Governors and officials from around
the country think Indiana is on to something

February 4, 2007

BY JIM STINSON, Post-Tribune

Governors and officials from around the country think Indiana is on to something.

They like the way the state has found new sources of revenue by leasing the Indiana Toll Road and considering privatizing the state lottery.

Pennsylvania Gov. Ed Rendell is thinking of leasing the 500-mile-plus Pennsylvania Turnpike, and will discuss the issue of leasing public goods with Gov. Mitch Daniels and 200 legislators from across the nation this week.

The Commonwealth of Pennsylvania has about 25,000 state bridges with a life span of 50 years, so when they lately ran short of transportation cash, they looked about the nation for solutions and discovered the Indiana Toll Road and its lease, approved in 2006.

"Obviously, Indiana has really opened up a lot of people's eyes," says Rich Kirkpatrick, spokesman for the Pennsylvania Department of Transportation.

Daniels takes delight in talking with Democrats from other states, because House Speaker Pat Bauer, D-South Bend, an enemy of the Indiana Toll Road lease, told the Post-Tribune that these governors, in his own party, should be ashamed.

Rendell, a Democrat -- in fact, the former chairman of the Democratic National Committee -- has asked the investment community for statements of interest in a leasing deal for the Pennsylvania Turnpike, with its more than 500 miles of road. In late December, he got 48 expressions of interest.

Estimates for the long-term lease payment range from $3 billion (Rendell's guess) to $30 billion (a guess of a Republican state representative).

Indiana received $3.85 billion for its 157-mile toll road.

A large bid for the Pennsylvania Turnpike could solve a lot of maintenance issues, and the money could be used for mass transit, too, Pennsylvania leaders say.

Those budget items are suffering, Kirkpatrick said. In 2005, Rendell had to use a rare law to transfer $412 million from road money to Pennsylvania's mass transit budgets.

The bridge issue makes the overall roads-and-transportation issue more pressing in the future. "We have a tremendous investment issue," said Kirkpatrick.

Talking it up

A year ago, Daniels spoke with newly elected New Jersey Gov. Jon S. Corzine, a Democrat. Corzine is thinking of leasing a number of tollways in the Garden State, and he has also floated the idea of leasing the state lottery to help fund education.

"(Corzine) understood exactly what this is about," Daniels said in a one-on-one interview with the Post-Tribune on Thursday. "This is Asset Management 101."

But the lease of the lottery in Indiana has run up against resistance from Indiana Democrats, who say the idea faces a battle in the Democrat-controlled House of Representatives.

Daniels needs legislative approval to lease the lottery.

Bauer said Daniels has authority now to expand the lottery -- if he desires to keep it public. But Bauer opposes giving a private company its operations.

"I think he's outsourcing his gubernatorial responsibilities," Bauer said. "It might get a hearing. It won't pass."

Bauer won't hear talk about Democrats elsewhere following the privatization path in tollways and lotteries.

"It's not partisan politics," said Bauer. "It's the politics of greed. ... You can be a Democrat and do that, too."

Bauer said the huge payments the states may get are one-time payments and give private companies decades to make money off a public asset.

Bauer said Daniels could have kept the Indiana Toll Road and raised toll rates. The state could have also bonded on future revenues, he said.

The state could also raise $200 million annually by adding keno to its gambling lineup, Bauer said, which he said will happen anyway under a private firm.

Daniels is hoping to use the new lottery revenue from a lease to fund Indiana's public universities. When he announced the idea in late 2006, he was surrounded by university leaders hoping for $200 million in new funding.

No plans are definitive yet, and Daniels has only sought investors' interest statements before going to the Legislature.

Leasing out of debt?

New Jersey has a unique need for new revenue.

With $29.7 billion in debt, New Jersey has a huge debt service to deal with annually, said Mark Perkiss, spokesman for the New Jersey Department of Treasury, a Cabinet office under Corzine.

Perkiss said New Jersey took note of the leases Chicago and Indiana entered into with Cintra-Macquarie. Corzine has ordered a study and no determination has been made, he said.

But Corzine's administration obviously sees a possible way out of red ink by using public-private partnerships.

"This is an area that, at least on its face, shows some promise," said Perkiss.

Daniels' momentum, at least as a national guru of state finance, is picking up.

Colorado legislators have lately floated the idea of a lottery lease to help fund green space, and Forbes is reporting that Michigan Gov. Jennifer Granholm, a Democrat, is expected to talk about a public-private partnership in that state's lottery in her State of the State address on Tuesday.

In both of those states, the discussion has been started by Democratic leaders, not Republicans.

Daniels says he really didn't start the trend, but took note of Chicago Mayor Richard Daley's lease of the Chicago Skyway in early 2005. Daniels was just taking over at the governor's office after a stint at President Bush's Office of Management and Budget.

"I actually think we were a trailer," said Daniels. "In most respects, I think we were anything but a pioneer."

But even though such leases were in place in Chicago and Ontario, Canada, the issue was politically worrisome.

Time was also a factor. Wary of private capital drying up if other states jumped into market with their roads, Daniels waited through 2005 and his first legislative session, to unleash the idea during the 2006 session. It passed with only two Democratic votes.

One was state Sen. Earline Rogers, D-Gary, who negotiated with Daniels to get a piece of the pie for minority construction programs.

Once the billions of dollars were deposited by the Indiana treasurer, other states took further note of the lease idea. But there will always be skeptics with political motivations, he said.

"The ideologues are on the other side," Daniels said. "They don't care if it works. They're just for bigger government."

Daniels admits he never considered raising taxes to raise at least $2 billion the state was estimated to need for a serious road-improvement plan, or the $200 million annually for better college funding. "I believe in solving problems without raising taxes," he said.

Bauer sees taxpayers getting their problems backloaded down the road.

"The end doesn't justify the means," Bauer said. "It just shows you, greed will blind everybody, including university presidents."

Contact Jim Stinson at (317) 631-7400 or jstinson@post-trib.com

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