Privatization Fail: Company That Runs Toll Road in Indiana Has Filed for Bankruptcy

Mitch Daniels (R) Former Governor of Indiana

Mitch Daniels (R)
Former Governor of Indiana

By Elaine Magliaro

Last week, Mike Spindell wrote a post titled Privatization is a Bad, Immoral Idea and Has Nothing to Do With Free Markets. Like Mike, I think that privatization is a bad idea that has nothing to do with free markets. I believe that most privatization schemes are not about improving things and making them less costly for tax payers. I think they are all about making money for private companies.

Yesterday, I came across a story at Charlie Pierce’s Politics Blog on the subject of privatization that caught my attention. Pierce wrote about a toll road privatization deal in Indiana that had gone bad. According to Pierce, former Governor Mitch Daniels—“the value-sized brainiac from Indiana”—helped the Hoosier State’s turnpike go “belly up.”

Charlie Pierce:

Daniels was a “moderate” and he was seriously considered a man of ideas, despite the fact that his experience in government included working the federal budget for George W. Bush, which should have disqualified Daniels from working at a gas station. Central to Daniels’s Indiana miracle was privatization. Daniels sold off as much of Indiana as he could. Central to the fire sale was the privatization of the Indiana toll road to an Australian company.

Barbara Harrington (Indiana Public Media):

In 2006, then-Republican governor Mitch Daniels leased the Indiana Toll Road for $3.8 billion dollars. The state used that money for construction projects, including U.S. 31 and I-69.

But the company that took on the lease fell into financial troubles and the toll road fell into disrepair.

According to Madeline Buckley (South Bend Tribune), the company paid the sum of $3.8 billion for a 75-year lease of the road that runs between the Illinois and Ohio state lines in 2006. She noted that the toll revenue had “failed to meet company expectations.”

Buckley reported last year that the debt-ridden “ITR Commission Co., a spawn of the Spanish-Australian company Cintra-Macquarie” had “filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court in Chicago in a prepackaged plan to restructure its approximate $6 billion debt.” She said that the bankruptcy filing of the company that had been operating the Indiana Toll Road had “reignited an old debate about the controversial privatization of the Toll Road in 2006.”

According to Barbara Harrington, a second Australian company is now “set to take over management of the Indiana Toll Road that runs through the northern part of the state and into Illinois.” She wrote, “This comes after another Australian-based company that originally held the lease went bankrupt.” Harrington explained that “IFM Investors plans to buy the toll road lease from ITR Concession Company for $5.7 billion dollars, which is quite a bit more than the original toll road lease.”

Harrington reported that the Indiana Finance Authority, which oversees the highway lease, said that its experts had “reviewed IFM’s bid and are confident they can meet their legal obligations to maintain the road.” She added, “That means they must perform routine maintenance on the roadways, as well as make upgrades that were outlined in the original agreement when the toll road was privatized. They must do so without raising tolls, which was a condition of the 2006 deal.”

In her South Bend Tribune article, Buckley wrote about a resident of LaPorte, Indiana, named Shaw Friedman who said that he had experienced “substandard conditions when driving on the Toll Road.” Friedman, an attorney, was quoted as saying, “Frankly, the state should intervene as a party in the bankruptcy proceeding. The state’s interests are certainly not represented by the hedge funds, banks and lien holders.”


Friedman, who was formerly the chairman of the Laporte County Democratic Party, said the former governor should be first in court to testify that he pledged the state would take back the Toll Road if the operator did not meet its obligations.

“This is a valuable asset that was really, really sold off at a discount when you consider the value the Toll Road could have had by gradually raising tolls,” Friedman said. “The problem is the $3.8 billion was gone in the first six or seven years. What do we do with the remaining 70 years?”

Rep. David Niezgodski, D-South Bend, said, “We’ve learned during this process that the service plazas along the toll road, all of them, are really in deplorable condition.” Niezgodski said that he “wants to make sure that doesn’t happen again under the new lease agreement.” He added, “Maybe our options are going to be limited because of the way this transaction’s going to take place basically paying off the debt. But it all comes down to people continually asking me the questions and let’s make this the investment in northern Indiana that is good for the entire state of Indiana.”

Charlie Pierce:

And thereby hangs the problem. A state toll road is (or ought to be) part of the political commons. Naturally, this requires some (cough, wheeze) tax dollars to repair and maintain it and, my dear young people, this simply is not done. So you toss the thing onto the vicissitudes of the private market and you hope there’s always another Australian company ready to step in. Meanwhile, tourists go zipping through Indiana crossing their legs very hard because all your rest stops look like downtown Fallujah.

