Public-Private Partnership Set for Colorado Central 70 Project

13 Oct

Central70Narrow2This is just a quick update on a previous story. A few months ago I wrote about a major highway project in Colorado (between downtown Denver and Denver International Airport) that was planning on using a public-private partnership (P3) very similar in structure to that of the now-failed I-69 Development Partners selected to develop I-69 Section 5: Major Public-Private Partnership Highway Project Under Consideration in Colorado: Sounds Like Deja Vu All Over Again. The most interesting aspect of the $1.2B project is the lowering and covering of the interstate at one point, and the creation of a 4 acre park that connects two formerly disconnected neighborhoods on top of the cover.

Recently, Kiewit Meridiam Partners was selected to design, build, finance, operate, and maintain the Central 70 project. You can find the press release here.

It will be interesting to monitor the progress of this P3, and compare performance vs. the failed I-69 Development Partners. During the debate here in Indiana, while many blamed the selected contractor, others blame the very nature of a public-private partnership for road construction. The Central 70 project will serve as a useful comparison.

 

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Bridge Beams Set for Sample Road over I-69 Southbound (Video)

9 Sep

Screenshot 2017-07-22 11.58.46Yesterday, the 4 beams were set for portion of the Sample Road interchange that will go over I-69 southbound. The northbound beams will be set at a later date.

While I’m sure that watching road construction is like watching paint dry for most people, beam setting is really a pretty impressive and precision operation, involving 2 cranes.

Here is a video I made of the operation from my drone. I did my best to condense 2 hours of work into a 9 minute video:

Beam Setting at Sample Road

Click the Image for the Video

 

Thank you very much to INDOT and Keramida (engineering firm) for allowing me to film this operation from my drone safely. In particular, thanks to Sandra Flum, Mark Flick, and Bruce Winningham.

Here is a map that shows approximately where the beams were set:

Screenshot 2017-09-09 07.48.54

Sample Road and State Road 37 (Future I-69)

The beams were set for the bridge over the future southbound lane, which is west of the existing southbound lane. The northbound lane will become a frontage road and the current southbound lane will become the future northbound lane in this area.

2018 Local Income Tax (LIT) Numbers for Monroe County Show Strong Economic Growth

1 Aug

One of the numbers that nearly all local governments eagerly await each year before setting budgets is the amount of local income tax (LIT) it will be receiving for the ensuing year. While this information arrives in several stages of increasing refinement, the first indicator that counties receive is the estimate of local income taxes for the county as a whole for the budget year by the Indiana State Budget Agency.

Today, Indiana counties received their 2018 Certified Distribution estimates from the State Budget Agency. Here is a table summarizing these estimates and comparing them to the 2017 certified distributions for Monroe County:

Screenshot 2017-08-01 19.29.30

These numbers represent very good news for Monroe County residents. The overall increase in local income tax collections for Monroe County is 4.27%, demonstrating robust growth in the income earned by Monroe County residents.

Just as a reminder, Monroe County’s local income tax (LIT) rates are as follows:

  • Expenditure – Certified Shares: 0.9482%
  • Expenditure – Public Safety: 0.2500%
  • Expenditure – Economic Development: 0%
  • Property Tax Relief: 0.0518%
  • Special Purpose (for Monroe County, this rate is for juvenile services): 0.095%
  • Total Income Tax Rate: 1.345%

The amounts shown in the table above will be distributed to various local government units:

  • Certified shares will be distributed to all civil taxing units except Solid Waste District, which means the county, cities and towns, townships, the public library, Perry-Clear Creek Fire Protection District, and Bloomington Transit
  • Public safety will be distributed first to the Dispatch Center (in a percentage determined by the Monroe County Income Tax Council), then to township fire departments (in an amount determined by the Income Tax Council), and then among the county and the three cities and towns (Bloomington, Ellettsville, and Stinesville).
  • Property Tax Relief will be used to offset the property taxes of homestead properties
  • Special Purpose goes to juvenile services in Monroe County, which includes youth services (including the Binkley House Youth Shelter), juvenile probation, and juvenile courts

The State Budget Agency will provide updated numbers to Indiana counties before October 1.

 

 

Partial Funding for I-69 Section 6 in New State Plan

22 Jul

I69bridgeThis posting is a brief follow-up on a report on Indiana Public Media: How Much Money is Included For I-69 in the State’s New Roads Plan? As the report pointed out, the state’s new 5-year infrastructure investment plan (so-called Next Level Indiana) provides some funding for the final section of I-69 in Indiana, Section 6, which runs from Martinsville to I-465 in Indianapolis. However, as the report also notes, I-69 is not fully funded in the report.

