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The Federal effort to respond to transportation funding needs throughout the nation has resulted in the creation of new financing programs and prompted more vigorous debate about financing issues and challenges. Through this debate, greater willingness to look beyond traditional Federal-aid grant reimbursement has been encouraged, and new players and new viewpoints have been introduced to the field of transportation finance. In addition, pilot programs not captured in traditional lists of innovative finance tools, such as the value pricing pilot program, and new Federal flexibility with respect to inno-vative contracting strategies can also help incubate new partnerships and spark new cost-effective approaches to project delivery.
The results presented in Chapter 3.0 quantify the significant benefits afforded by Federally sponsored innovative finance tools. Other benefits not easily quantified but equally important can be inferred from examining the experience of state and local transportation agencies that have used innovative tools to solve a specific project financing problem.
The case studies presented in this section spotlight the experiences of 11 project sponsors that have successfully developed financing packages that include Federally sponsored innovative finance tools. The projects advanced with the help of these tools range from relatively small undertakings, such as a $6.7 million interchange in Salina, Kansas, to Colorado's $1.67 billion Southeast Corridor project. Each major innovative finance tool is represented in these case studies, and most of them feature a combination of tools. For example, the $1.4 billion Phase I Miami Intermodal Center has received two TIFIA direct loans backed by rental car fees and motor fuel tax revenues and other loans from Florida's SIB.
Eleven projects were examined in detail to assess the financing challenges faced by trans-portation agencies across the country, the options available to address funding shortfalls, the selected financing approach, and the benefits of the project made possible through Federally supported innovative financing tools. Case studies are presented for projects that have utilized tools in each of the four major financing categories:
In each case study, the project is briefly described, followed by a discussion of the financing challenge it faced. The innovative financing approach selected to solve the financing problems is then summarized, as well as other approaches considered and the key reasons for their rejection. Finally, the benefits of each project are highlighted to illustrate the cost savings and project acceleration impacts, as well as the mobility, envi-ronmental, and other outcomes afforded in part by the innovative finance tools.
The following case studies are presented in the remainder of this chapter:
In 1994, the U.S. DOT and FHWA undertook a major initiative to promote and facilitate infrastructure investment. This initiative was launched with the introduction of an experimental "Test and Evaluation" program, designated as TE-045, to test and evaluate a range of new financial strategies designed to stretch limited transportation dollars and enhance the flexibility of Federal-aid highway funds. The TE-045 initiative has generated substantial benefits in terms of building more projects with fewer Federal dollars and accelerating project construction. Many of the innovations tested have been codified by the National Highway System Designation (NHS) Act of 1995 and the Transportation Equity Act for the 21st Century (TEA-21). To date, this program has supported over 100 projects in 41 states with a total construction value of nearly $7 billion.
The four TE-045 case studies represent projects or programs of projects that have utilized advance construction (California), flexible match (Isaac's Canyon in Boise, Idaho), tapered match (Magnolia Road/Interstate 135 interchange in Salina, Kansas), and Section 1044 toll credits (Rhode Island's Interstate 195 relocation). Unlike the other TE-045 case studies, which represent projects either already completed or underway, the Rhode Island case study represents prospective use of an innovative finance tool. These case studies illustrate the flexibility and leverage afforded by Federal funds management tools developed through the TE-045 initiative.
California - Advance Construction
The California Department of Transportation (Caltrans) uses advance construction exten-sively to maintain project schedules and accelerate projects prior to the availability of Federal-Aid Highway Program funds. The technique is especially useful near the end of the Federal fiscal year when Federal funds may be exhausted. Caltrans is able to use funds from the state's highway account, while reserving the ability to receive Federal funds when additional funds are available in the following Federal fiscal year. Through the use of advance construction and a variation of the technique, partial conversion of advance construction, Caltrans is able to acquire right-of-way and let construction contracts for critical projects based on project readiness rather than Federal funding cycles.
Another use of the advance construction technique has been the ability to respond to increased funding provided by TEA-21. Through a combination of Federal requirements and state statutes, local agencies share in about 40 percent of the annual Federal funds allocated to California. As a result of the significant increase in Federal funds available to California with the passage of TEA-21 and associated matching fund requirements, local agencies were unable to respond immediately to the increased funds. Instead, to continue to fully utilize the state's obligation authority, Caltrans converted previous advance con-struction authorizations and received Federal funds as reimbursement. In this way, California did not forego any Federal funding allocated to the state.
Caltrans funds approximately 50 percent of its annual Federal-aid formula funds via the advance construction technique - predominantly for construction, right-of-way acquisi-tion, and preliminary engineering efforts. The Department's goal is to limit use of this technique, however, to no more than one year of Federal funding. Table 4.1 displays Caltrans' use of advance construction for Federal fiscal years 1995 through 2000.
Table 4.1 State of California Advance
Construction Balance - 1995 Through 2000
(Dollars in Millions)
| Federal Fiscal Year | Advance Construction Balance1 | Change in Balance2 |
|---|---|---|
|
1995 |
$1,256 | |
|
1996 |
1,541 |
285 |
|
1997 |
1,310 |
(231) |
|
1998 |
963 |
(347) |
|
1999 |
510 |
(453) |
|
2000 |
1,924 |
1,414 |
1 Dollar amount of Federal-eligible projects
authorized (costs prior to conversion from advance construction are paid with
state funds).
2 Denotes net change in advance construction
authorized (new and converted) during the year.
Source: California Department of Transportation.
Under the partial conversion of advance construction technique, funds may be obligated in a phased fashion rather than obligating funds for an entire project in a lump sum. If a project is multi-year in nature, Caltrans will assess the timing of the project relative to the timing of Federal-Aid Highway Program funds authorization and use partial conver-sion of advance construction, as needed, to prevent project delays.
California uses advance construction for a majority of its preliminary engineering, con-struction, and right-of-way acquisition. It has been particularly beneficial for High-Priority Projects, right-of-way acquisition, and emergency response projects, among other purposes. A brief example of each of these applications is provided below.
TEA-21 authorizes High-Priority Project (HPP) funding. Over the course of TEA-21, how-ever, only a certain amount of the HPP funding is available each year. The percentage of funds made available in each of the six years of TEA-21 is provided in Table 4.2.
Table 4.2 High-Priority Project Funding Annual Allocation Percentages
| Federal Fiscal Year | Percentage Allocated |
|---|---|
| 1998 | 11% |
| 1999 | 15% |
| 2000 | 18% |
| 2001 | 18% |
| 2002 | 19% |
| 2003 | 19% |
| Total | 100% |
TEA-21 granted the State of California a $10.5 million High-Priority Project to build a freeway extension on Route 41 crossing Madera and Fresno counties. In July 1999, the local agencies responsible for constructing this project were ready to advertise the project. At that time, however, because of the spend-out provisions for HPP projects, only $4.6 million of the $10.5 million in HPP funds were available. The total $10.5 million would not be available until October 2002, resulting in a potential project delay of three years.
