Tuesday, January 10th, 2012

Indiana’s Bridge Deal Boondoggle, Part 2: Hoosiers to Pay Even More With Tolling

In part one of this series I examined how Indiana managed to give away $1.7 billion to the state of Kentucky in renegotiating the project cost split for the Ohio River Bridges Project at Louisville. Despite a series of scope changes that reduced total cost by $1.5 billion, Indiana’s share of the cost actually went up by nearly $200 million.

Some might object that the project cost split is essentially meaningless because the project will be funded via tolling in a public-private partnership like the Toll Road deal. Unfortunately, this is not correct.

In part one we dealt in the realm of concrete black and white numbers from the two states’ own documents. Because there are so many open questions about tolling (itself a major concern given the headlong rush to make things happen), it can be difficult to definitively draw conclusions here. But the implications are certainly troubling and definitely the questions need to be answered so the public can properly assess this project.

Tolling Won’t Pay for the Whole Project

The first thing to note is that tolling will not pay for the project. According to the News-Tribune, no decisions have been made on toll locations or prices. However, Indiana is already projecting that it will have to spend $432 million out of its regular highway funds to complete the project.

If this number is correct, this would put the project among the most expensive in the state. With Major Moves already significantly over budget such that projects have been kicked out of it to balance the books, and a projected significant decline in available highway funds after Major Moves expires in 2015, this project will clearly impact other projects throughout the state. This is money that can’t be spent on any other projects – in effect it is a diversion of funds from other projects to cover a gap in this one.

That’s not to say it wouldn’t be a worthwhile investment. I’m a Southern Indiana native who strongly supports the construction of the East End bridge. But there are two points on which to be clear as things stand today:

  • This is not going to be an “other people’s money” deal like Major Moves. Regular highway funds will be dedicated to the project by both Indiana and Kentucky – lots of them.
  • Given the $1.7 billion gift to Kentucky I outlined in part one, it’s pretty obvious that with better negotiation Indiana could have easily financed the $432 million it is now paying out of its regular highway funds out of savings from the scope reductions. With even a reasonable deal on the cost split, Indiana would need to spend $0 out of its regular highway funds and could have 100% toll financed its share instead of having to rob Peter (other projects around the state) to pay Paul (this bridge).

Tolling Means Indiana Pays – Again

Paying for the bridges project via tolls doesn’t necessarily mean that Indiana and Kentucky won’t be paying a huge amount of the cost since a large number of the cars driving back and forth will be local residents.

Given that, one would think that a few questions would be of paramount importance to answer. First, what is the breakdown of projected cross-river traffic on the bridges in terms of Hoosiers vs. Kentuckians vs. those from neither state?

I have spent a lot of time searching the internet for the answer of that question, including looking at the documents on the web site of the Kentucky-Indiana Bridges Authority (a bi-state commission looking at financing) and asking various people I know in the Louisville area. I was unable to find any answer to this question.

I find it very surprising that this isn’t front and center. Because if tolling is supposed to fund the bridge, then who is paying those tolls is really the primary determinant of which state is paying the for the bridge.

Perhaps there’s a reason for that. As I Southern Indiana resident, I can tell you anecdotally that far more Hoosiers drive back and forth across the bridges than Kentuckians. The lion’s share of the regional jobs are in Kentucky. The key regional attractions are almost all on the Kentucky side of the river (the key exception being the Horseshoe Casino, generally accessed via the Sherman-Minton Bridge, which is currently not supposed to be tolled), as are things such as the regional airport, etc. In the absence of data to the contrary (and I’d appreciate a pointer to anything should somebody have one), I would hypothesize that there are indeed more Hoosiers driving across the bridges, which means toll financing is just another term for “Hoosiers pay.” (There may be many more Kentuckians driving through a redesigned and reconstructed Spaghetti Junction, but this interchange itself won’t be tolled).

