Following up on my earlier post, here’s one great example of how PPPs present major opportunities even amid current economic conditions:
In the state of Indiana, Interstate 80, or the Indiana Toll Road, is managed by a private company. A spokesman with the Indiana DOT says there are ongoing benefits to the state by leasing the road in a 75 year contract. “We’re making more in interest on that money in a year than the toll road ever generated in revenue,” says DOT spokesman Andy Dietrick.
As of a month ago, the state had earned $360 million in interest on the $3.8B upfront payment for the lease, but that’s not all:
Cintra and Macquarie Infrastructure Group joined together and wrote a $3.8 billion check to Indiana for the rights to run the road, and that money was used create the state’s Major Moves transportation program. Under Major Moves, the state is undertaking hundreds of new construction and highway preservation projects, annual state highway spending will quadruple from $213 million in 2006 to $874 million in 2015, and every county in the state has or will receive additional funds for local transportation projects. In short, the lease payment is funding permanent assets to serve the needs of current and future Hoosiers. Further, the concessionaire has spent over $88 million in 2008 so far on construction contracts for work on the ITR itself. Over 97 percent of this work went to Indiana businesses, well exceeding the 90 percent target specified in the lease contract for the roughly $4 billion planned in ITR construction work over the 75-year term. That’s $4 billion in addition to the $3.8 billion upfront payment that will remain in Indiana. Without the toll road lease, these projects would likely have never materialized, or they would have necessitated tax increases to move forward. And Indiana has also earned over $360 million in interest on the upfront payment in just two years (over $185,000 per day, at current rates), which will be used to fund additional state and local transportation projects for decades. This sort of wise fiscal stewardship was a key factor in Standard & Poor’s recent decision to award Indiana its first-ever AAA bond rating in July, indicating top-notch financial conditions and management. Indiana’s excellent credit rating means it will save millions of taxpayer dollars in interest payments when it issues bonds to fund capital construction projects and the like. The Indianapolis Star got it right in a recent editorial, saying that the S&P rating “has validated several difficult, controversial decisions that Gov. Mitch Daniels and the General Assembly made to bring Indiana’s budget back into balance. […] [T]he $3.8 billion in capital leveraged through the [ITR] deal has enabled the state to make much-needed improvements in infrastructure while handing off management of an underperforming asset.”
Hmmm…hundreds of millions in interest, billions in new road investment, upgrade to highest possible bond rating—all a direct or indirect byproduct of the toll road lease (one variation of public private partnership). Why Pennsylvania would walk away from an even bigger deal is beyond me. “ Reason’s Transportation Research and Commentary