Indiana Sells Highway To Foreign Company

[Luke T.]

Somewhere, Shanek is having a deep, prolonged orgasm...

Indiana will become among the first states to privatize an existing interstate when it receives the $3.8 billion payment from a foreign consortium that has agreed to operate the Toll Road.

Macquarie-Cintra, the Australian-Spanish consortium that will take control of the road, will move a onetime payment of $3.8 billion to state coffers this morning through nearly a dozen wire transfers.
In return, the Indiana Finance Authority will formally hand over the highway's operations, maintenance and toll revenues to the consortium for a 75-year term.
Since the General Assembly approved the plan in March, the state has been recognized by national transportation experts as being at the vanguard of a movement toward road privatization.
Reaction in some Hoosier communities, however, has been decidedly hostile. Political observers say that backlash to the deal, particularly in Northern Indiana, could leave lawmakers who supported the lease vulnerable in the fall elections.

I think it interesting this is an interstate highway. I thought those were federal, not state.

ETA Link. (http://www.indystar.com/apps/pbcs.dll/article?AID=/20060629/NEWS02/606290480)

[Luke T.]

Q: How high might tolls rise?

A: Fees for two-axle cars traveling the road's entire 157 miles will stay at the current rate of $4.65 under a temporary toll freeze agreed to by the General Assembly. The rate will rise to $8 once the consortium installs electronic tolling -- perhaps in a year. However, motorists with transponders will be able to take advantage of the $4.65 rate, at least for a time.
Tolls for most big rigs also will rise. They just rose from $14.55 to $18. And they are scheduled to increase to $22.50 in 2007, $27.25 in 2008 and $32 in 2009.
Beginning in 2010, the lease authorizes the consortium to increase tolls by 2 percent a year, or by matching "the percentage increase of the (Consumer Price Index) or per capita nominal gross domestic product, whichever is greater."

A 72 percent increase in cost for cars within a year.

[hgc]

I think it interesting this is an interstate highway. I thought those were federal, not state.http://www.fhwa.dot.gov/interstate/faq.htm#question5

[Luke T.]

http://www.fhwa.dot.gov/interstate/faq.htm#question5

Yeah. I realized my error after I posted when I remembered that the federal government can't make a state change the speed limits on its interstates, but can only apply economic pressure to do so by witholding money. :)

[Luke T.]

I wonder what shape the highway will be in as the 75 year contract approaches its end.

[BPSCG]

Somewhere, Shanek is having a deep, prolonged orgasm...Indiana will become among the first states to privatize an existing interstate when it receives the $3.8 billion payment from a foreign consortium that has agreed to operate the Toll Road. With a population of about 6 million, that amounts to about $633 per person.

When can Hoosiers expect to start seeing their rebate checks?

[Luke T.]

I suppose the 72 percent increase in toll fees will be offset by a tax decrease now that the state doesn't have to maintain it? BWA-HA-HA!

[Luke T.]

With a population of about 6 million, that amounts to about $633 per person.

When can Hoosiers expect to start seeing their rebate checks?

We are on the same wavelength, it appears.

It also seems to me that selling a hard asset which generates recurring income for a one-time gain is not always a good idea.

Why didn't the state just increase the tolls itself?

[BPSCG]

We are on the same wavelength, it appears.More or less. I was wondering what would happen to that one-time cash infusion. You were wondering about the recurring finances.
It also seems to me that selling a hard asset which generates recurring income for a one-time gain is not always a good idea.Maybe. What if it costs more to maintain that asset than the revenue it produces? Do the tolls pay for the highway maintenance? That's not just concrete and asphalt and such; it's also the cost of the state employees who do all that constructio and maintenance, or the contractors who do it. Then there's the cost of all the state employees involved in running the highway system.

Gee, I wonder if there will be massive layoffs. 'Course, the contractors will hire those fired state employees, so economic dislocation should be minimal.

Anyway, if running and maintaining highways is a money-losing proposition, why should the state keep them?

[The Central Scrutinizer]

What happens if they decide to move the highway to Spain?

[daredelvis]

Anyway, if running and maintaining highways is a money-losing proposition, why should the state keep them?


It is not clear to me that it is. If it is a mony-losing proposition, why would this group want to pay for them?