As a commenter noted, Kentuckians seem already convinced that Hoosiers will have to pay most of the tolls. One Kentucky state senator, Dan Seum, is so enamored of the prospect of grabbing Hoosier money that he wants to toll the Sherman Minton Bridge as well. He’s apparently so convinced that Hoosiers are chumps that he didn’t mind bragging about this to the News and Tribune:

Seum admitted that Indiana residents will be among those bearing the majority of the costs. “Being from Jefferson County, remember that I think that most of the tolls would get paid by folks over in Indiana and our tourism and our big trucks,” he said in the report. “So it won’t be as onerous I guess to the average person out there but that’s the reality of it.”

Now, one could argue that if more Hoosiers are driving across the bridges, they are getting more benefits and thus should pay more. From a user benefit perspective, I actually agree. But user benefits are only one impact of the bridge. For example, those Hoosiers who drive to work in Kentucky pay occupational taxes, which are basically a local income tax, to Louisville already. And the regional economy is heavily skewed towards the Kentucky side of the river, so to the extent that the regional economy grows as bridge boosters claim, this will likely accrue principally to Kentucky.

Which brings us to the second question we need answered: what is the breakdown of economic benefits of the bridges project by state? It’s another question I’ve never seen the answer to. (Again, if someone has this, let me know).

Also, the fact that Hoosiers would pay more under a toll scenario wouldn’t necessarily be unfair if that money went to Indiana to offset its share of the bridge costs. However, according to the Courier-Journal, no decision has been made on how to divide the toll money.

A funding split where Indiana received the money from Hoosier motorists, Kentucky received the money from Kentucky motorists, and the two states split 50/50 revenue from motorists of other states might potentially alleviate the subsidy issue. However, given how the crack negotiators at INDOT gave away $1.7B to Kentucky and actually increased Indiana’s share of the cost of the project while the total cost went down by $1.5B, I’m not optimistic they’d do any better job negotiating this. Indeed, it’s easy to see how they might give even more away, such as by apportioning the toll revenue the same way that bridge responsibilities were allocated, having Kentucky keep all the downtown toll money and Indiana all the East End toll money. Since the downtown bridge is projected to generate twice the toll revenue of the East End bridge, this would be yet another gigantic financial giveaway to Kentucky.

It’s worth noting that the Bridges Authority, which is exploring toll financing, doesn’t even include a fair and equitable distribution of toll revenues as one of its strategic objectives. (All they talk about is a fair and equitable distribution of the costs, not the revenues. And in any case, we’ve already established that the cost distribution is suspect).

In short, we don’t know exactly how tolling would affect who pays for the bridge, but it’s easy to see scenarios of how Indiana could end up paying for way more than half of the bridges. As one Louisvillian close to the projects told me, “It’s pretty clear that Indiana is going to end up paying the bill. Tolls or otherwise.”

To assess the fairness of any toll solution, we need the answer to three key questions:

  • What the breakdown by state of people driving across the bridges?
  • What is the breakdown by state of the total economic benefits of the bridges?
  • How is the toll money going to be divided between the states?

It’s very important that these be answered honestly and clearly vetted with the public and political leaders in both states prior to making any financial decisions. Right now I’m not seeing that. As Tyler Allen of 8664 noted in the CJ piece linked above:

I don’t seem to hear that they know yet where the money is going to come from. There is still a question over how much tolling, what’s going to get tolled and, as a citizen I’m very concerned if they don’t lay that out on the table for us to respond to, then it could just happen to us — and that would be very bad public policy.

Tomorrow I’ll provide a look at how Indiana is taking on a potentially huge risk by agreeing to build a “mini-Big Dig” in Kentucky.

Indiana’s Bridge Deal Boondoggle
Part One: A Financial Fiasco
Part Two: Hoosiers to Pay Even More With Tolling (this article)
Part Three: INDOT’s Mini-Big Dig
Part Four: A Better Way

16 Comments
Topics: Transportation
Cities: Louisville

16 Responses to “Indiana’s Bridge Deal Boondoggle, Part 2: Hoosiers to Pay Even More With Tolling”

  1. This may read as simplistic, but I believe it: If a lot more people, especially Hoosiers, turned out to protest against tolls, they wouldn’t be happening. Instead, a smaller, but committed group shows up and the Bridges Authority’s PR creeps get to paint us in the Corporate Media as a ragtag band.

