The Indiana Toll Road Lease as an Intergenerational Cash Transfer

• Published date: 01 November 2012
• Author: John B. Gilmour
• DOI: http://doi.org/10.1111/j.1540-6210.2012.02589.x
• Date: 01 November 2012

John B. Gilmour is Paul Verkuil

Professor at the College of William

and Mary, where he has taught in the

Government Department and the Thomas

Jefferson Program in Public Policy since

1995. His f‌i eld of research and teaching

is American politics, with specialization

on Congress and the president and on

budgetary politics and processes. He is

author of two books and numerous articles.

E-mail: jbgilm@wm.edu

856 Public Administration Review • November | December 2012

Public Administration Review,

Vol. 72, Iss. 6, pp. 856–864. © 2012 by

The American Society for Public Administration.

DOI: 10.111/j.1540-6210.2012.02589.x.

John B. Gilmour

College of William and Mary

In a recent incarnation of the public–private partnership,

state or city governments agree to lease revenue-producing

assets to a private operator for a lengthy period, up to

99 years.  e government receives an up-front payment,

allowing it to collect many years of future revenue at

once.  is article evaluates the distributional conse-

quences across time of one asset lease, the Indiana Toll

Road.  e analysis f‌i nds that the majority of benef‌i ts, in

the form of road construction, are enjoyed in the early

part of the lease, while the bulk of the costs fall late in the

lease, raising important questions about intergenerational

fairness.

In the Middle Ages, the children of people who

died in debt were responsible for their parents’

obligations and could be held in a debtors’

prison to ensure repayment (Reinhart and Rogof‌f

2009, 63). Today, happily, laws shield children from

intergenerational debt collection. No laws stop

governments, however, from borrowing and shifting

the cost of repayment to future generations.  is can

be a very attractive strategy for politicians who wish

to provide costly benef‌i ts to contemporary voters

without imposing any costs on them. One means of

accomplishing this feat is the long-term asset lease.

 is article examines the practice of using long-term

asset leases as a means of obtaining funding for

current government operations.

 e f‌i rst section discusses the

phenomenon of asset leases

involving up-front payments

and explains the history of

two important transactions.

 e next section is devoted to

an analysis and estimation of

the distribution of costs and

benef‌i ts over time of the Indiana Toll Road (ITR)

lease.  e chief f‌i nding is that the bulk of the benef‌i ts

come early and the majority of the costs arrive late in

the lease.  e f‌i nal section of the article examines the

concept of intergenerational justice and its applicabil-

ity to asset leases, considers some alternative means of

leasing roads that do not have adverse distributional

ef‌f ects, and of‌f ers concluding remarks.

City and state governments in the United States own

many revenue-producing assets, such as toll roads

and parking facilities, but because elected of‌f‌i cials are

reluctant to raise tolls or fees, these assets commonly

produce less revenue than they might.  e existence of

underproducing assets at time when governments eve-

rywhere are squeezed for revenue has generated interest

in public–private partnerships as a means of increasing

revenue (Hodge and Greve 2007). In recent years, states

and cities have leased roads or other assets to private

operators for a lengthy period, such as 75 or 99 years,

obtaining in exchange a large up-front payment from

the operator.  e operator gets to keep all revenue from

the asset for the duration of the lease.  ese transactions

have important consequences for intergenerational

justice because they enrich current citizens and govern-

ments at the expense of future citizens and governments

by transferring future revenue to current budgets.

Prominent examples of asset leases include the Chicago

Skyway, leased in 2005 for an up-front payment of

$1.8 billion; the Indiana Toll Road, leased in 2006

for $3.8 billion; and the parking meters of Chicago,

leased in 2008 for $1 billion. All of these arrangements

obtain for the government a large up-front payment,

similar to a loan, which is

ef‌f ectively repaid over time by

forgoing the right to collect

future tolls or fees. An alterna-

tive view of the same transaction

is that it converts a stream of

future revenue into an up-front

payment. Lease arrangements

that include large up-front pay-

ments have the potential to shift future revenues to

the present, thus enriching the present generation at

the expense of the future.  e purpose of this article is

to assess and estimate the extent of intergenerational

transfers resulting from the most prominent asset leas-

ing arrangement, the Indiana Toll Road.

 e Indiana Toll Road Lease as an Intergenerational Cash

Transfer

 is article examines the

practice of using long-term asset

leases as a means of obtaining

funding for current government

operations.