The Journal Gazette
 
 
Sunday, September 16, 2018 1:00 am

Toll Road move surprises

Holcomb's $1 billion deal skipped legislators

NIKI KELLY | The Journal Gazette

INDIANAPOLIS – In 2006, the agreement allowing the lease of the Indiana Toll Road to a private company as well as the bill authorizing the public-private partnership were public and vetted – sometimes loudly – for months.

The legislature approved the bill in March and the deal closed June 30 – a 75-year lease that seemed pretty set in stone.

Fast forward 12 years and Gov. Eric Holcomb dropped a bombshell this month – a $1 billion payment to the state over three years in exchange for a one-time, 35 percent toll increase on commercial vehicles with three axles or more.

He also has a plan on how to spend the money – roads, broadband, trails and flights.

All without legislative involvement and with a lot of secrecy.

Even lawmakers extensively involved in the 2006 process were surprised.

“I don't think anyone at the time thought it could be amended without coming back to the people's representatives,” said former Rep. Win Moses, D-Fort Wayne.

He said he understands small tweaks for workability but said “it was not meant to completely change the numbers without a further public review.”

Former Rep. Randy Borror, R-Fort Wayne, said the proposal was discussed more than any he has ever been involved with, including more than a dozen hours of testimony and debate. He carried the original Toll Road lease bill.

“The feeling back then was it was a 75-year lease with solid terms,” he said. “All of us knew the statute could be changed. But we were less sure of the operating agreement.”

The bill itself allowed the Indiana Finance Authority to enter into the agreement to lease the Indiana Toll Road, but the specific details of the lease aren't in statute. For instance, it's the lease that limits annual toll increases to the greater of 2 percent, inflation or gross domestic product annually.

“I was kind of surprised,” said Robert Poole, director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. He initially reviewed a similar Illinois lease for then-Gov. Mitch Daniels and has followed the Indiana transaction closely since.

“The legislators voted to approve the original deal and the public was deeply involved. There was legitimate concern about what the (toll) pricing would be and the agreement controlled and limited that,” Poole said. “If suddenly the formula that was built on can be changed on a regular basis that isn't what the legislature signed on for. That is concerning.”

Theoretically the company could seek increases again and again over the next 63 years.

The Indiana Finance Authority oversees state-related debt issuance and provides financing solutions to facilitate state, local government and business investment in Indiana. The five-member board still has to approve the deal Thursday, but it is controlled by appointees of the governor.

While Holcomb was detailed about what he wants to spend the $1 billion on, the public knows little beyond that. The Indiana Toll Road Concession Co. first approached the administration last October, but everything was handled behind the scenes.

Micah Vincent, head of the Indiana Office of Management and Budget, said increases for passenger cars were never on the table but other options were.

The state hired consultant Louis Berger to analyze the one-time increase as well as possibly allowing the ITRCC to raise truck rates four times a year instead of annually in the future.

“I'm not going to talk a lot about what went on in the course of negotiations. We were looking at the right balance of benefit and rates and eventually determined that this was the right choice,” Vincent said.

The ITRCC also agreed to an additional $50 million in upgrades to the road as part of the renegotiation.

Sen. Tim Lanane, the Senate Democratic leader, said legislators weren't ready for this move and might want to look into blocking future substantive changes – at least without legislative vetting.

“I didn't realize the governor could renegotiate on his own,” he said. “The legislature should be involved out of respect for the separation of powers.”

Borror said he believes the governor and advisers are confident it's a good move for the state and “at the end of the day the appropriate legislators already have or will be asking appropriate questions.” 

Vincent points out that care of the road historically was an executive function, and the lease was and still is a contract with the executive branch.

The legislature did weigh in back then on how to spend the initial $3.8 billion payment – spreading some out to counties along the Toll Road and setting up a trust fund that still exists today.

“We had it down to the penny back then,” Moses said. “I've never heard of such a large expenditure without public review by the legislature. It should not be one person's decision at all.”

While hundreds of pages of information were public then – the bids, the lease, the bill, fiscal analyses – there is little to review now.

The biggest question is what the company is getting out of the deal in anticipated revenue. The ITRCC performed its own five-year study of the increases, but that report is not public.

Administration officials note the profit the company expected was not known in 2006 either. Estimates were complicated at the time due to the length of the lease, but the company said it expected a 12 to 15 percent return on its investment.

Neither Holcomb nor the company will give even initial three-year estimates for the new deal.

And Hoosiers are paying for a portion of the increase. According to 2005 data – the last publicly available – nearly 40 percent of the vehicles that used the road were registered in Indiana. And Indiana vehicles accounted for 33 percent of the revenue.

The state hired two consultants in February and March costing $125,000 to assess the deal. Contracts for them – Berger and PFM Financial Advisors – were released when sought by The Journal Gazette. But the reports done by the consultants were deemed confidential because they contain trade secrets and proprietary information of the private operator.

The company also declined to release traffic counts on the road. The Indiana Finance Authority receives quarterly reports on actual and forecast traffic counts, but the agency didn't respond to requests last week for the information.

All Hoosiers have is years-old data and some guesses.

A 2006 analysis showed the Toll Road took in $88 million in toll revenue in 2005, slightly up from 2004. As far as vehicles, 45 million passenger cars used the road in 2005 and 9.7 million commercial vehicles did. The bulk of the revenue – more than $53 million – came from commercial vehicles.

Since then tolls have nearly doubled for trucks with four or more axles and under the new increases will nearly triple. Vincent said the market over the years on the corridor in other states has borne similar increases.

A 2014 Forbes article said the road experienced dramatic drops in traffic due to the Great Recession.

“In 2010 it was estimated that the road needed nearly 11 million toll-paying trucks each year just to break even, but only half as many traveled the highway,” the article said, though it didn't say how it obtained the information.

Vincent said there was a massive drop in 2008 and 2009. Since then there has been steady growth, but the baseline had to be readjusted. He would not be specific on numbers.

He also said the company seeking new revenue shouldn't be taken as it struggling financially. ITRCC denied an interview request.

“Their return on their investment is satisfactory,” Vincent said. “They are actually increasing their investment. They are paying us for this deal. It's not a free increase to them.”

He also pointed out the beauty of the original Toll Road lease – and current renegotiation – is the shift of the risk. “The risk of revenue performance is wholly on the operator.”

nkelly@jg.net


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