Dive Brief:
- Indiana Finance Authority officials said Monday that they want to take over a delayed and reportedly financially troubled highway project that is currently being constructed under a public-private partnership (P3), according to the Herald Times.
- Officials said there is only $72 million left to complete $236 million of work — although the state has not yet declared the Interstate 69 Section 5 project in default — and said they plan to buy out the original bonds with a new issue in September. Construction delays have led to a Fitch Ratings downgrade of the original bonds to B-.
- The state hired I-69 Development Partners to design, build and finance the project in 2014. Upon completion, the state was to pay the group an annual fee to maintain the highway for 35 years. Completion of the project, which has been pushed back four times, is now set for August 2018.
Dive Insight:
State officials said they caught wind of financial problems on the project when subcontractors claimed they had not been paid by the company I-69 Development Partners hired to design and build the project.
The long-term financial stability and management expertise of a P3 group is essential to a successful project outcome, particularly when it comes to important transportation initiatives like I-69. These types of problems are not common in P3 arrangements, but, as this case shows, they do happen. The P3 structure has been touted by the Trump administration as one of the ways to turn $200 billion of direct federal spending into $1 trillion of infrastructure investment.
It is unclear whether this experience will cause Indiana state transportation officials to forego P3s on future projects. This question is particularly relevant for the state, as Indiana Gov. Eric Holcomb recently announced a $5 billion, seven-year state infrastructure program. The state plans to finance the initiative through a gas-tax increase, increased user fees and tolling that will target out-of-state drivers.
One key way that P3s bring in revenue on highway projects is through tolling. However, Texas lawmakers recently rejected legislation that would have allowed P3s to be used for 18 state highway projects, citing a general "toll fatigue'" among the citizenry. Texas is one of 13 states that does not have P3 authorization legislation.
