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Study calls Indiana Toll Road lease a bad deal

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The Indiana Toll Road lease may have paid off in the short term, but a new study concludes it'll be a bad deal for taxpayers in the long run.

Indiana received $3.8 billion for leasing the toll road to a private consortium for 75 years. The money from the 2006 deal helped pay for major repairs and improvements on state highways. Indiana maintains ownership of the road, and the ITR Concession Co. gets the revenue and has to pay for road maintenance.

But John Gilmour, a government professor at the College of William and Mary in Williamsburg, Va., said the state took an upfront payment at the cost of millions of dollars in revenue from rising toll rates that would have gone into the state treasury in later years.

"These transactions have important consequences for intergenerational justice because they enrich current citizens and governments at the expense of future citizens and governments by transferring future revenue to current budgets," Gilmour says in his report.

A state-commissioned study in 2006 determined that if the toll road remained under public control, the net value of tolls over 75 years would be $1.92 billion. The state got $2 billion more than that from the lease.

But Gilmour said that study assumed toll road rates would increase at about the same rate as they had in previous decades, The Elkhart Truth reported. That's not a valid assumption, Gilmour claims in his report, which appears in the November/December issue of Public Administration Review, a journal put out by Indiana University's School of Public and Environmental Affairs.

"In the current fiscal climate, states are demanding more from their toll roads, and it is likely that Indiana would have, too," he writes. He goes on to note that Daniels had increased tolls on the toll road prior to the lease offering to make the lease more valuable, "showing that raising tolls is not impossible or politically suicidal."

Under its deal with the state, ITR Concession Co. has been able to increase tolls each year since 2010 within certain guidelines, which will be loosened in 2016. After that, Gilmour expects tolls to "keep rising at a brisk pace" to allow the company to make a profit.

Indiana officials say the report is flawed in a response in Public Administration Review.

Troy Woodruff, the Indiana Department of Transportation chief of staff, defends the deal, saying taxpayers won't have to pay for more than $4 billion in toll road infrastructure costs because they'll fall to the operator instead of Indiana, and ITR Concession Co. has already invested more than $300 million in improvements. He maintains that those factors weren't considered by Gilmour.

Woodruff also notes benefits credited at least partially to road improvements financed by money from the deal, including a new Honda factory near Greensburg that employs 2,000 people and an Amazon.com complex in southern Indiana that provides more than 1,000 jobs.

And, he says, the toll road lost money in three of the last five years it was under public control.

"Prior to the lease, the road had generated a total of only $254 million for other purposes over its entire history," Woodruff says.

Gilmour still maintains there are better alternatives than the method used by Indiana, such as structuring the deal to provide payments to the state over the entire term of the lease instead of just at the beginning. Or, he says, the state could simply have raised tolls on its own.

"It is easy to see why current politicians view asset leases with upfront payments as wonderful, allowing them to spend today without raising taxes or appearing to incur debt," Gilmour says. "In short, the ITR lease is a great deal for current residents of Indiana, but it offers little to those who will live in Indiana in future decades."

