The Chicago Skyway and Indiana Toll Road transactions are closely linked as two highly controversial long-term concessions to the private sector for the operation and maintenance of aging toll roads in exchange for large up-front cash payments and the right to future toll revenues. The two deals have raised questions as to whether the public interest was served by relinquishing control of these toll roads to the private sector for long periods of time.27
Finalized in January 2005, the $1.83 billion Chicago Skyway agreement attracted intense media attention and helped focus the public on the PPP model's possible benefits and potential pitfalls. The Chicago Skyway opened to traffic in 1959 as a 7.8-mi elevated toll road operated by the City of Chicago and linking Chicago's downtown Loop with Indiana highways. After years of losing money on the Skyway's operation, in March 2004 the City of Chicago opened a sealed bidding process for a private group to take over the operation and maintenance of the Skyway for a 99-year term. News accounts at the time reported that the City of Chicago would possibly accept a minimum bid of $800 million and would have been satisfied to receive $1.2 billion for the 48-year-old toll road with an unsteady financial history.28 The eventual $1.83 billion winning bid in October 2004 from the Cintra-Macquarie consortium (consisting of a Spanish transportation infrastructure developer and an Australian investment bank) sent shockwaves through the international transportation community.
In exchange for the right to all toll revenues during the term of the 99-year lease, the Cintra-Macquarie consortium agreed to perform certain capital improvements, install an electronic toll collection system, and improve the Skyway's traffic throughput and operational competence. The operating standards portion of the agreement includes approximately 300 pages of detailed compliance requirements developed by the City of Chicago and its technical advisors.
According to the terms of the agreement, the Cintra- Macquarie consortium may increase Chicago Skyway tolls through 2017 at a rate equal to the greater of either a detailed negotiated toll schedule or the applicable increase in the Consumer Price Index (CPI). After 2017, the agreement caps maximum annual toll increases at the greater of 2 percent, the increase in the CPI, or the increase in the nominal gross domestic product (GDP) per capita.29 The lease agreement also included a provision requiring the private consortium to comply with City of Chicago hiring policies regarding residency preference, minority contracting, and existing wages. Aside from the toll revenue and lease payments from a restaurant located on the facility, the City of Chicago retained the rights to all other Chicago Skyway revenues, including the naming rights for a bridge on the system and revenues from utility rights-of-way. The lease agreement also specifies that the private consortium will assume all legal liability for the operation and maintenance of the facility during the 99-year term, excepting for certain preexisting environmental liabilities. 30
Within the first 6 months of its operation of the Chicago Skyway, the consortium modernized the toll collection process with the implementation of an electronic system and hired toll collectors at a much lower hourly wage than tenured city employees previously received.31 These reforms dramatically cut operational costs and helped double throughput at the toll plaza from 300 to upwards of 800 transactions per hour, thus generating more revenue for the private operator and reducing congestion on the urban access route.32
The City of Chicago planned to use the $1.83 billion infusion from the lease agreement to repay $855 million of general obligation debt and Skyway-specific indebtedness, fund $100 million in "visible programs" for city residents such as winter heating assistance and homeless shelters, fill a $375 million operating budget shortfall, and fund a $500 million "permanent" city reserve.33 The city also is saving annually in lowered debt cost.
This improvement in its debt rating saves it millions of dollars per year in interest costs. The lucrative Chicago Skyway deal piqued the interest of budget-strapped state and local governments across the country and paved the way for further examination of the long-term lease model in Indiana, New Jersey, Pennsylvania, and Virginia.
Soon after the Chicago Skyway deal was inked, the Indiana administration decided to pursue the long-term lease of the statewide Indiana East-West Toll Road (Indiana Toll Road), a four- to six-lane, 157-mi highway opened in 1956 and operated by the Indiana Department of Transportation (IDOT) since 1980. The Indiana Toll Road connects the Chicago Skyway in the west and Indiana's border with Ohio in the east. Indiana patterned its bidding process after the City of Chicago approach but offered a slightly shorter 75-year term. On October 26, 2005, the same Cintra-Macquarie consortium entered the winning bid of $3.8 billion for the lease.
