State has its eye on $2.8 billion for toll road lease to cover Major Moves costs

As the state waits for details, Gov. Mitch Daniels’ proposal to sell a lease on the Indiana Toll Road remains hidden behind closed doors.

The governor has promised to make an announcement on Jan. 23, three days after the Friday deadline for the companies to file their proposals for leasing the 157-mile road through northern Indiana.

Assuming there is a winner, the announcement could be as limited as the amount a company is willing to pay. Daniels hasn’t committed, but the governor could also choose to reveal what his aides have said is at least a 400-page contract, which would spell out for lawmakers what they can expect from a private company over the 75-year life of the contract.

The administration has said the final contract will contain details as fine as the length of time a dead squirrel can remain on the pavement before the lease holder must remove it.

In the meantime, the governor’s office has given a broad outline of key points as he sells the idea around the state. The ambitious lease agreement is the centerpiece of Daniels’ 10-year road plan, Major Moves.

Office of Management and Budget Director Chuck Schalliol has pointed to Chicago’s deal to sell a 99-year lease on the Chicago Skyway in 2004 as the blueprint. In fact, the state has hired the law firm and the investment banking firm Chicago used for the city’s proposal.

“It doesn’t surprise me that Indiana is looking at leasing the Toll Road. A lot of people took notice when Chicago received so much money for its concession,” said Peter Samuel, who edits Tollroads News, a monthly newsletter that deals with toll road issues around the world, based in Frederick, Md.

What happened in Chicago?

One year into a 99-year deal, there has been little noticeable backlash in Chicago, where Mayor Richard Daley has used the money to plug several holes in the city budget.

Chicago became the first public entity in the United States to sell a long-term lease on an existing toll road. The city earned $1.83 billion for it in 2004.

The city placed the money in a trust fund that has been used to pay for everything from new police cars to programs to combat homelessness.

The winning bidder was Cintra-Macquarie Consortium — a joint venture of Cintra Concesiones de Infraestructuras de Transporte, based in Spain, and Macquarie Investment Holdings, based in Australia. They outbid rivals by nearly $1 billion.

Skyway officials deferred most questions because the firms are bidding on the Indiana contract.

Where will the money go?

The governor’s plan has already attracted critics who question selling a long-term lease on a road the state has owned since the 1950s. Many have complained about the lack of details.

Senate President Robert Garton, R-Columbus, said he expected the governor’s office would reveal the details of the agreement before lawmakers vote.

The governor does not have unlimited time to make his case.

Though he has the ability to initiate toll increases, the General Assembly must approve plans to buy out the existing bond holders at a cost of roughly $200 million and sell a concession on the Toll Road.

Daniels is also asking for broader authority to build a private toll road in Indiana, the long-unfinished section of Interstate 69 between Indianapolis and Evansville.

Toll roads themselves are fairly uncommon in the United States. Privately built toll roads are even less common, which is one reason most of the bidders are expected to be large foreign firms, like the Spanish Cintra Concesiones, Samuel said.

“It’s commonplace in Spain, France, Portugal. You really don’t have anyone here that is set up to do something like this. They are much more experienced. It’s been going on a lot longer than it has here. If this catches on around the country, I suppose you’ll see more American firms,” Samuel said.

The administration won’t release the names of bidders or even the number of bidders, though Schalliol said it is between three and 10 companies.

Some things are known — Indiana is offering a 75-year lease, according to the administration.

However, the bill filed by Rep. Randy Borror, R-Fort Wayne, would actually give the administration the 99-year authorization issued in Chicago.

Like Chicago’s deal, the money would go into a trust fund, but in Indiana the fund would be earmarked specifically for road projects authorized by the Indiana Department of Transportation.

The state would accept no less than $2 billion, though officials are hoping to cover the $2.8 billion needed to fund all of the projects listed in Major Moves, Schalliol said.

What happens to tolls?