Daredelvis

[Darat]

In the UK this is starting to happen we have a brand new Motorway called the "M6 Toll" that runs sort of parallel to the existing M6 and this is provided by a private consortium.

In principle I don't have anything against this sort of private investment in non-key infrastructure of the country.

[a_unique_person]

Somewhere, Shanek is having a deep, prolonged orgasm...





I think it interesting this is an interstate highway. I thought those were federal, not state.

Macquarie Bank is called the 'millionaires factory' here. They just go out and invest in projects based on rational evaluation of risks and returns. The people who work for it are paid huge salaries. (By Australian standards, anyway). So far, they have hardly put a foot wrong.

[Luke T.]

Anyway, if running and maintaining highways is a money-losing proposition, why should the state keep them?

If running and maintaining highways is a money-losing proposition, why would anyone buy one?

[a_unique_person]

A 72 percent increase in cost for cars within a year.

What other road are they going to use?

[Luke T.]

What happens if they decide to move the highway to Spain?

Or decided to change all the signs to Spanish?

All the rest areas will have Outback steakhouses.

[Luke T.]

What other road are they going to use?

Looks to me like the motorists of Indiana and any truckers passing through are hostages.

Highway robbery.

[Luke T.]

Who is responsible for law enforcement on the highway, I wonder.

Can they raise the speed limit to 100 mph if they want?

[pgwenthold]

What other road are they going to use?

They could use the freeway, which is just a few miles north of the tollway. It's more crowded, but that's because you don't pay tolls on it. Alternatively, you could take HWY 30, which isn't a freeway. Lots of stop signs, but also free. Unfortunately, the traffic around the south side of Lake Michigan is fairly intense, and the major E/W routes are all getting very traffic heavy. If you are coming from a little to the south and just passing through, take I70 across to I74. Unless you are going from Michigan to Wisconsin, you want to avoid going near the toll road anyway.

OTOH, there is some misconceptions here. For starters, the state did NOT "sell" the highway to the foreign company. Technically, it is leased. It is still owned by the state.

Of course, there is a huge short-sightedness problem that arises. The politicians are licking their lips about getting this $7 bil right up front, and have a ten year plan for spending it. The question that no one has ever answered, though, is what are they going to do for the next 65 years? A 75 year lease is a long time.

[3point14]

I just don't get it.

Or maybe I don't understand it.

The purchasing company must be damn sure they're going to make a profit (and if it looks like they won't, they'll adjust prices to make sure they will)

Why can't the state run the road in exactly the same way as the private company would and take all that lovely profit for themselves. What am I missing?

[Luke T.]

Of course, there is a huge short-sightedness problem that arises. The politicians are licking their lips about getting this $7 bil right up front, and have a ten year plan for spending it. The question that no one has ever answered, though, is what are they going to do for the next 65 years? A 75 year lease is a long time.

I thought it was 3.8 billion, not 7.

And I thought I heard someone on the radio this morning saying that kind of money generated half a million dollars of interest a day.

[pgwenthold]

I thought it was 3.8 billion, not 7.

And I thought I heard someone on the radio this morning saying that kind of money generated half a million dollars of interest a day.

Not when it is spent up in the first week.

It might be 3.8 bil or whatever, but that's even worse than the 7 bil.

The legislature has it planned to spend all the money in the first ten years (including paying off the current deficit). That includes the interest.

For the next 65 years, apparently, they will have to find something else to pawn.

[BPSCG]

Why can't the state run the road in exactly the same way as the private company would and take all that lovely profit for themselves. Because governments aren't run by people who know how to run businesses.

Government is run by politicians, represented disproportionately by lawyers.

Do you think the average Indiana state assemblyman knows what FIFO and LIFO are, and which is preferable in inflationary times, as opposed to non-inflationary times?

Do you think the average Indiana state assemblyman knows how to calculate return on investment? Marginal rate of return?

Do you think the average Indiana state assemblyman knows how to calculate depreciation using the sum-of-the-years' digits method?

I guarantee you the guys sitting in Macquarie-Cintra's boardroom all do. Well, except for the HR guy, maybe.

[shemp]

Goddamn foreigners! Next thing ya know, they'll make us all drive on the wrong side of the road!

[hgc]

Because governments aren't run by people who know how to run businesses.

Government is run by politicians, represented disproportionately by lawyers.

