When good toll roads go bad
By Keith Benman
December 27, 2014
Northern Indiana is not the first region in the nation to be subject to fallout from a toll road bankruptcy, with a number of other privatized roads and bridges going belly up across the nation in the past few years.
The good news is those roads have continued to carry traffic with little disruption. The bad news is there is usually little communities can do to influence the bankruptcy process, except in cases where roads revert to government ownership.
"We were hopeful if there was a true bankruptcy and a fire sale we could buy the bridge back," said Orange Beach, Ala., Mayor Tony Kennon of the financial troubles experienced by owners of the Foley Beach Express gateway toll bridge to his island community. "We thought there might be a silver lining for us."
But that proved not to be the case as owner American Roads was already on its way to a reorganizational bankruptcy in early 2013, citing $830 million in debt on the Foley Beach Express and other toll roads it owned. Investor Syncora Guarantee Inc. subsequently became the owner.
Traffic has been able to continue to use the road unimpeded, Kennon said. However the city has not been able to address the issue of the $3.50 toll, which it feels keeps tourists and shoppers away while also burdening commuting service workers who must use it twice daily.
The operator of the Indiana Toll Road, ITR Concession Co., declared bankruptcy on more than $6 billion in debt in September. In October, it received approval to put the road out for bid, and preliminary bids have already been received.
Indiana has resisted all entreaties to take the road back. So the road will most likely remain owned by investors, unless a preliminary bid by Lake and LaPorte counties is eventually successful.
Even though the state is not taking the road back, that doesn't mean residents and road customers should not have a say, according to Donald Cohen, executive director of In the Public Interest, a group that bills itself as a resource center on privatization and responsible contracting.
"If I were in Indiana, I think I would pay a lot of attention to the negotiating process," Cohen said. "That's really the fundamental question: How do the public officials negotiate on behalf of the people of Indiana?"
The Indiana Toll Road's notorious rest stops, all more than 50 years old, might be a good place to start, Cohen said. The state could use its right of refusal on any deal to force the new operator to undertake some upgrades.
Although most roads have remained in basically good repair during bankruptcy, the process can affect tolls, Cohen said.
In the case of the Foley Beach Express, in 2007 struggling American Roads raised tolls on the bridge 50 cents and in 2010 another 50 cents. McKennon said the $3.50 toll remains a sore point locally.
But when the San Diego Association of Governments bought out the South Bay Expressway outside San Diego for $341 million in late 2011 it actually slashed tolls 25 percent to 40 percent depending on the length of the trip. But traffic on that road had never reached more than 38 percent of what was forecast, so a toll slash was the only logical way to attract more traffic.
In the case of the Indiana Toll Road, two senior directors at bond rating agency Fitch Ratings have already warned of "potential political fallout" to the state if toll increases are above the rate of inflation. That is actually an argument to keep toll increases below what is allowed under the concession agreement with the state.
That agreement would allow any new owner to raise tolls in tandem with increases in U.S. Gross Domestic Product, which is actually about twice the current inflation rate.
"Aggressive increases could divert traffic to the state-run network, leading to greater congestion on other routes," the commentary warns.