Value? What value?

By RiShawn Biddle

Expresso • January 30, 2006

A rule of debate is to define your terms or basically, say what you mean and explain it. Do anything otherwise and others will define what you say for you, often are your expense.

Such would be expected of state Rep. Ryan Dvorak, who as the son of the St. Joseph County prosecutor and a law student, would know this first rule. While discussing the Toll Road debate on his eponymous blog, he argues that "it is bad public policy to sell off an important public asset for a fraction of its value."

Value? What does Dvorak mean by value. If he means the value of the Toll Road in terms of replacement cost, then one would argue that the Macquarie-Cintra group acquiring the 75-year lease on it -- and note, it's the lease it's acquiring, not the actual asset itself -- is actually paying more than its $2 billion in value. Essentially they are paying more for the lease than they would have to actually spend to build it. Or the best way to put, if not for the benefits of depreciation and long-term income that can be derived from the project, one would argue that they are getting robbed.

If Dvorak means value in terms of a multiple based on revenue, then one would note that the $3.8 billion lease is 40 times more than the Toll Road's fiscal year revenues of $96 million. Or if he means a multiple based on net income -- a cap rate -- or in the case of a government operation, a surplus after paying expenses, then the group paid far more than the surplus the Toll Road returned to the Indiana Finance Authority that year. Either way, it hardly seems like it's being leased for a fraction of its value.

If Dvorak means the market value, or the amount of money a buyer is willing to pay for an asset -- and let's remember that it's a lease, not an actual acquisition involved here -- then Macquarie-Cintra has paid what it's worth to an organization that wants to acquire the lease. Since the deal was an actual bidding war between it and three other groups and the highest bid for a similar deal happens to be the one done by Macquarie-Cintra last year for the Toll Road's sister Chicago Skyway, then what that firm is willing to pay for the road is the market value. That is, after all, how the market works.

But if Dvorak is talking about sentimental value or its intrinsic value to the state, whatever that is, then that is a different story. Even then, he's on shakier ground. After all, he is talking about an intangible, something that cannot necessarily ever be determined because it depends on where one sits. To those outside of Northern Indiana, who bear the risks of delayed capital maintenance, long-term improvements and bond defaults in case the Toll Road can't continue to generate enough money to pay those expenses, its value is no value at all. And to those in Northern Indiana, where the road is based, the fact that they will get $1.1 billion in projects from the bill, along with any other projects that may be funded by the transportation trust fund created from the remainder of the net proceeds, may offset any other intrinsic value.

Perhaps Dvorak would have done well to actually define his meaning of value.