Officials say lease offers more bang for state's buck

Gov. Mitch Daniels has traveled the state touting his plan to lease the Indiana Toll Road, saying it will generate billions of dollars for highway projects all over the state.

He's also proposed a massive toll increase, saying the 157-mile highway no longer pays for itself.

But after three Indiana newspapers challenged that claim, officials admitted the Toll Road has been self-sustaining for the past 50 years.

And they conceded the road could pay for itself again with a simple increase in tolls -- a move that's been planned for months.

The Toll Road's annual report states the enterprise had an $11.7 million profit last year, but officials said that figure doesn't include debt payments or highway upgrades.

Yes, they say, the road generates enough revenue to cover day-to-day expenses, but a better measure of the road's health is the $16.2 million in negative cash flow it had last year.

The annual report also shows the agency squirreled away more than $160 million in profits as of June 30. But Becky Ahmed, the Toll Road's accounting manager, said most of that money already is obligated and will pay for upgrades that will cost more than the agency has available.

Mike McPhillips, director of the Toll Road District, said that for the first 10 years after the last rate increase in 1984, the Toll Road was able to make $130 million in grants to counties along the road for local highway projects.

During the second 10 years, the agency hasn't been able to make any grants at all. The money estimated to pay for upgrades that have been put off now totals $226 million, officials said.

According to the governor's proposal, the toll increase is expected to raise $770 million over the next decade. It would pay for $226 million in Toll Road improvements, $100 million for economic development in Northwest Indiana and more for other state highway projects and local road work.

So if the Toll Road can cover both short- and long-term costs and pay for needed upgrades once tolls are raised, then why lease?

The answer depends on whether Hoosiers want to enjoy billions of upfront cash to pay for highway projects all over the state, officials said.

Better roads, higher tolls

"Choice one is (the Toll Road) sustains itself," said Chuck Schalliol, director of the Indiana Office of Management and Budget.

"Choice two, it sustains itself, and we can build all the roads Indiana needs.

"The rationale for this is not that we couldn't on our own raise enough money to maintain the Toll Road," he said. "With rate increases, we could make the Toll Road a self-sustaining asset, as it has been for the past 50 years.

"However, what a sad result that an asset that could build all the roads the state needs in the next decade only would be a self-sustaining asset. None of those (other) roads gets built."

Officials expect the lease to bring in at least $2 billion -- and perhaps as much as $4 billion -- upfront to pay for road projects around the state.

And the lease plan is controversial precisely because the money from the lease will go to highway projects all over the state, meaning northern Indiana's critical asset will be paying for road projects as far away as Evansville.

Critics also are skittish about turning over a major regional asset -- which many deem crucial to northern Indiana's economic well-being -- to a private, likely foreign, company.

"People feel a visceral ownership connection to certain aspects of public infrastructure," said David Schulz, director of Northwestern University's Infrastructure Technology Institute.

"It's theirs, and, in a sense, you're asking them to consider leasing or selling something they never thought they would think about leasing or selling."

Craig Johnson, an associate professor of Public and Environmental Affairs at Indiana University, said a private toll operator also could mean even higher tolls in the future.

"It's easier to raise tolls if it's a private firm raising the tolls," Johnson said. "If it's the general government, it's much more difficult."

A private firm raising tolls also relieves lawmakers of having to vote for a fare increase.

"When you privatize, when you take it out of the political sphere, you isolate it from political pressures," Johnson said.

Paying for Major Moves

State officials say the proposed lease will let a private company pay for the upgrades the Toll Road needs and other road upgrades across Indiana.

When the state must add lanes to a road to clear congestion but doesn't have the money, the work doesn't get done, said Schalliol, of the state's management and budget office. But with a lease, the private operator will be required by the contract to do the work.

"We get not only a lot of money for the state to build roads, but when studies show new lanes need to be added (to the Toll Road) they must build them," Schalliol said.

While expenses keep going up, revenues do not -- a situation that will put the Toll Road in the red soon.

"Expenses are going up 5 percent a year, but revenues are going up about 1 or 2 percent a year," Schalliol said. "How long can that go on?"

The Indiana Finance Authority's Ryan Kitchell said much of the $226 million will go to adding lanes at the Toll Road's west end. But the private operator also will invest in an electronic toll system like Illinois' I-Pass, which automatically deducts tolls from drivers' accounts and allows them to breeze through toll booths without stopping.

"We're one of the few toll roads in the country that don't have it," Kitchell said. "They've never had enough money to do it."

Daniels' Major Moves initiative calls for $5.2 billion in new highway construction statewide, but there is only enough money to pay for about half of it. The Toll Road lease would pay for the rest.

Northwestern's Schulz said the tight budgets that governments have struggled with in the last decade delayed investment in roads.

"I think Indiana faces the same sort of challenges all states and the nation as a whole face; because we've neglected our infrastructure for so long, we're in the process of digging ourselves out of the hole we're in," he said.

If leasing the Toll Road can pay for infrastructure all over the state, the deal likely will make sense if it is done right, Schulz said.

"You need to be transparent in saying, 'These are the requirements, and these are the guarantees put in place,'" he said. "It's essential from a public policy perspective that all ... the money be spent on infrastructure renewal."

That could mean using the money to pay for economic development or any other nonhighway project might kill the public's appetite for the lease.

"You can't get sucked into using the money to fund the operating budget," Schulz said. "That's like taking a home equity loan on your house to pay the grocery bills."

A private firm also is likely to take advantage of more money-making opportunities because of the profit motive, said Indiana University's Johnson. That could mean more shops and restaurants with better service at rest plazas.