Future generations will bear burden of Indiana road lease, report says

By David Tanner, Land Line associate editor | 10/18/2012

That toll road lease that officials brag about in Indiana – the one that doubled truck tolls and will keep users on the hook through 2081 – will outlive much of its value sometime around 2019, according to a new report on what future generations will bear.

Report author John B. Gilmour, a professor at the College of William and Mary, calls the 75-year lease of the Indiana Toll Road “insupportable” based on up-front benefits versus long-term costs.

Gov. Mitch Daniels leased the roadway in 2006 to a Spanish-Australian consortium for $3.85 billion in up-front cash. In exchange, the consortium operates and maintains the 157-mile roadway and gets to keep the tolls. Daniels used the money to fund 10 years’ worth of infrastructure projects and create a trust fund for future projects.

“Viewed from the perspective of fairness to future generations, the ITR lease is insupportable,” Gilmour stated in the report titled “The Indiana Toll Road Lease as an Intergenerational Cash Transfer” published in Public Administration Review.

“It allows the current government and citizens to enjoy new roads while having to pay for only a fraction of their cost,” he continued.

“It is easy to see why current politicians view asset leases with up-front payments as wonderful, allowing them to spend today without raising taxes or appearing to incur debt. In short, the ITR lease is a great deal for current residents of Indiana, but it offers little to those who will live in Indiana in future decades.

“The politicians who approved the deal will be able to point to gleaming new roads and bridges purchased with the proceeds of the lease, and these will provide benefits for decades. Current residents will bear little of the cost of those improvements.”

By approximately 2019, or about 13 years into the lease, the cost-benefit begins to tip more toward cost, as “Major Moves” projects and the Indiana Toll Road itself age and require repairs and upgrades.

Perhaps that’s what the toll increases are for.

Prior to the lease agreement, a five-axle truck paid about $14 for a one-way trip on the toll road. The lease allowed truck tolls to more than double, to $32, by 2011. Future tolls will increase at the rate of inflation or 2 percent – whichever is greater.

Truckers fought against the lease and the toll increases, but lost a lawsuit that went all the way to the state Supreme Court.

In addition to his own research and figures, Gilmour cites four separate studies in his report. Two studies said Indiana got a good deal for leasing the road for $3.85 billion.

The other two? Let’s just say they were less than favorable and that the state could have realized much more value by holding on to the asset.

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