Commentary

Q&A on Safeguards in IN Tollroad Lease

This article in the Ft. Wayne Journal Gazette points out that “Reports both nationally and internationally have heated up in recent weeks questioning the financial health of the foreign companies that leased the Indiana Toll Road three years ago, but state officials are maintaining their cool.”

The article goes on to discuss fears that have been raised about what might happen to the road the public users of it if one of the companies that leased it folds, or stops maintaining the road etc., and why the state thinks they are well protected from such worries. The most interesting part of the article though is this Q&A:

Q. What would happen if the lease owners or operator stops maintaining the road?

A. Under the lease, the Indiana Toll Road Concession Co. is required to adhere to a vast array of operating standards. This includes how quickly potholes are filled and snow is removed and making hundreds of millions in capital investments to reduce congestion.

Kitchell said the lease sets up a dispute resolution process that could ultimately end with an Indiana arbitrator finding the operator in default and voiding the lease.

The state is even allowed to go ahead and “cure” problems on the road and bill the operator while this process is ongoing.

Q. Can Cintra or Macquarie sell its ownership stake in the lease?

A. Yes. Under the agreement, if there is a change in control — 50 percent or more of the interests — the state has no say if it is transferred to an entity in the U.S., Canada, Europe or Australia. But if the new owner would come from somewhere else, the state would have to consent.

Q. What would happen if the operators of the road would change?

A. Kitchell said because the operator has day-to-day control of the road, the state would have to approve any such change.

Q. If there is a default of some kind or a bankruptcy, can Indiana get the road back and lease it again?

A. Possibly. Kitchell said the consortium had to borrow much of the lease price to start with and the lenders could protect their investment by stepping in and finding new operators before it got to that point. But theoretically, the state could get the rights to the road back under the right circumstances.

Q. What could the state get if it sold the lease again?

A. Less than $3.8 billion.

With traffic counts declining on the Toll Road and the credit market tight, Kitchell said the state likely wouldn’t receive bids anywhere near as high. In fact, he pointed to one recent analysis that found the value of the lease has plummeted to just $445 million in three years.

Regardless of all the theoretical questions, Kitchell makes clear that he and other state officials are happy with the lease so far, noting improvements in congestion and electronic tolling while pointing to toll increases and maintenance deferral in other states.

“Folks that seem to be worried about what’s going on with Macquarie are not focused on what we think is most important — how the road is being maintained and operated,” Kitchell said.

Adrian Moore

Adrian Moore, Ph.D., is vice president of policy at Reason Foundation, a non-profit think tank advancing free minds and free markets. Moore leads Reason's policy implementation efforts and conducts his own research on topics such as privatization, government and regulatory reform, air quality, transportation and urban growth, prisons and utilities.

Moore, who has testified before Congress on several occasions, regularly advises federal, state and local officials on ways to streamline government and reduce costs.

In 2008 and 2009, Moore served on Congress' National Surface Transportation Infrastructure Financing Commission. The commission offered "specific recommendations for increasing investment in transportation infrastructure while at the same time moving the Federal Government away from reliance on motor fuel taxes toward more direct fees charged to transportation infrastructure users." Since 2009 he has served on California's Public Infrastructure Advisory Commission.

Mr. Moore is co-author of the book Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). Texas Gov. Rick Perry said, "Speaking from our experiences in Texas, Sam Staley and Adrian Moore get it right in Mobility First." World Bank urban planner Alain Bartaud called it "a must read for urban managers of large cities in the United States and around the world."

Moore is also co-author of Curb Rights: A Foundation for Free Enterprise in Urban Transit, published in 1997 by the Brookings Institution Press, as well as dozens of policy studies. His work has been published in the Wall Street Journal, Los Angeles Times, Boston Globe, Houston Chronicle, Atlanta Journal-Constitution, Orange County Register, as well as in, Public Policy and Management, Transportation Research Part A, Urban Affairs Review, Economic Affairs, and numerous other publications.

In 2002, Moore was awarded a World Outsourcing Achievement Award by PricewaterhouseCoopers and Michael F. Corbett & Associates Ltd. for his work showing governments how to use public-private partnerships and the private sector to save taxpayer money and improve the efficiency of their agencies.

Prior to joining Reason, Moore served 10 years in the Army on active duty and reserves. As an noncommissioned officer he was accepted to Officers Candidate School and commissioned as an Infantry officer. He served in posts in the United States and Germany and left the military as a Captain after commanding a Heavy Material Supply company.

Mr. Moore earned a Ph.D. in Economics from the University of California, Irvine. He holds a Master's in Economics from the University of California, Irvine and a Master's in History from California State University, Chico.