- Indiana Toll Road deal means $37,000 to City of Brazil
When Gov. Mitch Daniels asked local officials to support his plan to lease the Indiana Toll Road, Mayor Tom Arthur declined.
He felt a 75-year, $2.5 billion lease of I-80 to private interests wouldn't be enough -- that the state could make more money by maintaining ownership of the road and increasing tolls. But when the state received a much higher bid than expected, Arthur changed his tune.
A joint venture known as Statewide Mobility Partners (SMP) bid $3.85 billion for a 75-year lease on the Indiana Toll Road, Daniels announced Monday. The amount will cover the cost of Daniels' Major Moves Highway Construction Fund, a 10-year plan to complete long-delayed improvements to Indiana roadways, and fund improvement projects in the seven Toll Road counties. Paid in one lump sum, the windfall will even trickle down to Brazil.
Daniels committed $150 million of the lease revenues to road improvements in cities and towns across the state. Arthur said Brazil stands to receive $37,000 over the next three years to shore up the city budget for street improvements.
"(The amount of the lease) is far beyond what they had thought," Arthur said. "We can get some road improvements and save taxpayer money at the same time."
When Daniels first unveiled a proposal to lease Indiana roadways to private interests, the former Northview math teacher felt the numbers just weren't there. Arthur voiced his opposition to the initiative in a Jan. 18 communication to the governor's office, citing toll increases currently under legislative consideration that would generate revenue exceeding Daniels' early projections.
"I applauded the governor because he was thinking outside the box, but the numbers just weren't adding up for me," he said.
But when he received word of Daniels' announcement of the $3.85 billion bid, the deal seemed too sweet to pass up.
"At this point," he said, "I couldn't oppose it."
According to Daniels, privatization will also improve the condition of the Toll Road itself. In a press release issued Monday, he projected SMP would spend nearly $4.5 billion on improvements to the road over the course of the agreement. The company would also furnish $5 million for a new State Police post and pay the state for the salaries of officers patrolling the road.
Daniels cannot formally accept the bid until the agreement is approved by the legislature. The lease of the Toll Road is included in House Bill 1008, which was scheduled to be heard before the House Ways and Means Committee on Tuesday.
The state received four final bids, but the one from Statewide Mobility Partners -- formed by Cintra of Madrid, Spain, and Macquarie Infrastructure Group of Sydney, Australia -- was clearly better than the others, Daniels said.
The Daniels administration said if it receives legislative authority to lease the 157-mile toll road across northern Indiana, the bid amount would erase a $2.8 billion shortfall in funding for projects it has deemed priorities over the next 10 years. The private operator would receive future toll revenue in exchange for the lease payment.
Daniels said the upfront money would be invested as "fast as legally and humanly possible in the biggest building program in state history" and hundreds of projects would "change overnight from wishes to certainties."
"At last, we can stop dreaming and start digging," said Daniels, flanked in his office by many lawmakers, lobbyists and others. He also held news conferences in Fort Wayne, South Bend and Gary.
In addition to the $3.85 billion, the bid said the consortium would spend $4.4 billion on capital improvements over the term of the lease.
Some top Republicans in the GOP-controlled General Assembly immediately praised the bid, but two leading Democrats said that leasing state assets to a private, foreign venture was risky and a bad financial deal in the long run. They also said more time was needed to consider Daniels' proposal.
"The loss of a highway like that for 75 years, the loss of taxation (tolls), I believe is not worth what he claims to be able to get today," said House Minority Leader Patrick Bauer, D-South Bend. Bauer wants public hearings on Daniels' plan to be held around the state.
Daniels also needs legislative approval for some other parts of an overall transportation plan he has dubbed "Major Moves." They include authority to make the planned extension of I-69 between Indianapolis and Evansville a toll road and also lease it to a private venture.
The administration on its own plans to nearly double fares for cars on the existing toll road this year while boosting truck fares nearly fourfold over four years. A private operator could increase tolls yearly by 2 percent or by other amounts tied to such factors as the inflation rate.
States are looking more to leases and other public-private partnerships to pay for highway projects, but few deals have been finalized. The consortium that submitted the top bid to Indiana paid $1.83 billion in 2004 to operate for 99 years the Chicago Skyway toll road -- a short cut between that city and northwestern Indiana.
Daniels said with such an exceptional bid for the toll road, he was confident his plan would pass. The 74-page bill is now before the House Ways and Means Committee, which is expected to vote on it this week.
Committee Chairman Jeff Espich said many promised projects have languished for years under traditional funding sources, and the Major Moves plan was a way to move forward. "Business as usual hasn't worked," said Espich, R-Uniondale.
But Senate Minority Leader Richard Young, D-Milltown, said Daniels was trying to lock Hoosiers into a 75-year lease with unclear checks and balances.
He also said Senate Democrats "simply disagree with the entire concept of mortgaging the long-term future of any Indiana asset for a quick buck -- no matter how large it might be."
The overall plan envisions numerous projects advancing with new or traditional funding, including an expanded Hoosier Heartland Corridor from West Lafayette to Logansport, an upgraded U.S. 31 from Indianapolis to South Bend and two new Ohio River bridges.
Under the proposed agreement for the toll road, a private operator would have to meet maintenance standards set by the state pay for its continued policing by state troopers. It also would be subject to audits and have to submit financial and other data periodically.
According to Daniels administration figures, more than $1 billion of the $3.8 billion the state would receive under the bid would be spent on highway and other transportation projects in the seven counties that include the toll road. That would leave about $2.5 billion for projects elsewhere.
Also, $150 million would be distributed to local communities for their road projects.
Stephen Allen, chief executive officer at Macquarie Infrastructure, said Monday evening that the company tends "to bring some private-sector discipline" to the operation of toll roads and takes steps that entice more motorists to use them. And such agreements provide immediate money for governments to spend on other projects, he said.
Jose Lopez de Fuentes, director of U.S. and Latin America operations for Cintra, said the money Indiana would receive would come from investors all over the world.
"The important thing is it will come to Indiana," he said.