Shine comes off privatization for state projects

Government leaders across Indiana are increasingly adopting former Gov. Mitch Daniels' approach to funding big projects, turning to outside sources to fund and operate them. But they're unlikely to see the huge windfalls that Indiana received in 2006 when Daniels leased the Indiana Toll Road for $3.8 billion.

Instead, investors in state projects are more likely to demand guaranteed fixed annual payments before providing money for the projects, The Times in Munster reported.

The shift reflects investors' desire to insulate themselves from the risk that revenue from the projects won't meet expectations, said Robert Poole, director of transportation policy at the Reason Foundation.

Poole said many public-private partnership projects "have gotten into trouble because projections were a little too rosy."

The new approach to privatization has forced officials in Indiana and Illinois to rethink their funding plans for the 47-mile Illiana Expressway.

In early 2013, the states had hoped that investors might pay the entire cost of the toll road in exchange for keeping the toll proceeds. But that idea was dropped, and the states are now offering private investment teams competing for the project annual payments throughout the 35-year lease.

If toll collections fall short of those fixed payments, the states will have to make up the difference.

Indiana and Illinois also estimate they may have to pay a combined $270 million in cash to investors in the form of milestone payments in 2018 and 2019 once the road is built.

Illinois Department of Transportation Secretary Ann Schneider acknowledged the risk to the states but said Indiana and Illinois will get "the upside of that risk."

She noted that relying on private investors means the road will be built and open much sooner than if only state funds were used. That will get heavy trucks off local roads sooner and save the states maintenance costs for roads that now take a beating.

"It's a double bang for the buck," Schneider said.

Poole said public-private partnerships still hold great promise for rebuilding the United States' crumbling infrastructure, but he acknowledged that the shift in bargaining power means some safeguards are needed. One suggestion is to cap how much future revenue states can dedicate to fixed annual payments.

And he urged residents to question officials when agreements are being discussed.

"People should always take what elected officials of any kind say with a grain of salt," Poole said. "They should be asking who's really responsible for what in the future, and who is taking on the risk, and how much are they taking on?"