Toll Road

The Governor has announced his intention to sell Indiana’s Toll Road to a foreign company for the next 75 years in exchange for $3.85 billion. Apparently this will pay for transportation construction for the next 10 years. What we do for the 65 years after that, I don’t know. Just poking around at the INDOT site, a trip along the length of the Indiana Toll Road costs a normal passenger vehicle $4.15. Under the proposed deal with the Spanish/Australian consortium, that toll will be raised to $8 through 2010. In 2010, the toll can be raised at least 8% and at least 2% per year after that. That means a toll of at least $35.25 by the time the lease expires.

I’m against selling off Indiana’s infrastructure. It’s just not a good idea to eat your seed corn. Mitch Daniels reminds me of one of those kids who gets set up with an annuity through a lawsuit from when they were a minor. They see an ad on daytime television from a company that will pay a lump sum purchase on the annuity. The kid is being ripped off, the company’s only paying 50% of what the annuity is worth, but he doesn’t care, he just wants a pocket full of money right now so he can buy that bitchin’ Camaro he’s had his eye on.

Another way to look at it, I suppose, is as an admission of failure by the Governor. He is telling us that this foreign consortium can achieve billions of dollars in efficiencies that his administration cannot manage. I figure there are three ways for this consortium to make money off of this: raise tolls, decrease maintenance, and increase efficiency. I haven’t heard the Governor talking about increased tolls or decreased maintenance, so he must think they can recoup their billions through efficiencies that he can’t.

(Of course, I think this is hogwash — I think the consortium will raise tolls beyond that which the State has the nerve to do directly and will skimp on maintenance. But the logical implication of what the Governor has said and what he hasn’t said leads to the conclusion that his administration does not have the competence to realize these billions without selling off our roads to foreigners.)

Update: Niki Kelly writing for the Fort Wayne Journal Gazette has a good article entitled “Toll Road bid $8.5 billion: Daniels pushes for quick action; others urge study”.

Critics point out that Daniels has had quite some time to craft his message on this; meanwhile, legislators are expected to digest not only the enacting legislation but also the 200+ pages of the contract and its associated schedules. They’re expected to do this quickly and to make a decision on whether to mortgage the Toll Road for the next 75 years as well as to whether to approve a bill that appears to have the effect of giving the Governor authority to mortgage much of the rest of Indiana’s transportation infrastructure.

Another item I noticed is that the foreign consortium who will be buying the Toll Road has relatively short concessions in the rest of the United States — 8 miles in Chicago, 4 miles in Detroit, 13.6 miles in Washington, D.C. The Toll Road runs the length of the state making it in excess, I believe of 150 miles.

I think an interesting figure to have would be to compare the dollars paid per mile per year. Assuming a 140 mile toll road at 75 years, the amount to be paid is about $362,000 per mile per year. By contrast, the 8 mile Chicago stretch was a $1.83 billion lease for 99 years which translates to $2.3 million per mile per year.

I couldn’t find information on the other holdings, but found this admittedly biased news release from a labor newspaper discussing labor issues involving the foreign consortium at the Detroit-Windsor tunnel.

On April 24, 29 Detroit-Windsor Tunnel workers were locked out of their jobs after refusing to accept a 3.5 percent wage reduction, a two-tier wage plan to drive wages down further and a $40 co-payment on prescriptions.

. . .

Macquarie Global Infrastructure Trust, an Australian financial institution, manages the tunnel for a huge profit. Their website boasts that operating costs (less than 15 percent) make up only a “small portion” of the overall costs that are offset by toll income that is expected to be increased. The trust fund suggests that the way they will make more profits is by stripping the tunnel of its financial assets and then selling it.

Comments

  1. lawgeekgurl says

    I still say sell the naming rights for state agencies! That will raise money – the Eli Lilly Dept of Health! the Monsanto Dept of Agriculture! the Dow Chemical Dept of Environmental Management! I mean, how different is that from selling off infrastructure and selling naming rights/allowing private inns to build in state parks?

  2. Jason says

    I wish I had an insightful comment on this, but I’m still can’t get over you refering to a “Dead Milkman” song in your post! HAHA!

  3. Darryl says

    Can anyone break down HB 1008 for me? As I read it, and as some at the Statehouse argue, this bill is a power grab, potentially selling off any and all State owned transportation infrastructure solely at the Governor’s discretion. Is this acurate?????

  4. says

    Not entirely accurate, I don’t think, but close enough. It does provide for 99 year operation leases of transportation infrastructure but it’s only mostly and not entirely at the governor’s discretion. I’m getting a brief blog post up on that issue soon.

  5. Paul says

    Selling/leasing the toll road yields to the state a time discounted valuation of the surplus revenue in tolls that the road can yield over operating costs. Those tolls are paid primarily by: 1) through traffic; 2)out of state traffic with destinations in northern Indiana; 3) traffic to and from southwestern Michigan and 4) Northern Indiana residents. Items 2 and 4 concern me because they amount to a tax on doing business in northern Indiana the time discounted proceeds of which will be used statewide. In other words Northern Indiana gets free market transportation system while Indianapolis gets a share of the take to expand its still “socialist” transportation system. Fundamentally this is a ripoff by Indy of Lake, Porter, La Porte, St. Joseph and Elkhart counties.