Do you think the average Indiana state assemblyman knows what FIFO and LIFO are, and which is preferable in inflationary times, as opposed to non-inflationary times?

Do you think the average Indiana state assemblyman knows how to calculate return on investment? Marginal rate of return?

Do you think the average Indiana state assemblyman knows how to calculate depreciation using the sum-of-the-years' digits method?

I guarantee you the guys sitting in Macquarie-Cintra's boardroom all do. Well, except for the HR guy, maybe.No, perhaps legislatures don't know these things. But then governments also consist of bureaucrats, some of whom do know about these things.

[Beerina]

I wonder what shape the highway will be in as the 75 year contract approaches its end.

My bet is pretty crappy. If they had bought it flat out, they'd keep it in good shape. Now they will for the first 60 years or so, but they'll have no incentive to keep it up near the very end of the contract since they'll lose the ability to amortize the repair costs against a period of time that extends past the end of the lease. Hence major repairs designed to last 10-20 years will not be implemented within the last 10 years, but only pothole fixing.

Ultimately, this depends if they get some kind of option to extend it, or if they'll have to re-bid for it or simply give it up back to the government entirely. And if they do, I predict the return of a (recently) crappified toll road will be trumpeted by politicians of the future as an example of how bad capitalism is.

It's true! :)

[Beerina]

I suppose the 72 percent increase in toll fees will be offset by a tax decrease now that the state doesn't have to maintain it? BWA-HA-HA!

I'm sure that'll be in the same bill that uses the $3.8 billion to pay down Indiana's debt, if there is any, or sets it aside for a rainy day, just like states did with the tobacco settlements.

[Kiwiwriter]

So the Australians have taken over the Indiana Toll Road...

Well, I guess they'll flip the driving...on the left instead of on the right,and offer shriimps on the barbie, fish and chips, and Foster's at the rest areas. And cricket and Australian rules footy on the telly instead of CNN.

Sounds to me like the Indianans are more annoyed about impending toll hikes than the fact that the road is in Australian hands.

The Spanish guys should answer complaints by sending in El Cordobes to fight the bull! Or direct all complaints to Generalissimo Francisco Franco, who continues his valiant struggle to remain dead. :D

[Darat]

My bet is pretty crappy. If they had bought it flat out, they'd keep it in good shape. Now they will for the first 60 years or so, but they'll have no incentive to keep it up near the very end of the contract since they'll lose the ability to amortize the repair costs against a period of time that extends past the end of the lease. Hence major repairs designed to last 10-20 years will not be implemented within the last 10 years, but only pothole fixing.

Ultimately, this depends if they get some kind of option to extend it, or if they'll have to re-bid for it or simply give it up back to the government entirely.
...snip...

Or on the terms of the contract - if I had done this I would have insisted in provision regarding maintenance, hand-over at the end of the lease etc. Whereas I don't think much of many elected government officials most bureaucrats are just as competent as any middle manage in a private company and it will be them who would have to arrange this sort of contract.

[Jaggy Bunnet]

Or on the terms of the contract - if I had done this I would have insisted in provision regarding maintenance, hand-over at the end of the lease etc. Whereas I don't think much of many elected government officials most bureaucrats are just as competent as any middle manage in a private company and it will be them who would have to arrange this sort of contract.

Its almost as if this problem might have arisen before and there is a simple solution available. Building leases typically have a dilapidations clause requiring any reduction in standard to be made good or compensated when the lease ends. I see no reason this should be any different.

[Darat]

Its almost as if this problem might have arisen before and there is a simple solution available. Building leases typically have a dilapidations clause requiring any reduction in standard to be made good or compensated when the lease ends. I see no reason this should be any different.

Nah - it's all new and unique, I mean what's this new fangled idea of a "lease"?

I remember once having to deal with a 50 year lease on a building my company was in that was coming to an end. Some of the things that we had to "put right" according to the terms included specified Bakelite light switches!

[Abdul Alhazred]

The road is not in fact privately owned. It is operated and maintained by a private company.

Many municipalities do something similar on a smaller scale.

[Jaggy Bunnet]

Nah - it's all new and unique, I mean what's this new fangled idea of a "lease"?

I remember once having to deal with a 50 year lease on a building my company was in that was coming to an end. Some of the things that we had to "put right" according to the terms included specified Bakelite light switches!

Did you manage to track enough down to replace them all?