (U.S.-based or not) could avoid international participation in the funding group. Regardless of the nationality of the managing firm, the workers would be local, the investors would be from both the United States and abroad and the turnpike would stay where it is.

The "foreign" argument is just a way for people who have other vested interests to distract the debate. Pennsylvanians should stay focused on their self-interest: creating a competitive process that maximizes financial benefit while providing the highest quality service and stewardship.

Todd Malan is president and CEO of the Organization for International Investment (www.ofii.org), which represents international companies invested in the United States.