Indiana House Democratic leader Parick Bauer writes in USA Today about his displeasure over the Indiana Toll Road deal. Keep your eye on the cards -- he deals one or two from the bottom of the deck. Though the state is leasing the road to a private consortium, Bauer keeps calling it a sale:
We are told the sale of the Indiana Toll Road to foreign investors will help us address infrastructure improvements over the next decade. For a one-time infusion of cash, we will be giving up possession of a state asset for 75 years.
He also has a rather narrow and negative view of business:
A private company's primary motivation is to earn a profit. If profits are not being earned, a company reduces costs by cutting personnel and services.
Actually, private companies frequently combat lower profits by increasing services and cutting the price to consumers. A monopoly wouldn't have to do that, of course, and many think the state is giving the consortium a 75-year de facto monopoly. The state retains control over its property, however, setting out strict guidelines for toll-road rate increases, for example. And the toll road isn't the only route drivers have to consider in getting across northern Indiana.
Of all the criticisms about the roll road lease, the one that seems strongest to me is the 75-year term. We have elections so people can vote for the status quo or for change. When an administration commits the state to something for 75 years, far beyond its own existence, it limits the ability of future voters to have a meaningful say in their government.
Comments
Bauer will beat this like a dead horse, in the hopes it'll get a few more democrats elected. He couldn't care less what's good for the state or it's people, he only cares about his party and his re-election.
He should quit harping on Mitch Daniels and go after the guy that sold him his hairpiece...now THAT's a criminal act.
He looks like Traficants' little brother.
I'm not sure Bauer's focus on this issue will help the Democrats all that much statewide (I don't know that it will hurt, particularly, either.) But I think it's a real winner for him in his district. I doubt Daniels or increased tolls will be particularly popular in South Bend.
Leo Morris says the criticism of the ITR lease that registers most strongly with him is the 75 year term and suggests this commits the state to the status quo for that period. That's not correct. I've read the darned thing from beginning to end! The lease agreement has many provisions for making changes to the lease contract, for adding lanes, altering service, and otherwise adapting the tollroad to changing needs. The state can require the concessionaire to do many things not presently done. The general principle is that to the extent any of these things reduce the profitability of the concession the state must compensate the concessionaire - that is pay for them, which is what it would do anyway if it were still under state operation. I'm sure all these longterm concessions will be amended many times over the years, and sometimes quite radically. Indeed the ITR concession is already amended - to provide for a toll freeze for commuters as agreed in the legislature after the original concession was signed. Peter Samuel, editor TOLLROADSnews.com Frederick Maryland
"Leo Morris says the criticism of the ITR lease that registers most strongly with him is the 75 year term and suggests this commits the state to the status quo for that period. That's not correct."
Well, yes it is. The status quo is the lease, notwithstanding the particular language in it that lets the state make changes as it notes new conditions.
As I acknowledged in my post, "The state retains control over its property, however, setting out strict guidelines for toll-road rate increases, for example." The state had a lot of options in negotiating the lease -- it could have sought less money and given the consortium more freedom to act, to cite one choice. As it happens, I think the administration did a pretty good job, and the lease is, on balance, a good deal for the state. And I wouldn't suggest that committing future administrations and taxpayers is something to always be avoided. A lot of public projects would never get done without bond issues, which by their nature go out years beyond the officials who proposed them.
But 75 years is still a very long time, and that fact deserves to be given a lot of weight in the decision-making process. At least with bond issues, which typically go out about 20 years, there is a lengthy debate, and taxpayers in Indiana have the right to attempt a petition process to stop them. This lease, which as you acknowledge takes a lot of careful reading, came up and was approved very quickly. Now, taxpayers just have to live with it.
Many things we can't foresee right now could happen in the next 75 years that might shed light on the wisdom of this lease. Looking back 75 years, there was no interstate highway system, intenational flight was just a fledging enterprise, nobody predicted the communications revolution that would so affect our transportation choices. These unknown changes might work to the state's advantage or might benefit the toll-road's new operator.
Democratic government, fueled by politics, is very much a short-term enterprise, not given to the long view. That is both a strength and a weakness. Negotiating long-term leases is a smart thing to do, but we have to fold it into political reality.
The best argument for the lease, by the way, though nobody asked: The toll-road fees have not been raised in so long that it was actually losing money. We've gone from that money drain to having the toll road financing needed highway projects all over the state, without a tax increase. What's not a good deal about that?
Just what is $3.85 billion dollars spread equivalently over 75 years? I am not talking linear which would be $51.33 million a year, but what could be used on a yearly basis if this were a fund that had to last 75 years paying an equal amount in real dollars each year? This is a compound gradient.
If we assume that the standard of living increases by 4% a year and the cost of money is 6%, then we could consume in the first year no more than $101,268,000. If we did, then we would run out of money prior to the end of the 75 year period.
In addition any new construction or infrastructure which is not replacing existing infrastructure will create maintenance cost on a yearly basis. Accruing these costs will increase taxes considerably.
However, most importantly the 20 year period of not raising tolls is what the leasing company is going to use to not only pay the $3.85 Billion but also to make a profit. My experience with making changes to a contract is it is the time when costs escalate. It is "pay-back-time" if the contract was a looser. If the state wants another lane, bridge or something changed on the toll road, the leese can bid the project and tack on their 10% profit. What happens if the state does not agree with the cost?
you can use this link to calculate many equivalent costs. http://www.justsayno.50megs.com/how_much.html