    Tolls are what happens when citizens don’t let go of their fears of being labeled “activist”. When you don’t exercise your civic duty to work against policies with which you disagree, you may as well be bending over forwards and asking for the sharp pain that follows.

  2. Curtis Morrison says:

    “crack negotiators” is right. Very insightful.
    Asking Indiana to bear the bulk of the burden of a project that’s expensive only on the Kentucky side, is wrong, and is probably unconstitutional. (And I live in Kentucky)

    Wonder if Daniel’s is willing to use Indiana resources to subsidize any of Kentucky’s other needs? We could use help with opening Kentucky Kingdom back up?

  3. Curtis, this actually isn’t the first time. One of the first Major Moves projects that got built was a $250 million four-laning of US 231 in a county with virtually no people in it to connect Owensboro to I-64. INDOT has long acted in some cases like a fully owned subsidiary of the Kentucky Transportation Cabinet.

  4. Chris Tobe says:

    I have been involved in trying to build the I-265 East End bridge for nearly 30 years, first as a staffer to Congressman Lee Hamilton and for the last 25 years as a Louisville resident.

    The invisible hand hear is River Fields spending millions over the years to block the east end bridge. Making Hoosiers pay for the majority is a ploy in delaying the entire project. Buying a fake historic landmark creating the expensive unneeded tunnel that Hoosiers have to pay for is the latest. While their influence in KY is huge, they have obtained great influence in IN bypassing local S.IN leadership and going straight to INDY.

  5. John Morris says:

    @stevemagruder

    Steve, even activists have to have their limits. I mean, with state local and federal governements involved in so many huge projects and issues, it’s not possible or rational to invest one’s time following it all.

    Sadly, the people who do follow it are often the folks with very focused special interests like unions and road contractors.

    Did @urbanophile say there would be both tolled and free bridges over the Ohio? Brilliant. why would one pay the toll?

  6. Curtis Morrison says:

    @Chris I used to agree with the “invisible hand” theory you reference, but have come to believe that’s an oversimplification.

    Like who gains the most (cough) JP Chase Morgan, Ed Glasscock (cough) with a speedily constructed, privatized project?

    And why the Browns, of the Brown-Forman family, would be so opposed to Bill Samuel’s making Indiana’s River Ridge facility convenient for distribution if there was, say, a whiskey plant constructed there? A factor I have yet seen explored in print.
    I am not, however, discounting that the hand you speak of having influence in Indy. Anyone checked RF donor list alongside contrbutions to Daniels?

  7. Mark Cassidy says:

    From the Evening News & Tribune, the following comment is by KY State Senator Dan Seum:

    “Being from Jefferson County, remember that I think that most of the tolls would get paid by folks over in Indiana and our tourism and our big trucks,” he said in the report. “So it won’t be as onerous I guess to the average person out there but that’s the reality of it.”

    He also is one who wants to re-open the idea of tolling the Clark and Sherman Minton bridges.

  8. John Morris,

    I understand that activists who are already activists are easily stretched too thin. And that makes my point that we need more citizens getting involved.

    When someone is worried about a policy being developed, and the public is invited to meetings about said policy, and they don’t even consider showing up… the result is policymakers having their way.

  9. Jeff Gillenwater says:

    While this is indeed a bad deal for Indiana, I don’t think it’s accurate to suggest that this is an instance of robbing other projects in the state to pay for ORBP.

    As leverage to gain approval for Major Moves, Daniels promised that the northern toll road deal would fully fund Indiana’s portion of the Bridges Project at a time when those projected costs were more than $700 million. Indiana’s commitment noted here, $432 million, is obviously much less than that. What this is is Southern Indiana finally getting only a portion of what Daniels promised. Other projects (and Daniels’ politically inspired, ridiculously inflated projections of Major Moves generated revenue) have been robbing Southern Indiana for several years.

    Major Moves isn’t “over budget”. It was known to be significantly underfunded from the outset.

  10. Jeff Gillenwater, was Major Moves really known to be significantly underfunded from the outset? I haven’t heard Mitch Daniels or anyone else from the state say that.

