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Private Road Debate Takes Toll on Indiana Government

Tue June 06, 2006 - Midwest Edition
Lori Lovely

The Indiana Toll Road is about to be leased to a private investor — or not.

A group of individuals joined forces with the Citizens Action Coalition of Indiana to file a lawsuit in St. Joseph County to block the Indiana Finance Authority from leasing the toll road to a Spanish-Australian consortium for 75 years at the cost of $3.8 billion.

The deal with Statewide Mobility Partners, a joint venture between Cintra Concessions De Infraestructuras de Transporte, S.A. of Spain and Macquarie Infrastructure Group of Australia, has been signed. However, the project — part of Governor Mitch Daniels’ “Major Moves” plan — is at a stand-still until litigation is resolved.

Director of the Office of Management and Budget Charles Schalliol hoped for a resolution by the June 30 closing date.

If the lawsuit is not resolved by that date, he said, “the operator can refuse to close.”

That would maintain the status quo: a toll road in need of upgrades and facing a sharp rise in fares, and a long list of other road work across the state that won’t get done.

The Contract and the Controversy

The consortium — which also runs the Chicago Skyway — will pay $3.85 billion up front to lease the toll road for 75 years.

That money will fund other roadwork throughout the state — work that has been put on hold due to budget shortfalls.

Schalliol has been quoted as saying the deal will “turbocharge” the state’s economy by paying for many projects.

“This will provide money for I-69 and other long-delayed projects, like US 31 and Highway 24,” he said. “It’s a no-brainer. It puts people to work and helps distribution, which will help Indiana grow and compete with other states. We are the crossroads of America; we need to have good roads. The highway industry stands up and applauds it because it puts people to work and it provides safer and faster roads. It’s the roads and jobs bill of a generation.”

Not everyone views it as optimistically. Despite the fact that Daniels has pledged that 34 percent of the profits ($1.3 billion) will be spent in the seven counties that surround the toll road, many legislators and locals aren’t satisfied with that amount. Nor are they pleased about the possibility of the Spanish-Australian consortium hiring non-union labor at low wages.

Hammond Mayor Thomas McDermott expressed his displeasure with their cut of the profits by saying, “For the next 75 years we and our children and our children’s children will pay for tolls that go directly to southern Indiana.”

Senator Vic Heinold expressed similar sentiments, saying he didn’t think it was a fair number.

LaPorte Mayor Leigh Morris authored a letter to legislators, complaining that northern Indiana residents would be footing the bill for the rest of the state.

However, Schalliol presented figures indicating that 66 percent of the traffic using the toll road is from out of state. Therefore, northern Indiana residents are not unfairly burdened with a toll that’s destined to rise.

And rise it will. Schalliol explained that Indiana has the lowest cost per mile in the country, and even the proposed increase will bring them just under the median.

Daniels’ 10-year, $10.6-billion Major Moves transportation plan calls for commuter tolls to approximately double later this year.

He previously claimed the reason for the stunning increase is that the 157-mi. highway doesn’t pay for itself any more.

But three Indiana newspapers challenged his figures, causing officials to admit that the toll road has been self-sustaining for 50 years, and with the proposed increase, it could remain that way.

The toll road’s annual report revealed a $11.7-million profit in 2005, although officials explained that debt payments and highway upgrades had not been deducted from that figure, and point to a $16.2-million negative cash flow.

Mike McPhillips, director of the Toll Road District, reported that for 10 years after the last rate increase in 1984, the agency made $130 million in grants to counties along the road for local highway projects.

During the following 10 years, no grants were made. He estimated the cost now for postponed upgrades at $226 million.

Under the governor’s proposal, the toll increase should net $770 million in the next 10 years.

After paying the $226 million for the overdue improvements and $100 million for economic development in northwest Indiana, there’s still money left over for other state and local road work.

That leads opponents of the lease to question the need to “sell off” the Indiana Toll Road.

One of the benefits of the deal, Schalliol said, is that toll rates “won’t go up as quickly as they would have under INDOT.”

The passenger car increase will be postponed until 2010, and the 117 percent truck increase that would go into effect immediately under the Daniels’ plan will be phased in over four years if the lease goes into effect.

Even that doesn’t assuage the fears of some residents.

According to the Associated Press, Craig Johnson, an associate professor of Public and Environmental Affairs of Indiana University, worries that a private operator can implement steeper increases in the future.

“It’s easier to raise tolls if it’s a private firm,” he said. “If it’s the general government, it’s much more difficult. When you privatize, you take it out of the political sphere. You isolate it from political pressures.”

That, he believes, takes the heat off lawmakers who would have had to vote in an increase.

