Study calls Indiana Toll Road lease a bad deal

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 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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