The investment plan breaks out the investments by county. The following table shows the funding for I-69 by county (and also by segment in Marion County):

Screenshot 2017-07-15 07.28.51

So, a total of $554M has been allocated for I-69 through 2022. It appears that the segments going through Morgan County have been fully funded, with allocations going down from there.

How does this compare to the overall costs of the project? The Draft Environmental Impact Statement (DEIS), Chapter 6 Comparison of Alternatives provides the following summary of the estimated costs by segment:

Screenshot 2017-07-22 12.01.51

Alternative C4 (of which there are two variants) is estimated to cost approximately $1.5B. So at first blush it appears that Section 6 has been funded at around 36% through 2022.

Screenshot 2017-07-22 11.58.46Although the subsections don’t line up perfectly with county boundaries, they are pretty close. Subsections 1-4 are in Morgan County, going from Indian Creek (where Section 6 begins) to Banta Road in Morgan County. Using Alt C4A, total estimated costs are $515.7M, of which $263M (approximately 50%) is funded. Subsection 5 is in Johnson County, and it appears that approximately $153.2M out of $203.5M, or 75%, is funded. And Subsections 6-8 in Marion County appear to be funded at $138.1M out of a total cost of $785.1M (18%). There could, however, be some additional funding in the 5-year plan that isn’t labeled as I-69 — for examples, I-465 improvements — but are part of the overall cost of I-69 Section 6; I don’t know.

So I think one can draw two conclusions from this 5-year plan: (1) the final section of I-69 is not fully funded — not by a long shot. It isn’t clear whether the state will fund the gap by sustaining this level of investment beyond 2022, or through some sort of public-private partnership, or some other approach entirely; and (2) that while section 6 is not fully funded, the state has earmarked a substantial amount of funding for it, belying the claims of some that the state would just “declare victory” after section 5, and leave 37 to Indianapolis as-is. It is clear that the state is serious about completing the project, and is already committing substantial resources to complete it.

Road Funding Per Capita: Who Gets the Least and Who Gets the Most?

21 Jul

I69bridgeToday’s Indy Star published an article on the state’s new 5-year road investment plan funded by the new 10-cent gas tax increase: Which Indiana counties will get the most road funding? (Hint: Not Hamilton County). The article provides data on the amount of funding provided per capita for each county, and highlights the top 10 and bottom 10.

Two aspects of the article that I found particularly noteworthy:

  1. We (Monroe County) will be receiving the lowest amount per capita in the state, at $71.91 per person (compared to $4115.06 for the highest county).
  2. Our neighbor to the north, Morgan County, will be receiving the most per capita at $4115.06.

The article doesn’t really touch on the Monroe County amount, but does note that “Morgan County — home to Martinsville and Mooresville — will by far receive the most road funding per capita at about $4,115 per person.” The article then goes on to quote an INDOT spokesman about state-maintained road-miles and the condition of of roads and bridges in each county. But I’m left astounded that the article doesn’t even mention the obvious reason and context both for Monroe County’s low number and Morgan County’s particularly high number: I-69.

In fact, if you look at the individual road projects in the plan for Morgan County (available here, on pages 144-145), construction of I-69 (the beginnings of Section 6) represents nearly all — $263M out of $287M — of the funding allocated to Morgan County. And conversely, Monroe County is currently “experiencing” over $300M of investment in I-69 and related roads that will (we can only hope) end before the FY2018 funding indicated in the 5-year plan starts to be expended.

One side note is that this situation illustrates that the per-capita measure — and even the per-county measure of investment — is of limited value when long-haul highways are considered. After all, the portion of I-69 that goes through Morgan County certainly does serve Morgan County and its residents — but it also serves residents of many other counties and potentially other states who only want to get through Morgan County as quickly as possible.

 

 

Major Public-Private Partnership Highway Project Under Consideration in Colorado: Sounds Like Deja Vu All Over Again

15 Jun

Central70Narrow2Dear MoCoGov readers, I am out in the Denver area for work, as I am frequently, and wanted to take the opportunity to bring to your attention an Interstate highway project out here that will, I think, remind you more than a bit of our own I-69 Section 5. In particular, the state of Colorado appears to be on the verge of going down the very same path that Indiana did not only in using a public-private partnership (P3) to build the road, but in using the very same type of P3. I have written about P3s before here.

