Major Moves: All the Benefits and Almost no Risk
Indiana Writers Group column for March 1 and thereafter
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by Andrea Neal
In 1836, the Indiana General Assembly set out on a major venture to boost the economy. The title of the legislation told it all. The Mammoth Internal Improvements Act would establish a system of canals connecting Indiana to the Great Lakes and, from there, to the East Coast and the world.
Lawmakers, undeterred by the project’s $10 million price tag, agreed to borrow the money at a rate of 5 percent. Then, depression hit. Within five years, the state was bankrupt, unable to pay even the interest on the project, let alone any principal. The canal network would remain unfinished.
Even today, the canal fiasco is remembered as the reason for Article 10, Section 5 of the 1851 Indiana Constitution: “No law shall authorize any debt to be contracted, on behalf of the State, except … to meet casual deficits in the revenue; to pay the interest on the State Debt; to repel invasion, suppress insurrection, or, if hostilities be threatened, provide for the public defense.”
Major Moves is Gov. Mitch Daniels’ 2006 version of the Mammoth Internal Improvements Act. With one mammoth exception. This time, Indiana will enjoy the benefits of an improved network of highways and toll roads –- connecting us more effectively to the global economy — without assuming any risks of financing.
“I see this as an opportunity to give our infrastructure and economic condition a real boost,” says House Ways and Means Chairman, Rep. Jeffrey Espich, R-Uniondale.
If passed by the legislature, Major Moves would allow the state to lease the Indiana Toll Road and its operations to a foreign-owned partnership made up of Cintra of Madrid, Spain; and Macquarie Infrastructure Group of Sydney, Australia. The company would pay Indiana $3.85 billion up front in exchange for a 75-year-lease deal. The firm would also commit to spending $4.4 billion to upgrade the toll road over the duration of the lease, $200 million of it in the next three years.
The $3.85 billion would be spent by Indiana over the next 10 years to pay for dozens of delayed and desperately-needed highway expansions and improvement projects that we can’t now afford. These include completing the Hoosier Heartland Highway between Lafayette and Logansport; building two new Ohio River bridges near Louisville; and, potentially, getting started on the I-69 extension out of Evansville. According to U.S. Department of Transportation figures, the road projects would create about 130,000 new jobs.
With a few notable exceptions, Democrats in the legislature have opposed Major Moves as a sell-off of income that might otherwise be available to future generations. Rather than lease the Toll Road to a foreign-owned company, the Democrats argue, Indiana should figure out a way to fix up the road and finance the highway projects itself. After all, Cintra-Macquarie would have no interest in this deal if it weren’t going to make a gob of money – an estimated $21 billion in profits.
Which brings us back to the canal fiasco and the disastrous Mammoth Internal Improvements Act of 1836.
Indiana is in no position to take on the debt necessary to complete these highway projects. Theoretically, we aren’t supposed to go into debt at all, although we’ve gotten around that requirement by creating quasi-governmental financing “authorities,” which float bonds on government’s behalf for all sorts of capital projects, such as the new State Museum. Major Moves gives Indiana a quick cash infusion to undertake infrastructure improvements immediately.
“The state has no debt whatsoever under Major Moves,” Espich says. “There are times when debt is okay. But debt is not as good as cash obviously.”
Even if Indiana wanted to go it alone, as House Minority Leader Pat Bauer has suggested, there is no viable way for the state to support issuing bonds without hefty hikes in the gas tax, said Robert W. Poole, director of transportation studies for the Los Angeles-based Reason Foundation, which has studied the issue extensively.
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Likewise, Poole said, the state could not count on future growth in toll revenues to pay off bonds because “you can’t commit future legislatures to a long-term program of raising the tolls.” In contrast, Cintra-Macquarie can take its 75-year lease to the bank and quickly interest private investors. Another financing advantage available only to the private sector, Poole pointed out, is the tax benefit that comes with depreciation. “There is a huge chunk of value that is only possible because of the privatization.”
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The lease deal with Cintra-Macquarie is the proverbial bird in the hand. If the canal catastrophe taught us anything, it should be this: State government lacks the financial wherewithal to undertake “mammoth” infrastructure improvements on its own.
Andrea Neal, former editorial page editor of the Indianapolis Star, is adjunct scholar and columnist with the Indiana Policy Review Foundation. Contact her at email@example.com.