And, in case you missed it, Mitch Daniels declined to run for president, ducking into a nice sinecure at Purdue, so he didn’t get a chance to do for the country what he’d done for Indiana. But, now, there’s Mike Pence, the Republican governor of Indiana, and a lot of our political press is speculating that he is a man with a plan.



Another True Tale Of Privatization In Indiana: How Indiana let its turnpike go belly up. (Esquire)

Australian Company Poised To Take Over Indiana Toll Road (Indiana Public Media)

Privatization FAIL: Firm that runs Indiana Toll Road files for Chapter 11 Bankruptcy (Daily Kos)

Toll Road bankruptcy reignites old debate about privatization (South Bend Tribune)


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18 Responses to Privatization Fail: Company That Runs Toll Road in Indiana Has Filed for Bankruptcy

  1. Mike Spindell says:

    “I believe that most privatization schemes are not about improving things and making them less costly for tax payers. I think they are all about making money for private companies.”


    Exactly, except I would add “private companies that were big campaign donors.

  2. Elaine M. says:


    How often have we been told that the private sector does things better than the public sector?

  3. bron98 says:

    So the toll road company went out of business? So do many companies. The road is an asset, the state got 3.8 billion dollars which they spent on other infrastructure.

    States were looking for a way to fund projects. How much is enough, you cant expect the tax payers to have bottomless pockets.

    “Not surprisingly, statistics show that as tolls increase, the number of annual toll road transactions decreases. Between 2010 and 2013, the number of transactions on the toll road declined by more than 5 million.”

  4. bron98 says:

    having dealt with MWAA, it seems more like a bloated government bureaucracy than a private enterprise.

  5. bigfatmike says:

    It seems to me that privatization is a failed experiment. I would guess that many of the failures are due to cronyism in awarding contracts that have prevented market forces form increasing efficiency of quality of services provided.

    But it would be interesting to see why this contract failed. $3.8 billion may be a pittance to pay to the state for 70 years of revenue. But is is still a substantial amount to invest. Big money investors usually have excellent financial advice. Estimating the growth in toll revenues and maintenance costs just does not seem that difficult.

    This project should have been a cash cow with toll revenue always a step or two ahead of maintenance costs and expenses. What happened?

  6. Elaine M. says:


    How The Toll Road Bankruptcy Could Impact Indiana
    By Barbara Harrington
    Posted September 26, 2014

    Decreasing Traffic Leads To Financial Trouble

    According to the ITRCC’s bankruptcy filing, the Toll Road sees an average of 30,000 vehicle trips per day. But, the company says the economic collapse of 2007 led to a 10.5 percent decrease in traffic over the past seven years.

    That’s made it increasingly difficult for the ITRCC to meet its financial obligations. And, the 2006 agreement with the State of Indiana prohibits them from raising tolls beyond what’s already outlined.

  7. rafflaw says:

    I have driven on the Indiana Toll road on numerous occasions and the conditions have been getting worse for a long time. Just one more example why privatization is never a good idea when it comes to the property owned by the State. Richie Daley and Rahm Emmanuel are big fans of the privatization and it hasn’t gone well in Chicago either.

  8. I have a personal policy of not using toll roads. I have never used a toll road in my life. It is a matter of principle. When the Mississippi River Bridge at Greeneville charged a $1.00 toll to cross, I crossed at Vicksburg or Memphis. I started using the Greeneville bridge when the toll was dropped. I was not alone with that.

    GPS and digital maps make it easier to plan trips that avoid toll roads than in the old days when all trip planning depended on state highway maps.

    By taking side roads around the toll road, I have discovered wonderful countryside scenery, ate great food at local restaurants, and met interesting people. Sometimes speed and a direct route is not everything.

  9. pete says:

    Besides the toll, fuel and refreshment costs are considerably higher on toll roads. I once used what was the Sunshine State Parkway (now the Ronald Reagan Parkway) to go to the Keys. Never again. Although I do use the Bee Line Expressway to go to the Orlando Airport. The alternative is I-4 and through Orlando.
    I am a firm believer in the government building and maintaining roads. The idea of a high speed, high volume road that requires you to stop and throw quarters at a bucket wastes time and causes accidents.

