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Strapped States Try New Route, Lease Toll Roads to Foreign Firms

by Amy Gold­stein

ELKHART, Ind. — Its offi­cial state mot­to is “the cross­roads of Amer­i­ca.” Yet Indi­ana is about to turn over its entire toll road for the next 75 years to two for­eign com­pa­nies, mak­ing it more expen­sive to dri­ve.

The deci­sion to hand the Indi­ana Toll Road to an Aus­tralian and Span­ish team for $3.8 bil­lion at the end of this month has blown up into one of the biggest brawls here in a gen­er­a­tion. It has unset­tled the state’s pol­i­tics in the months before the Novem­ber elec­tions, pit­ting a gov­er­nor who was Pres­i­dent Bush’s first bud­get direc­tor against the peo­ple of north­ern Indi­ana, which the high­way pass­es through.

The deci­sion also places Indi­ana at the lead­ing edge of a nascent trend in which states and local gov­ern­ments are explor­ing the idea of pri­va­tiz­ing parts of the Unit­ed States’ prized inter­state high­way sys­tem. The idea goes beyond projects, such as North­ern Vir­gini­a’s Dulles Green­way, in which states have turned to pri­vate com­pa­nies to build or widen toll roads. Now, they are con­sid­er­ing sell­ing or leas­ing some of the best-known and most-trav­eled routes across Amer­i­ca.

The trend start­ed 1 1/2 years ago, when Chica­go May­or Richard M. Daley (D) pushed through a 99-year lease of the Chica­go Sky­way, near­ly eight miles of ele­vat­ed high­way across the South Side, for $1.8 bil­lion.

Since then, a New Jer­sey law­mak­er has pro­posed sell­ing a 49 per­cent inter­est in the New Jer­sey Turn­pike and the Gar­den State Park­way. New York Gov. George E. Pata­ki ® is try­ing to per­suade the leg­is­la­ture to let investors rebuild or replace the Hud­son River’s Tap­pan Zee Bridge. In Hous­ton, Har­ris Coun­ty offi­cials are study­ing leas­ing 57 miles of toll roads.

Local­ly, Vir­ginia trans­porta­tion offi­cials announced last month that they would lease a debt-rid­den toll road out­side Rich­mond, the Poc­a­hon­tas Park­way, to a pri­vate firm for $522 mil­lion.

Half a cen­tu­ry after Pres­i­dent Dwight D. Eisen­how­er per­suad­ed the nation to build the inter­state high­way sys­tem, the allure of pri­va­ti­za­tion is a rethink­ing of the rela­tion­ship between the gov­ern­ment and its roads. It revers­es the view of high­ways as a pub­lic respon­si­bil­i­ty, ingrained since the first half of the 19th cen­tu­ry, when states took over roads, bridges and canals that had gone bank­rupt in pri­vate hands.

The Bush admin­is­tra­tion advo­cates the new view. “We are like a pok­er game,” Trans­porta­tion Sec­re­tary Nor­man Y. Mine­ta said in an inter­view. “We are invit­ing more peo­ple to the table and say­ing, ‘Bring mon­ey when you come.’ ” Such eager­ness for pri­vate invest­ment stems from the finan­cial strains on an over­bur­dened high­way sys­tem at a time when the White House and the Repub­li­can-con­trolled Con­gress want to curb domes­tic spend­ing. The inter­state sys­tem is decay­ing, and traf­fic con­ges­tion has wors­ened. Infla­tion in the price of build­ing and improv­ing roads is ram­pant.

Most sig­nif­i­cant­ly, mon­ey from fed­er­al and state gaso­line tax­es that pay for roads are falling fur­ther behind the need, with no polit­i­cal appetite in an era of record gas prices to increase the rates. Accord­ing to U.S. pro­jec­tions, the part of the fed­er­al High­way Trust Fund devot­ed to roads is to run out of mon­ey for the first time in its his­to­ry in 2009.

In response, the admin­is­tra­tion per­suad­ed Con­gress last sum­mer to take steps to make it eas­i­er for the pri­vate sec­tor to finance new roads — and take over exist­ing ones. Law­mak­ers removed sev­er­al legal bar­ri­ers to charg­ing tolls on inter­states and gave pri­vate investors new access to tax-free bonds for trans­porta­tion projects.

Mine­ta has been urg­ing U.S. finan­cial insti­tu­tions to get involved. “This type of dia­logue real­ly did­n’t exist two years ago,” said Mark Flo­ri­an, a man­ag­ing direc­tor at Gold­man Sachs Group Inc., which was paid $19 mil­lion to nego­ti­ate the Indi­ana deal and has dis­cussed sim­i­lar pos­si­bil­i­ties with offi­cials in more than 35 states.

Still, skep­ti­cism abounds: Will com­pa­nies take good care of high­ways? Will toll roads become too expen­sive to dri­ve? Will investors pluck prof­itable routes, leav­ing oth­ers to crum­ble? What will hap­pen to pub­lic toll-road work­ers — includ­ing 600 in Indi­ana who have been promised inter­views by the new oper­a­tors, but not the same job?

In Elkhart, resis­tance to such change runs deep. At a rest stop here on a recent day — at Mile­post 77 near the mid­point between Illi­nois and Ohio — both Indi­ana dri­vers and inter­state truck­ers were almost uni­form­ly against what the state has done. “I heard that for­eign­ers were going to lease it, and that sounds like a bad deal to me,” said Kreig Eber­le, 36, a truck dri­ver from Chill­i­cothe, Ill., who uses the toll road near­ly every day. “I think it is kind of baloney. Indi­ana ought to run it itself.”