Using advance construction, however, Caltrans was able to authorize work as soon as the project was ready to be advertised. Caltrans obligated the available HPP funds ($4.6 million) and authorized the difference ($5.9 million) using advance construction pro-cedures. Each October, when another allocation of HPP funds is made, Caltrans converts the appropriate amount from advance construction balances and is reimbursed for expen-ditures of state funds with Federal dollars.
Federal authorization is required prior to contacting property owners in the right-of-way acquisition process and, under traditional funding, Federal funds are obligated with authorization. Using partial conversion of advance construction, California is able to contact property owners early on in the project while preventing authorized funds from being tied up while in negotiation with property owners. As some complicated right-of-way acquisitions can take two to three years, without this technique, authorized funds could be tied up for long periods of time.
Caltrans has used advance construction for Emergency Response projects - such as those resulting from earthquake damage - in cases where Emergency Response funds were not available at the time of need. Emergency Response projects totaling approximately $80 million to $90 million have been constructed using the advance construction tool. Once Emergency Response funds became available, advance construction balances were converted and Federal funds were used to reimburse the state for its costs.
The benefits of advance construction and, in particular, partial conversion of advance con-struction to the Caltrans construction program include the following:
California Department of Transportation. Correspondence with Dick Petrie. May, June, and July 2001.
Project in Brief
The Isaac's Canyon Interchange is located on Interstate 84 east of Boise, Idaho. The inter-change was constructed primarily to accommodate growth in traffic forecasted to result from the expansion of a local technology firm. Prior to construction of the Isaac's Canyon Interchange, vehicles traveling to the technology firm from Boise on I-84 would exit at the Gowen Road Interchange. During peak hours, this traffic would back up onto the freeway and slow traffic and create safety problems. The new interchange at Isaac's Canyon pro-vided an alternative to the Gowen Road Interchange and improved traffic flow and safety conditions on I-84.
The Isaac's Canyon Interchange was built through a partnership of the Idaho Transportation Department (ITD) and the technology firm. The total project cost was $10.5 million (1998 dollars). The interchange was dedicated in December 1997.
Financing Challenge
Concerned about the impact that its expansion would have on traffic in the area and access to its offices, the technology firm approached ITD about constructing a new inter-change on I-84. At this point, ITD did not have plans for an additional interchange in that region. Other significant project needs throughout the state had prevented a new inter-change, such as the Isaac's Canyon Interchange, from being included in the State Transportation Improvement Program, and ITD did not have funds allocated for the project.
Selected Innovative Finance Approach(es)
Under the Federal-Aid Highway Program, a matching ratio must be provided by the state for all projects that receive Federal funds. In this case, for the $10.5 million total project cost, the Federal share would typically be $9.7 million (approximately 92.0 percent) and the non-Federal match would be just over $0.8 million (approximately 8.0 percent). ITD, however, did not have funds allocated to the project.
The technology firm offered to contribute $5 million to the project. As an alternative to ITD providing matching funds from their own resources, the $5 million contribution served as the non-Federal match and also provided extra funding beyond the required match. Through this use of flexible match, construction of the Isaac's Canyon Interchange was advanced from not even being on the state's priority list to being accelerated by at least one year.
The Isaac's Canyon Interchange project is the first public-private partnership in the state and the contribution from the local technology firm is the single largest contribution by a private corporation to the state highway system in Idaho's history. A summary of the project funding is provided in Table 4.3.
Table 4.3 Isaac's Canyon Interchange
Project Funding Summary
(Dollars in Millions)
| Sources | Uses |
||
|---|---|---|---|
| Federal-Aid Highway Program Funds | $ 5.5 | Preliminary Engineering | $1.3 |
| Private Technology Firm | 5.0 | Construction Engineering | 1.0 |
| Right-of-Way | 1.0 | ||
| Contract Work | 6.8 | ||
| Utility Adjustment | 0.3 | ||
| Traffic Channelization | 0.0 | ||
| Total Sources | $10.5 | Total Uses | $10.5 |
Other Finance Tools Considered
ITD had not included the construction of a new interchange at this location on I-84 in their State Transportation Improvement Program at the time the technology firm approached them proposing the Isaac's Canyon Interchange project. Due to other priorities in the state, if the private firm had not offered the $5 million contribution, this project would not have been built for several years at least and may never have been built at all.
Benefits of the Finance Approach
By providing an alternative to the existing I-84 interchange, the Isaac's Canyon Interchange alleviated traffic congestion and thereby improved safety conditions and traf-fic flow. It is anticipated that the Isaac's Canyon Interchange also will be able to handle projected growth in the area.
Use of the private contribution as matching funds on the Isaac's Canyon Interchange enabled ITD to use its own funds as matching funds on other projects throughout the state.
Project in Brief
The Rhode Island Department of Transportation (RIDOT) is relocating Interstate 195 (I-195) to replace an aging six-lane facility built in the 1950s. The relocation of I-195 requires the construction of an eight-lane, 1.5-mile segment of highway and bridge crossing over the Providence River to join I-95 and I-195. The current facility is experiencing structural deficiencies and has inadequate capacity to meet future traffic demand.
As of July 2001, the relocation of I-195 is anticipated to cost $447 million. The project began in 1999 and is planned to be complete in 2012.
Financing Challenge
The proposed financing plan for the relocation of I-195 calls for the allocation of $20 million in FY 1999, $30 million in each of FY 2000 and FY 2001, and an average of $33.8 million per year in FY 2002 through FY 2012 for a total of $452 million (includes a $5 million reserve over estimated project costs of $447 million). While these allocations will provide sufficient levels of Federal and matching funding to complete the project, there will be short-term cash flow shortages during the peak of construction. The cash flow problems are due, in large part, to the issuance of three major contracts for the project during 2003 and 2004. The anticipated cash deficit is shown in Figure 4.1.
A possible solution to the cash flow gap would be to delay the start dates of major ele-ments of this project. The condition of the existing facility, however, does not make this a viable option. Any delays in opening of the new Providence River Bridge will increase the costs of maintaining the existing structure and require additional funding to extend the life of the existing bridges. In addition, the project elements are interdependent and a delaying approach would have an adverse impact on the entire relocation project.
Selected Innovative Finance Approach(es)
To resolve the cash flow deficit and maintain the project schedule, RIDOT is proposing the use of several innovative finance techniques. It is anticipated that the project will employ Section 1044 toll credits in combination with advance construction and GARVEE bonds.
