Last month Indiana agreed to sell its toll road to a private consortium of Australian and Spanish investors. Actually, they're just renting it. In return for a lump sum payment of $2.8 billion, the group will collect the tolls and maintain the road for the next 75 years.

Even though we need to completely overhaul the way we raise funds for maintaining our highways, I'm afraid this is going to prove to be a bad deal for everyone.

Getting a one-time infusion of cash is a politically expedient way to cover a deficit in the state's highway funding since it involves no new taxes. The governor likes that, as do the majority of the state's legislators. But it only covers that shortfall for 10 years, assuming Indiana runs against the trend to siphon off transportation money to cover other deficits in the general funds. Citizens may get some temporary relief from projected tax increases, but at what real cost in the end?

All too often in these large scale, long-term privatization deals, the company so eager to take over the public-sector asset seriously underestimates the costs involved in maintaining it. It's the only way they can come up with a business plan that justifies its initial payment.

I have no way of knowing if that's the case with the Indiana Toll Road, but heavily traveled roadways, especially those that have to endure winter conditions, can demand a lot of expensive work just to keep them from falling apart. It certainly wouldn't be the first time a privatization deal has proved to be a money-loser for the investors.

However, it's road users who could end up being the biggest losers. They'll pay in time lost to poor roads if there isn't enough money to keep them in repair. Even though the agreement locks in toll rates until 2010 and limits them to 2% a year after that, if the company is bleeding red ink, you can be sure it will petition for higher toll fees to help it make good on the investment. And who do you think will bear the brunt of higher transportation taxes to help the state cover the deficit when it re-emerges?

Privatization isn't necessarily bad, but when it comes to transportation it needs to be part of an overall strategy to rethink the way we fund the construction and maintenance of the infrastructure.

The problem with the Indiana scheme is that it puts off the meaningful discussion and action needed to make that wholesale change. We're past the time for procrastination on highway funding. Federal estimates are that we need to spend $4.4 trillion on highways and transit systems over the next 20 years just to keep them from getting any worse than they are already. If we want to make up for past underspending on our transportation infrastructure, that bill rises to $5.3 trillion. With our existing fuel-tax-based scheme, forecasts are for a $1.9 trillion shortfall over that period.

We need to face up to the problem of funding transportation infrastructure investment, not look for quick fixes that satisfy immediate political goals and ignore the real issues. Our continued economic health depends on an efficient transportation system, and in this modern world that system is largely dependent on highways and the trucks that travel them.


E-mail: jim.mele@penton.com
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