Indiana Toll Road Concessionaire Launches Bridge Rehab Program

As Land Line magazine reports, the Indiana Toll Road concessionaire has launched a 10-year bridge rehabilitation project, yet another example of how the $3.8 billion, 75-year lease of the roadway to a private sector consortium continues to deliver value:

ITR Concession Co., a partnership of Macquarie Infrastructure Group of Australia and Spanish toll operator Cintra, began work Tuesday, Sept. 8, on a 10-year rehabilitation project starting with the Calumet Bridge at Milepost 4.18 in Lake County.

In 2009, work on 17 bridges will total about $12 million, a spokesman said. In 2010, the company is eyeing 26 projects with a similar price tag. A total for the remaining years has not been determined.

“It is likely that those years will carry similar price tags for the remainder of the 10 years (but) it is impossible at this time to speculate on the improvement costs,” spokesman Matt Pierce told Land Line via e-mail.

“Also, it is important to note that these bridges are in addition to those structures included in our $250 million Mandatory Expansion Works project between MP 10.6 and 15.5.”

ITR Concession Co. paid the state of Indiana $3.85 billion in 2006 for the right to operate and collect tolls on the Indiana Toll Road for 75 years. The state is using the cash and interest to pay for transportation projects apart from the toll road.

ITR Concession Co.’s capital projects are part of an obligation to keep the roadway and its 330 bridges in good shape, Pierce said.

So in addition to the $3.8 billion upfront payment to the state (which was dedicated to statewide highway improvements that the state couldn’t otherwise afford) and in addition to the $250 million mandatory expansion project (paid for by the concessionaire) mentioned above, the concessionaire will spend upwards of $100 million over the next decade to repair dozens of bridges. It’s safe to say that the state would never have been able to achieve this level of investment and offer such safety enhancements keeping the roadway in-house, at least not without taking funds away from many other projects around the state (or raising taxes) to do so.

Instead, the judicious leasing of this asset unlocked the value trapped within it under government operation. In addition to the upfront windfall—wisely re-invested into long-term infrastructure improvements—the state has gotten itself out of a business it wasn’t very good at (running a toll road enterprise), users are getting a better roadway (via electronic tolling, an array of rehab and construction projects, and the like), and the concessionaire is contractually obligated to make the proper investments to ensure a well-maintained, long-lived asset.

Contrast that with government operation, under which the Indiana Toll Road was on the slow death spiral. Political pressure to keep tolls low led to a pattern of underinvestment in the asset. Like many government roads (or water systems, schools, prisons, etc., etc.) underinvestment leads to poor maintenance which leads to faster deterioration and higher life-cycle costs.

Indiana escaped the slow decent into decrepitude through privatization, and it continues to pay off. It’s another solid example of what you can achieve through the strategic leveraging of state assets.

Reason Foundation’s Annual Privatization Report 2009
Reason Foundation’s Privatization Research and Commentary