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  • Toll Road
    I remenber, watching the toll road, being built, through South Bend, when I was 10 years old. I believe, back then that it was estimated, that the toll road, would be paid for in 20 years and then it would be free. I am now 71, what happened? Since the power is in the people, by that, I mean that, we the people are in total control of everything. I, suggest that no one ever use the toll road again, let it go broke. We the people can control the price of everything, from groceries to gas, if we would just do it. If we don't pay the asking price, the sellers will lower the price and if we wait awhile, they will lower the price to what we accept as reasonable. I would like to know why a highway like interstate 94, is so well maintained, a much better highway, than the toll road, but has no tolls. I would also like to know why, a sitting governor, with a term limit, maximum of eight years, can lease, public property, for 75 years. Even though I have transponders in both of my trucks and will not be affected by the increase, I have been and will contine to avoid using the toll road. I make many trips from northern Indiana to Chicago, every year, and I prefer the better highway, I94!
  • General fund will repay the shortfall
    I want to make two points. One, what other road in the state had any profits to return to the community. That this road had not paid for itself with tolls at the current tolling... well what about I465 or any county road? But more interesting, the contract written with the Spanish road building company and the Australian investment bank guaranteed an increase in traffic on the toll road every year for 75 years or we would refund the shortfall from the states general fund. The upfront "lease payment is gone", have the investors forgotten this clause? I'll bet not.
  • Wishful thinking
    Here we go again-'we should have been able to make the toll road work'. We had over 50 years, and still had $200 million of debt, the state was pouring millions a year into funding operations, and was faced with huge costs to improve. To get $3.85 bil for a liability was brilliant. The toll road was nothing other than a drain on resources due to political forces at play, and would have continued, despite those optimistic of our politician's ability to change. There were toll road employees collecting $0.15 tolls at toll booths-???? And our politicians were going to suddenly run it efficiently? Give me a break.
  • Me, me, me
    Our society of instant gratification knows no bounds. While Daniels lined HIS pockets and improved HIS operating budget from the deal, it has essentially zero positive impact for the state or its citizens. That money is already gone. Term limits should disprove any notion of political suicide when it comes to increasing rates. Bottom line...ITR Concession will make millions, if not billions, over the term of this deal. If you do not understand this, you are either ignorant or just a Daniels apologist. That is public money being given to private corporations. This money could be used for any number of things (tax cuts, infrastructure, etc.), least of all should be to line pockets of corporations. The only rational argument that could be made by the Daniels administration is that this corporation can and will do a better job of managing it. But then what does that say about his own people?
  • Another sell-out exposed
    Mitch won't have to worry, he will be busy privatizing Purdue. Get ready for a privately operated University in West Lafayette. Hey! it worked once did'nt it. By the time this one blows up, Mitch can have another job waiting. Good one, Mitch!
  • Sooner than I thought
    When that deal went down I said that in about 20 years people would be wondering what in the world made anyone think this was a good idea. Looks like I was about 15 years off. Next up...quality of toll road maintenance.
  • Question to all
    Is this really any different than what is going on in Washington. Deficit spending beyond our means, leaving huge debt for our children and grand children and generations beyond to deal with. This may have caused us to lose future revenue, but it did not create any debt that future generations have to deal with. More than likely, had the governor not sold this contract, Indiana would have seen deficit spending and long term debt. As politically incorrect as it may sound, if we had this revenue over the years, the politicians in Indiana would have spent on some worthless project anyway and not spent was it was intended to go.
  • Huh?
    How can you not have the political will to raise tolls or meter rates, but yet you can have the political will to lease the asset to a private interest when everyone knows they will raise the rates at an even higher rate. I don't buy this argument as any kind of justification for this behavior. It's irresponsible borrowing for which the next generations will suffer.
    • re: "Enough Studies"
      Gilmour's piece was published in the Public Administration Review, a nonpartisan, peer-reviewed academic journal. This was not a state-funded study.
    • Political Suicide
      Exactly, Indy. Theoretically if the state could raise tolls to keep pace with the market it would have made more sense to keep it. But the fact is that would have been impossible. No politician would raise the toll rates for fear of being voted out of office. When you have conflicted interests like that it makes ore sense to pass that on to a private firm that can run it like a business and let the market decide the rates. The same thing happened with the parking meters. The rates were unchanged for 40 years because no mayor would raise them.
    • Enough studies
      You didn't really need a study to tell you now, did you? Just like you need a study to figure out what to do with the old airport, mass transit...give me a break, wasted money for so called "consultants."
      • I am guessing that Prof Gilmour did not take into account that the State could not build up the political will to raise toll rates in the preceeding 20 years. The rest of the state was subsidizing the toll road because there was no political will.
      • Nope
        The Indiana Toll Road deal was the deal of the century - 60 times EBITDA. Anything over 13 times would be a business getting too expensive to buy and in those cases you do not get the business back in 75 years. Congratulations Indiana. You could probably buy it back today for half what you sold it for.
      • Yep
        Like the Indianapolis parking meter deal, the toll road "lease" was just a substitute for the guts to raise tolls.

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