How the Illiana’s Shaky Financing Puts Illinois Taxpayers at Risk

Mustang Ridge
Lower than expected traffic and tolls on SH130 in Austin, Texas. Even IDOT’s own projections say that the Illiana will see less traffic than Irving Park Road – in 2040. Photo: Justin Cozart

The Illinois Department of Transportation is moving forward with its portion of the 47-mile Illiana Tollway in rural Illinois and Indiana, issuing a “request for qualifications” to potential contractors. The document sheds light on how the state intends to finance the billion-dollar highway — and how taxpayers will be on the hook.

To get the greenfield highway built sooner, IDOT wants a private contractor to obtain all the financing necessary to construct and “turn on” the tollway, but a big chunk of this financing will come in the form of public support. IDOT tells potential bidders that it estimates the total amount of financing needed at $1.09 billion. Only some of that will be raised from private backers, while a big chunk will come from $500 million in borrowing (or more, according to one analysis) backed by Illinois taxpayers. IDOT also revealed in the RFQ that it will assist the developer in obtaining a subsidized TIFIA loan from the federal government.

This is the first time IDOT has noted how it plans use taxpayer funds to kickstart the project. In theory, the portion of the financing backed by the public could be paid off using toll revenues. But according to an analysis by the Chicago Metropolitan Area for Planning, it will take decades until toll revenues cover both construction debt and maintenance costs. In the meantime, taxpayers will be on the hook, subsidizing this expensive boondoggle.

A report conducted for Indiana’s DOT in June 2010, when construction costs were estimated at the slightly higher price of $1.25 billion, said that toll revenues would leave a shocking $809 million gap. Metropolitan Planning Council’s review of the report [PDF] showed that tolls “will only be able to support… $441 million.” The Chicago Metropolitan Agency for Planning estimated the gap could be as high as “$1.1 billion over the life of the facility” [PDF].

The risk to taxpayers could be even greater. Nationwide, newly built tollways are struggling to cover their costs and meet projections:

Failed financing for rural toll roads
New toll roads around the country and their outcomes. Table: Metropolitan Planning Council

State highway 130 in Austin, Texas, has seen only half the projected traffic and had its credit rating downgraded twice this year, with a high likelihood of default. The South Bay Expressway, a toll road near San Diego, California, was owned and operated by Macquarie but filed for bankruptcy after less than three years — it’s now owned by SANDAG, the local metropolitan planning organization. The Intercounty Connector in the DC region is having the same issues: Tolls are less than expected and tolls across Maryland were raised to pay for it while the state raided its transportation fund (which also pays for transit) and turned to general obligation bonds to pay for $445 million. To top it off, three of the five bus routes that use it — part of the highway’s selling point — are being cut.

All of these roads received TIFIA loans, but the Austin and San Diego highways differ from Illiana because they used a traditional concession model, where the state sells the companies the right to build and operate the tollway and receive the toll revenues for themselves. The Austin road got the rest of its funding from banks. AASHTO, a trade group representing state transportation departments, notes that there is less risk to the private investor with the “availability payments” mechanism that IDOT will be using — in which the state pays the contractor a series of agreed-upon payments based on its performance — than with a full concession.

Tolls on the Illiana are estimated by IDOT to be some of the highest in the nation, at $7 for the whole trip, or 15-25 cents per mile, twice as much as the average charge in Chicagoland.

Fitch Ratings warned this year that several factors make toll road building sketchy for investors, reporting that “caution remains warranted when future projections are the basis for investment,” that the decline in driving could negatively affect toll roads, and that toll roads designed to relieve congestion — a benefit IDOT has continually touted — that have “un-tolled competition… could be vulnerable because their value would diminish with slower traffic growth.”

IDOT secretary Ann Schneider told the Tribune that the agency will drop the project if it “cannot find suitable investors” or if the Illiana “can’t withstand official scrutiny.”

Statements of qualifications are due December 19 and shortlisted firms will be notified in January. (Indiana DOT is running on a slightly delayed timeline and has indicated they will issue the final request for proposals in May and sign a deal in November 2014.)

  • What is always so backward about expensive highways and tollways is that the funding gap between tolls and the roadway capital cost and maintenance is so low. What do they call the equivalent of a “farebox recovery ratio” for a highway? In this case, it would be around 35%. The IL-53 extension is supposedly 17% (http://j.mp/1c3sUE3). CTA/Metra are both above 50%. Some Amtrak routes get above 100%.

    What makes it even worse is that the only reason the Illiana is still in the works is Metra and Pace and they both will likely have to raise fares in the coming years to cover a bigger portion because there is a funding gap (even though Metra’s farebox recovery ratio is higher!). And of course, if you make Metra too expensive, people may just always switch back to using their cars. Not good for most people. I’m really frustrated by the justification for building something even if it can’t be paid at least halfway by the people that will use it.

  • Roland Solinski

    Are you trying say that toll revenue is adequate or inadequate to cover construction cost and maintenance? The Illinois Tollway’s been almost entirely self-supporting since its inception, although admittedly, those numbers only worked in the 20th-century context of astronomical sustained growth in sprawl and VMT. Current projects like EOWA have had to get more creative with financing, so this era of easy toll financing may be ending.

  • No I know about the tollway. It’s this new expansion that can’t be paid for. They’re hitting lower marginal benefit for each new project. And people aren’t going to pay 3-4x more per mile in tolls as compared to other toll roads on the system.

  • cjlane

    “I’m really frustrated by the justification for building something even if it can’t be paid at least halfway by the people that will use it.”

    Worse–the political pitch has included the canard that there are “private investors” lined up to pay for the thing.

    I’m all for (in concept) using eminent domain and tax-free bonds to support a *wholly* private construction project like this, provide that there is NO public guaranty and NO net taxpayers funds going into it. But that’s an impossibility when it is the gubmint choosing the project and THEN seeking the investors, unless the project is a 200% slamdunk, and in that case, the gubmint shouldn’t want to share that bonanza with a ‘private investor’ unless it’s graft.

  • “They’re hitting lower marginal benefit for each new project.”

    Bingo. The lower marginal benefit has now come to the point where the Tollway Authority chose not to take on the Illiana.

    I’m still trying to get to the bottom of why the Tollway strategic planning committee agreed that there would be “challenges of directing the Tollway to operate the road, particularly as it applies to bonding”.

  • bedhead1

    “They’re hitting lower marginal benefit for each new project.”

    “I’m really frustrated by the justification for building something even if it can’t be paid at least halfway by the people that will use it.”

    Sorta like, oh I dont know, a marginally faster bus route that costs hundred of millions of dollars, which replaces an already existing bus route? Would it be anything like that?

  • Aaron M. Renn

    Keep in mind, the state could have simply paid for the road itself, rather than going this vendor and toll route. In a sense, they’ve done us a great service by doing so in that it exposes the very weak financial justification for building the road. The markets themselves are rendering a verdict in this case.

  • Ashland BRT will only cost $160 million and will nearly double bus speeds.

  • If the state funded 100%, instead of the 40-60% that it and the federal government would fund according to INDOT’s consultant and CMAP, it would eat up 11% (using the $1.09 billion figure) of the FY2014-2019 six-year capital expenditure plan.

    I’d like to think that state legislatures would see the disadvantages in spending an enormous portion of the total proposed projects expenses on infrastructure with little return and affecting a tiny number of people.

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