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.

 

 

 

 

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One Response to “Major Public-Private Partnership Highway Project Under Consideration in Colorado: Sounds Like Deja Vu All Over Again”

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  1. Public-Private Partnership Set for Colorado Central 70 Project | in53 - MoCoGov - October 13, 2017

    […] 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 V…. The most interesting aspect of the $1.2B project is the lowering and covering of the interstate at […]

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