‘V’ for Victory

The dilapidated state of South Dakota’s roads and bridges has been called a crisis by many with most deferring the problem to the next administration. Addressing the issue with a conservative approach may vary by individual, but possibilities should be examined to fund our aging infrastructure. One possible solution that has been effective in other states and around the world is the public-private partnership in the form of leases on highways. I’ll go through a scenario that can easily be evolved by others to include other facts or more relevant figures.

Leasing out a portion of our interstate through competitive bidding would greatly solve South Dakota’s transportation budget issues. The build-operate-transfer, or BOT, program is a partnership where a company leases a public highway for a contracted period of years and designs, builds, and operates a toll system that reverts back to government ownership after the lease expires. One possible location for a BOT program in South Dakota is the ‘V’ portion of the interstate triangle in Sioux Falls which has a 2012 yearly traffic average of around 2,737,000 heavy trucks and 27,375,000 cars traveling on 22 miles of I-29 and I-229, according to the interstate flow map. For comparison, in 2006 Indiana was given 3.8 billion dollars in a lump sum up front payment to lease 156 miles of highway for 75 years. Traffic at the time was about 11,000,000 heavy trucks and 8,577,500 cars per year. Currently, on the Indiana Toll Road heavy trucks are valued at 24 cents a mile and cars are valued at 6 cents a mile, making the revenue value of four cars equivalent to one heavy truck. That means the 8,577,500 cars per year in Indiana was equivalent to 2,144,375 trucks, for a total of 13,144,375 truck equivalents per year. Back in South Dakota in 2012, the 27,375,000 cars traveling the ‘V’ of the Sioux Falls interstate triangle were equivalent to 6,843,750 trucks, for a total of 9,580,750 truck equivalents per year. Dividing 9,580,750 trucks/yr in South Dakota by 13,144,375 trucks/yr in Indiana gives us a traffic ratio of 0.729. Dividing 22 miles of highway in South Dakota by 156 miles of highway in Indiana gives us a distance ratio of 0.141. We can multiply these two ratios to get a total conversion ratio of 0.1028. Now we take the value of Indiana’s 2006 75-year toll road lease of 3.8 billion dollars and multiply it by that total conversion ratio to arrive at a figure of $390,640,000 in 2006 dollars for a similar 75-year toll road lease of the ‘V’ portion of the Sioux Falls interstate triangle. Adjusting for inflation that lease would be valued at $455,760,000 in 2013 dollars. To put that amount in perspective, the total amount of funds, including federal funds, for our state highways in 2011 was $567,000,000.

As with any lease, the agreement with the operating entity would have provisions addressing any concerns of the public, such as upkeep and safety. Since the lease would be fully funded up front there would be no payment concerns if the company should fail. Toll rate increases could be capped, as they are in other states, with a yearly allowable adjustment for inflation permitted. Also, South Dakota would not be responsible for the maintenance on the leased interstate highway for the entire length of the lease, which would save a significant amount of tax dollars. In addition to that there would be a new source of state tax revenue from the operation of the BOT program. However, a portion of the federal highway funds for the leased interstate would have to be returned to the federal government.

In order to avoid what happened in Indiana, where the state went on a spending spree with the funds by adding nearly 400 miles of new highway (permanently increasing future maintenance costs), South Dakota could put the lease payment in a trust which would have its uses designated specifically for upkeep of existing infrastructure so that it cannot be raided.  In the government if money is not spoken for it will be spent, so we must be vigilant in how it’s protected for the future. The interest on nearly half a billion dollars would be a blessing to our state treasury, so we should protect the majority of that capital for future projects and only make necessary infrastructure expenditures.

These days with the quickly rising costs of road maintenance, replacement, and bridge repair we must act in ways that seek to counter that burden. The typical government solution to greater infrastructure costs is raising fuel taxes, which is a foolish solution when high fuel prices already plague our economy and consumer product pricing.  The overriding truth with whatever scenario is discussed to solve our infrastructure problems in South Dakota is that they must be solved soon.