The State of Rhode Island has been amassing up to $20 million in toll credits for use as soft match on projects and portions of other long-term projects such as the relocation of I-195. The state anticipates managing some of the cash flow concerns by making the I-195 relocation project 100 percent Federally funded and using the toll credits as match money as needed.
Rhode Island is beginning to authorize many projects, such as the I-195 relocation, that are long-term in nature. These projects that span many years have not been typical in the state in the past. The use of toll credits will enable the state to authorize such long-term Federal projects without having to set aside significant cash balances as matching funds. A summary of the project funding is provided in Table 4.4.
Table 4.4 Summary of I-195 Relocation
Project Funding
(Dollars in Millions)
| Sources | Uses | ||
| Federal Funds* | $447 | Construction | $375 |
| Right-of-Way | 37 | ||
| Design | 35 | ||
| Total Sources | $447 | Total Uses | $447 |
*Includes some State Match.
The other innovative finance techniques to be utilized for this project are described in the section below.
Other Finance Tools Considered
In combination with the Section 1044 toll credits, RIDOT plans to employ advance con-struction and GARVEE bonds to finance the relocation of I-195. Use of these two innova-tive finance tools is described below.
To meet the project schedule, RIDOT will need to use advance construction for project authorizations. The authorization level will outpace the scheduled Transportation Improvement Program allocation for the project significantly. Figure 4.2 shows the amount of authorizations required and the potential advance construction balance that will need to be carried during construction.
GARVEE bonds would assist RIDOT in maintaining the desired construction schedule despite the cash flow constraints in years 2006 to 2011. There are numerous ways to structure a GARVEE bond issue for this project. At this point, the most feasible option is the issuance of $250 million of bonds in 2005 with a 10-year repayment schedule beginning in 2006. This scenario would decrease the annual Federal authorization requirement for 2006 through 2012 by $16 million. It would, however, extend the payments out four additional years. By issuing $250 million in GARVEE bonds prior to 2006, the state would be in a position to actually accelerate construction where technically feasible. This could result in savings due to avoidance of construction-related inflation.
Benefits of the Finance Approach
Overall benefits of the relocation of I-195 include the replacement of 19 of the state's 199 structurally deficient bridges and provision of a facility that will adequately meet future traffic demand.
Project in Brief
The Magnolia Road and Interstate 135 (I-135) Interchange, located in Salina, Kansas, was developed to improve traffic flows in the South Salina area. The interchange improves access to the Central Mall, reduces traffic at a nearby interchange, and reduces traffic vol-umes and thereby the need to widen local streets in the vicinity of the Interchange. The new interchange also is expected to encourage economic development and growth in the area by providing direct access to and from I-135.
The final project cost was $6.7 million. Construction began in April 1996 and was com-pleted in June 1998.
Financing Challenge
The Magnolia Road/I-135 Interchange was financed with a combination of Federal-Aid Highway Program funding and local funds from the City of Salina. Under the Federal-Aid Highway Program, typically a standard matching ratio is maintained throughout the life of a project's construction. That is, every voucher a state submits for Federal reim-bursement would be limited to a set percentage of the actual reimbursable expenses incurred on the project. In the case of the Magnolia Road and I-135 Interchange, $2.6 million of Federal-Aid Highway Program funds were available for the project (approximately 40 percent of project costs). The remaining $4.1 million of project costs (approximately 60 percent) was to be paid by the City of Salina. The City of Salina, how-ever, requested to initially not put up the full 60 percent share of project costs at the start of the project, but to pay the 20 percent match and progress payments.
Selected Innovative Finance Approach(es)
The City of Salina was responsible for all project costs in excess of Federal-Aid Highway Program funding and they wanted to delay issuing the full amount of bonding and draw interest on already issued temporary notes as possible. As a result, the Kansas Department of Transportation employed tapered match to reduce the burden on the city in the early stages of the project.
Under tapered match, the matching ratio is permitted to vary over the life of the project. Federal reimbursement of expenditures can be as high as 100 percent in the early project phases, so long as by the time the project is complete, the overall Federal contribution does not exceed the Federal-Aid Highway Program limit.
For the interchange project, a payment schedule for the City of Salina was established that allowed the matching ratio to be 80 percent Federal-Aid Highway Program funding and 20 percent local funding (as opposed to 40 percent Federal and 60 percent local), until the Federal share of $2.6 million was expended. This tool enabled the City of Salina to accumulate funding for the project, and use Federal funds to bring the project through the criti-cal early stages of construction. At the end of the project, however, the ratio of Federal to local funds expended was 40 percent Federal to 60 percent local.
In addition to tapered match, the city used temporary notes and kept local project funds in an interest bearing account until those funds were needed. As a result, the use of tapered funding enabled the project to be advanced while the city was accruing funds for the local share.
Other Finance Tools Considered
The Kansas Department of Transportation considered using conventional matching that would have required a 60 percent local match throughout the project. Sufficient local funds were not available, however, in the early stages of the project and using this option could have delayed the project. Also, due to the city's request, the Kansas Department of Transportation considered the tapered financing and use of progress payments.
Benefits of the Finance Approach
Tapered match reduces the need for a local government, like the City of Salina, to fully accumulate their share of project costs prior to construction providing more flexibility to meet funding goals. The construction of the Magnolia Road and I-135 Interchange was able to proceed and meet the City of Salina's goals and Kansas Department of Transportation's needs for local match.
Depending on the specific financial situation of a given locality, the following benefits may result from the use of tapered match:
Grant Anticipation Revenue Vehicle (GARVEE) bonds generate up-front capital for major highway projects that a state would be unable to construct in the near-term using tradi-tional pay-as-you-go funding sources. GARVEEs are innovative, in that they allow states to issue bonds that are repaid from future Federal-aid funds. The NHS Act further expanded the eligibility of debt financing costs for Federal-aid reimbursement. This pro-vision was later codified into permanent highway law as an amendment to Section 122 of Title 23 U.S.C.
GARVEEs are typically used in conjunction with advance construction, to enable using future Federal-aid funds beyond the current authorization period for debt service payments. The GARVEE bond technique enables a state to accelerate construction timelines and spread the cost of a transportation facility over its useful life rather than the construction period.
To date, five states have issued $1.8 billion in GARVEEs to supplement traditional "pay-as-you-go" financing methods. Two of these states - Colorado and New Mexico - are highlighted in the case studies below. Both states are combining GARVEEs with innova-tive partnerships and project delivery approaches to build more needed projects sooner and at lower cost.
