As has been widely reported (here is an AP story), the Daniels Administration is trying to quash the lawsuit (pdf) by the Citizens Action Coalition challenging the constitutionality of the Toll Road privatization legislation.
Specifically, Article 10, section 2 of Indiana’s Constitution says:
All the revenues derived from the sale of any of the public works belonging to the State, and from the net annual income thereof, and any surplus that may, at any time, remain in the Treasury, derived from taxation for general State purposes, after the payment of the ordinary expenses of the government, and of the interest on bonds of the State, other than Bank bonds; shall be annually applied, under the direction of the General Assembly, to the payment of the principal of the Public Debt.
The Daniels Administration is attempting to quash the lawsuit without addressing its merits under IC 34-13-5 which sets the procedure governing “public lawsuits.” In particular IC 34-13-5-7 allows a defendant (in this case, the State) to request that bond be posted. The court is required to set a hearing on the petition. Judge Scopelitis has set a hearing date of May 11.
The statute instructs the judge to use the standard for granting a preliminary injunction as the standard for determining whether a bond is required. This standard essentially requires the judge to weigh the harm if the requested relief is granted (delaying the sale), the harm if the requested relief is denied (allowing the sale to go through while the lawsuit is pending), and the plaintiff’s likelihood of success on the merits. If the judge decides that the CAC is likely to succeed on the merits of the case and that allowing the sale to proceed will cause greater harm than delaying the sale pending trial of the case, he will deny bond. If he decides to the contrary, he is instructed to set bond at a level that that would compensate the defendant for damages and costs accrued to the defendant by reason of the pendancy of the lawsuit.
Regardless of whether bond is approved or denied, either party can appeal the decision directly to the Supreme Court within 10 days of the trial court’s decision. So we’re likely to have a read on the Supreme Court’s opinion on the applicability of the Constitutional provision before too long.
My thoughts: 1) I question whether a statute such as IC 34-13-5 is permitted to essentially render a Constitutional provision a nullity. To take a hyperbolic example from the federal Constitution, what if Congress said a citizen had to post $1 billion to bring a lawsuit to stop a free speech violation by the government? Clearly Congress would not be permitted to make an end run around the Constitution in that fashion. 2) The consequences of a delay in entering into the privatization agreement while litigation is pending is less harmful than the consequences of potentially entering into the agreement illegally. The Toll Road isn’t going anywhere and there is no evidence that its value is diminishing. Unraveling the privatization deal once it goes into effect would likely be expensive and difficult, particularly if the State distributes the proceeds from the sale of its property rights in the Toll Road. 3) The State’s apparent reliance on characterization of the deal as a lease rather than a sale seems superficial and misguided. A lease is merely a particular kind of sale of property rights. Not to get all Property 101 on you, but the Daniels administration seems to be taking the position that the word “sale” in the Constitution refers only to a sale of a fee simple absolute interest in the Toll Road Property and that any other kind of sale is not subject to the constitutional provisions, including sale of a leasehold interest in the Toll Road Property for a term of years.
It’s an interesting scenario — the obvious issue about the definition of the word ‘sale’ and whether a long-term lease constitutes a type of a sale for the purposes of this clause is the tip of the proverbial iceberg.
I would argue that a lease that conveys rights to more than half the useful life of a depreciable asset looks like a sale. The fact that the state retains the fee simple to the underlying right-of-way fee title doesn’t seem that important — the constitutional provision refers to ‘public works’. One would think the road (pavement, signs, toll booths), not the right-of-way (the underlying land) is the ‘public work’.
Below the water line there’s also the struggle over the role of the judicial branch, particularly the public’s right to meaningful judicial review of the disposition of public assets. I hope you’re right that the courts won’t accept statutory end runs that ultimately infringe upon citizen’s consitutional rights. I’m not totally confident of that result though.
This particular state constitutional provision, at first blush, doesn’t look fundamental like the right to freedom of speech or religion. But it has a key function: by requiring that the sale of public assets be used to liquidate current debt, it precludes an administration from converting public assets to their own possession or to that of their supporters. Or, from moving assets from one region of the state to another. It’s an anti-corruption provision as much as a fiscal responsibility provision.
Wow! There should be *more* property law discussions here. :) Very interesting points, Marty and Doug.