The setting is a 10-mile segment of I-70 between downtown Denver and the Denver International Airport, a segment that sees over 200,000 vehicles per day. I myself have driven on this segment dozens of times.

The Central 70 Project

First, a little bit about the project, which has been named the Central 70, from the Central 70 Project Web Site:

The Central 70 project proposes to reconstruct a 10-mile stretch of I-70 east of downtown, add one new Express Lane in each direction, remove the aging 53-year old viaduct, lower the interstate between Brighton and Colorado boulevards, and place a 4-acre cover park over a portion of the lowered interstate. Construction begins in 2018.

The Central 70 project is quite different from I-69 Section 5 in several key areas. First, it is replacing an aging viaduct that has seen several failures and requires constant repair (http://www.bizjournals.com/denver/blog/earth_to_power/2015/06/cdot-says-i-70-east-viaduct-in-denver-is-crumbling.html). Second, it is adding 2 tolled express lanes, one in each direction. This appears similar to where Indiana is going with expansion of I-65 and I-70.

From an engineering perspective, the most fascinating aspect of the project is the creation of a 4-acre park over a lowered section of the highway (referred to as a “partial cover” in project documents). Here is a rendering from the environmental documents:

POITRA Visual photosimulation services -- I-70 East EIS Project

Proposed 4-Acre Park Over Below-Grade I-70

Ownership and maintenance of the park will be shared between Denver and Denver Public Schools, and in particular part of it will serve an adjacent elementary school (https://www.codot.gov/projects/i70east/fact-sheets-8-2.16/highway-park-and-design_eng-021417v3.pdf). Personally, I absolutely love the concept. I find it exciting and audacious, but I suspect that many will find it equally horrifying!

 

solidarityAs you might imagine, resistance from many residents to the highway expansion, which has been estimated to triple the highway’s footprint, has been stiff. See here and here for examples. The slogan “Ditch the Ditch” has been adopted by the opponents to the project.

The Federal Record of Decision (ROD) for the Central 70 project was issued in January of 2017, allowing Colorado Department of Transportation to move ahead with the project. The ROD and other environmental documents are available here: http://www.i-70east.com/reports.html.

The P3

But while the project is superficially quite different in many ways, the procurement vehicle will seem quite familiar to southern Indiana residents. Colorado has decided to pursue a particular form of public-private partnership: the Design-Build-Finance-Operate-Maintain model, the very same model used (and in the process of being abandoned) for I-69 Section 5.  In this model, the private contractor not only designs and builds the road, but also finances the project, operates the road (and in the case of Central 70 the tolling component), and maintains the road for the entire period of the agreement. Some of the more cynical among us refer to this model as a construction project hidden inside a maintenance contract, that allows politicians to do big projects while being able to say that they are not taking on debt. Supporters say that it is the only way to close the “infrastructure gap” and maintain a sustainable debt load (I mentioned that argument a few days ago here).

The private contractor will be compensated through a toll concession (of course not part of the I-69 Section 5 deal) along with so-called “availability payments”, periodic payments for having the road open to the specified level of service (which is a central feature of the I-69 Section 5 project).

The Central 70 project is also using a (seemingly identical) multi-stage process, in which four teams have been selected to submit final proposals. The following chart from the project Web site shows the four teams selected to submit proposals. You can see a similar chart for I-69 Section 5 here: I-69 Section 5 Actual Proposers.

Screenshot 2017-06-15 06.15.55

Teams Selected to Submit Proposals for the Central 70 P3

Fortunately Isolux-Corsan does not appear on this list! But many of these company names will sound very familiar. Plenary Group was one of the proposers for I-69 Section 5, as was Meridiam. AECOM and Parsons Brinckerhoff were on I-69 teams as well as design contractors. And Spanish infrastructure giant Cintra will be familiar to local readers as one half (along with Macquarie, who did the financial justification for the P3 for the Central 70) of the now bankrupt Indiana Toll Road Concession Company.

Per the Request for Proposals, the High-Performance Transportation Enterprise (HPTE), the public entity that will actually be awarding the contract, is willing to issue up to $725M in private activity bonds (PABs). Per the Federal Highway Administration, PABs are:

…debt instruments authorized by the Secretary of Transportation and issued by a conduit issuer on behalf of a private entity for highway and freight transfer projects, allowing a private project sponsor to benefit from the lower financing costs of tax-exempt municipal bonds.

These bonds do not obligate the state or pledge the “full faith and credit” of the state.