Project in Brief
The Southeast Corridor is a joint project between the Colorado Department of Transportation (CDOT) and the Regional Transportation District (RTD). The project is the largest surface transportation project undertaken to date in the State of Colorado. State officials chose a unique contracting approach for the project, employing a single design-build contract for both transit and highway components. The highway improvements consist of reconstructing and widening 14 miles of I-25 and four miles of I-225. The light rail portion of the project is 19 miles in length, will be grade-separated and double-tracked, and will include 13 light rail stations and park-and-ride facilities. The multimodal project is expected to cost approximately $1.67 billion and be completed in five years, with a planned substantial completion date in 2008.
The Southeast Corridor, one of Colorado's highest priority travel corridors, will link the two largest employment centers in the Denver region - the Southeast Business District and the Central Business District. In 1992, the Denver Regional Council of Governments conducted a study of the Corridor and determined that traffic control tools alone were not sufficient to alleviate the congestion and that capital improvements were needed.
Financing Challenge
Given the Southeast Corridor's estimated $1.67 billion cost and the short timeframe desired for project completion, Colorado faced a substantial financing challenge. The level of funding available to the project under a pay-as-you-go approach would not have been sufficient to provide needed funding for the project or resolve the congestion and safety concerns within a satisfactory timeframe. CDOT would have had to dedicate almost 40 percent of its annual $300 million in Federal apportionments over seven years to fund the highway portion ($795 million) of the project under a pay-as-you-go approach. As an alternative to pay-as-you-go funding, CDOT obtained voter approval for the issuance of GARVEE bonds in November 1999.
Selected Innovative Finance Approach(es)
The project is being financed through a combination of a GARVEE bonding program, Federal Transit Administration discretionary funds via a Full Funding Grant Agreement (FFGA), a local bonding program, and state and local funds. The complete project funding is detailed in Table 4.5.
Table 4.5 Southeast Corridor Project
Funding
(Dollars in Millions)
| Sources | Uses |
||
|---|---|---|---|
| FFGA (RTD) | $525 | Preliminary Engineering | $18 |
| GARVEE Bonds (CDOT) | 680 | RFP Development | 141 |
| Sales Tax Bonds (RTD) | 324 | Design-Build Contract | 1,187 |
| Sales and Use Tax Revenue (CDOT) | 115 | Additional Construction Activities | 328 |
| Local Funds (RTD) | 30 | ||
| Total Sources | $1,674 | Total Uses | $1,674 |
In May 2000 and April 2001, CDOT sold $536 million and $539 million of GARVEE bonds, respectively. A portion of these funds will be used for improvements to the I-25 Southeast Corridor. The 15-year bonds, which received ratings of Aa3/AA/AA from the three rating agencies, are to be repaid with future Federal funds, sales and use tax matching funds, bond proceeds, and interest earnings. These bonds represent CDOT's first two GARVEE issues of a planned $1.7 billion program for high-priority projects financed in whole or in part by Federal funds. Per legislative mandate, CDOT's annual GARVEE debt service may not exceed 50 percent of CDOT's aggregate Federal transportation dollars reimbursed in the prior state fiscal year.
Other Finance Tools Considered
CDOT considered various other funding alternatives for the Southeast Corridor project. These alternatives and the reasons for not using them are described briefly below:
Benefits of the Finance Approach
The Southeast Corridor's unique financing plan enables both the highway and transit elements of the project to be built in the desired timeframe without requiring increased or new taxes. The financing plan shows strong debt coverage and generates substantial working capital. These factors combine to both enhance the placement of debt and provide a cash-flow cushion.
The integration of the highway and transit elements in both the design-build implementa-tion and financing plans facilitates project acceleration. In turn, the project acceleration achieves cost savings for the project based on current assumptions regarding inflation. Through partnerships, innovative delivery, and leveraging Federal resources with GARVEEs, CDOT and RTD are building the Southeast Corridor years earlier and at a lower cost than possible under traditional approaches.
The Southeast Corridor is expected to provide many benefits to its riders and the commu-nity at large. These benefits include improvement of transit travel time and reliability, attraction of additional transit riders, enhancement of safety for motorists, replacement of aging infrastructure, reduction in travel time and congestion on freeway segments and nearby arterial streets, and support for rapidly growing residential and commercial areas.
Project in Brief
The New Mexico State Highway and Transportation Department (NMSHTD) recon-structed and expanded 123 miles of State Route 44 (NM 44) from two lanes into four lanes. The total estimated project cost was $364 million and the project was completed in November 2001.
NM 44 (now renamed U.S. Highway 550), which runs northwest from Bernalillo to just outside of Bloomfield, is the primary trade and tourist route into the northwest quadrant of the state. It is considered to be of central importance to improving economic develop-ment in northwest New Mexico. The Corridor also has a history of high accident rates and is in need of enhancement.
A private sector developer, Mesa, PDC, owned by Koch Performance Roads, Inc., worked with NMSHTD to deliver the project through an innovative public-private approach that relied upon GARVEE and State Highway Commission bonds as the primary financing mechanisms. Further, the road carries with it a 20-year warranty - the first of its kind in the United States - saving the state significant maintenance costs. Under a lump sum per-formance-based contract, Mesa, PDC designed, managed construction, and warranted the project. The project took three years to complete - an estimated 24 years earlier than it would have taken under a traditional approach.
Financing Challenge
Based upon concerns about public safety and the desire to provide economic development opportunities to northwestern New Mexico, the state determined that construction on NM 44 could not be delayed. The substantial project cost of $364 million coupled with the short timeframe desired for project completion presented the state with a significant financing challenge. Given New Mexico's estimated average annual highway apportionments throughout TEA-21 of $256 million, if the project were to be built over five years under a pay-as-you-go approach, it would take more than a quarter of the state's apportionment in each of those five years.
Selected Innovative Finance Approach(es)
To finance the reconstruction and expansion of NM 44, the state determined that GARVEE debt would be feasible and that such debt would not count against the state's statutory debt ceiling. The New Mexico Finance Authority issued approximately $102 million of GARVEE bonds in September 1998. Average annual debt service is approximately $9.5 million and the bonds will reach maturity in 18 years. The GARVEE debt received credit ratings of Aaa (Moody's) and AAA (Standard & Poors) - made possible by bond insurance.
To complement the GARVEE debt, NMSHTD is meeting the requirement to match Federal-Aid Highway Program funds through a "soft match." By constructing a separate portion of the facility utilizing state funds, New Mexico has leveraged those funds into the match for the project. In addition, the state is utilizing the waiver of match that is avail-able where the corridor crosses Federal lands. New Mexico also received approval to pro-vide the non-Federal match for a program of projects instead of project-by-project match. New Mexico will be allowed to use tapered net present value to calculate non-Federal match and the state will bill FHWA based on the principal and interest costs for the bonded portion of the construction program. These innovations were approved under the TE-045 program.