Doug you are the lawyer, but it seems to me that the Tollway sale is headed to the State Supreme court.
In your opinion what is the minimum/maximum amount of time this legal action could delay the Tollway lease deal? It seems to me that the the lawsuit does not specifically prevent the sale/lease of the tollway it merely prevents the Daniels administration from using the proceeds of the sale as they intented, to build I-69 and other road expansion pet projects. And if you have a more skeptical/cynical mindset, basically, building up a Republican political machine in Central Indiana at the expense of Northern Indiana Democrats.
It would seem to me that the State Supreme court could allow the sale/lease to go through even if it ruled in favor of the Citizen Action Coalition. However, Daniels would then be required to use all the money to pay down/off the state’s debts.
Any new State spending on roads would then have to be voted on again separately from the Tollway sale based on their individual merits.
It is my opinion that selling the toll road may not be a bad idea in and of itself especially if Peak Oil diminishes the economic value of interstates for hauling freight. Like I said if is tough for a true liberal to argue against the Tollroad sale on purely idealogical grounds when Social/Democratic European welfare states like France are doing just the same thing. France is selling the last of its tollroad holdings inorder to pay down its debts, while continuing to publically finance more nuclear power plants and mass transit. To me is signifies a conscious Government decision to move away from subsidizing future private car ownership and oil consuption in favor of public goods like mass transit and national energy independence.
No for me the problem is the idea of using the Tollway proceeds to build more roads instead of positioning Indiana’s economy for a future less dependent on fossil fuels. If gas prices head above $3.50/4.00 a gallon this summer the thought of widening and building roads will seem to be insane to ever larger numbers of Hoosiers.
Come November if Indiana Democrats can show some cojones, they may be able to take advantage of Governor Daniels putting tollroad noose around the Republican’s necks. However, Democrats would be much more effective if they were able to propose their own vision of how the sale of the Tollway could be best used to advance Indiana’s economic future.
I agree that it’s probably going to the Supreme Court, at least on the issue of the bond which in my opinion will be a pretty good indication of how the Supreme Court would decide on the ultimate issue since the ultimate issue is mostly a question of law and the big question on the bond is how they feel about likelihood of success on the merits.
I haven’t read the entire text of the lawsuit, but on the Constitutional question of applying the proceeds to the Public Debt, I think you’re right that the Constitution itself only prohibits sale of public works where the proceeds aren’t going to the right place. I think the question then becomes a) whether the provisions of HB 1008 authorizing privatization of the toll road are separable from those provisions distributing the funds; and b) how comfortable the lending institutions forking over the dough are with their security in their investment (i.e. regardless of actual legality, the money people could back out if there are perceived weaknesses in their security.)
How long this could gum up the works, I have no idea. The judge is holding the hearing on May 11. It’s hard telling how long the judge will take to issue his opinion, but you know this issue will take priority and he’ll get it out as fast as he can. Then the losing party has 10 days to file its notice of appeal and petition of error to the Supreme Court. I don’t know off hand if you then get into a situation where the loser makes an additional filing as a brief followed by another 30 days for a respondent’s brief followed by another 15 days for a reply brief followed by oral argument followed by a decision. I suspect the process is more expedited than that.
As far as how this whole thing plays into a rational energy policy, you may well be right. I suppose toll roads tend more toward pricing a road at something resembling its costs thereby encouraging citizens to make economically rational decisions. But, on the whole, I think having roads be public infrastructure is good public policy. I think it’s up to our policy makers to make sound decisions about our transportation infrastructure. In light of the oil crunch — whether peak oil is upon us or imminent or not — using the toll road payment to build more roads is probably short-sighted and foolish.
