Tuesday, January 10th, 2012
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.