  6. Darryl says

    Thanks. That’s my read as well. I’ve been hammering away over the past week on my talk show in Bloomington, Indiana on the SCOPE of HB1008 and people are shocked and surprised of the possibilities. Yet few are writing about the story, instead focusing only on the Toll Road and I69 components.

    I thought I may be missing something — I’m glad to see someone else who reads the bill the same way.

  7. RiShawn Biddle says

    The problem with the arguments being made, Doug, is that it assumes that government control of all infrastructure projects makes sense. That isn’t always so.

    For example, one can argue with a basic interstate or simple local road that government is best on these projects. Why? Because everyone will use them more than once during the year, which means taxes collected from all citizens, be it on gasoline or otherwise, will be needed to fund them.

    But in the case of toll roads, this isn’t necessarily so. For one thing, few people outside of those who either look for convenience (for example, a quicker way to go from Gary to Chicago) versus the interstate will use them; most people will not want to pay to use the road and have alternatives.

    The other issue comes back to how government actually works when it comes to infrastructure. The scope of most road projects are driven as much by politics as by economic sense: The landowner who uses campaign donations to sway the direction of a road towards his property; the community that demands parks and other pork barrel in exchange for giving permission to build the road; property seized from homeowners through eminent domain because another group of landowners want a road.

    These problems, along with overly optimistic traffic projections from consultants paid to drum up support for the project, are often the reason why most roads projects are never completed on budget. In the case of a toll road, this is especially problematic because fees from users are supporting it; in the case of government, its problems can turn into a high risk tax drain on taxpayers who may not exactly benefit in any direct way from its existence.

    Then there is the other problem: Long-term maintenance costs on the various pieces of infrastructure that make up a toll road, some of which may have been added as part of political considerations. Over time, this becomes expensive to maintain; once again, taxpayers stand to end up on the hook for it.

    To some extent, this is the problem of the Indiana Toll Road today; decades of delayed maintenance on over 300 bridges; toll lanes in Gary that need widening. All at a cost that may be initially borne by toll road users, but could end up being borne upon taxpayers in Indianapolis and the rest of Indiana, for which the road is a tangential consideration. The same can actually be said as well for the expansion of I-69, which is being funded with gasoline tax dollars of citizens from Gary, who may not ever use those sections of the road.

    The question is whether the risks borne by taxpayers for the delayed maintenance and upgrades — $226 million today and likely more in the future — can be shifted to an entity whose risk profile is lower, especially when one considers that most of the state budget goes to Medicaid, education and property tax relief (in essence, funding local government operations). If a private operator loses money on the project, the costs are borne not by the taxpayers, but by investors, many of whom are in the financial position to bear those risks.

    I know native Hoosiers in general are suspicious of any idea that doesn’t originate from within the state. Nor should one not be skeptical of any deal that hands $3.9 billion to state legislators to spend, no matter how tight the transportation trust fund being started may seem to be. However the deal should be looked at not in terms of either a 75-year lease or some outdated principle that no piece of infrastructure should be built or operated by the private sector, but whether such a deal fits the type of infrastructure for which it’s being considered. One can argue a privately-run section of I-69 makes no sense at all, especially considering the likelihood that traffic on the Evansville-to-Bloomington section wouldn’t be enough to support such a plan. The state, however, hasn’t managed the Toll Road very well. Handing the risks to the private sector, especially given the risks of capital improvements on all taxpayers, not just those in Gary, makes the lease a sensible option.

  8. Kevin Knuth says

    The math on this deal bothers me-

    At CURRENT toll rates- over 75 years the the toll road will generate 6.75 TRILLION dollars.

    But we only get $3.8 Billion?

    And with the toll increases that are certain to come, we make out even worse.

  9. RiShawn Biddle says

    Don’t you mean $6.75 billion? And you’re forgetting two things. The first? While revenues may increase over time, so do expenses, including those related to capital maintenance. As is, the only reason why the toll road has eaked out money in the past few years is due to delays in capital outlays, which would have required either additional bond issues or an assist from taxpayers.

    Then there’s inflation, which like death and taxes, is a part of life. A dollar today may only be worth two pennies or even five pennies in 75 years; so the $7 billion you mention would only have the buying power of $14 million in today’s dollars. Any economist can tell you that the discounted value of money must be factored into all this.

    This is another example of the wrong question being asked.

  10. says

    One of the problems we have here is the time frame for asking questions. Legislators are being asked to consider greenlighting a 75 year sale of a major chunk of Indiana’s transportation infrastructure with only a matter of days to study the issue and make a determination. That’s insane. Governor Daniels boilerroom sales tactics are a bad way to make policy.

  11. says

    Just to add a bit to the discussion, Here is a Bloomberg article in which Cintra estimates it will earn a 12.5 percent rate of return on its equity investment in the project.

    One of the ways in which revenue will be raised is by more than doubling tolls.

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