Archive | June, 2017

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.

 

 

 

 

Advertisements

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.

Tolling on Indiana’s Interstates: Inching Closer?

11 Jun

imagesThe Indiana Department of Transportation (INDOT) inches closer to tolling several Interstate corridors with the June 2 release of a Request for Information (RFI) related to potential future plans for tolling of the I-65, I-70, and I-94 corridors: Request for Information Interstate Tolling Project Delivery.

INDOT is planning to release a Request for Proposals (RFP) to prepare environmental studies and project development documentation for the above corridors (the RFP refers to the following corridors: 1) I-65 from I-90 to I-465, 2) I-65 from I-465 to the Ohio River, 3) I-70 from the Illinois State line to I-465, 4) I-70 from I-465 to the Ohio State line, 5) I-65 and I-70 within I- 465, and 6) I-94 from the Illinois State line to the Michigan State line). The purpose of the RFI is to seek information that will shape the release of the RFP, in particular in the following areas:

  1. Asset inventory and management in these corridors
  2. Sequence of deployment of tolling among these corridors
  3. NEPA documentation type and analytical approach for these corridors, and for the improvements identified above
  4. Contracting and procurement approaches
  5. Public outreach and information strategy
  6. Any other topics the responder believes are relevant to this RFI

IMG_2157It is clear that Indiana intends to move forward with tolling the I-65, I-70, and I-94 corridors. It isn’t entirely clear if the intention is to toll only new expansion lanes, or existing lanes as well.

It will also be interesting to see the responses to questions about “contracting and procurement approaches”, in particular to see which public-private partnership models are being encouraged.

The most interesting part of the RFI, though, is the draft proposed work plan for an agreement that INDOT already has with engineering giant HDR, Inc. to meet the requirements of Indiana House Bill 1002 (now Public Law 218) to evaluate the feasibility of tolling Indiana’s Interstates. This work plan includes the following tasks:

  1. Project Management and Project Meetings
  2. Traffic and Revenue Analysis for 5 Corridors — to conduct a traffic and revenue analysis and model (including a risk component) for the five Interstate corridors: I-64, I-69, I-74, I-94, and I-465. Note that I-69 is included in the study. Along with traffic and revenue, the task will attempt to estimate diversion rates (i.e., rates at which vehicles use other roads to avoid tolls — often a concern to local communities whose roads bear the burden of division).  The study will also attempt to estimate the toll revenue from non-Indiana residents vs. residents.
  3. Risk Analysis for I-65 and I-70 — to expand a 2015 INDOT analysis to more explicitly quantify and model uncertainty
  4. Statewide Tolling Survey — to assess the public’s willingness to pay tolls. HDR is proposing here, because of the short deadline for the project, to perform a Willingness to Pay (WTP) study, which tests a participant’s sensitivity to various price points. Interesting note:

    “An approach that HDR has found to be successful in similar WTP studies is to tell survey takers that the purpose of the survey is to explore interest in improving travel times and safety on major highways. The concept of paying toll is not introduced until the end of survey so as not to bias the experiments as people generally have negative attitudes towards toll. “

  5. Assess Economic Impact — the study will include quantitative and qualitative studies of the potential impact of tolling on Indiana’s economy, including impacts both of increased investment in infrastructure resulting from tolls as well as impacts on Indiana households.
  6. Write Report — the final report is due by October 31, 2017.

The INDOT page for open RFIs is here: INDOT RFI Page.

 

MPO Meeting Today: Trail Project and Bike Bridge

9 Jun
Creek Crossing at the INDOT Mitigation Property

Creek Crossing at the INDOT Mitigation Property

Today’s Policy Committee meeting of the Bloomington Metropolitan Planning Organization (1:30PM, in City Council Chambers in the Showers Building) has a pretty light agenda decision-wise, but features two important active transportation/trail projects:

1. The County is asking the MPO to amend both the FY2016-2019 and FY 2018-2021 Transportation Improvement Programs (TIPs) to add a Monroe County greenway project running along the Illinois Central railroad corridor from the existing Clear Creek Trailhead at Church Lane to an INDOT I-69 mitigation property that could be the future site of a county nature park. The mitigation property is a property where INDOT was required to plant and maintain trees to compensate for the trees it cut down for I-69.  I have spoken about this exciting project many times. The purpose of this amendment is to allow the County to spend a $200,000 Recreational Trail Program (RTP) grant it received from the Indiana Department of Natural Resources to develop the trail, which will continue the existing Bloomington Rail Trail and Clear Creek Trail south. The County is putting up the value of the railroad corridor, which the County owns, as the match.

Here is a map I made of the project:

Illinois Central Corridor Greenway Phase 1

Illinois Central Corridor Greenway Phase 1

Incidentally, although I refer to it as the Illinois Central Corridor Greenway, this trail does not yet have an official name.

2. The Bloomington Bicycle Club has long advocated for a bicycle-pedestrian-only bridge over I-69. They have put out some additional information here: http://www.bloomingtonbicycleclub.org/BikePedBridge/. There are also some maps and slides in the MPO Policy Committee Packet that are definitely worth looking at!

They are asking the MPO to formally support the project in principle; however, no funding is being allocated or requested here. I definitely support moving forward on the project (i.e., doing a feasibility analysis to determine usage and costs), and will be supporting the request of the bicycle club to endorse the project.

The packet for the MPO Policy Committee meeting is here: 2017-06-09 MPO Policy Committee Packet.