Indiana Officials on Declining Toll Road Revenues: Not Our Problem Anymore

One of the most powerful benefits of toll road public-private partnerships (PPP) is risk transfer—the notion that the concessionaire nearly always takes the risks of future traffic and revenue shortfalls (as well as significant performance, maintenance and construction-related risks), in these deals, shifting major risks to investors and away from taxpayers.

As I wrote in testimony in Massachusetts last December, this is one of the ways in which risk transfer plays out in the $3.8 billion Indiana Toll Road lease:

Even in today’s tough economic times, the state comes out a winner. Indiana’s budget director recently announced a decline in traffic on the Indiana Toll Road. Fortunately for Indiana, the $3.8 billion upfront payment they received from the concessionaire is already in the bank earning interest and funding new transportation infrastructure, and the revenue risk was shifted from government to the concessionaire. If future toll revenues fall short of expectations, it is the concessionaire—not taxpayers—that will bear that risk.

An article in yesterday’s Indianapolis Star—”Deal leaves state with 1 less worry“—supports my view:

State government is protected from a stumbling economy in at least one way — the Indiana Toll Road — thanks to the lease deal that has effectively insulated it from declining traffic and fewer tolls. The state leased the 157-mile Toll Road to a private consortium for $3.8 billion in 2006 — money that is nonrefundable no matter how bad the economy gets.

“Although we are concerned, it is not our problem,” Leigh Morris, deputy commissioner of the Indiana Department of Transportation, told a highway conference last week. “If we had not leased it, then the problems would belong to the state of Indiana.”

Traffic volume is down on the Toll Road, as it is on public interstates, especially among heavy-duty freight trucks. But with a lease for 75 years, Matt Pierce, communications director for ITR Concession, is confident the economy will bounce back. “We knew we were going to have peaks and valleys. This is a valley.”

Read the whole thing. The more policymakers around the country get to hear these types of stories, the more they’re going to realize that PPPs should be an essential component of transportation policy moving forward.

And in case you missed it, see Indiana Gov. Mitch Daniels discussing the toll road lease in the recent John Stossel/ special, “Bailouts and Bull.”