I just do not understand Hoosiers anymore. All we talk about is wanting economic advancement, but we are not willing to allow any changes to take place to acheive it. No wonder everyone thinks we are backwards outside of the state. Our impression of Kentucky is what the other 49 states think of us. I do not know how many people really realize that. I have heard Indiana called the twilight zone on several occasions. Think about it. The state is in a tight financial situation right now. It does not have the budget it needs to complete necessary road repairs or upgrades, and does not have the money to expand our road system anymore either. However, we want to advance economically. One key aspect of economic advancement is a good road structure. I-69 from Indianapolis to Evansville would be good for every community it is near. Road upgrades in Indianapolis would help the city grow, and that means more revenue for the state in the long run. I think plans of upgrading US31 to a limited-access highway are in the works with the money from the toll road as well. That connects South Bend to Indianapolis better than it is. This is only going to make Indiana more attractive to businesses to locate. What is it costing us? The revenue that would come from the toll road for 75 years and control. The latter of the two is what all this is about, control. However, everyone is failing to realize their are alternative routes besides the toll road for many of the local citizens. If the tolls become too expensive or the road quality deteriorates, you have the choice to drive on the road. We are are apart of a capatilistic system. That means customers control the system. We need to realize we are only biting the hand that feeds us by fighting things such as the toll road. It is only going to benefit us in the long run. Just like DST, we are making ourselves more attractive to do business in and with. Maybe we really are too backward to see this. Every other individual outside the state sees it.
Co-sign to Josh.
Exception to Doug & Marty: The only reason this deal has been framed as a “sale” is because the argument is being made from the perspective of humans in relation to our own longevity, as opposed to the longevity of a road, State or Nation. You’re arguing on behalf of short-sighted politics using the rationale that “we’ll all be dead by the time the contract expires.” Not at all an argument I would expect from someone as forward-thinking as Doug normally seems. Half the problems in our government today could be solved by thinking OUTSIDE of the standard 10-20 year incremental pods which we have standardized as the acceptable maturation time of developmental economic and social programs. In no small part, this is driven by politicians desire to get re-elected based on the instant gratification/results of their little “time-bomb” programs…but most of them self destruct eventually as they were too short sighted from their conception.
Also, the way the law is written, in order for the Federal Government to petition for a $1 Billion bond from a plaintiff, the aggregate financial implications of the end result of the lawsuit would need to be at least that….which is unlikely in a First Amendment case, but I understand your point.
First, I am an engineer, not a lawyer. When you issue a bond, does it not specify what it is to be used for and who is to pay what to whom? If you buy a U.S. Saving bond from the U.S. Government, you have a good idea of whom is going to pay you back. With the leasing of the toll road, does the bondholder have any recourse? For example, the toll road falls into disrepair and causes the state of Indiana to file bankruptcy (theoretical). Would the bondholder have loaned the money to the state had they known the toll road would be leased? Is the lease similar to a mortgage where if you sell the property, the note becomes payable now? In other words if there is a change, by which the bond was issued, can bond holders demand payment now?
In regards to a lease, I would say that a 75-year lease far exceeds the useful life of the road. The toll road is about 152 miles long and at $3.85 billion, is leased at a rate of $25,328,947 per mile. I would call this a sale since it does not cost $25 million per mile to build an interstate.
So I guess the situation is, when the government unconstitutionally spends taxpayer money, they have no right to stop them *before* the money is spent.
According to Judge McKinney (federal judge in Indianapolis), and Judge Sykes (of the 7th Circuit Court of Appeals), they have no right to stop them *afterwards*, either, because then the issue is “moot”.
(See the recent Indiana Law Blog story about the state giving money to Notre Dame to use for religious purposes in violation of the Establishment Clause.)
Hey, that’s pretty neat. Why don’t we just bulldoze all the courthouses and set up Mitch Daniels as Supreme Dictator for Life. Seems perfectly consistent with modern “conservative” readings of the U.S. Constitution to me…
I really appreciate the legal analysis of issues on this blog.. it’s a whole new way of thinking ( for me) and helps see issues in a more objective way.
I think State governments, especially states with populations of 3-5 million as Indiana is, are having considerable problems. Union jobs are leaving and being replaced by lower paying jobs, if they are replaced at all. There are more needs than means to raise taxes.The McDaniel tollroad project may be a gimmick,but there’s a certain desperation to CUT taxes at the same time public funding is needed.
Ive specifically been looking at Indiana tax codes, as i have been looking to relocate to Indiana. I dont like what Ive found( high estate taxes and inheritance taxes, both state and local income taxes even on retirees like myself,personal property taxes and real estate taxes).
One thing that is real bargain in Indiana overall is real estae itself,but maybe that’s because no one can sell his house and the market may be stagnant. But 200,000 or often less for a 3-4 bedroom house around Indianapolis, double garage,basement. WOW!You wont find that most other places.