The Indiana Toll Road lease, however, required the approval of the Indiana state legislature in the form of specific enabling legislation.34 After much heated public debate and controversy over the alleged "transfer" of a public asset to foreign companies, the necessary legislation was passed and signed into law in March 2006. On April 12, 2006, the Cintra-Macquarie consortium and the State of Indiana executed the 75-year lease agreement, and on June 29, 2006, the consortium assumed operational responsibility for the Indiana Toll Road. 35
The final terms of the negotiated lease agreement require the consortium to fund over $700 million worth of capital improvements on the Indiana Toll Road, including, as in the Chicago Skyway deal, the installation of an electronic tolling system.36 Unlike the Chicago Skyway deal, however, the Indiana Toll Road lease contains a noncompete clause that proscribes the State of Indiana from funding the construction or improvement of any limited access highway within a 10-mi radius of the Indiana Toll Road. Additionally, the enabling bill passed by the Indiana legislature contained a specific schedule for annual toll increases. The bill provided for no change in the toll rate for passenger vehicles through 2010 and authorized periodic step increases for five-axle commercial vehicles during that period. In the years following 2010, the legislation calls for the same rate increase schedule as the Chicago Skyway deal-a permissible rate increase capped at the greater of the applicable increase in the CPI, per capita nominal GDP growth, or 2 percent. 37
Unlike the Chicago Skyway deal, whose proceeds were allocated to a variety of nontransportation municipal programs, the $3.8 billion generated by the 75-year Indiana Toll Road lease must be used almost exclusively for transportation-related activities. Specifically, Indiana plans to use $200 million to retire outstanding Indiana Toll Road bonds, $500 million to establish a trust fund whose interest would pay for future IDOT transportation projects, and $3.1 billion to fund the "Major Moves" construction program, which includes 200 planned projects throughout the state.38
As noted above, the long-term leases of the Indiana Toll Road and Chicago Skyway to the Cintra- Macquarie consortium have generated a significant amount of controversy. One significant concern relates to the terms of these agreements. A U.S. highway generally has a useful life of 20 to 30 years, and a bridge may last 50 years. Thus, many have argued that these 75-year and 99-year leases effectively function as transfers of ownership of the roads to the private consortium, which reaps tax benefits in the form of depreciation and amortization and gains a stable and relatively certain flow of income from the toll revenues. Another significant concern relates to the ability of the private consortium to raise toll rates (in accordance with the schedule negotiated by the State of Indiana) without obtaining political or public support for such increases.39
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25 See USDOT Report, supra note 5, at ix.
26 See Urs Grenier, Inc., in association with Public Financial Management, Inc., Innovative Finance, Fed. Highway Admin.,Aug. 12, 1999.
27 See Dennis J. Enright, NW Financial Group, Then There Were Two: Indiana Toll Road vs. Chicago Skyway: An Analytical Review of Two Public/Private Partnerships (2006).
28 Peter Samuel, Cintra-Macquarie to Take Over Chicago Skyway for $1.8b, Tollroads News, Oct. 15, 2004, available at http://tollroadsnews.info/artman/publish/article_680.shtml.
29 See Nicholas J. Farber, Avoiding the Pitfalls of Public Private Partnerships: Issues to Be Aware of When Transferring Transportation Assets, 35 Transp. L. J. 25, 26 (2008).
30 For further detail on the Chicago Skyway transaction, see FHWA Case Study on Chicago Skyway, available at http://www.fhwa.dot.gov/ppp/chicago_skyway.htm; see also N.Y. State Dep't of Transp., Transportation Development Partnerships: Tools for Innovative Transportation Operations and Finance, at 9-10 (May 2006).
31 Peter Samuel, Chicago Skyway Handed Over to Cintra- Macquarie After Wiring $1830m, Tollroads News, Jan. 25, 2005, available at http://tollroadsnews.info/artman/publish/article_777.shtml.
32 N.Y. State Dep't of Transp. supra note 30, at 10.
33 U.S. House Transp. and Infrastructure Comm., Subcomm. on Highways and Transit, Public-Private Partnerships: Financing and Protecting the Public Interest, Feb. 13, 2007.
34 Ind. Code § 8-15.5, available at http://www.in.gov/legislative/ic/code/title8/ar15.5/ch1.html.
35 For further detail on the Indiana Toll Road transaction, see FHWA Case Study: Indiana Toll Road-Public Private Partnerships, available at http://www.fhwa.dot.gov/ppp/case_studies_indianatoll.htm.
36 Id.
37 U.S. House TRANSP. AND INFRASTRUCTURE COMM., SUBCOMM. ON HIGHWAYS AND TRANSIT, PUBLIC-PRIVATE Partnerships: Financing and Protecting the Public Interest, Feb. 13, 2007.