Indiana Tolls: Bad Policy Or Quick Cash?

Like the federal interstate system, the Indiana Toll Road celebrates its 50th anniversary this year. But the Hoosiers have already had their fireworks, and they weren't necessarily festive.

Last year Indiana Gov. Mitchell Daniels Jr. introduced Major Moves, a 10-year plan designed to fund some 200 highway and bridge projects. The cornerstone of that program was the lease of the Indiana Toll Road to a private company. According to the governor, the toll road was in trouble. It has operated at a loss for five of the past seven years and hasn't been adequately maintained. A private company would be able to operate it more efficiently than the state, and a required up-front payment would provide much-needed funding for other critical transportation needs.

Companies from all over the world bid on the toll road operation. The winning proposal came from a consortium including Spain's Cintra Concessiones de Transporte and Macquarie Infrastructure Group, based in Australia. The offer: $3.85 billion in exchange for a 75-year operating lease.

That was about $1 billion more than the only U.S. company to bid – Morgan Stanley. According to Daniels, it's more than double the estimated net present value of the road, even assuming future toll increases.

Last spring Daniels told a U.S. House of Representatives transportation subcommittee that there was really no other good alternative for raising that kind of cash. Doing it through fuel taxes would have meant a 100 percent increase in the current rate. And the state would only have been able to raise about a third of the $3.85 billion through bonding.

"While other states are raising gas taxes and paying interest on borrowed funds, Indiana will have cash in the bank and will be collecting more than a half million dollars per day in interest to reinvest in our future," he said.

FIRESTORM OVER FOREIGNERS

But the lease deal set off a firestorm of protest. Opponents warned of lost jobs, higher tolls and increased traffic on secondary roads. But the thing that seemed to bother people most was the idea of handing over a state-owned asset to a private entity – and a foreign one, at that.

Indiana legislators narrowly approved the plan, but not without heated debate. House Democrat Leader B. Patrick Bauer of South Bend called Major Moves a "major mistake." The 75-year lease to Macquarie-Cintra means that "any tolls paid by Hoosiers will be going overseas until the year 2081," he said.

Proponents counter that Major Moves will generate jobs and investment in the state. As for turning over toll road operation to a foreign company, they note that Macquarie and Cintra are among the world's biggest and most experienced toll road operations. The consortium operates the Chicago Skyway and both companies have other projects in North America.

"Indiana has foreign companies everywhere and we're always encouraging more to come, especially manufacturing companies. I don't think that should be an issue, one way or another," says Kenny Cragen, president of the Indiana Motor Truck Association.

Like most trucking organizations, IMTA opposes the imposition of tolls on roads built with fuel taxes, registration fees and other public funds; but it supported Major Moves. The Indiana Toll Road was built exclusively by tolls and has been maintained by tolls, Cragen points out. Moreover, "we were going to get a toll increase whether or not we had Major Moves legislation. The tolls hadn't been raised in 21 years so it seemed inevitable." He adds that some of the alternative proposals that might have kept the road in state hands also would have required significantly higher tolls.

Even before Macquarie-Cintra took over, the state announced a price hike. For five-axle tractors, the cost to travel the length of the toll road will go from $14.55 to $32 over four years, starting this year. Cragen says the original plan was to impose the increase in one fell swoop, but IMTA was able to talk the state into a gradual phase-in. The full-run toll fee for cars will go from $4.65 to $8.

TOLLS GO UP AFTER 2010

Macquarie-Cintra will be allowed to raise tolls after 2010, but must use a formula specified in the lease. The contract also has specific maintenance and safety requirements – down to a time limit for removing dead animals from the roadway.

Early this year a statewide consumer organization and seven Indiana residents filed a lawsuit to block the private lease, arguing that it violates a provision of the state constitution that requires proceeds from public works projects to go toward the public debt. One of the residents was an Indiana owner-operator and member of the Owner-Operator Independent Drivers Association. OOIDA had earlier testified against the plan before the Indiana legislature, and the group contributed $10,000 to the lawsuit.

"It's outrageous public policy for the country, but it's really outrageous for highway users who depend on these roads," says OOIDA Executive Vice President Todd Spencer. This and other public/private partnerships "do nothing more than create a new source for deficit spending," he adds. "It gets lawmakers off the hook for mismanagement of transportation resources over the past 20 years, but specifically since 1991, when highway user revenues began being diverted at a massive scale for non-highway projects."

The organization doesn't buy the argument that a for-profit company can run the Indiana Toll Road more efficiently than a government entity, and OOIDA doesn't like the idea of turning over operating control for 75 years. "The governor assured everyone that they have written in all the appropriate safeguards, but you don't know what the future is going to bring," Spencer notes.

He also points out that if you equate tolls to fuel taxes, the Indiana Toll Road rate for tractor-trailers works out to more than $1 per gallon, which is going to be hard for many truckers – especially small fleets and owner-operators – to pass on to shippers.

In mid June, just 10 days before the lease deal was scheduled to close, the Indiana Supreme Court rejected the constitutional challenge. It also upheld a lower court ruling that the plaintiffs would have to post a $1.9 billion bond in order to pursue the case.

Lack of funds killed the legal challenge, but the debate is likely to continue. Another Major Moves provision is an I-69 extension from Indianapolis to Evansville that would be a toll road and possibly a public-private partnership. Opponents have vowed to make this and the whole issue of highway funding a major issue in upcoming elections.