Interstate compacts are legal agreements between states designed to address issues that transcend state lines. Compacts enable states to act jointly on matters that are beyond the authority of an individual state but are not within the specific purview of the federal government. States have entered into interstate compacts to act jointly to address a variety of concerns including resolving border disputes, allocating interstate waters, enhancing law enforcement, disposing of radioactive waste, and developing regional transportation systems, among other issues. According to the Council of State Governments, more than 200 interstate compacts exist today, and most of those are for purposes other than managing interstate crossings. To form an interstate compact, two or more states typically negotiate an agreement, and each state legislature enacts a law that is identical to the agreement reached. Once all states specified in the compact have enacted such laws, the compact is formed. In cases where the compact affects the balance of power between the federal government and the states, the states must obtain the consent of Congress for the compact to be valid. Congress can give its consent by passing legislation that specifically recognizes the compact as enacted by the states, at which time the compact becomes federal law. Congress may impose conditions as part of granting its consent, and it typically reserves the right to alter, amend, or repeal its consent in the compact itself. Congress included such a provision in each of the public laws consenting to the four interstate compacts in this review. In establishing an interstate compact, states usually delegate authority to an independent entity, such as a bi-state tolling authority, that is created to administer and implement the compact’s provisions. Decision-making for each bi-state tolling authority is the responsibility of a board of commissioners composed of representatives of the member states, who are appointed by a state’s governor, such as local government officials, or serve by virtue of their elected position, such as a state treasurer. In addition to appointing commissioners, state governors may have authority to veto decisions made by commissioners from their state if such authority is specified in the compact or provided through reciprocal legislation passed by the states. The interstate compact includes the terms to which both states have agreed, and to which Congress has provided its consent. Some compacts include language that enables states to modify a compact through reciprocal legislation. Unless the bi- state authorities engage in programs that receive federal funds, such as operating transit systems or airports, they are generally not subject to federal oversight. The four bi-state tolling authorities manage a wide range of facilities, but the PANYNJ is significantly larger than the other three in terms of assets owned. At the end of fiscal year 2011, the PANYNJ reported that the total value of its assets was approximately $33.9 billion, which includes its five airports, six tolled crossings between New York and New Jersey, the World Trade Center properties, and other assets. By comparison, the DRPA’s $1.8 billion in total assets in 2011 was the next-largest asset value. New Jersey has a unique stake in these bi-state tolling authorities as it is the only state that is a party to each of the four interstate compacts in our review. See table 1 for a summary of the assets maintained by the four bi-state tolling authorities in our review. The bi-state tolling authorities primarily fund the operation and maintenance of these facilities through tolls and other user fees collected from assets they manage. Many of these bridges and tunnels require significant renovations due to their age, and the costs of maintaining these facilities are substantial. For example, the PANYNJ began construction on the George Washington Bridge in 1927 and the bridge opened to traffic in 1931. Approximately 270,000 vehicles cross it every day, and the PANYNJ plans to spend $544 million to replace the suspender ropes on the bridge from 2011 through 2020. Each of the bi- state tolling authorities has instituted a toll increase in the past 5 years to help fund such renovations, and the toll rates may vary based on the type of vehicle crossing the facility (e.g., passenger vehicles or commercial trucks), whether cash or electronic payment (EZPass) is used, and the time of day. For example, the PANYNJ, which collects tolls from eastbound drivers entering New York City on its facilities, raised the toll rates for automobiles paying cash from $8 to $12 in September 2011, with an additional increase of $1 for cash tolls in December 2012 and additional $1 increases effective in December 2014 and December 2015. Passenger vehicles using EZPass pay less—$8.25 during off-peak hours and $10.25 during peak hours. See table 2 for an overview of the passenger vehicle toll rate ranges and bi-state tolling authorities’ operating revenues and expenses in fiscal year 2011. To secure financing for capital improvements to their facilities, bi-state tolling authorities issue bonds to creditors and pledge tolls and other revenues for the repayment of the bond principal and interest. The four bi- state tolling authorities are required