  10. bigfatmike says:

    ” But, the company says the economic collapse of 2007 led to a 10.5 percent decrease in traffic over the past seven years. …That’s made it increasingly difficult for the ITRCC to meet its financial obligations. ”

    Thanks for the update.

    This example of privatization seems to raise questions from several different directions.

    Usually, I think of limitations in price increases as protective of the public. In this case the simplest and cheapest solution might have been to allow a toll increase. I would guess that many expenses of a toll road are largely fixed regardless of traffic. Lower traffic would suggest that toll need to be increased to cover expenses.

    But the inefficiency and cost to tax payers of deferred maintenance and a failed operator may be minor in comparison to leasing the toll road for decades.

    The present value of such a long lease has to be very sensitive to the discount rate – basically an interest rate used to calculate the value of a dollar paid decades from now. A changed of a fraction of a point can make a huge difference of the calculated value of the asset. Does anyone know the interest rate a year from now, 10 years from now, what about 70 years from now.

    Any politician who claims he made a good deal leasing a public asset for decades is blowing smoke. We can make assumptions and build estimates based on the assumption. But there is not way to know, decades in advance, if the calculated present value of an income stream is an accurate estimate.

    I am not sure what a reasonable estimate for a discount rate would be. But if interest rates on state and local bonds are any indication, now might be a great time to buy back the toll road. In June of 2006 when the income stream from the toll road had a present value of $3.8 billion the average rate was about 4.6%. Now it is about 3.6%. Rates have not been this low since the mid 1960’s.

    It seems to me the basic concept of selling or leasing public assets for decades is questionable.

  11. bron98 says:


    My question is why don’t they reduce the toll to increase the number of users? It seems that everything the government if invoked in uses a counter intuitive fiscal policy. There is a sweet spot. Spend more time figuring out what that is. Don’t just raise fees and hope that increases revenues.

    • bigfatmike says:

      ” There is a sweet spot. Spend more time figuring out what that is. Don’t just raise fees and hope that increases revenues.”

      That is a good point. What people need to pay to cover expenses depends on how many people use the toll road. And, as you pointed out, the number of people using the toll road is likely sensitive to the cost of using the toll road.

      So the interesting question is whether there is a price that would have increased traffic enough to increase revenues enough to pay for maintenance and save the operating company.

      I suppose that changing tolls is cumbersome. But it would have been neat if the operator could have changed tolls for a few days at a time to gather data to determine if there was a toll that would have payed expenses.

      I may be mistaken, but I believe Uber adjust prices according to demand. Do you think we will see toll roads adjusting the toll according to vehicles on the road?

  12. bron98 says:


    yes, they already do. the company that runs the hot lane on 495 in Northern Virginia does that, they have a peak and off peak fee schedule.

    I would do what you are proposing, have a trial of tolls and figure out where the most revenue can be gathered. Wal Mart used to make money on very small profit margins, they would sell a shit ton of some item for a few cents of profit. but if you sell a few million of something a few cents can amount to a princely sum.

  13. Bron.
    That reminds me of a story. Seems this fellow attended the reunion of his old high school class. He pulled up in a chauffeured limousine, wearing an Armani suit, Rolex watch and a big diamond ring. Several of his classmates gathered around, wanting to know how in the world he had become so successful–he had been the dumbest student in the class.

    He explained, “I figured out how to make a product for one dollar and sell it for five dollars. You would be surprised how fast that four percent adds up.”

  14. bron98 says:

    Dr. Stanley:

    When Sam Walton first started he would make a very small amount on an item. It was just pennies.

    Some people just have a knack for making money. Some are good at sports, some are good at intellectual things, etc. I don’t know why people who make money are so derided and hated.

    It takes a Herculean effort to become wealthy, most rich people work 12-16 hour days and operate on a very high level day in and day out.

  15. John Kovacich says:

    Im glad they went under,I use to live in NW indiana and when the toll double most people found alternate routes.Why am I paying double for the same bad road??The mistake also was that the company immediately doubled the toll and even bragged it would eventually raise it to $10!!

    • Mike Spindell says:

      John Kovacich,

      The thing that get me about this is that of course most people in Indiana were smart enough to avoid the toll road. I do the same as much as possible, why though do they keep electing the fools who privatized the road in the first place?

  16. Before I bought my new GPS a few days ago, I made sure it had a traffic problem feature. It also has a default setting for avoiding toll roads. Those were two of the requirements for a GPS on my shopping list.

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