Indiana Tollroad Operators File for Bankruptcy

The consortium that paid $3.8 billion to lease the Indiana Tollroad filed for bankruptcy yesterday. The operators–a Spanish company named Cintra and an Australian company named Macquarie–said that revenues were up and costs down, but it wasn’t enough for them to keep up on their mortgage payments.

According to toll-advocate Robert Poole, the problem was that Cintra-Macquarie had structured its debt to require a large payment after ten years, but the recession prevented it from collecting enough money to meet that schedule. On the other hand, toll critic Terri Hall argues that the bankruptcy helps demonstrate that such leases are inappropriate and cronyistic.

Coincidentally, Poole and Hall debated tollroads and public-private partnerships at the American Dream conference in Denver last Friday. (The debate also included Greg Cohen of the American Highway User Alliance.) Hall argued that long-term leases allowed governors such as Indiana’s Mitch Daniels to collect and spend large sums of money during their administrations but left travelers paying heavy tolls for generations to come.

The Antiplanner’s take is that the bankruptcy itself proves nothing except that the toll road operators were overly optimistic when they bid on the road (something that many observers said at the time the road was first leased out). However, Hall’s argument that long-term leases unduly benefit whatever governments are currently in office is also valid.
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I admire Bob Poole for his long-standing advocacy of tolls and public-private partnerships. Done right, such partnerships and tolls can benefit everyone. Done wrong, however, and they can burden both taxpayers and travelers.

Moody’s points out that there are two kinds of public-private partnerships (see p. 2). The first, which it calls “demand risk,” involves the private partner risking its own money and collecting tolls or other user fees that it hopes will cover the costs. The second, called “availability payments,” involves the private partner doing the work but receiving a guarantee from a public agency that taxpayers will cover the private operator’s costs if tolls are insufficient to do so.

At last Friday’s debate, the Antiplanner argued that the purpose of tolls wasn’t to make sure that road users cover the costs of the roads but to provide linkages between users and providers. Systems that guarantee that taxpayers will repay the costs of roads or other facilities weaken those links.

The Indiana Toll Road lease was a demand-risk lease, when helped protect the links between users and providers. But the fact that the $3.8 billion bid by the toll operators to obtain the lease went for things other the Indiana Toll Road weakened those links just as much as if the tolls themselves had been spent on transit or anything other than the road that generated the fees. So leases that require such up-front payments are a bad deal for travelers and toll payers. That may be the most important lesson of the bankruptcy.