through either their bond agreements with creditors or bylaws to have an annual audit of their consolidated financial statements by an independent audit firm, which provides assurance that financial information reported to the public is accurate and fairly presented. These audits are generally not designed to evaluate the effectiveness of an entity’s internal controls or management’s overall performance in achieving its objectives, but are meant to provide assurance that the financial information provided to creditors and the public—including assets, liabilities, revenues, and expenditures—are free from material misstatement. In recent years, the operations of two bi-state tolling authorities, the DRPA and the PANYNJ, have been the subject of public scrutiny and media attention. In response, the governors of New York, New Jersey, and Pennsylvania directed the authorities to allow reviews that identified concerns about the management and operations of the two authorities. Specifically, as a condition of the governors’ approval of the PANYNJ’s 2011 toll increase, the PANYNJ contracted with two consulting firms to undertake a comprehensive review and audit of the PANYNJ’s finances and operations. Generally, this audit (1) found, among other things, concerns with the PANYNJ capital-planning process, cost controls, and oversight of the World Trade Center program, and (2) summarized reform initiatives undertaken by PANYNJ to address concerns. In July 2010, the governors of New Jersey and Pennsylvania directed the DRPA to agree to an independent investigation of its operations by the New Jersey Office of the State Comptroller. The State Comptroller found issues with the transparency of DRPA’s practice of sharing insurance commissions, providing unlimited free bridge passes to DRPA employees, and the conduct of its economic development program. DRPA has passed several board resolutions to address concerns. During the course of our review, DRPA reported that its economic development program was under review by a federal grand jury led by the U.S. Attorney’s Office in Philadelphia. Interstate compacts provide the bi-state tolling authorities with broad authority to set toll rates and use revenues for a range of purposes, including capital improvements for their transportation infrastructure and, in certain cases, economic development projects. In setting tolls, bi-state tolling authorities are primarily influenced by bond agreements, as well as operations and maintenance costs and other factors. To obtain financing for capital projects, bi-state authorities pledge through bond agreements to maintain specific revenue required to repay their debt. The bi-state authorities set toll rates to meet these revenue requirements, while also accounting for the costs of maintaining the infrastructure given economic conditions, traffic levels, and other factors. Federal law has less influence on tolling decisions because currently no federal agency has the authority to enforce the federal requirement that bridge tolls be “just and reasonable.” In addition, some federal courts have questioned whether a private party has the right to challenge toll increases in court under this requirement. However, private parties also have been able to challenge toll increases in federal court under the Commerce Clause of the U.S. Constitution. The interstate compacts generally provide the bi-state tolling authorities with broad authority to set rates and use toll revenues to maintain, repair, and improve their transportation infrastructure and cover other expenses. Although the specific language in the interstate compacts varies, the bi- state authorities are permitted to set tolls and use tolls and other revenues for bridges, tunnels, and other infrastructure. The bi-state authorities are also generally permitted to use tolls and other revenues to cover operations and maintenance costs, make capital improvements, repay debt obligations, maintain reserve funds to address contingencies, or to make other investments. The bi-state tolling authorities prepare capital plans that prioritize their large-scale projects to improve and maintain their facilities, such as bridge resurfacing, painting and de- leading, and replacing and repairing bridge cables and transit cars over a period of several years. For example, PANYNJ officials reported that over the past 5 years, the PANYNJ has spent approximately $2.5 billion on capital projects for its “interstate transportation network,” which includes its bridge, tunnel, PATH train system, and bus and ferry facilities. Similarly, DRPA’s approved 2013 capital plan identifies more than $746 million in capital improvement projects for its four bridges, transit line, and other facilities over the next 5 years. The DRPA reported that in 2010, its board approved two contracts totaling nearly $140 million to replace the deck of the Walt Whitman Bridge and monitor construction of the project. Bi-state authorities are also permitted to use toll revenues to subsidize other operations, such as transit services. For example, the DRPA reported that in its 2012 capital plan, it provided about $33 million to its PATCO train line for capital projects, such as rehabilitating tracks and other improvements, representing about 26 percent of its total capital program for that year.