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http://www.motherjones.com/news/feature/2007/01/highwaymen.html The Highwaymen Why you could soon be paying Wall Street investors, Australian bankers, and Spanish builders for the privilege of driving on American roads. Daniel Schulman with James Ridgeway January/February 2007 Issue of Mother Jones "the road is one succession of dust, ruts, pits, and holes." So wrote Dwight D. Eisenhower, then a young lieutenant colonel, in November 1919, after heading out on a cross-country trip with a convoy of Army vehicles in order to test the viability of the nation's highways in case of a military emergency. To this description of one major road across the west, Eisenhower added reports of impassable mud, unstable sand, and wooden bridges that cracked beneath the weight of the trucks. In Illinois, the convoy "started on dirt roads, and practically no more pavement was encountered until reaching California." It took 62 days for the trucks to make the trip from Washington, D.C., to San Francisco, and another 37 years for Ike to complete a quest, inspired by this youthful journey and by his World War II observations of Germany's autobahns, to build a national road system for the United States. In 1956, President Eisenhower signed the Federal-Aid Highway Act, which called for the federal and state governments to build 41,000 miles of high-quality roads across the nation, over rivers and gorges, swamps and deserts, over and through vast mountain ranges, in what would later be called the "greatest public works project in human history." So vital to the public interest did Eisenhower, an old-style fiscal conservative, consider the interstate highway system, he even authorized the federal government to assume 90 percent of the massive cost. Fifty years to the day after Ike put his pen to the Highway Act, another Republican signed off on another historic highway project. On June 29, 2006, Mitch Daniels, the former Bush administration official turned governor of Indiana, was greeted with a round of applause as he stepped into a conference room packed with reporters and state lawmakers. The last of eight wire transfers had landed in the state's account, making it official: Indiana had received $3.8 billion from a foreign consortium made up of the Spanish construction firm Cintra and the Macquarie Infrastructure Group (mig) of Australia, and in exchange the state would hand over operation of the 157-mile Indiana Toll Road for the next 75 years. The arrangement would yield hundreds of millions of dollars in tax breaks for the consortium, which also received immunity from most local and state taxes in its contract with Indiana. And, of course, the consortium would collect all the tolls, which it was allowed to raise to levels far beyond what Hoosiers had been used to. By one calculation, the Toll Road would generate more than $11 billion over the 75-year life of the contract, a nice return on mig-Cintra's $3.8 billion investment. The deal to privatize the Toll Road had been almost a year in the making. Proponents celebrated it as a no-pain, all-gain way to off-load maintenance expenses and mobilize new highway-building funds without raising taxes. Opponents lambasted it as a major turn toward handing the nation's common property over to private firms, and at fire-sale prices to boot. The one thing everyone agreed on was that the Indiana deal was just a prelude to a host of such efforts to come. Across the nation, there is now talk of privatizing everything from the New York Thruway to the Ohio, Pennsylvania, and New Jersey turnpikes, as well as of inviting the private sector to build and operate highways and bridges from Alabama to Alaska. More than 20 states have enacted legislation allowing public-private partnerships, or P3s, to run highways. Robert Poole, the founder of the libertarian Reason Foundation and a longtime privatization advocate, estimates that some $25 billion in public-private highway deals are in the worksa remarkable figure given that as of 1991, the total cost of the interstate highway system was estimated at $128.9 billion. On the same day the Indiana Toll Road deal closed, another Australian toll road operator, Transurban, paid more than half a billion dollars for a 99-year lease on Virginia's Pocahontas Parkway, and the Texas Transportation Commission green-lighted a $1.3 billion bid by Cintra and construction behemoth Zachry Construction to build and operate a 40-mile toll road out of Austin. Many similar deals are now on the horizon, and mig and Cintra are often part of them. So is Goldman Sachs, the huge Wall Street firm that has played a remarkable role advising states on how to structure privatization dealseven while positioning itself to invest in the toll road market. Goldman Sachs' role has not been lost on skeptics, who accuse the firm of playing both sides of the fence. "In essence, they're double-dipping," says Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, a truckers' group that opposes toll road privatization. "They're basically in the middle, playing one side against the