Thursday, September 25, 2014

clubs, commons, or just no banksters? privatized indiana toll road going bankrupt due to contraction?

kingworld |  “There are news reports today that the Indiana Toll-Road Co. is filing for bankruptcy.  It operates the motorway that runs across northern Indiana, between Illinois and Ohio, that is part of the U.S. Interstate Highway System.  At first glance this news may seem not worth mentioning, but some important observations need to be drawn.  The professed reason for the bankruptcy is the company’s debt, but there is more to this story....

“The key point is why it is unable to service this debt, which is declining traffic.

The Financial Times put it this way:  “The fall in traffic volumes on U.S. roads since 2004 has undercut the financial assumptions behind a series of deals devised in the middle of last decade during an infrastructure investment boom.”  Note that the FT mentions “U.S. roads” in the plural because what is happening in Indiana is not unique.  It is happening across the United States.

The bankruptcy of this Indiana company confirms what a seven-year decline in gasoline sales is illustrating:  People are driving less.

The key to interpreting what is happening with this road in Indiana is understanding the bigger picture.  So is this decline, as the Financial Times says, because “economic and lifestyle changes have prompted people to use cars less”?  Or is it just another clear indicator of a declining workforce driving fewer miles in a weak economy, which has also stretched consumer budgets so they are driving less?

I think the latter, particularly when considering the growth in population.  The decline in gas sales no doubt reflects, in part, increased fuel efficiency.  But if gas sales per person were illustrated when looking at the total population, the decline would be even more dramatic.

There is no doubt about it -- Americans are driving less.  This has reduced the country’s demand for gasoline.  It has also reduced what governments take in each year from the gas tax.  This is also an important point.  The federal gas tax has not been raised since 1993.  So declining fuel sales have brought the Highway Trust Fund -- yet another government fund -- to insolvency.


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