Dankia McLaren, 22, a kitchen design­er from near­by South Bend, said: “It is sad. . . . It is just going to make it more expen­sive to dri­ve.”

The pas­sion­ate oppo­si­tion has aston­ished the archi­tect of the deal, Gov. Mitchell E. Daniels Jr. ®, Bush’s first bud­get direc­tor.

Daniels said he had his “lit­tle epiphany” about the toll road in 2004, after he returned from Wash­ing­ton and was cam­paign­ing for gov­er­nor. At a bar­be­cue in rur­al west­ern Indi­ana, a vet­er­an of the state high­way depart­ment came over and said: “You under­stand it’s a joke, don’t you.”

The joke, he told Daniels, was that the state for years had a list of promised trans­porta­tion projects that would nev­er be built. Run­ning on a plat­form of eco­nom­ic devel­op­ment, Daniels imme­di­ate­ly viewed a roads pro­gram as a means of cre­at­ing jobs and attract­ing busi­ness to spur Indi­ana’s sag­ging econ­o­my.

Soon after tak­ing office last year, the gov­er­nor ordered his staff to com­pute the price of the pent-up projects — $2.6 bil­lion more, it turned out, than the state could afford — and pro­pose ways to pay for them. Of more than 30 options, Daniels said in an inter­view, gen­er­at­ing mon­ey by leas­ing the 157-mile Indi­ana Toll Road was the only “real bold stroke that could sub­stan­tial­ly close this huge gap.”

In the show­er one morn­ing, he came up a name for his plan: “Major Moves,” bor­rowed from the title of a Hank Williams Jr. coun­try song. The gov­er­nor announced Major Moves in Sep­tem­ber, say­ing the state was open for bids on the toll road to raise mon­ey for a 10-year trans­porta­tion plan.

Late in Jan­u­ary, he invit­ed leg­is­la­tors, builders, man­u­fac­tur­ers, may­ors and trade union lead­ers to his office in Indi­anapo­lis to dis­close that the win­ning bid was $3.85 bil­lion, more than enough to fund the state’s road projects. The crowd burst into applause. “Every­body thought, that was that,” Daniels recalled. “We can stop dream­ing and start dig­ging all these big projects.”

But, Daniels had not antic­i­pat­ed what he calls “the x‑word” — for xeno­pho­bia — or the protests or the bumper stick­ers that say, “Keep the Toll Road, Lease Mitch.”

“This was an authen­tic, spon­ta­neous, very emo­tion­al reac­tion,” the gov­er­nor said, “and no inter­est group caused it.”

The pro­pos­al stirred up one of the biggest fights the Indi­ana leg­is­la­ture had ever seen, with ral­lies and expen­sive media cam­paigns on both sides, and the gov­er­nor unable to change minds at jammed town hall meet­ings in com­mu­ni­ties along the toll road where oppo­si­tion was most fierce.

“Nev­er in my leg­isla­tive career will I ever again be faced with a [bill] quite like this,” said the chief spon­sor, state Rep. Randy Bor­ror ® of Fort Wayne, who walked the state­house with thick note­books filled with fig­ures show­ing how much trans­porta­tion mon­ey each leg­is­la­tor’s dis­trict would get from the plan.

The win­ning bid­ders were Mac­quar­ie Infra­struc­ture Group of Syd­ney, the same firm that con­trols the Dulles Green­way, and Cin­tra Con­ce­siones de Infra­struc­tures de Trans­porte S.A. of Madrid. Under the lease, the com­pa­nies got the right to raise tolls — which have not been increased in two decades — for cars and trucks right away, and even­tu­al­ly to keep
pace annu­al­ly with infla­tion. The 103-page lease spells out the com­pa­nies’ respon­si­bil­i­ties in metic­u­lous detail, includ­ing clear­ing snow and road kill with­in spec­i­fied times, and grant­i­ng state police the right to patrol.

Steve Allen, Mac­quar­ie’s chief exec­u­tive, said the com­pa­ny, which oper­ates toll roads in nine coun­tries, has an incen­tive to improve the high­ways to attract more dri­vers. Since it took over the Chica­go Sky­way, he said, the com­pa­ny has built elec­tron­ic toll booths soon­er than required and made lane changes that reduce back­ups.

Indi­ana leg­is­la­tors were not reas­sured. Daniels and his allies made big com­pro­mis­es: extra mon­ey for each coun­ty along the toll road, a post­pone­ment of high­er rates for cars until elec­tron­ic tolls are installed, job-train­ing mon­ey for eco­nom­i­cal­ly depressed Gary. Even so, the plan passed the state House by one vote.

Three months after the leg­is­la­tion squeaked through, feel­ings remain raw.

“The whole thing stinks,” said state Rep. B. Patrick Bauer, the House Demo­c­ra­t­ic leader. The two com­pa­nies, he said, “got a heck of an unbe­liev­able deal. We got a bad deal.”

Daniel­s’s approval rat­ings have plum­met­ed, from about 50 per­cent ear­ly last win­ter to 37 per­cent in the most recent polls. Bor­ror said the issue “com­pli­cates the elec­tion” for state leg­is­la­tors in Novem­ber.

“There are going to be a lot of states that fail at this,” Bor­ror said, “because they under­es­ti­mate the amount of work it takes to get this bill passed.” Even so, Daniels said, “I don’t believe we’ll ever [again] be able to do any one thing that will be as trans­for­ma­tive and pos­i­tive for the future of this state.”


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