Buyer — and Seller — Beware

Schalliol understands the concern that the state is “selling assets to foreigners,” recognizing the connection of visceral ownership of public infrastructure and the shocking thought about leasing something they never considered could be “for sale.”

He knows some think the contractual period too long.

He also knows “Hoosiers have a difficult time with change.”

He said many Hoosiers are upset with the rate of change Daniels is implementing, but responded that “the state can’t afford to go slowly” and said Indiana is “on track for growth.”

Robert Poole, director of transportation for the Reason Foundation, which supports public-private partnerships, suggests learning from the mistakes of others.

Other projects have failed. The Camino Colombia highway, a 22-mi. road in Texas to the Mexican border, went bankrupt after three years because the projected truck traffic never materialized to pay the $16 per truck toll. The state bought the private toll road in 2004 for $20 million — a road that cost $90 million to build.

Pocahontas Parkway near Richmond, VA, cost $377 million to build in 2002. The 8.8-mi. road sees only aproximately half the projected usage.

With the state in charge of operating and maintaining it until tolls generate enough money, the lack of traffic is costing the state a bundle: $389,000 in repairs and maintenance last year alone.

The Southern Connector toll road circles Greenville, SC, in a 16-mi. ring. After opening in 2001, it lost customers in 2005.

However, thanks to a 50-cent toll increase, for the first time it made a payment without dipping into its reserve fund.

With the payment scheduled to increase $10 million next year, the situation looked glum until private investors stepped in. Due to that and bonds that will be paid off in 30 years, the state got a $200-million interstate built without using state resources.

In Orange County, CA, a private conglomerate built 10 mi. of express toll lanes in exchange for a 35-year lease and non-compete clause that prevented the state from building or improving roads within 1.5 mi. of the toll road.

In 2003 the state paid $207.5 million in bonds to purchase the toll lanes.

Paying for It

In Indiana’s case, Schalliol said the state will be “a whole lot better off” with the lease plan. He explained that, as part of the contract, the consortium will be required to “do things INDOT can’t afford.”

Cintra and Macquarie plan to invest up to $700 million in the first nine years of operation, according to a release on Cintra’s Web site. Schalliol detailed some of the work to be done:

• The northwestern end of the road will be widened to three lanes — something he said INDOT couldn’t afford to do.

Northwest Indiana to the Illinois state line is the most heavily traveled section.

When studies indicate that additional lanes must be added to clear congestion, the operator will be required to do the work, per the contract.

• The consortium will invest $220 million into upgrading the toll road.

• The contract dictates that an electronic tolling system must be in place within two years; the consortium has promised to implement it within 12 to 15 months.

Indiana is one of the few states in the country that doesn’t have such a system. Schalliol said it’s because the state could never afford it.

Schalliol sees only benefits from the lease deal, first of which is the upfront cash to finance badly needed transportation improvements. A long list of road projects the state couldn’t afford will now get the necessary funding to proceed.

“We’ll be able to pass out about $75 million to counties and cities for local road projects, too,” he said.

Without the lease, Schalliol said the state has only about half the $5.2 billion needed for new highway construction called for by Daniels’ Major Moves.

“Expenses are going up 5 percent a year, but revenues are going up about one or two percent. How long can that go on?” he asked.

In his search for money to fund his state’s beleaguered mass transit systems and bridges and highways, Pennsylvania Gov. Ed Rendell is watching developments in Indiana for possible solutions.

The Associated Press reporteds Rendell as stating, “This would be a great way to get money to put into immediate repair or construction.”

His administration has conducted discussions with private groups about options that include leasing an existing toll road, commissioning a new toll road, or allowing a private company to expand an existing road and collect tolls only on the new portion.

Rendell estimated that no decision will be reached for at least a year, and cautioned that any proposal must go through the Legislature for approval. Nevertheless, change is in the air in Pennsylvania.

One thing that won’t change is governance: Traffic safety and enforcement of traffic laws will remain under the dominion of the state police.

However, Schalliol said the consortium will be held accountable for maintaining the roadway in Indiana.

“They must meet the standards of caring for the road — all operating responsibilities must meet the conditions of INDOT standards … all 257 pages of standards,” he said.

Furthermore, he added, the state will be paid $150,000 per year to oversee the concessionaire and ensure that they comply with those standards. The contract also called for $6 million to fund state police, allowing the state to add 23 more officers on the road.

Daniels called the deal a “breakthrough” that may come only once in a public-service lifetime. The 75-year lease is likely to happen only once in the lifetime of his constituents, as well, but not all of them are sure that’s a good thing. They’re waiting on the courts to decide if Daniels’ dream will happen in this lifetime. CEG

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