Case Study - GARVEEs
Southeast Corridor Project (T-Rex)

The Financing Challenge

The Southeast Corridor of I-25 and I-225 has long been recognized as one of the Denver region's highest priority travel corridors.  More than 230,000 vehicles drive through it every day.  I-25 is the only north-south freeway in the state, and I-225, which provides access to I-70, is the region's major freeway bypass.  The corridor connects the two major employment centers in the metro Denver area - the Denver Central Business District, or downtown, and the Southeast Business District.  More than 180,000 people work in these two employment centers.  Traffic volumes have risen faster than increases in population and employment with the result that the Southeast Corridor has surpassed its original estimated capacity and is Colorado's most heavily congested corridor.

Studies over a 20-year period consistently recommended that improvements be made to the highway corridor and that a mass transit element be incorporated in the overall improvement plan.  The two responsible transportation agencies, the Colorado Department of Transportation (CDOT) for the highway component and the Regional Transportation District (RTD) for the public transit component, faced many challenges as they explored options for the future of the corridor, including both financial and political barriers.  Numerous alternatives were considered during the Southeast Corridor Major Investment Study (MIS) conducted between 1995 and 1997.  With the initiation of the environmental impact statement process in 1998, the question of how to pay for the Southeast Corridor project became a significant issue.  Constitutional issues limit Colorado's options for accelerating transportation construction, specifically prohibiting the government from contracting debt in any form, including bonds and other long-term debt, without voter approval.  Further restrictions limit yearly spending increases to the rate of inflation plus the percentage increase in population in the previous year.¹ 

Not only was Colorado faced with a funding problem for the Southeast Corridor project, but 27 other high priority projects had been identified and placed on an accelerated construction schedule as part of a Strategic Transportation Investment Program, otherwise known as the 7th Pot Program.  This program was adopted by the Colorado Transportation Commission in 1996. 

The Innovative Solution

The project alternative that was selected to meet the Southeast Corridor traffic demands is comprised of highway widening, safety improvements, and light rail transit components.  The proposed highway improvements are currently estimated to cost $795 million, and the transit portion $879 million.  CDOT and RTD, in a collaborative effort, evaluated a number of funding options to finance the estimated $1.7 billion cost of the Southeast Corridor project which is being advanced as a single design-build contract.  Their objective was to develop a fiscally responsible, flexible financial plan to respond to the funding gap.  A bonding strategy was pursued in order to accelerate completion and save inflation costs, but enabling legislation and voter approval were needed.

Based on an extensive public outreach effort by CDOT, and with strong support from the Governor, the Colorado Legislature in the 1999 session enacted legislation that authorized CDOT to issue Transportation Revenue Anticipation Notes (TRAN) or GARVEE bonds to fund the 7th Pot projects, including the Southeast Corridor project.  The TRANs statute limits annual principal and interest to 50 percent of Colorado's Federal highway apportionments in the year prior to issuance.

In November 1999, two bond initiatives were placed on the ballot:  1) $1.7 billion in TRANs bond principal for the 28 high priority projects; and 2) $457 million in sales tax bond principal for the light rail element of the Southeast Corridor.  Both were overwhelmingly approved.  Of the $1.7 billion in TRANs, approximately $600 million will be allocated to the Southeast Corridor project. 

In addition, the Federal Transit Administration (FTA) signed a Full Funding Grant Agreement (FFGA) for the project in December 2000, with a pledge of $525 million in Federal funding over seven years.  Various local governments have pledged a total of $30 million in matching funds.

Without the ability to issue GARVEE bonds to provide up-front capital and use future Federal highway dollars for debt service, CDOT would not have been able to bridge the funding gap.  With pay-as-you-go financing, the Southeast Corridor project would not be completed until 2017.

The Results

The Southeast Corridor project, now known as the Transportation Expansion Project or T-REX, represents a true multimodal undertaking and exemplifies the innovation that is taking place today as transportation agencies meet the challenge of limited resources and growing infrastructure needs.  Through partnerships, innovative delivery, and leveraging Federal resources with the GARVEE mechanism, CDOT and the RTD are building the Southeast Corridor project years earlier, and at a lower cost, than would have been possible under traditional approaches.

Funded without any new or increased taxes, the $1.67 billion project will relieve congestion, enhance safety, and provide needed accessibility to meet the growing population and employment in the corridor.