In 1998, subsequent to the decision to issue GARVEE debt, the New Mexico Legislature also granted the State Highway Commission authority to issue bonds for 17 corridors throughout the state. The bonds authorized by the Legislature are commonly known as CHAT (Citizens Highway Advisory Task Force) bonds. The State Highway Commission has issued four CHAT bond series beginning in October 1998, with $214 million of the proceeds and a portion of the interest and bond premium budgeted for NM 44. The CHAT bonds are being retired with FHWA funds on a reimbursement basis. FHWA has allowed the excess state match credited to the GARVEE bonds to be applied to the CHAT bonds.
In addition to the GARVEE and CHAT bonds, the NM 44 project is utilizing a warranty. For a one-time cost of $66 million, Mesa, PDC is guaranteeing the performance of the pavement for 20 years from the date of completion and the bridges, drainage, and erosion control features of the highway for 10 years. Table 4.6 summarizes NM 44 project funding.
Table 4.6 Summary of NM 44 Project Funding
(Dollars in Millions)
| Sources | Uses |
||
|---|---|---|---|
| Federal Funds | Construction | ||
| GARVEEs (Proceeds & Premium) | $102 | Construction | $249 |
| CHATs (Proceeds & Premium) | 226 | Construction Management | 49 |
| Total Federal | $329 | Warranty | 66 |
| Total Construction | $364 | ||
| State Funds | Other | ||
| GARVEEs (Proceeds & Premium) | 8 | Debt Service1 | 9 |
| CHATs (Proceeds & Premium) | 17 | Bond Sale Expense | 2 |
| State Road Fund | 22 | Total Other | $11 |
| Total State | $47 | Total Uses | $375 |
| Total Sources | $375 | ||
1. Capitalized interest from GARVEE proceeds; future debt service will be paid with FHWA funds.
Other Finance Tools Considered
NMSHTD considered various other financing alternatives for the
NM 44 project. These alternatives and the reasons for not using them are noted
below:
Benefits of the Finance Approach
GARVEE and CHAT bonds in conjunction with the public-private partnership will save New Mexico almost 24 years in project delivery schedule and at least $89 million in maintenance costs over 20 years. In addition, the issuance of the GARVEE debt will have a limited effect on the state's credit rating or borrowing capacity. This project exemplifies how innovative financing, design/construction management, and roadway warranty can be combined to develop a project on an unusually fast schedule with notable cost savings and improved performance.
| Financing Approach | Start Date | Completion Dates |
|---|---|---|
| GARVEE/Public-Private Partnership | 1998 | 2001 |
| Traditional | 1998 | 2025 |
A State Infrastructure Bank (SIB) is a state (or multistate) revolving fund that, much like a private bank, uses "seed" money provided in this case by Federal-aid funds matched with non-Federal funds. Projects are then selected for SIB financial assistance, which can include loans, loan guarantees, standby lines of credit, letters of credit, certificates of par-ticipation, debt service reserve funds, and bond insurance.
SIBs allow states to leverage additional transportation resources, accelerate construction timelines for projects with dedicated revenue sources, and recycle assistance to traditional non-revenue-generating projects. Further, the credit enhancement techniques offered through SIBs demonstrate public acceptance for projects, enhance the coverage margin on outstanding debt, and improve the credit quality of projects receiving SIB assistance.
As of September 2001, 32 states have entered into 250 SIB loan agreements with a dollar value over $2.8 billion.[1] The Florida and Missouri SIBs are highlighted below.
Another type of state-based credit are Section 129 loans. Authorized under Section 129 of Title 23 U.S.C., states may use Federal aid to fund loans to projects with dedicated revenue streams. Such streams may include either toll or non-toll revenues. States have the flexi-bility to negotiate interest rates and other terms of these loans. When a loan is repaid, the state must use the funds to make loans or grants to other Title 23-eligible projects. Section 129 loans thus allow states to leverage additional transportation resources and recycle assistance to projects that are not in a position to support debt. Texas is the only state to date that has elected to use a Section 129 loan, for the President George Bush Turnpike.
The following sections describe the Florida and Missouri SIBs and a Section 129 Loan used in Texas.
Florida State Infrastructure Bank and the Miami Intermodal Center Project
The Florida Department of Transportation (FDOT) - one of 10 state transportation departments authorized under the initial State Infrastructure Bank (SIB) pilot program - has operated a SIB since 1996. TEA-21 gave Florida (along with California, Missouri, and Rhode Island) the opportunity to expand its SIB program by using Federal transportation funds authorized for fiscal years 1998 through 2003.
In addition to its Federally authorized and funded SIB, in June 2000, FDOT created a sepa-rate state-funded SIB, capitalized with $150 million in state funds ($50 million per year over three years). FDOT has developed a single application process and program guide-lines for the state-funded and Federally funded components of its SIB program.
The Florida SIB has been quite active since inception. As of October 2000, $158 million has been capitalized (including interest earnings) in the combined SIB ($107 million in the Federally funded SIB, $51 million in the state-funded). Planned additional capitalization through 2010 will bring the SIB up to $542 million ($288 million in the Federally funded SIB, $254 million in the state-funded SIB).
As shown in Table 4.7, as of October 2000, the combined Florida SIB had approved 29 loans totaling $424 million, leveraging nearly $2.8 billion in total project investment. The SIB has been able to approve this significant amount of loans with the existing $158 million in capitalization via a combination of funds recycling on short-term loans and the ability to commit planned future capitalization funds.
Table 4.7 Summary of Florida SIB Projects -
as of October 2000
(Dollars in Millions)
| Project Type | Number of Projects | Amount of Loan Commitments | Total Project Cost |
|---|---|---|---|
Highway Construction |
25 |
$409 |
$2,747 |
|
Transit |
3 |
14 |
20 |
|
Other |
1 |
1 |
2 |
|
Total |
29 |
$424 |
$2,769 |
The Miami Intermodal Center (MIC), located in Miami-Dade County next to the Miami International Airport (MIA), is a major project receiving assistance from the Florida SIB. The MIC will serve as a central transfer point to a wide variety of other transportation modes including to light, commuter, and heavy rail lines; to the Airport/Seaport Connector bus; and to private automobiles and bicycles. The MIC also will become an extension of the airport, accommodating airline ticketing, baggage claim, rental car serv-ices, limousine services, and parking.
Approximately 75,000 passengers per day are expected to use the MIC. Of these, 60 per-cent or 45,000 would be traveling to or from the Airport on the automated people mover.
The capital cost of the MIC is estimated to be $1.35 billion (in 1999 dollars). Construction of the various components of the MIC will be phased over a 12- to 15-year span based on current projections of patronage demand, the need for increased capacity, and funding availability.
The SIB loan is being used specifically for design and construction of the MIC Core Initial Phase. The MIC Core will be the intermodal transfer hub of the entire project. It is antici-pated that construction of the MIC Core will take five years and be completed in 2005.