    Regardless, the simple fact is that with better negotiating, Indiana could have paid 100% of its share of the project out of tolls.

    I generally prefer the market mechanism and so like toll financing generally. But if Indiana could go back to contributing $700 million of normal highway funds and get the project built for that without requiring any tolls at all, I think that would certainly be an option to strongly consider.

  11. Jeff Gillenwater says:

    Urbanophile, Daniels knew he was at best treading in highly optimistic speculation when advocating for Major Moves but sold a fully funded 10 year plan as fact to the public if only the legislature would approve the lease. I still have audio from his announcement of the deal when he was pressuring legislators. A relatively short period later, transportation projects around the state were being delayed, scaled back, and cancelled but Daniels and cohorts were still crowing about a fully funded plan for political purposes.

    Though I disagree in terms of long-term development, one can reasonably argue that the state is better off with the lease deal as you have previously, but not that Daniels was at all straightfoward with the public in brokering it.

    Due to his consistent “money in the bank” hyperbole, news organizations in the Louisville metro regularly reported that Indiana’s entire portion of ORBP funding would be delivered from Major Moves proceeds for years and as recently as a week or two ago. Much citizen debate on both sides of the river has keyed on the idea that Indiana already had its funding in place, though that was never actually true. At one point post-lease, the Daniels administration even posted a news release on the state web site stating that $600 million from the deal was indeed set aside for ORBP. Where is it? If ORBP is to steal from other projects, we should have $600 mil plus whatever is stolen available.

    Toll amounts on the northern road have soared and are pre-approved for further incremental increases for decades to come but a lot of the promised benefits have never materialized. At last glance, the “fully funded” 10 year plan was about $1 billion behind.

    Tolls can make sense as a market mechanism but generally only if users have adequate choice, a choice that I think is implied by the “market” language. A lack of other, non-single occupancy vehicle options in the Louisville metro would allow bridge operators a near monopoly and/or (if limited to one or two bridges) artificially skew traffic and development patterns so that the overall system wouldn’t function as it was designed.

    The larger problem, though, is that IN and KY have long opted to leave local transportation in the Louisville area to interstate development. The temporary closure of the Sherman Minton bridge, for instance, doesn’t prove the need for the downtown portion of ORBP. That the closure of a single interstate bridge has so impacted short, local commutes just shows how poorly we’ve planned for decades.

  12. hoosiergirl says:

    Curtis….Please expound on your statement:And why the Browns, of the Brown-Forman family, would be so opposed to Bill Samuel’s making Indiana’s River Ridge facility convenient for distribution if there was, say, a whiskey plant constructed there? A factor I have yet seen explored in print.
    I am not, however, discounting that the hand you speak of having influence in Indy. Anyone checked RF donor list alongside contrbutions to Daniels?

    A Whiskey plant. I lived near one as a child and the odor…Please tell me this is not in the works!!

  13. Aidan says:

    I have to agree with Jeff. There was never a chance that all the projects in MM would ever make it. It got really bad when gas/oil shot up shortly after MM started. Initial estimates were completely destroyed.

    Secondly, if you want vehicle counts, surely the MPO down there has had to run numbers on how the new bridge and lane miles would affect traffic and pollution. They had to do it in the areas up north.

  14. Aiden, I’m sure total vehicle counts are available, but I haven’t seen a breakdown of the registrations by state.

  15. Aidan says:

    Not just total should be available, there should be hourly and peak hourly. Some assumptions have to be made based on the direction of travel. I am not certain that they can do that detailed of an analysis for what you want since the road is not built.

    Also, the fact it may or may not be a toll bridge and other bridges may or may not be toll bridges also makes it very difficult to forecast.

  16. John says:

    Agree with Aidan. You could probably look at the AM vs. PM traffic count split on the existing bridge(s) to get an idea of how many people are coming in from IN to KY or vice versa. The only data I could find though was total AADT, not divided by direction.
    http://transportation.ky.gov/Planning/Traffic%20Count%20Maps/Louisville_Downtown.pdf

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