What Happened?
The Indiana Toll Road lease recently received a bid for $5.72 billion marking one of the largest bids for a U.S. public asset across the country.
Why It Matters
The IFM Investors’ bid for $5.72 billion to take over the Indiana Toll Road lease marks a shift in the way cities and states manager their public assets. The significantly high bid suggests an increase in public-private partnership confidence, as well as interest from pension funds to invest in public infrastructure projects, Bond Buyer reported.
U.S. public assets are rarely on the market, but the $5.72 billion bid from IFM Investors demonstrates a strong interest in the purchase and management of infrastructure such as toll roads. Not only is the bid the largest for any existing public asset in the U.S., it is also the first time a major U.S. pension fund has put money into infrastructure projects.
Indiana Toll Road Concessions, Inc. filed for Chapter 11 bankruptcy last year with 66 years remaining on its 75-year lease of the Indiana Toll Road. The company originally paid Indiana $3.8 billion in 2006 for the contract – which became the largest privatization asset at the time. If IFM Investors takes over the contract, it will be required to comply with the terms of the original deal, Bond Buyer reported.
Because public assets are rarely on the market, many states are watching the Indiana Toll Road deal closely to see what fiscal strategies work best. Many states interested in potentially privatizing their infrastructure are not sure how to value the assets before putting them on the market. This privatization bid may set the tone for similar deals in the future, Bond Buyer reported.
Steps to Privatization
According to the former Miami-Dade County Manager George Burgess, public-private partnerships can be an effective development method for delivering complex and expensive public infrastructure projects. If approached and deployed intelligently, public-private partnerships can result in:
- Controlled project costs
- Reduced government sector risk exposure
- Adherence to projected schedules
To start, Burgess recommends government administrators congregate an in-house team and hire consultants to identify the legal, financial and technical needs of a successful public-private partnership. Because these contracts operate different than traditional government operations, it is important to evaluate all potential projects to determine which are best suited for a privatization push.
Next, Burgess suggests public officials meet with private sector companies and experts to gather insights and advice on how to bring the deal to market and ensure needs are translated to the private sector. Government administrators should conduct industry workshops and conferences to collect feedback before launching into a bidding process.
When presenting the project for privatization, local officials should focus all solicitation and documentation on value, outcomes and performance. The private sector should understand the city’s service standards and quality requirements throughout the project’s lifecycle before any bids are placed. Allow for flexibility so the private sector can be creative in meeting goals through their own proven methods, Burgess explained.
Once a private sector partner has been selected, local government agencies must dedicate significant time and resources toward education and outreach to ensure both parties understand the project and can work synergistically to achieve public service goals, Burgess concluded.
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