I-69 Section 5 used a similar financing method, having issued almost $244M of PABs to I-69 Development Partners (the prime contractor). These bonds have been continually downrated, and were most recently downgraded by Standard & Poor to a CCC- rating. Recently, as the partnership has been collapsing, it has been reported in the media that the State of Indiana has been negotiating with bondholders to buy back the bonds and take over the financing of the project; thus far the bondholders have rejected the state’s offers.

At this point, it appears that the intention is to make the award during the summer of 2017, with commercial and financial close by October 2017, and construction beginning in 2018. This is an important project of regional and even national significance. I love the partial-cover/park concept that reunites neighborhoods long split by I-70. And I really hope the project moves forward (though I don’t look forward to the airport traffic during construction).

But I also hope that the good folks at the HPTE and the Colorado Department of Transportation talk to their friends at the IFA and INDOT. Surely there are some lessons learned?

Updated 2017-06-16 4:00PM: The State of Indiana just announced that they have an agreement to end the public-private partnership with I-69 Development Partners and take over the project: State has agreement to terminate public-private I-69 contract.

 

 

 

 

How the Credit Rating Agencies See the World of State Finance

12 Jun

Screenshot 2017-06-12 06.35.32Amidst all of the discussion about public-private partnerships (P3s) as a means of financing infrastructure, and concern about the future of I-69 Section 5, I came across this presentation from S&P Global Ratings in 2016 to the National Conference of State Legislatures Legislative Summit: 2016_Prunty_Presentation,

The presentation presents a fascinating window into the narrow keyhole through which the credit ratings agencies see state governments (which is of course often very different from the way that the public sees the same state governments!) and also the bigger financial picture in which P3s are being promoted in order to close the infrastructure gap.

The first part of the presentation deals primarily with the relative state of fiscal health of the states from a debt perspective. As everyone is probably aware, Indiana joins 30% of the states at the top, with a AAA rating. Neighbor Illinois is an outlier at the bottom with a BBB+ rating. Indiana also joins the majority of states with a stable outlook. A handful of states have a negative outlook, meaning things are likely to get worse.

More interesting is S&P list of key credit risks that led to where the states were at the beginning of 2016: energy-producing states losing oil revenue, current year budget pressures from revenue shortfalls or political gridlock, future year budget pressures, and large unfunded liabilities (mostly pension debt or other employment-related liabilities).

S&P goes on further to identify key themes for 2016: 1. Slower Revenue Growth, 2. Tax Incentives (for economic development), 3. Spending Restraint, 4. Aid to Higher Education, and 5. Pension Pressures Persist. #3 and #4 in particular engage the tension between short-term and long-term success. In fact, later in the presentation, the author, while seeming to champion austerity as a way of managing their debt levels acknowledges that:

For states that have made these trade offs, the impact on credit quality is favorable in the near term (3-5 years). However, looking ahead, the reduced investment in productivity enhancing areas (infrastructure and higher education), paints a dimmer picture of their long term economic growth prospects

So — austerity may help in the short run, but balancing the budget on the backs of infrastructure and higher eduction ultimately harms in the long run.

The presentation then goes on to define debt and debt sustainability, from a ratings agency perspective, and comes to the conclusion that the state and local government sector debt trends are by and large sustainable — and in particular there has been a noticeable pullback on debt issuance after the Great Recession. Most states have seen increases in economic productivity in excess of increases in debt issuance (again with a few exceptions). S&P concludes:

During the recession: states had fiscal crises, not debt crises

However, they do warn that only looking at bonded debt gives a relatively rosy picture of overall state debt — and that to get a more realistic picture, other obligations such as pension and other post-employment-related benefits need to be taken into account.

So where does infrastructure and P3 come in? 

S&P attempts to make the case that while the US has a significant infrastructure gap (structurally deficient bridges, maintenance backlog on transit, construction backlog, water and sewer deficiencies, traffic congestion, and delayed freight), that states will not be able to close this gap through debt-related financing alone, without compromising their credit ratings, especially if the operations and maintenance (O&M) costs of infrastructure are included. P3s are suggested as a potential solution, and in particular:

P3s offer states a way to fold O&M expenses into the overall cost of financing a project,

This is of course the Design-Build-Finance-Operate-Maintain model used (at this point, unsuccessfully) for I-69 Section 5. And the author does acknowledge that:

… the P3 model can be complex and in certain cases, states attempting P3 projects have encountered political opposition.

I suspect that political opposition will only increase at this point.