But to tie things together: The Tollway is a quick fix means to raise money for highway infrastructure in a state that has an imperative to CUT taxes at the same time it doesnt have enough public money to begin with.And People DO need tax relief from what ive researched,but it has to be made up from these gimmicks,and we argue over whether the tollway is being sold or just leased,etc,and is everything constitutional?
I see toll road tolls as another tax, so there isn’t a free lunch here. The State has just figured out how to hide a tax increase — one that will fall particularly on the shoulders of the children of Northern Indiana — and use it to fund improvement and construction of roads elsewhere in the state.
If we’re going to build these roads, I think it needs to be done with tax dollars that are more equitable than tolls. The best way to tax the citizens, I’ll leave for another day, but I’ll suggest that currently the wealthiest among us are getting off very lightly compared to the tax structure of the 1930s through the 1970s. A great resource for this is Kevin Phillip’s Wealth and Democracy. Relatively speaking, I think state taxes are a bargain. Federal taxes, not so much.
With this toll road deal, I get the sense that we are liquidating the investments of the past and locking in a tax on future generations to pay for benefits in the present.
This does not touch on the constitutional issues directly, but in the context of the adoption of the 1851 Constitution (that is the aftermath of the near bankruptcy of the state from the Wabash and Erie Canal project), the framers would seem to me to have questioned the wisdom of linking proceeds from any sort of disposition of a state asset, whether termed a lease or a sale, to building more of the same category of asset.
To those who would label opponents of “Major Moves” as, in effect, lacking vision, I would ask them to consider this point. While the governor’s office framed the issue as one intended to raise mondy improve our transportation infratructure, every cent seems intended to go to new highway construction, and not one cent appears intended to go to the valuable, heavily used and increasingly stressed South Shore Interurban connecting South Bend to Chicago (See http://www.chicagotribune.com/gettingaround). For the cost of a few miles of additional freeway for Central Indiana the South Shore’s dire shortage of rolling stock could be addressed.
Northwest and north central Indiana is well positioned to benefit from its proximity to Chicago were the South Shore (NICTD) given a solid economic foundation. It is not the opponents of Major Moves who lack vision, but Daniels who is either totally lacking in imagination or completely captive of the highway contracting lobby.
JOSH:
Having lived in several states outside of Indiana, I will tell you the reason folks make fun of Hoosiers is because of their unthinking alligence to the Republican party. I have heard coworkers up in Chicago say thinks like “The typical downstate Hoosier still thinks Paul Harvey is cutting edge political commentary”. Then there are all the self-style angry middle aged to elderly white males who listen religiously to the Greg Garrison + Rush Limbaugh Republican Mighty Wurletzer wankfest of disinformation orchestrated on a daily basis by none other than Karl Rove and the state GOP. Every election cycle the rest of us have to listen to endless man on the street interviews of these know-nothings and cringe.
Then there is the Indianapolis Star, decent sports section but JHC!!!, outside of the AP wire it reads like the dog-patch gazette. A newspaper serving a several million metro area can do better. But I doubt lots of residents expect more from their hometown newspaper.
Now folks up in Chicago should really be a bit kinder to Indiana. Downstate Illinois is not much different from rural/small town Indiana ,. DuPage county and the western suburbs and exurbs of Chicagoland especially are bastions of wing-nut Talk-Radio loving, pissed off, hour plus commuting psychos. What Dan Burton is to Carmel and Noblesville, Hastert/Hyde and the Recently departed Crane family are to Dupage, Kane and DeKalb counties.
JOSH:
Having lived in several states outside of Indiana, I will tell you the reason folks make fun of Hoosiers is because of their unthinking alligence to the Republican party. I have heard coworkers up in Chicago say thinks like “The typical downstate Hoosier still thinks Paul Harvey is cutting edge political commentary”. Then there are all the self-style angry middle aged to elderly white males who listen religiously to the Greg Garrison + Rush Limbaugh Republican WIBC Mighty Wurletzer wankfest of disinformation orchestrated on a daily basis by Karl Rove and brought to you by none other than the state and national GOP. Every election cycle the rest of us have to listen to endless man on the street interviews of these know-nothings and cringe.
