Monday, January 23, 2006

Daniels Hits Jackpot With Toll Road Bid

Gov. Daniels could not have been more delighted than to be able to announce today that the winning bid for the privatization of the Indiana Toll Road in Northern Indiana came in at $3.85 billion, a billion more than what was needed he said to accomplish the deed. According to the Governor, that is enough to fund the state's transportation construction needs for the next 10 years.

The winning bid came from Statewide Mobility Partners (a.k.a. Macquarie-Cintra), a Spanish-Australian business consortium with plenty of experience operating public tranportation systems. Under the terms of the proposed agreement, the private entity would enter into a contract to operate and maintain the Indiana Toll Road for the next 75 years; the private entity will retain all toll road revenues (currently $90 million per year) during the life the contract which would have otherwise gone to the state.

The $3.85 billion lump sum payment the private contractor will pay the State at the commencement of the contract will provide the critical funding for major construction projects included in the Governor's Major Moves initiative including:

  • Hoosier Heartland Highway
  • Fort To Port (connecting Indiana to Toledo, Ohio ports)
  • Two new bridges over the Ohio River near Louisville
  • Upgrading U.S. 31 from Indianapolis to South Bend to an interstate highway
  • I-69 extension from Indianapolis to Evansville
  • Modernization of the Toll Road

In addition to the lump sum payment, the private contractor will also be paying out some substantial funds in the early years of the contract. The contractor promises to make $200 million in toll road improvements during the first 3 years of the contract, and nearly $4.4 billion over the life of the contract. In addition to maintaining the toll road at or above the existing standards, it promises to install electronic tolling and spend $5 million for a new state police post.

There's no question that the deal the Governor has presented to Indiana lawmakers is hard to turn down, particularly given the fact that so many of these road project have been promised to Hoosiers for so many years without any concrete results. House Minority Leader Pat Bauer (D-South Bend) calls the Major Moves initiative "Risky Business." But with the toll road improvements, new transportation funds for St. Joseph County and a new interstate highway from South Bend to Indianapolis, few communities would benefit from the plan as much as his.

A question that cannot be overlooked is whether this deal is just too good to be true. There's no question the payoff in the first 10 years is going to be aplenty. But what happens from years 11 through 75 of the contract? Will the deal look as attractive then as when it was entered into? That's an important question lawmakers should seek answers to as it ponders approval of HB 1008, which is sponsored by Rep. Randy Borror (R-Ft. Wayne) and which is pending in the House Ways and Means Committee.

There may also be some legitimate concerns about turning control of the highway over to a foreign-controlled entity. There's no question Macquarie-Centra has more experience than anyone else with these deals. It has recently taken over the Chicago Skyway for $1.8 billion and has so far gotten good reviews for its performance. It also operates the Dulles Greenway in D.C. and a 465-mile highway in Chile. Altogether, it operates 30 toll roads on five continents. The current foreign ownership looks acceptable, but what if the company is later acquired by a Chinese controlled entity? Will we feel the same way then? Indianapolis residents have been less than happy with the performance of the French-owned company which operates its water utility, particularly its indifference towards water quality issues.

How much will drivers have to pay in new tolls under the plan? We know that the initial plan is to double existing tolls, but the Agreement also gives leeway to the private contractor to raise tolls additionally during the life of the contract. The resulting tolls may prove to be much higher than they otherwise would have been had the government continued operating the toll road and had the politicians had to answer to voters as tolls were increased.

The real issue may turn on what the Governor hit on in his press conference today: "It is time to stop dreaming and start digging." If the legislature turns him down, it had better plan on offering a better alternative than what he has proposed.

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