CHICAGO -Indianawould issue up to $500 million in bonds to finance a $1 billion expansion of a commuter rail line that runs between the northwest corner of the state and Chicago under a proposal being pushed by a group of powerful legislators and regional planners, who say the project is needed to handle the region's rapid growth.

The bill that would authorize an unprecedented funding mechanism for the project - the diversion of a chunk of state sales tax - squeaked through the state House last week after a lengthy debate, and now awaits a hearing in the Republican-controlled Senate.

Considered the third most rapidly growing commuter rail line in the country, the South Shore Line is a 20-stop commuter line that operates largely along the Lake Michigan shoreline between downtown Chicago and South Bend, Ind. It is operated by the Northern Indiana Commuter Transportation District, which was created in 1977 specifically to preserve commuter service between Chicago and northwest Indiana.

Under the district's master plan developed a few years ago, the South Shore Line would be expanded into at least two additional Indiana counties to include the towns of Lowell and Valparaiso.

The expansion would cost $1 billion, at least half of which is expected to come from the Federal Transit Administration. The federal funding, which would require local matching funds, has been promised by the plan's most powerful supporter, U.S. Democratic Rep. Pete Viscoski, who sits on the House Appropriations Committee.

The remaining $500 million would come from revenue-backed borrowing by the Indiana Finance Authority and, likely, the Northwest Indiana Regional Development Authority.

Debate over the plan has heated up as supporters tour the region holding public hearings and meeting with local editorial boards touting the plan's economic benefits, including the creation of 26,000 jobs, a reduction of traffic congestion, and improved access to Chicago.

Meanwhile, opponents of the expansion argue that it will sap funding for other important northwest Indiana economic development projects, such as the expansion of the Gary/Chicago International Airport and the redevelopment of the lakefront.

In the General Assembly, opponents of the bill have targeted the funding mechanism for the plan, saying setting aside state funding for a local project sets a bad precedent.

Under the bill, Indiana would divert 12.5% of the state sales tax, or about $30 million annually, collected by Lake County and Porter County. The current plan calls for the Indiana Finance Authority to issue $350 million in revenue bonds backed by the diverted sales taxes. The Northwest Indiana RDAwould issue an additional $150 million.

Emphasizing the tentative nature of the deal, RDA executive director Tim Sanders said the agency's board would likely wait to consider the issue until after the General Assembly's session ends in mid-March.

It would be the first bond issue for the two-year old authority. Its bonds would either be secured by the state sales tax revenues or through the RDA's funding streams, according to financial adviser Bill Sheldrake of Policy Analytics LLC.

Among the bill's more controversial features is an amendment that would restrict the ability of member municipalities - East Chicago, Gary, Hammond, Lake County, and Porter County - to leave the RDA. That measure is intended to enhance the appeal of the authority's debt, according to Rep. Chet Dobis, who sponsored both the bill and the amendment. Under the current bill, cities or counties that are part of the RDA could only leave once a decade and could continue to be billed for any projects that they signed onto while they were part of the authority.

"That restriction is intended to give stability to the RDA's funding stream for bonding purposes," Sheldrake said.

The RDA is funded through a mix of casino revenue from East Chicago, Gary, Hammond and Lake County as well as income tax revenue from Porter County. Each municipality contributes roughly $3.5 million a year to the authority.

Despite the opposition from at least four northwest legislators last week, the bill was advanced by the Democrat-controlled House and now sits in the Senate Committee on Tax and Fiscal Policy. The committee's influential chairman, Republican Sen. Luke Kenley, has promised to hold a hearing on the measure, and has also been quoted in public reports as saying he opposed the sales tax diversion funding mechanism.

The bill is expected to have a difficult time clearing the full Senate, according to sources. Republican Gov. Mitch Daniels, who is up for reelection this year, initially said he would veto any diversion of the sales tax but more recently he was quoted as saying he would consider the issue due to the RDA's support.

"There is an awful lot of support for this and I do think it is a project that's going to continue to be out there and this legislation will be taken as a serious piece of legislation," Sheldrake said.

One of the nation's fastest-growing commuter rail lines with passengers frequently complaining of standing-room only, the South Shore Line reported that ridership increased 13% for a total of 4.2 million passengers in fiscal 2006.

The district has not yet estimated how many additional passengers the expansion would service. The populations in Lake and Porter Counties have also been on a steady climb since 1990, reversing earlier downward trends. q

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