Private operators vie for I-69 in Indiana

Close on the heels of news that Interstate 69 (I-69) is underway in Texas, the Indiana Finance Authority and highway department (INDOT) has selected four private developers to submit proposals for a public private partnership (P3) on segment 5 of I-69 from Bloomington to Martinsville. The final selection is expected this fall.

I-69 was designated as high priority corridors (18) and (20) by congress in the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA). These high priority corridors became the conduit for global trade when NAFTA came on the scene. By 2005, congress identified more than 80 such corridors criss-crossing America.

Foreign entities erode U.S. sovereignty
Whether or not these private consortiums seeking to build and operate I-69 in Indiana are foreign or domestic, P3s hand control of public infrastructure to private entities, taking the reins from taxpayers and elected officials. P3s don’t merely contract a private firm to build the road like most procurements, the corporations gain complete operational control over the public’s highways and the power to tax by setting toll rates.

Privatized toll roads charge punitively high toll rates up to 75-80 cents a mile, especially in urban areas where the companies can exploit congestion. Publicly operated tollways charge toll rates closer to 10-15 cents a mile, precisely because taxpayers can hold these public entities accountable if toll rates escalate too high. But all bets are off when a private, for-profit company takes the wheel. P3s threaten private property rights as well since they clearly use eminent domain for private gain.

Many so-called conservative or libertarian think tanks try to portray P3s as the free market solution to road funding and managing congestion. However, many competing voices from conservatives like the Washington Times Editorial Board, Michelle Malkin, and Rachel Alexander correctly dub them corporate welfare and government-sanctioned monopolies -- roads by their very nature are monopolies. Considering P3s do not utilize the traditional low-bid competitive bidding process but rather ‘best value’ bidding, even the procurement process lacks free market principles of competition and is rife with abuses allowing contracts to be handed out to the well-connected.

The corporations that can finance a public road up front (versus get paid by the state highway department as the work is completed like in a traditional contract) is indeed a very small group of global companies that monopolize the P3 market. For this segment 5 of I-69 in Indiana, the four developers are familiar names in the P3 world: Australia-based Macquarie and Plenary Group, Luxembourg-based Meridiam, and Spain-based Isolux.

These private entities guarantee a return on their investment through many gotcha clauses in the P3 contracts that are typically hundreds of pages long or thousands of pages when you count the addenda. The chief provision being a non-compete clause or ‘adverse event’ or ‘compensation event.’ These penalize or outright prohibit public agencies from building or expanding ‘competing’ free routes that could jeopardize the private corporation’s toll profits, jeopardizing future transportation needs.

Any other event the private operator deems ‘adverse’ to its bottom line is also covered, making taxpayers responsible for potential losses. Often the taxpayers are also on the hook for ‘un-collectable’ tolls from out-of-state and international drivers, so Indiana taxpayers will likely foot the bill for another’s free ride.

Taxpayer guarantees
However, INDOT is utilizing a new form of P3 for I-69 called the availability payment model. Rather than being repaid from toll revenues, the private operator will be paid through state and federal appropriations. That means state and federal tax dollars. Why would this be a bad thing?

First of all, it’s debt, off-budget debt for the state that they don't have to come to the voters for and doesn't show-up officially on the books as a debt. Second, it includes profit guarantees for the private operator since tax money not tolls will be paying them back. So it's a sure thing for them without ANY risk like toll revenues have proven to be. It guarantees the private operator will be repaid 100% for its investment - no risk whatsoever to the private operator.

A traditional procurement that uses tax money to back public bonds could be utilized and would be far better and more transparent than these ‘availability payments’ where the private operators get operational control over public infrastructure for 50-75 years or more with a contract entered into by un-elected state highway officials and the private operator without the same level of scrutiny and transparency as public bonds or a public bond election would require.

This is fast becoming the new P3 model preferred by private concessionaires since toll roads have become very risky with projected traffic not showing up and both the private operator and bond investors losing their shirts over it. Look no further than the bankruptcy of the SouthBay Expressway in San Diego, the Pocahontas in Virginia, and the Greenville Southern Connector in South Carolina for proof.

So naturally, special interests seek new ways to put taxpayers on the hook for their potential losses and availability payments is how they can do it. No controversial toll roads, no ‘official’ public debt, but all the perks of a P3 with guaranteed returns you can take to the bank.

In Texas, the highway department is contemplating a rule change to adopt availability payments, outside the purview of the legislature, that would compensate the private operators for projected traffic, not the actual traffic that shows up to use the road. So once again, the devil is in the details. With traditional public bonds that are based on the construction cost and retiring the debt, there is no compensation based on traffic. Under an availability payment P3, sky’s the limit on what the private operator can demand in exchange for operating and maintaining the public road in a long-term lease agreement - not just compensation for projected traffic, but non-competes or other sweetheart deals could be included in the mix.

One of the reasons states may turn to this model in increasing numbers is that they’ve maxed out their state credit card (borrowing capacity), so they’re using the private entity’s credit to get the project built and then obligating taxpayers to an off-balance sheet debt without having to go to the bond market themselves. So it’s like a new form of gambling. Highway officials are betting it will force lawmakers to fork over highway funds that have been elusive as gas tax revenues are falling persistently short of the need and politicians remain averse to raising taxes to fill the gap.

Piece-by-piece, I-69 advances
According to INDOT, the 142-mile I-69 corridor is divided into six sections and gained approval by the Federal Highway Administration in March 2004. The first 67 miles opened in November 2012 between Evansville and Crane. Construction of 27 miles of I-69 Section 4 between Crane and Bloomington is expected to open to traffic in late 2014 and into 2015.

I-69 Section 5 involves upgrading 21 miles of existing State Road 37 to Interstate standards. INDOT says the project “will improve traffic safety, reduce existing and forecasted congestion and support economic development.” Note there is no existing congestion, it’s merely forecasted congestion, and, of course, it invokes the ol’ standby buzz term ‘economic development.’ We should build public roads based on actual public need, not 'potential' economic development. Otherwise, we're engaging in yet another form of eminent domain for private gain similar to the Supreme Court decision known as the Kelo case.

With the expansion of the Panama Canal by the Chinese government coming online in 2015, the NAFTA superhighways will become the gateway to ushering cheap Chinese goods into the United States. This is the ‘congestion’ these trade superhighways seek to address - not the congestion created by the daily commute of American citizens. The I-69 alignment will eventually go all the way up to Port Huron, Michigan and the Canadian border to facilitate global trade when the coming tidal wave of Chinese goods begins to flood Texas, where I-69 originates.

Though trade may be the primary driver to build these corridors, those concerned with America’s porous borders believe these superhighways will also facilitate the flow of illegals across the border as well, posing a national security threat.

Whether it’s U.S. sovereignty, global trade, eminent domain abuse, open borders, or giving private corporations sweetheart deals, there are myriad of concerns to go around with these NAFTA superhighways. Slowly, segment by segment is getting built and Americans are duty-bound to connect the dots and take action to preserve our freedom and sovereignty.