Then there is the Indianapolis Star, decent sports section but JHC!!!, outside of the AP wire it reads like the dog-patch gazette. A newspaper serving a several million metro area can do better. But I doubt lots of residents expect more from their hometown newspaper.
Now folks up in Chicago should really be a bit kinder to Indiana. downstate Illinois is not much different from rural/small town Indiana, single employer company towns, college towns and rural farming county seats. DuPage county and the other western suburbs and exurbs of Chicagoland especially however, are bastions of wing-nut Talk-Radio addicted, pissed off, hour plus commuting psychos. What Dan Burton is to Carmel and Noblesville, Denny Hastert, Henry Hyde and the recently departed Crane family are to Dupage, Kane and DeKalb counties.
Just a little follow-up.
I agree with llamajockey that the constitutional provision doesn’t appear to prohibit the transaction (sale/lease, whatever), but merely requires that the proceeds be used to pay the debt. If the provision was followed, it would free up public funds for other projects, but these projects would have to be approved independently. That sounds like a good thing to me, policy wise.
2) Leaving constitutional issues aside, I’d feel better about the “Major Moves” concept if it weren’t so focused on highways, which look potentially obsolete. For example, in NWI right now the South Shore is overwhelmed with ridership, but can’t afford to add new cars, and Major Moves doesn’t provide any support to improve that situation. But that’s a Democratic stronghold; I’m sure there’s no connection.
3) I agree that a human life is not the measure of the useful life of a ‘public work’, but standards do exist. Under the GASB 34 standards, governmental units are required to assign useful life estimates to capital assets, so that they can be depreciated on the governmental entities’ books. Concrete highways are typically estimated at 30 years, signage at 10 years, and typical major bridges at 40 to 50 years depending on the type. Note that all these are less than 75 years. Rights-of-way, being realty, are not depreciable.
It’s only some peoples’ perception that everyone is making fun of Indiana. Oklahoma makes fun of Nebraska, and vice versa. Kentucky and Tennessee the same. New York and California think all the rest of the states are backward. Maybe it’s unique to Hoosiers to believe everyone else thinks we’re backward. And for those people I would say: Been to Arkansas lately?
As for “T B”‘s comment about “Been to Arkansas lately?”, I wonder if in fact he has been to Arkansas lately. I just took a trip from North Chicago to Dallas TX, and not only were the interstate highways in Arkansas better than those here in Illinois, but the people there are gracious, hospitable and actually quiet smart and they are not afraid to look you in the eyes and carry on a decent conversation. That is something that I have never gotten from anyone in Illinois, however I guess that Hoosiers are too worried about where their next dollar is going to come from since we have to pay to use a Federally funded Interstate system.
There is a kind of cultural divide along about the 40th parallel ( the Mason-Dixon line extended).Indianapolis is just South of that. You can tell it from the accent and that’s both in Illinois and Indiana. So Indianapolis thinking should be different from South Bend but similar to Springfield, Illinois,but I dont know if it is. Historically there is some basis: The Erie Canal funneled settlers into northern IL and IN from New England and the Cumberland Gap was the prime passage way for settlers into southern IL and IN. . It’s always been fascinating that the Mason-Dixon line extended has had such an effect on speech accent,even today.It truly has been a culture division line.I think there are still a few stones along PA-MD original Mason-Dixon line.
The Erie Canal contributed little to settlement of northern Indiana, much of which was swampy and required draining before it could be used, which resulted in the region being passed by in 1820’s and early 1830’s. Northern Indiana was thus settled somewhat later in the 19th Century than might be expected. You’ll find that many northern Indiana counties were only being organized in the 1830’s and 40’s. The big wave of migration into northern Indiana came not from New England but from Germany, especially after 1848. (Just before World War I Fort Wayne was something on the order of 80% German speaking.) You will find stronger New England influence in Michigan and Ohio, but not so much in Indiana. The Ohio Valley counties were a mixture Scots-Irish from the Carolina and Virginia and Pennsylvania German (St. Meinrad near Evansville being a good example) coming down the Ohio. I understand that owing to German-Catholic influences, Indiana was before Prohibition one the leading wine producing states.
Paul,
very interesting!