Tuesday, January 31, 2006

Crunching the Numbers

Over the last seven years, the Indiana Toll Road has made an average of $17.9 million per year in profits (revenues minus costs). Multiply that by 75 years. You get $1.3 billion in profits that Indiana will lose if it gives up the toll road.

Now subtract from that $4.4 billion in constructive improvements that the state would have to pay for if Cintra-Macquarie did not. That leaves the state with -$3.1 billion over 75 years if the toll road is not leased. The state would have to increase tolls to 230% their current level in order to simply break even. (And that is assuming that the state could make the improvements as cost-effectively as a private company, which is not likely.)

Keep in mind that currently, the toll road rates are controlled not by accountants, but rather by politicians. Perhaps the necessary 230% increase comes in an election year and politicians choose to keep tolls low. Then the toll road’s losses would have to come from other programs (which could include Medicaid, education) or from increases in taxes or decreases in property tax relief.

So rather than having to make these tough choices, the state can instead rid itself of the problem and collect $3.8 billion along the way (which is a lot more than -$3.1 billion).

If you ask me, it just makes sense.

But given that the toll road is leased, this is how I would improve the plan to appropriate the money:

1. Place exactly half of the contract ($1.9 billion) in interest-bearing assets. This would allow the state to take out and spend $25.3 million per year (present value) for 75 years, which is more than the $17.9 million per year that the state would be able to spend if it did not lease. [This eliminates the glaring flaw of the plan—that it spends 75 years-worth of profits in 3 years.] With half of the money saved and appropriated yearly, the state would be better off than it would be if it kept control of the toll road, and it still has $1.9 billion left to spend.

2. Use the other $1.9 billion for infrastructure improvements and other spending measures contained in the current plan. Decrease the amounts of such spending as necessary.

If you ask me, that makes sense too.

The Bottom Line: It is possible to go forward with this plan in such a way that Hoosiers both now and 75 years in the future are better off.

6 Comments:

Blogger Advance Indiana said...

Very good analysis. I know that the administration is saying the state will earn about $80 million a year in interest under the plan, as opposed to a near similar amount the state would be paying out in interest under the Democrat's plan. Also, as I understand it, the I-69 expansion will probably further leverage the state in the out-years because the state plans to make that a toll road and lease that out as well. That makes the math look even better. Because I-69 is going to become a major North American highway--from Canada to Mexico--it could similarly generate a lot of cash for the state.

8:47 PM  
Blogger Jason266 said...

Here, here, well spoken Bruce...I mean Jezebella! I don't see many downs to this proposal. I hope this goes through because it is a smart deal. I saw that the Mayor of Gary and the Mayor of Chicago both endorse the deal. And there are unions endorsing the deal. UNIONS, FOR THE LOVE OF MIKE, SUPPORTING A REPUBLICAN GOVERNORS PLAN! Now I've seen everything!

9:34 AM  
Blogger Jezebella said...

Bruce??

11:16 AM  
Blogger Jason266 said...

"Here, here, well spoken Bruce" is a Monty Pyton reference... maybe only men watch Monty Python... my wife doesn't get those references either.

10:30 AM  
Blogger Jezebella said...

Ahh, yes, the only Monty Python reference I know is "you must bring us a shrubbery."

1:31 PM  
Blogger sapphic_beats said...

I have an idea to save Hoosiers money: don't build I69.

This highway has been a bad idea (and an unncessary one) from the start. It was bad when the Dems fought for it, and it's bad now.

We have a highway, it needs fixin'. This is pork barrel all the way...

3:35 PM  

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