The Urbanophile has a good post up as one part of his series on privatization. The Toll Road lease is one of the case studies he uses. The general observations are probably more important than the specific ones (my way of suggesting that you go over and read the whole thing), but on the subject of the Toll Road deal, he concludes that the state profited:
So let’s put it all together and look at how the Indiana Toll Road and Chicago Skyway leases generated almost $6 billion in value. It’s a combination of several factors:
* Tolls went up. That is, prices were raised significantly
* The hedge paid off – big time. I mentioned in the previous installment that by paying a fixed price up front for 75 years, the toll road concessionaire took on a huge amount of risk about future revenues and costs that the government used to have. In turned out that they are getting far less traffic than predicted and they are taking a bath on the deal. In short, they vastly over paid. You can’t hang your hat on this happening every time, but it is nice when it does.
* Some cost savings, but probably not a major amount
* Some customer improvements such as electronic toll collectionPrincipally, it was about raising prices and then getting lucky when the vendors radically overpaid. Indiana had one additional lever. Chicago had already leased the Skyway. The only way to get to the Skyway is via the Indiana Toll Road. Indiana could have jacked tolls through the roof and cut off the supply to traffic to the Skyway whenever it wanted. As a result, the same consortium that leased the Skyway almost had to pay whatever it took to win the Indiana Toll Road. Mitch Daniels had them over a barrel.
The real reason sale of the Toll Road made sense was that Daniels (correctly, in my view) assumed that members of the General Assembly were unlikely to display political courage. Let me explain.
Had Indiana issued revenue bonds, rather than leasing the Toll Road, we could have realized even more than we did through the overpayment by the private contractor. However, in order to repay those bonds, tolls would have to be raised periodically. A private operator would have no problem doing so; however, it is unlikely that our elected officials would have summoned the “cajones.”
Rightly understood, this transaction outsourced the power to tax.
Definitely. Had the lawmakers been willing to raise tolls directly, it’s not so clear that the state profited off of this transaction. The Urbanophile post has this to say:
It’s what I call “outsourcing political will”.
Daley attempted to do what Sheila suggested with the Skyway. He was going to raise tolls and use the proceeds to fund neighborhood infrastructure improvement. There was a huge outcry and a lawsuit saying that it wasn’t legal to divert toll money to non-Skyway use. Daley backed off the idea and did the lease instead.
First time I ever saw an evaluation of the privitization of tollroads after the fact. I drive the tollway system all the way from E. PA to Chicago ,a couple round trips a year and the trip has gotten very expensive ,since all the tolls in all the states have gone up.I also drive drive I-70 though Richmond /Indianapolis to I-74, but the tollway is by far the best trip.
It’s true, as was pointed out, the Skyway is the best way to get to Chicago from all points east, and since it is directly connected to the Tollway system that in itself is huge profit edge for the Indiana Tollway.That’s a significant fact that was pointed out..I think privatization in general is a giveaway to the undeserving,and it may be in other cases,but not for the Skyway-Indiana tollway connection.I’m happy it appears to be working out for state government, in Indiana’s case at least.States are collapsing fiscally all over the country.
According to some studies I’ve read, Toll Road traffic is down by 6% in the last year. I believe it’s worse than that, though my beliefs are anecdotal.
I live in Howe, IN which has a Toll Road interchange. Howe also has State Road 120 running through it, and, again largely anecdotal, we are witnessing a large increase in truck traffic on the State Highway since the privatization of the Toll Road. This is exacerbating the condition of the roads plus causing congestion due to the increased traffic. We must bear the cost of these problems, financially and otherwise. Our portion of the Toll Road lease payment will not offset these increased expenses. Besides, much of that money is currently beinge wasted on pet projects of the county commissioners and other politically connected bigwigs.
Most of us locals don’t drive the Toll Road anymore due to its deteriorating condition, lack of maintenance, and what we see as a lack of enforcement of speed limits and traffic laws by the police. The accident rate seems to be much higher on our portion of the road, and the accidents seem to be of a much more serious nature for the most part.
I recently spoke to a long-haul trucker who was eating lunch in our local diner. He said that he purposely avoided the Toll Road since their increase in toll rates. He said that by using the state highway system he was saving nearly a hundred dollars on each trip while increasing his time on the road through Indiana by an hour or less. Time was less of a factor to him than the bottomline of paying aggregiously higher tolls. I’m aftraid from what I see that he isn’t alone in this assessment.
The drop in Toll Road traffic is also translating into a lack of business investment along the Toll Road corridor. When the state controlled the road, and investment was more stable, and traffic was stable or increasing from year to year, businesses were glad to invest in facilities near Toll Road interchanges. There were gas stations, restaurants, hotels, and other facilities being built along the Toll Road, particularly near interchanges, as well as warehouse facilities and factories. Now there is no growth, and in fact, some scaling back of Toll Road ajacent facilities in our area. This was taking place even before the Republican recession that began last year. Again, this is anecdotal, but it is what I am observing in our locale.
These issues were all raised in opposition to the Toll Road privatization bill during its debate, and now these and other things are coming to fruition. Mitch should be proud of the legacy he’s going to leave. A Toll Road that doesn’t work and the brainless ritual of changing our clocks twice a year.
Well, obviously, you people aren’t forward-looking enough.
And I don’t understand–okay, I do, but I wish I didn’t–why this game is so popular with the very people who tell us, loudly and at length, that every tax increase is passed on to the consumer. So how is the public sector supposed to proceed, then? Hornswoggle the vendor, as is apparently how this worked out, and the loss gets parceled out in dozens of ways, as Bob points out; get hornswoggled and, well, you’re hornswoggled. How did this get to be a legitimate function of government? And how is it that the same people who tsk tsk over the spread of gambling when the purpose is to buy a new football barn they can’t live without are so eager for the state to sell itself lottery tickets?