The Florida SIB made a $25 million loan for design and construction of the MIC Core Initial Phase. The SIB loan, with a zero percent interest rate and a term of 10 years, is being used to fill a cash flow gap in the initial phase of the MIC financing program.
In addition to the SIB loan, the MIC will receive funding from a variety of Federal, state, and local sources. In addition to a variety of state and local funding, two Federal loans will be provided to the project via the TIFIA program (one loan of $269 million, secured by state fuel tax revenues, and the other $164 million, secured by rental car fees). The MIC's complete project funding plan is summarized in Table 4.8.
As it has done for nearly 30 projects to date, the Florida SIB has facilitated acceleration of the MIC project and associated cost savings. Specifically, the MIC Core Initial Phase was accelerated by two years, resulting in estimated cost savings of $178 million. These sav-ings were achieved through the avoidance of construction cost inflation and the ability to accelerate land acquisition and thereby minimize the upward cost pressures caused by real estate speculation in the area.
As a significant component of the region's transportation network, the MIC is expected to help solve mobility problems that plague the growing South Florida area. The MIC also should enhance the long-term viability of the Miami International Airport by incorpo-rating certain landside functions and consolidating rental car functions, thereby relieving traffic congestion. In sum, it is expected that the MIC will alleviate congestion, improve air quality, improve road designs and pedestrian access, and consolidate rental car activity.
Table 4.8 Miami Intermodal Center Project
Funding
(Dollars in Millions)
|
Sources |
Uses |
||
|---|---|---|---|
| Federal Funds | Right-of Way/Environmental |
$379 |
|
| TIP/LRTP & Prior1 |
$92 |
Initial MIC Core |
81 |
| Miami-Dade Transit Authority |
15 |
Road Improvements |
143 |
|
Subtotal, Federal Grants |
$107 |
MIC/MIA Connector |
400 |
|
Non-Federal Funds |
Rental Car Facility |
162 |
|
|
TIP/LRTP* |
27 |
Capitalized Interest |
61 |
|
Other State |
130 |
Rental Car Facility Reserves and Costs |
6 |
|
Airport Capital Improvement Plan |
399 |
Other2 |
118 |
|
Rental Car Facility Revenues |
25 |
||
|
Miami-Dade Expressway Auth. Tolls |
87 |
||
|
Miami-Dade Transit Authority |
15 |
||
|
Ancillary Revenues |
37 |
||
|
Subtotal, Non Federal |
$720 |
||
|
Financing |
|||
|
TIFIA Loans + Capitalized Interest |
498 |
||
|
SIB Loan |
25 |
||
|
Subtotal, Financing |
$523 |
||
|
Total |
$1,350 |
Total |
$1,350 |
1. Transportation Improvement Program/Long-Range Transportation
Plan funding.
2. Includes general program administration, finance contingency on
FDOT elements, and prior out-lays for planning, engineering, and NEPA studies.
Sources
Missouri State Infrastructure Bank and the Bi-State Development Agency Bus Acquisition
The Missouri Department of Transportation (MoDOT) - one of 10 state transportation departments authorized under the initial State Infrastructure Bank (SIB) pilot program - has operated a SIB since 1996. Missouri's SIB is a non-profit entity, designated as the Missouri Transportation Finance Corporation (MTFC). TEA-21 gave Missouri the opportunity (along with California, Florida, and Rhode Island) to expand its SIB program by using Federal transportation funds authorized for fiscal years 1998 through 2003. MTFC's goal is to accelerate project completion through low-cost loans, thereby adding priority local transportation projects to the state's transportation system.
MTFC has provided assistance to a wide range of projects including highway, transit, and aviation, as well as multimodal facilities. Examples of projects that have received assis-tance include the Springfield-Branson Regional Airport (canopy replacement, loop road improvements, baggage claim expansion, and intermodal facility construction), the Cape Girardeau Bridge (demolition and replacement), the Gateway Multimodal Center, and various interchange improvements. An MTFC loan that assisted the Bi-State Development Agency in the acquisition of buses is detailed below.
As shown in Table 4.9, MTFC had signed 10 loan agreements, totaling just over $69 million, as of May 2001, facilitating a systemwide investment of $281 million. Loan disbursements as of that date were $45 million.
Table 4.9 Summary of MTFC Projects -
as of May 2001
(Dollars in Millions)
| Project | Amount of Assistance | Total Project Cost |
|---|---|---|
|
I-55 Overpass Replacement |
$6 |
$6 |
|
St. Roberts/I-44 Ramp Improvements |
1 |
1 |
|
Highway 54 - Route HH Interchange |
1 |
9 |
|
Springfield-Branson Regional Airport |
2 |
11 |
|
Bi-State Bus Acquisition |
11 |
58 |
|
Highway 179 Extension |
6 |
40 |
|
Cape Girardeau Bridge |
28 |
96 |
|
Parking Area Overlay, Highway 13 |
0.03 |
0.03 |
|
Gateway Multimodal Center |
11 |
26 |
|
Interchange Improvements |
3 |
34 |
|
Total |
$69 |
$281 |
The Bi-State Development Agency of the Missouri-Illinois Metropolitan District operates the St. Louis area's network of light rail, bus, and paratransit van transportation. Bi-State has a fleet of 600 buses, 41 light rail vehicles, and 63 Call-A-Ride paratransit vans. The fis-cal year 2001 operating budget for the Bi-State Transit System is $145 million and its capi-tal budget totals $455 million. Bi-State carried over 52 million passengers on MetroLink buses and Call-A-Ride vans during fiscal year 2000.
Bi-State needs financing for 217 buses to replace overage vehicles in its fleet. Transit coaches are designed to achieve a useful life of 12 years. Currently, the average age of the Agency's bus fleet is 16 years, with the oldest 99 buses at 20 years of age. Replacing this number of buses represents a significant short-term financial strain for the Agency.
The total cost of the 217 buses is $58 million and Bi-State needs $12 million to meet the required 20 percent local match.
The Bi-State Development Agency is receiving an $11 million direct loan from MTFC to finance the local match required to receive Federal Transit Administration grants. The loan was made in three disbursements of $5.2 million, $5.5 million, and $0.4 million in June 2000, June 2001, and October 2001, respectively. Each loan disbursement has a term of 10 years and interest rates ranging from 4.64 percent to 5.49 percent.
As it has done for nine other projects, MTFC is providing up-front capital through a loan so this critical transportation need may be met earlier than would be possible with tradi-tional pay-as-you-go financing. An additional benefit of the MTFC loan is that it spreads payment over a period of years, linking passenger usage with paying down the debt. For Bi-State, the interest rate reduction available through MTFC also approximates a savings of $300,000 over the life of the loan. These savings will be applied to meeting operating costs for the public transit system.