other, and it's really, really lucrative." Despite such concerns, the privatization model has the full backing of the Bush administration. Tyler Duvall, the U.S. Department of Transportation's assistant secretary for transportation policy, says dot has raised the idea with "almost every state" government and is working on sample legislation that states can use for such projects. "This is a ground battle in the United States right now," he says. "States just need to be convinced that this is basically something they should be considering." The financial stakes are potentially huge. "You're buying the infrastructure of the economy, and it's enormously valuable," says John Schmidt, who served as associate attorney general in the Clinton administration and as counsel to the city of Chicago on the $1.8 billion privatization of the Chicago Skyway, the 7.8-mile freeway that connects the Dan Ryan Expressway in the west to the Indiana Toll Road in the east. "[Private road operators] haven't been able to get in here previously. There's been a demand, and it's been bottled up because we just haven't had privatized infrastructure in this country, so they've been buying toll roads in Chile and in France. Now, they suddenly have the opportunity to come into this country." at the western end of the Indiana Toll Road, just over the Illinois border, the scenery rolls by like the lyrics to a particularly forlorn Bruce Springsteen song. Passing over Wolf Lake, infamous in these parts as the site where "thrill killers" Nathan Leopold and Richard Loeb dumped the body of 14-year-old Bobby Franks in the 1920s, the highway skirts ghost factories and decaying main streets until, outside Gary, the smokestacks give way to cornfields and Christmas tree farms, and the scenery stays pastoral across the length of northern Indiana. If you've ever traveled cross-country on I-90, known here as the "main street of the Midwest," you've driven the Toll Road. Privatizing this 157-mile interstate artery was the brainchild of Indiana governor Mitch Daniels, a former Eli Lilly executive and the director of the White House Office of Management and Budget between 2001 and 2003a position in which he was known, for his budget-cutting fervor, as "The Blade." Daniels, by all accounts, began plotting the privatization of the Indiana Toll Road soon after he took office in January 2005. The new governor was inspired by Chicago's $1.8 billion Skyway deal but had something far bigger in mind. Leasing out the Toll Road would be the centerpiece of his transportation plan, "Major Moves," a nameborrowed from a Hank Williams Jr. albumthat Daniels said he came up with while singing in the shower. Under the plan, Indiana will spend nearly $12 billion over the next decade on highway construction projects funded, in part, by the proceeds from the Toll Road lease. By September 2005, the governor was soliciting bids for the project, with Goldman Sachs serving as the state's financial advisera role that would net the bank a $20 million advisory fee. The winning company would maintain and improve the highway, with the lease agreement spelling out its responsibilities down to the maximum time allowed for clearing roadkill. In return, the company would collect tolls, which it would be allowed to raise by a specified percentage each year after 2010. The deal (including the 75-year term chosen for the lease) was structured so the companies would gain a huge tax advantage; to further sweeten the pot, the state instituted the first toll increase in 20 years shortly before the agreement went through, nearly doubling the rate for passenger cars and gradually raising truck tolls 120 percent. (The toll for cars was promptly frozen pending the installation of electronic tolling, sometime before mid-2008; in the meantime, the state is paying mig-Cintra the difference.) Driving the Toll Road on a temperate late-summer morning, the sun squinting through a thick covering of stratus clouds, it was hard to find anyone who approved of Daniels' deal. "Our economy's already bad," said Amber Kruk, an 18-year-old starting her shift at a Perkins just off the highway in South Bend. "We don't understand why we're giving this road to a foreign company." Gassing up his flatbed at a service station off the Toll Road, 62-year-old trucker Richard DeRohan said he runs the road less now because of the increased tolls. "It should have stayed in state hands," he said. "I didn't like when they did it in Chicago. It should be run by a public entitythey're the ones who created it." In a New York Times op-ed published in May, not long after Indiana's state Legislature approved the Toll Road deal, Daniels acknowledged that public sentiment had run almost 2-to-1 against the idea, and then summarily dismissed the opposition: "Their hearts were in the right place, but not their logic." Indiana, he argued, "very nearly tore up its equivalent of a Powerball check" as Hoosiers convinced themselves "either that our proposal borrowed from the future, or that it gave away a part of America to 'foreigners.'" In fact, Daniels argued in a paper he wrote for