The Skyway contract is the size of the Chicago phone book. It spells out everything, including the toll increases allowed through 2017 on the 10-mile stretch of road leading into downtown Chicago from the Indiana border with the Toll Road. Schalliol said it was the model for the Indiana bid.

On the Indiana side, an increase in the tolls is already under way under the governor’s existing authority. An increase, the first since 1986, would double the tolls by 2010. After that, the contract with a lease-holder would take over, Schalliol said.

With the private contract, this would be the last time the state would go through the lengthy process of toll-increase public hearings, now under way.

According to the administration, Indiana would cap the maximum amount tolls could increase. The private company could increase tolls a minimum of 2 percent a year or use two other measures that could raise tolls considerably more depending on the economy — the percentage of growth in the gross domestic product per capita, or the rate of inflation under the national consumer price index, which ever is greater.

The administration is banking that the market will keep tolls from spiraling, but the company’s ability to increase rates without government approval is a key advantage that a private contractor would have over the state, Schalliol said.

“Generally, (the state) can only issue bonds based on rate increases that are in place. These people are paying us for 75 years of rates,” he said.

The state is negotiating whether the company would be allowed to raise tolls each year or every other year. The company’s cap on toll rate increases still will rise each year, whether or not the tolls increase for people driving the Indiana Toll Road.

State negotiators believe the company will have to keep rates low to lure traffic.

“They will not want to drive away their customers,” Schalliol said. The 10 percent commuter discount is discontinued under the current round of toll increases, but the company could offer other discounts. “It will be in their interest to provide incentives on a toll road,” he said.

What happens to employees?

Including the 45 State Police troopers, the Indiana Toll Road employs 597, including 332 toll booth operators.

The contract will not require the winning bidder to hire state employees. The contract does not require the contractor to offer comparable pay and benefits to those being paid now.

“We have been hearing positive things from the contractors, asking are these people available (to be hired); so we’re hopeful,” Schalliol said.

“Our first choice is they’ll be offered something with the contractor but, if not, we’ll offer them something with the state.”

The governor has made similar assurances though the public guarantees of job security have, so far, not been reduced to writing. In Chicago, only one city worker stayed with the tollway after the sale, according to the Skyway.

The workers had a union contract that offered $20 an hour and benefits. To run the booths, the private contractor hired Standard Parking, a company that runs the parking garages downtown.

Toll booth operators are paid between $12 and $13 an hour. Nearly all the workers opted to stay with the city, as allowed under their contract, Samuel said.

As for whether Toll Road workers would have to relocate to other parts of Indiana or lose pay or benefits, Schalliol said the administration would try to match their pay, benefits and location.

The company would be required to hire the State Police to patrol the road under a $6 million-a-year contract, which would allow an increase in the number of police from 45 to 70 troopers. The contract also calls for an additional $5 million to build a new police post in LaGrange, Schalliol said.

Other incentives and taxes

The contract includes $226 million in Toll Road construction projects in Lake County, including adding a third lane from Gary to Hammond and lowering the road in Gary to improve the viability of the runways at Gary/Chicago International Airport.

The Regional Development Authority in Lake and Porter counties would receive $10 million a year for 10 years.

Major Moves promises $344 million in improvements along the route, money Schalliol said that would not be available without a private contractor for the Toll Road.

The contractor would have two years to install some form of electronic toll system, compatible with IPASS in Illinois. Indiana and Ohio are the last two statewide systems to have installed electronic tolling. “They will have to pay sales tax, and they will have to pay state (corporate) income tax,” Schalliol said. “They will not have to pay local property tax.”

The state would give the private contractor a goal to buy 90 percent of its products in Indiana, though that would not be a requirement. The products would include concrete and other road-building items.

What if it doesn’t work?

“They will take the risk. We get to keep the money, even if the revenue doesn’t happen,” Schalliol said.

The contractor will have to perform road maintenance to Indiana Department of Transportation standards.

“Whoever operates this has to operate it to our standards or they are in default. If they default, we take the road back,” he said.