The new buses, engineered to meet current air quality standards, will reduce the impact of Bi-State's buses on air quality. The St. Louis metropolitan area is rated as a moderate non-attainment area for ozone.
President George Bush Turnpike, Texas - Section 129 Loan
The President George Bush Turnpike (State Highway 190) is a 30-mile, four-lane limited access tollway which, when completed, will extend from State Highway 78 in Garland, Texas to Belt Line Road in Irving, Texas. The Turnpike is the northern section of the outer highway loop around the Dallas metropolitan area, linking four freeways (I-635, I-35E, U.S. 75, and SH 78), the Dallas North Tollway, and numerous thoroughfares, streets, and roads in the rapidly growing seven cities and three counties in the area served. The Turnpike also is designed to improve access to the Dallas/Fort Worth International Airport.
A joint effort of the Texas Department of Transportation (TxDOT) and the North Texas Tollway Authority (NTTA, formerly Texas Turnpike Authority), the project consists of five major segments and has been under construction since 1996. As of December 2000, 45 percent of the Turnpike was complete. Construction of the Turnpike is expected to be substantially complete in July 2004 and fully complete by December 2006. The total esti-mate of project costs for all five segments is $941 million.
Due to the project's high construction cost, traditional pay-as-you-go financing from motor fuel tax receipts and Federal-Aid Highway Program funds proved insufficient. It is estimated that utilizing pay-as-you-go financing would have delayed construction com-pletion by 11 to 20 years and raised project costs due to inflation. In addition, dedicating such extensive resources to a single project would have prevented TxDOT from ade-quately addressing the state's other transportation needs. TxDOT's lack of statutory authority to issue bonds placed additional financing constraints on the project. As a result, the project, originally conceived as a freeway, was converted to a tollway and innovative financing approaches were utilized.
TxDOT and NTTA formed a unique partnership to finance and construct the President George Bush Turnpike. Leveraging the capabilities of the partnership, the project utilized the following innovative finance tools:
Cost estimates for the project were revised in January 2001 (see Table 4.10 for a summary of the updated financial plan). While the exact plan for meeting the increased costs has not been determined, NTTA states that it has since built up some cash reserves and now also has the borrowing capacity to cover the increased construction costs.
Table 4.10 President George Bush Turnpike
Project Financing
(Dollars in Millions)
|
Sources |
Uses |
||
|---|---|---|---|
|
Section 129 Loan |
$135 |
Segment I |
$135 |
|
NTTA Revenue Bonds |
446 |
Segment II |
92 |
|
NTTA Capital Improvement Fund |
20 |
Segment III |
210 |
|
TBD (Cash reserves/borrowing capacity) |
339 |
Segment IV |
418 |
|
Segment V |
86 |
||
|
Total Sources |
$940 |
Total Uses |
$940 |
Prior to selecting the chosen finance approach, other financing options were considered. Each financing option and the reasons for not using it are described below:
The benefits of the overall finance approach are described below. Specific benefits of the contributing financial tools also are listed.
The overall benefits of the President George Bush Turnpike include relieved congestion, improved air quality, and support for economic growth. The project will provide impor-tant environmental benefits to its immediate area and the overall Dallas Metroplex. Traf-fic diversion to the Turnpike is expected to dampen the rate of growth of demand upon IH 635 by providing new direct access for commuters traveling east or west through the cities north of Dallas. The Turnpike also will provide less congested and direct access to the Dallas/Fort Worth International Airport, a substantial area traffic generator.
The Transportation Infrastructure Finance and Innovation Act (TIFIA) - which was authorized in Sections 1501-1504 of TEA-21 and codified in Sections 181-189 of Title 23 U.S.C. - authorizes the U.S. DOT to provide direct (secured) loans, loan guarantees, and standby lines of credit to public and private sponsors of eligible transportation projects.
To date, U.S. DOT has provided $3.1 billion of TIFIA credit assistance to 10 projects that total nearly $12 billion in costs. Two of these projects are highlighted in the case studies below. The Tren Urbano project in Puerto Rico, which received a $300 million TIFIA loan, is being developed through a turnkey contract with a private sector consortium using state-of-the-art technology. A $90 million loan guarantee and a $37 million line of credit will both improve access along State Route 125 in San Diego to the principal commercial border crossing in southern California between the U.S. and Mexico and relieve existing congestion and accommodate growth in San Diego County.
Tren Urbano, Puerto Rico - TIFIA
Tren Urbano - a venture of the Puerto Rico Highway and Transportation Authority (PRHTA) - is a 17-kilometer rapid rail line that will serve Metropolitan San Juan and be closely integrated with the local bus system. The system, estimated to cost $1.68 billion, is scheduled to be completed by June 2004.
The population of the San Juan Metropolitan Area (SJMA) generates about 3.2 million trips per day and an estimated 4,206 vehicles per square mile in the central SJMA create one of the most congested roadway networks in the world. Tren Urbano will have 16 sta-tions and carry approximately 100,000 trips per day in the first year of operation, resulting in a significant reduction in congestion and pollutant emissions in Metropolitan San Juan.
PRHTA is implementing a "turnkey" development strategy with private sector consortia and will enter into separate operating agreements with a private sector entity to run the system. Turnkey development is an innovative procurement technique in which the sponsoring organization contracts with a single private entity to deliver a complete and operational project. Tren Urbano is the first and only heavy rail system in the United States to be both developed and operated by private entities.
PRHTA identified a need for additional financial capacity to construct the public portions of Tren Urbano's five-year Construction Investment Program (CIP), while, simultane-ously, advancing the public-private portions of the CIP. Project sponsors recognized that the extra debt capacity that could be provided by TIFIA would provide greater financial flexibility in the event that Federal appropriations of Section 5309 New Start capital pro-gram funds were delayed, as has happened over the last few years.
A direct Federal TIFIA loan of $300 million to Tren Urbano provided the PRHTA with new capital to accelerate the public portions of the CIP, while freeing up financial capacity to advance the public-private portions of the CIP. The TIFIA loan carries a 35-year term and an interest rate based on a 35-year Treasury rate. Principal repayment will be deferred until five years following the anticipated substantial completion date. The repayment source for the loan is a junior lien on the Authority's fuel tax receipts, motor vehicle registration fees, and farebox receipts. A summary of the project funding sources and uses is provided in Table 4.11.
In addition to the TIFIA loan, Tren Urbano - a designated Federal Transit Administration Turnkey Demonstration Project - is being completed under an innovative turnkey strat-egy that divides the project into six design-build contracts for civil facilities and a systems and test track turnkey contract.