the Reason Foundation last spring, "any businessperson will recognize our decision here as the freeing of trapped value from an underperforming asset, to be redeployed into a better use with higher returns." Yet his administration failed to commission an independent financial analysis of the Toll Road project until the deal was almost doneand when it did, internal emails obtained by Mother Jones show, the motivation was primarily political. "Current criticism from opposition is 'no independent analysis' and Scott and his team have kindly volunteered to fill this void," one high-level state official wrote in a February 2006 email, referring to Scott Nickerson, an executive at the accounting firm Crowe Chizek, which conducted the analysis. The emails suggest that Daniels' administration remained preoccupied with how to deploy the analysis to best political advantagefor example, by releasing it through a third party, such as a think tank. "The Governor is of the opinion that in order for our response to be politically independent, he would prefer that Crowe not be formally engaged to do this work," one email states (emphasis in original). According to another, "Upon further discussion, the group decided that it would be beneficial to be engaged by a separate entity to allow us to perform the consulting project and avoid the appearance of a lack of objective, independent examination." In the end, the "independent" analysis, released just days before legislators were set to vote on Daniels' plan, found exactly what the state had been arguing all alongthat the private-sector bid far surpassed what the state stood to earn on its own. Near midnight on the final day of the legislative session, after contentious debate, the bill squeaked through the House in a 51 to 48 party-line vote. Not everyone bought Crowe Chizek's conclusions, though. Roger Skurski, a professor emeritus of economics at Notre Dame, analyzed the deal extensively on behalf of an Indiana law firm that brought suit to block the transaction. (The lawsuit ultimately failed.) It was Skurski who found that the value of the road, over a 75-year term, could be as much as $11.38 billion; in a letter to Rep. Thomas Petri, the Wisconsin Republican who chaired the U.S. House Subcommittee on Highways, Transit, and Pipelines, the economist wrote that "based on the State of Indiana's own studies and figures...it seems that the conclusion changes from 'deal' to 'no deal.'" "The public was ignored on this; public opinion was ignored on this," says Dave Menzer, an organizer at Citizens Action Coalition, an Indianapolis-based advocacy group that also joined the anti-privatization suit. "I think that increasingly the public feels like what's driving politics, what's driving these decisions, is multinational corporations and deal-makers like Goldman Sachs, Merrill Lynch, and Morgan Stanley. They're the ones making tens of millions of dollars ultimately at the public's expense." Shortly after the coalition launched its campaign to stop the deal, Menzer says, its six phone lines lit up with callers from around the country seeking to help pay for the lawsuit. In less than a month, it had helped raise nearly $120,000 toward the legal bills. "We saw so many different interests coming together saying that they didn't like this," he says. There were libertarians and Republicans, who felt the state was giving away too much for too little; long-haul truckers, who viewed the deal as the first stage of a national trend that could threaten their livelihoods; and environmentalists, who in the fine print of Daniels' "Major Moves" plan had noticed an effort to revive (and possibly privatize) a long-stalled project to construct Interstate 69, the so-called nafta highway, through the farmlands of southern Indiana. So why did Daniels insist on pushing the project through in the face of so much opposition? Daniels' office turned down Mother Jones' requests for an interview, but quite a few Hoosiers have come to believe that the governor could have been taking his cue from Washington. In this scenario, Indiana, a bellwether state in many ways, would serve as a test case. "Working to make Indiana one of the first states to pave the way for road privatization, to make a bad pun, was definitely his motivation," Menzer says. continued... _____________________________ Note: This message comes from the peace-justice-news e-mail mailing list of articles and commentaries about peace and social justice issues, activism, etc. If you do not regularly receive mailings from this list or have received this message as a forward from someone else and would like to be added to the list, send a blank e-mail with the subject "subscribe" to [EMAIL PROTECTED] or you can visit: http://lists.enabled.com/mailman/listinfo/peace-justice-news Go to that same web address to view the list's archives or to unsubscribe. E-mail accounts that become full, inactive or out of order for more than a few days will become disabled or deleted from this list. FAIR USE NOTICE: In accordance with Title 17 U.S.C. 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