How Indiana Saved Hundreds of Millions
of Dollars on Interstate 69
– and then Blew It (Part 1)
Read news coverage of Indiana’s Interstate 69 project over the last few years, including President Donald Trump’s recently reported comments, and you’d think it has been an abysmal 139-mile-long failure.
Reporters and editors have focused on one segment that the state’s Department of Transportation, INDOT, handed over to a private firm that went bankrupt over the summer. Now the state’s taxpayers are stuck with well over a half-billion dollars of remaining work to cover.
But there’s an I-69 success story the press has largely missed: A sizeable stretch of the project was completed for far less money and far more quickly than first anticipated. Unlike the segment that went bust, the completed portions of the interstate used traditional methods that emphasized competitive bidding among contractors and kept the state in control of their work.
Most significantly, INDOT steered clear of risky privatizing agreements that relinquish government control of a project’s financing, design, construction and decades of maintenance. In return for supposedly taking on the upfront risk (which often is foisted back on taxpayers via government loans), the private firm sets and keeps all toll and concession charges to recoup its costs. In theory, these “public-private partnerships,” or P3s, turn a profit for investors while still delivering transportation infrastructure for the public.
But P3s have a horrible financial track record for investors and taxpayers.
Add the now-bankrupt segment of Indiana I-69 to that list.
Route 69 is an uneven patchwork of expansive freeways, mid-sized highways and state routes that lace together Texas, Mississippi, Tennessee, Kentucky, Indiana and Michigan from Mexico to Canada. Some stretches aren’t even signposted as I-69.
Still, the route is so vital that the U.S. Department of Transportation in 2007 named it one of six “Corridors of the Future,” a designation that made it eligible for extra federal money and quicker government planning and reviews.
Indiana has a completed segment that starts in Indianapolis and shoots northeast to Port Heron, Mich., on the Canadian border. But from southwest of Indianapolis to Evansville, Ind., the road was a smaller state route that needed expansion to serve as a multinational trade thoroughfare.
Ten years ago, Indiana officials decided to roll $700 million into I-69 upgrades. (The money was part of a non-refundable down payment by private investors to operate a Northern Indiana toll road for 75 years. Ironically, that group went bankrupt in 2014 and the toll road was sold to a new partnership.)
INDOT split the Indianapolis-to-Evansville project into six sections. It then divided each section into smaller projects, such as building an interchange or widening a stretch of highway.
Over the years, state officials pegged the cost of the entire project at anywhere from $2 billion to more than $3 billion. INDOT figured the first three sections — a total of 68 miles starting from Evansville, Ind. — would cost a combined $900 million with crews wrapping up the work in 2015.
Instead, those projects finished three years early and for about $200 million less than the estimated price tag, according to news reports. The fourth section, that ends at Bloomington, was completed for $471 million, roughly 20 percent lower than an earlier $600 million estimate.
The savings were a result of sound state business practice and the economy.
For those first four sections, contractors competitively bid to construct pieces of the freeway project according to state-engineered specifications. Others bid to both design and build segments under state oversight.
The competition ignited bargain-basement bids, pushed even lower by the construction malaise gripping the country during the 2008 recession – and cut the cost of those first four sections of I-69 by nearly $350 million.
Then a fateful decision unwound those taxpayer savings – and then some.
Instead of continuing to maintain control of the project, INDOT gave a private firm the responsibility to find financing and then design, construct and maintain the fifth section.
The so-called “public-private partnership” soon hit financially choppy waters before sinking into bankruptcy. Now Indiana taxpayers are left with an unfinished project, with an estimated $500 million-plus bill to pay off claims against the now-defunct partner and to complete the roadwork.
Next: Interstate 69 Section 5’s fatal flaw.