Draft excerpt from Bill Keisling’s book underway: “Noah’s Ark Deal (Act 61 of 1985)”


Editor:  Bill Keisling’s publications have been suspended as he works on his latest book, a compilation of representative items of Pennsylvania corruption and also of special laws favoring special interests.  Below  is a  draft sample:

By Bill Keisling

Throughout the years of the Republican Thornburgh administration, from 1979 to 1987, the Democrats had been shut out of the awarding of contracts on the Pennsylvania Turnpike, and throughout state government. They retaliated by causing gridlock wherever possible. A continuous, bare-knuckle battle ensued for control of the Turnpike Commission and its plums. The battle between Gov. Thornburgh and the legislature lasted for seven years.

There have traditionally been two turnpike commissioners from each party. The governor formally names each appointment, which must be approved by two thirds of the state senate. So the governor must take the counsel of the senators. If he doesn’t, it means trouble. Various factions would often shoot down even their own party members if that nomination seemed unable to provide proper largesse.

The fight was really about gaining control of awarding the lucrative bond work, and the resulting political contributions. To get his nominee Frank Ursomarso onto the Turnpike Commission in 1984, Thornburgh was forced to accept James Dodaro as Democratic commissioner. So Republican Thornburgh’s greed set the stage for the monumental greed shown by the Democrats over the next decade.

In 1985, wanting to end the gridlock at the turnpike and proceed with various highway expansion projects (and to get those contributions rolling in), Thornburgh cut an infamous deal with late House Majority Leader, and Democrat, James Manderino.

Known officially as Act 61 (signed September 30, 1985), the legislation authorized $4.5 billion in turnpike projects. Thornburgh and Manderino agreed that each job associated with the turnpike bond issue would be performed by two firms, one from each party. They called it the “Noah’s Ark Deal.” The idea, as with Noah’s Ark, was that “two of everybody would come along.” Everybody, that is, but outsiders.

(Act 61 reads: “The commission may sell such bonds, notes or other obligations in such manner and for such price as it may determine to be for the best interest of the Commonwealth.”)

The size of the proposed bond issues, the prospect of awarding the bond work on a no-bid basis, and the opportunity for the resulting political contributions caused the two parties to happily strike the Noah’s Ark deal. At the time the transaction was estimated to be worth more than $10 million in fees to the associated brokerage houses. One turnpike observer shared the opinion that total profits were actually much higher.

The deal was composed of short- and long-term bonds. The short-term bonds would periodically be refinanced or “remarketed.”

(Act 61 reads, “The commission is hereby authorized to provide, by resolution, for the issuance of turnpike revenue refunding bonds for the purpose of refunding any turnpike revenue bonds, notes or other obligations issued and then out- standing.”)

The numerous remarketings of short term bonds, one observer estimated, nets the bondsellers $5 million in fees each time. The financial firms argue that the fees are offset by lower interest rates, which compensates the state. Who knows? “The interest rates and the amortizations on these deals are so complicated,” one interested party told me at the time, “you have to be Einstein to figure it out.”

All told, the profits of the long-term bond issue, the refinancing of the short-term bonds, the legal work, and proceeds to all the associated, smaller brokers down the line, might in the end have created fees approaching $100 million, I was told.

No one’s ever conducted an official tally of profits from the 1986 deal. One thing’s certain: it was by far and away at the time the largest bond float ever conducted by the Commonwealth of Pennsylvania. (The next largest Pennsylvania bond issue, according to the industry publication The Bond Buyer, was a $375 million float in 1950 for veteran’s assistance.)

Before 1986, the awarding of bond issues wasn’t the cut-and-dried, turn-it-over-to-our-sweethearts proposition that it would become to this day. In comparison, the last turnpike bond offering in the late 1970s, for climbing lanes, amounted to only about $75 million. That bond issue wasn’t a no-bid giveaway — requests were made to the bonding community for proposals.

The 1986 bond issue was not only monumentally large. Of greater significance, the rules of the game were changed to award mind-boggling sums of no-bid work.

This came at a time when “lunch bucket patronage” — the time-honored practice of the political parties’ macing of state employees for $50 or $100 a year — was largely made illegal by U.S. Supreme Court decisions and civil service reforms.

The politicians happily discovered that contributions from deep-pocketed bond dealers and law firms, called “pinstripe patronage,” was much more lucrative than hitting up Joe Sixpack.

In the coming decades “pinstripe patronage” would drive staggering campaign contributions from the grateful, inside-crowd bond dealers and law firms. The politicians, and their buddy bond brokers, cashed in big.

The public, which doesn’t understand or care about bond trading, largely turned a blind eye.

Before Act 61, the Turnpike was close to retiring all its debt: the toll road at the time of the passage of Act 61 was only $65 million in debt. Had that debt been retired without Act 61, the turnpike, by its founding statutes, would have gone out of business, to be controlled by PennDot as a “free highway.”

Instead, with Act 61, the debt would continue to pile up, to this day. And the tolls on the Turnpike would continually increase.

The Turnpike Commission approved a 30 percent toll hike in 1987, and another 30 percent toll increase in 1991 to finance the expansions of Act 61.

Updated: December 29, 2016 — 11:15 pm
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