The wrong questions about the Toll Road deal

By RiShawn Biddle

Expresso • January 24, 2006

As one would expect with news of the state's proposed deal to hand over a 75-year lease to the Indiana Toll Road to the Macquarie-Cintra consortium, there are plenty of questions.

State Rep. Sheila Johnston Klinker asked during today's House Ways and Means Committee on House Bill 1008, the proposal that would allow for the state to make such arrangements whether on one of the consultants, Wilbur Smith Associates, was an Indiana firm. Another representative, Ben GiaQuinta, wondered why if firms such as Macquarie and Cintra, based in Australia and Spain respectively, could swing such a deal, why couldn't an American firm do so.

Then there are others such as Doug Masson of his eponymous blog, who argues against it because "it's just not a good idea to eat your seed corn," whatever that means. He wonders if the deal is an admission by Gov. Mitch Daniels that his administration can't run infrastructure projects efficiently. And there are the rest, who wonder if the proposal gives away future revenues, often without considering that inflation will often eat into the buying power of any dollar of income over time.

Asking questions makes sense and so does skepticism. One has to wonder about the sense of any deal that hands $3.9 billion to state legislators to spend, no matter how tight the transportation trust fund being started with it may seem to be. Yet the questions being asked are the wrong ones, partly because of nativist sentiments that assume that doing business with foreign companies is somehow a bad thing. Mostly, it's because they are based on the assumption that government control of all infrastructure projects makes sense.

That isn't always so.

For example, one can argue with a basic interstate or simple local road that government is best on these projects. Why? Because everyone will use them more than once during the year, which means taxes collected from all citizens, be it on gasoline or otherwise, will be needed to fund them.

But in the case of toll roads, this isn't necessarily so. For one thing, few people outside of those who either look for convenience (for example, a quicker way to go from Gary to Chicago) versus the interstate will use them; most people will not want to pay to use the road and have alternatives.

The other issue comes back to how government actually works when it comes to infrastructure. The scope of most road projects are driven as much by politics as by economic sense: The landowner who uses campaign donations to sway the direction of a road towards his property; the community that demands parks and other pork barrel in exchange for giving permission to build the road; property seized from homeowners through eminent domain because another group of landowners want a road.

These problems, along with overly optimistic traffic projections from consultants paid to drum up support for the project, are often the reason why most roads projects are never completed on budget. In the case of a toll road, this is especially problematic because fees from users are supporting it; in the case of government, its problems can turn into a high risk tax drain on taxpayers who may not exactly benefit in any direct way from its existence.

Then there is the other problem: Long-term maintenance costs on the various pieces of infrastructure that make up a toll road, some of which may have been added as part of political considerations. Over time, this becomes expensive to maintain; once again, taxpayers stand to end up on the hook for it.

To some extent, this is the problem of the Indiana Toll Road today; decades of delayed maintenance on over 300 bridges; toll lanes in Gary that need widening. All at a cost that may be initially borne by toll road users, but could end up being borne upon taxpayers in Indianapolis and the rest of Indiana, for which the road is a tangential consideration. The same can actually be said as well for the expansion of I-69, which is being funded with gasoline tax dollars of citizens from Gary, who may not ever use those sections of the road.

The question is whether the risks borne by taxpayers for the delayed maintenance and upgrades $226 million today and likely more in the future can be shifted to an entity whose risk profile is lower, especially when one considers that most of the state budget goes to Medicaid, education and property tax relief (in essence, funding local government operations). If a private operator loses money on the project, the costs are borne not by the taxpayers, but by investors, many of whom are in the financial position to bear those risks.

One can argue a privately-run section of I-69 makes no sense at all, especially considering the likelihood that traffic on the Evansville-to-Bloomington section wouldn't be enough to support such a plan. The state, however, hasn't managed the Toll Road very well. Handing the risks to the private sector, especially given the risks of capital improvements on all taxpayers, not just those in Gary, makes the lease a sensible option.

This isn't to say skepticism isn't warranted. However the deal should be looked at not in terms of either a 75-year lease or some outdated principle that no piece of infrastructure should be built or operated by the private sector, but whether such a deal fits the type of infrastructure for which it's being considered.