More On Daniels Very Bad Ohio River Bridge Deals

The more time passes, the more we learn of horrible decisions the former administration of Mitch Daniels made that will cost Indiana taxpayers for decades. Previously, we told you about a series respected urban affairs analyst Aaron Renn wrote about at Urbanophile describing the bi-state agreement the Daniels administration entered into with the state of Kentucky to build a new bridge over the Ohio River at Louisville that requires Indiana taxpayers to split the cost of building the new bridge even though 73% of the costs of the new bridge arise from construction-related costs on the Kentucky side of the river. As a consequence, the bi-state bridge deal requires Indiana taxpayers to cover $1.7 billion more of the costs than Indiana's actual share of the total costs. Even worse, tolls are relied upon to pay for the costs of building the bridge. Because far more Hoosiers will be traveling across the bridge regularly into Louisville than Kentuckians traveling into Indiana, Renn found that Hoosiers will pay a disproportionate share of the tolls. Making matters even worse, INDOT estimated that tolls won't be enough to cover the costs of the project. It projects that about $432 million will have to be diverted from other state highway projects to cover the shortfall.

A new report by the Louisville Courier-Journal focuses on another aspect of the departure from the norm in financing of the the east-end bridge at Utica through tolls that should cause concern. In traditional public-private partnerships involving transportation projects, the private operator assumes the risk that toll revenues will be sufficient to cover the costs of the project. Indeed, that's the financing approach Kentucky is using for its share of the bridge costs. Not so with Indiana. Indiana is backing bonds it will issue to cover its share of the costs with state appropriations. In fact, it didn't even conduct a toll revenue forecast to determine that tolls collected will be sufficient to cover payments on the bonds. Indiana is also utilizing an available funding approach to repay the bonds. No payments will be made until the bridge is open, and those payments will escalate annually starting at $36.9 million annually once the bridge is open, which will total at least $2 billion.

This funding approach is a shift away from traditional state projects in which private operators assumed the risk of toll revenues, said Robert Poole, transportation policy director at the Reason Foundation, a libertarian think tank. Overall, according to the Public Works Financing trade journal, the Indiana deal is the fourth partnership in the United States in which those payments are backed by state appropriations instead of toll revenue.

And that’s a risk, he said.

“The taxpayers are still the ones left holding the bag,” Poole said. “Some new toll facilities — bridges or toll roads — do end up in hindsight to have been based on overly optimistic projections of traffic or revenue.”

In another departure from other toll roads, Indiana didn’t conduct a toll revenue forecast typically performed when projects are financed with bonds that are repaid directly with toll proceeds. Those forecasts, which Kentucky has undertaken, are done to assure investors buying bonds that toll revenues are expected to be sufficient. But Indiana chose not to conduct such a forecast because the state’s availability payments — not toll revenue — are backing the bonds.

Indiana officials haven't even shared any toll revenue estimates with state lawmakers according to the Courier-Journal. Yet Indiana lawmakers and Gov. Mike Pence aren't concerned.

"Rep. Tim Brown, a Crawfordsville Republican and budget committee chair, said he is comfortable with the finance authority’s approach even though he hasn’t seen the agency’s internal calculations." "I think everybody feels confident that since both bridges will be tolled that, long term, over the length of this project, that it will pay for itself," Brown said.

Sen. Luke Kenley, R-Noblesville, asked York during the December meeting if the finance authority’s research took into account whether there would be enough toll revenue to cover the state’s obligations. York replied that was “absolutely correct,” a tape of the meeting indicates.

“We asked every question we could think of in terms of trying to extract that information to draw a conclusion,” Kenley said in an interview.

For his part, Indiana Gov. Mike Pence said in an interview that he supports the contracting and oversight method that was developed under the administration of his predecessor, Mitch Daniels.

Asked whether he is concerned that the state’s transportation funds — instead of toll revenue — are being pledged to meet the availability payments, Pence said, “We really believe that the approach the Indiana Finance Authority has taken to the issuance of these bonds ... is the appropriate approach.”

According to bond documents, the bridge is expected to cost Indiana $1.18 billion and open in late 2016. Indiana will start making payments in 2017 through the year 2051 totaling $2 billion. The private operator will provide $78.1 million of its own funding for the project, while the state will rely on $700 million in bond revenues and $392 million in state transportation dollars to tap the balance of its upfront costs. All told, the $1.18 billion bridge will cost Indiana at least $2.7 billion.