Table 4.11 Tren Urbano Project Funding
(Dollars in Millions)
|
Sources |
Uses |
||
|---|---|---|---|
| Federal Funds | Right-of-Way | $87 | |
|
TIFIA |
$300 |
Construction Mgmt/Admin |
207 |
|
Section 5307 Formula |
141 |
Systems & Test Track |
656 |
|
Other Federal |
272 |
Bayamon Alignment |
78 |
|
Total Federal |
$713 |
Rio Bayamon |
42 |
|
Centro Medico |
81 |
||
|
Authority Funds |
Villa Nevarez |
78 |
|
|
Section 5307 Formula Match |
32 |
Rio Piedras |
279 |
|
Other Authority (bond proceeds, costs incurred, future revenues) |
930 |
Hato Rey |
134 |
|
CDC Lab Replacement |
4 |
||
|
Total Authority |
$962 |
Transit Enhancements |
5 |
|
Other |
22 |
||
|
Total Sources |
$1,676 |
Total Uses |
$1,676 |
Without TIFIA financing, PRHTA would have been forced to issue additional revenue bonds, with less favorable terms and at higher overall cost. This also would have con-sumed debt capacity that could be used for other project elements. It was thus deter-mined that, by improving Tren Urbano's cash flow and preserving debt capacity, the TIFIA financing approach was the preferred financing option.
The TIFIA loan provided PRHTA important financing flexibility. Beyond the financial benefits, the TIFIA loan enabled PRHTA to capture a number of non-financial benefits. For instance, Tren Urbano's design-build-operate-maintain program will reduce project costs by an estimated 30 percent and cut nearly two years off the project timeline. The Federal Transit Administration has deemed Tren Urbano among the most cost-effective projects in the nation.
The project will reduce - by nearly 50 percent - the number of intersections in the corridor expected to operate at Level of Service F (Level of Service F occurs when traffic is charac-terized by unstable stop-and-go movement and significant delay). The increase in transit ridership and congestion relief, when combined with the restructuring of the bus net-works, will result in an estimated travel time savings of 8.78 million hours annually. It is estimated that over half of the ridership would not have used mass transit if it were not for Tren Urbano. These reductions in congestion and increases in ridership also will result in a significant reduction in pollutant emissions in Metropolitan San Juan.
Finally, it is estimated that Tren Urbano construction and operation will generate approximately $2.4 billion in gross economic output during project construction and in excess of $340 million annually during system operation.
The State Route 125 South project will consist of 11.5 miles of new highway in San Diego County, California, from SR 905 near the United States-Mexico border to State Route 54 near Sweetwater Reservoir. SR 125 South will open as a four-lane limited access highway. The project includes a two-mile non-tolled segment known as the San Miguel Connector and a 9.5-mile toll road with electronic toll collection. Construction of SR 125 South is estimated to cost $417 million (October 2001). The project was initiated in 1991 with the signing of a franchise agreement, and design and construction are expected to begin in 2002. The toll road portion is anticipated to open by 2005. Further, expansion of SR 125, which could include a six- to eight-lane highway, carpool lanes, and/or transit facilities in the median, may be pursued if it is determined that it would increase equity returns of the private developer.
Cross-border commerce in the San Diego region has experienced notable growth, in part fueled by the North American Free Trade Agreement (NAFTA) and the limiting of all commercial border traffic in the area to the Otay Mesa crossing by the United States and Mexican governments. Existing and approved residential and commercial development in southern San Diego County creates additional demand for the highway. SR 125 South also is vital to reducing out-of-direction travel by providing an inland alternative to Interstates 5, 15, and 805 that serve central San Diego and points north and south. Given the projected growth of the region, combined with the increased trade and traffic across the border, SR 125 South is anticipated to provide congestion relief, reduced emissions, improved traffic flow, and access to border area employment centers.
SR 125 South is being designed and constructed under a franchise agreement between the State of California and a private sector consortia, the California Transportation Ventures (CTV). The private sector consortia will operate and maintain the toll road for 35 years at which time control will revert back to the California Department of Transportation (Caltrans).
Due to the high cost of the SR 125 South project, Caltrans lacked the financial resources to complete the project in a timely manner. In addition, the San Diego Association of Governments (SANDAG) has identified a $12 billion shortfall in transportation funding over the 20-year period from 1999 to 2020, assuming that San Diego's one-half-cent trans-portation sales tax is not extended when it expires in 2008. As a result of these funding shortfalls, without private financing and TIFIA credit support, project completion would have been delayed an estimated 15 years.
To attract private capital to highway projects and build roads faster, California passed legislation in 1989 that allowed the state to enter into partnerships with private firms for the development of privately financed transportation projects. SR 125 South is one of four demonstration projects approved under the legislation.
SR 125 South is being financed with private debt and equity investment coupled with TIFIA financing. CTV is combining the San Miguel Connector and the toll road into one design-build arrangement. The San Miguel Connector, including the freeway-to-freeway interchange between SR 54 and SR 125 will be funded by a mix of Federal-Aid Highway Program funds and local funds from San Diego's one-half-cent transportation sales tax. This portion of the project, once constructed, will be operated and maintained by Caltrans.
As shown in Table 4.12, the 9.5-mile SR 125 South toll facility will be financed on a "project financing" basis with the private capital markets and sponsor equity providing approximately two-thirds of the funding for the project. The return on equity was regulated by a negotiated ceiling and set at 18.5 percent of total invested capital. In addi-tion, the project will receive TIFIA assistance in the form of a $94 million direct loan and a $33 million line of credit that will back subordinated bonds. Toll revenues will be the primary source of repayment for the senior debt and TIFIA direct loan.
Table 4.12 SR 125 Project Funding
Summary
(Dollars in Millions)
|
Sources |
Uses |
||
|---|---|---|---|
|
Senior Bond Proceeds |
$247 |
Development, Design and Construction |
$365 |
|
TIFIA Loan* |
94 |
Gross Capitalized Interest |
70 |
|
Equity |
63 |
Debt Service Reserve |
13 |
|
Donated Land |
18 |
Financing Fees |
9 |
|
Total Sources |
$455 |
Total Uses |
$455 |
*The project also is supported by TIFIA credit assistance in the form of a $33 million line of credit.
Note: Estimates as of date of term sheet July 2000.
Funding constraints under pay-as-you-go financing would have necessitated lengthy project delays (estimated at over 15 years). Such delays could have increased project costs due to inflation over time.
The planned financing approach will expedite delivery of the project and thus facilitate the acceleration of the following benefits:
[1] This information presented as of September 2001 reflect data collected by the U.S. DOT on SIB loan agreements as of the end of Federal fiscal year 2001. Data used for purposes of analysis presented in this report are current as of spring 2001, and differ somewhat from the more current September 2001 data.
