Reactions were varied recently when the company operating the Indiana Toll Road filed for bankruptcy. A researcher at the Harvard Kennedy School emphasizes the positive aspects of how that deal was structured and focuses on the continually evolving role of each party in such an agreement. Governing reports:
n 2005, two companies came together to form the Indiana Toll Road Concession Co. (ITRCC), which won the right to operate the toll road in exchange for a $3.8 billion up-front payment. The deal limited how much tolls could rise and included a trigger requiring the consortium to expand the roadway if certain congestion benchmarks were reached. The $3.8 billion threw off about $250 million that was used to fund other state transportation priorities.
Like so many other enterprises, ITRCC was done in by the Great Recession. Its financing structure called for large debt payments at the end of the first decade, which proved overwhelming in the face of revenues that didn’t meet projections when the downturn hit and traffic volume fell.
But what’s reassuring is that motorists will see no interruption in service or toll increases as a result of the bankruptcy. The roadway is still subject to the same performance metrics, and there will be no taxpayer bailout. State officials will first try to find a new operator to take on the remainder of the concession deal. If that doesn’t work out, the ITRCC will likely be recapitalized with an altered debt schedule.
In either case, customers will retain the benefits from the $458 million ITRCC has invested since 2006 in road, bridge and pavement improvements and a new electronic tolling system.
While it appears that the Indiana Toll Road deal has succeeded at protecting taxpayers and motorists, that doesn’t mean there aren’t lessons to be learned from the bankruptcy. To maintain a true public-private partnership, governments might want to avoid taking the entire concession payment up front.
Chicago completed a similar deal just before the Indiana Toll Road agreement and couldn’t resist the temptation to use the upfront windfall to plug other holes in the city budget instead of using interest from the concession payment to maintain transportation infrastructure. More recently, public-private partnerships for Virginia’s Pocahontas 895 parkway and Colorado’s Northwest Parkway featured smaller upfront payments but give taxpayers a cut of the ongoing toll revenue.