Audio: https://connectdot.connectsolutions.com/pqfb2554s8sh/
ROUGH EDITED COPY
DEPARTMENT OF TRANSPORTATION
ASSET RECYCLING VALUE CAPTURE STRATEGIES AND CASE STUDY:
ADVANCING PUBLIC INFRASTRUCTURE
IN A TIME OF FUNDING UNCERTAINTY
WEDNESDAY, OCTOBER 18, 2023,
JOB NO. 25610
CART CAPTIONING*PROVIDED BY:
LINDA M. FROST, CERTIFIED REALTIME CAPTIONER
on behalf of
MID-ATLANTIC INTERPRETING GROUP, INC.
* * * * *
This transcript is being provided in rough-draft format. Communication Access Realtime Translation (CART) is provided in order to facilitate communication accessibility and may not be a totally verbatim record of the proceedings. Due to the nature of a live event, terms or names that were not provided prior to the assignment will be spelled phonetically and may or may not represent the true spelling.
* * * *
>> OPERATOR: Ladies and gentlemen, thank you for your patience standing by and welcome to the Value Capture Strategies by Asset Recycling: Advancing Public Infrastructure in a Time of Funding Uncertainty call. I will turn the conference over to your host, Mr. Pepper Santalucia. Please go ahead.
>> PEPPER SANTALUCIA: Thanks, Josh. Hello, everyone, on behalf of the Federal Highway Administration and its everyday count initiative, I would like to welcome you to today's webinar on Value Capture strategies and asset recycling. I'm Pepper Santalucia, with USDOT's Volpe Center in Cambridge community. The webinar will run two hours until 3:00 p.m. eastern time. I'm recording the event and that will be posted on the FHWA Value Capture Website. You can follow the link at the bottom of the slide now on screen. Speaker slides will be available today and posted on the FHWA Website if you intend to use your attendance toward continuing education, you will provide confirmation of your attendance and we'll do that at the end of the webinar.
To give a quick orientation to the webinar room. In the left corner of the screen, you should see a phone number in the box labeled audio information. If you decide to use your phone to listen to today's event, you will also be able to ask questions verbally and we'll give instructions on how to do that. Unfortunately, we won't be able to take questions from those who are listening through your computer but use the chat window labeled audience chat in the lower left cone of the webinar room.
We will try to field a few questions at the end of each presentation with time permitting. We also have some time built in toward the end of the webinar for additional Q&A. If we don't have time to address all of the questions submitted, we will post written responses alongside the webinar recording on the Value Capture Website.
To view closed captioning during today's event, you can look for a button toward the top of the webinar room with the label CC, that's for closed captioning. If you click that, there's a menu that drops down and show captions is the option you should click to see captions.
Okay. At this point, I am going to introduce our first presenter.
Thay Bishop is a senior program advisor for the FHWA center for innovative finance support. For nearly 20 years at FHWA, she has provided technical assistance and led capacity building efforts in the area of innovative finance. Prior to joining FHWA, she was the Director of corporate finance and treasurer for the Metropolitan Atlanta Rapid Transit Authority (MARTA).
Thay, I'll turn it over to you now.
>> THAY BISHOP: Good morning and good afternoon, everyone, in my presentation today I'll go through a couple key distinctions and why the need for asset recycling and provide the overview and benefits, I also talk a little about the funding opportunities that you should be aware of.
The first distinction is funding versus financing, the term is used interchangeable in a very confusing way. To deliver a project, all you need to know, you need three things. 1.) Source of fund: revenue sources in the future to repay the financing. It refers to how the infrastructure is actually paid for, 2.) Financing options: You borrow the money to pay for upfront cost, you can bundle the group of projects or program to save borrowing costs. It refers to the supply of capital, such as debt and equity, which is used to pay for the upfront investment costs of an infrastructure project, and 3.) Uses of Funds: you select procurement technique to get the project completed. You can bundle two or more similar projects, and award a single contract for procurement, to save time, cost, and attract a bidder. You can pretty much deliver the project from Design-Bid-Build to the P3 concession and depends on what your state law allows.
The second key distinction is Value Capture Strategy versus Tax. Tax forced contribution to generate revenue for the public services. Mandatory taxed provided by general law and everyone pays regardless of you benefit or use the service or not. Money collected from the tax deposit to General Fund for Government Spending.
Value Capture on the other hand only beneficiaries pay and equitable. It takes in consideration of ability pay. Authorization for Value Capture comes from the state law, or the home rule power of the local government. Local make decision on implements value capture and control the revenue that generate from value capture. It requires a proportionality between the benefits and costs, and very strict accounting procedure for each Value Capture Strategy. Fund must deposit in Accrual Interest Earning Account.
So, why do we need a Value Capture strategy? Here's some of the reasons the state and local should consider all of the revenue sources, include Value Capture strategy. This is the old news, State and local are alike facing with capacity and system aging funding challenges at the same time revenues are declined. So, I'm not going to go through all that, but I don't want us to forget about it. With a record level of investment from the Bipartisan Infrastructure Law, we'll see improvements over the next few years. However, funding is not still keeping pace with demands for improvements to maintain the nation’s transportation system. Deferred maintenance is a multi-billion-dollar problem throughout the country and is a major issue in the U.S. The longer this issue remains unaddressed, the greater the financial burden on taxpayers. Enjoy funding available from Bipartisan Infrastructure Law and prepare for 2027. We will be heading to the perfect Storm in 2027.
The one issue that I want to bring to your attention is the pedestrian death. It increased 1 percent since 2021 and estimated about 7500 pedestrians did not come home to their families in 2022.
Here, the 2021 data from the national highway traffic safety. It is pretty alarming. It increased 72 percent from 2010 to 2021. And so, there's significant funding going to be needed to transform our road system to accommodate all mobility. States really need to partner with Value Capture Community Improvement District or Business Improvement District to address this issue. The Value Capture Community Improving District, those districts are self-assessment by businesses within the district. They are very much involved in transportation and complete street projects and working across the cities to help address this issue.
Here's the heart of the problem. Major funding sources for Federal Aid Highway system and transit system comes from Highway Trust Fund. According to the congressional budget office, since 2008, Congress infused the general fund money into the Highway Trust Fund to delay the insolvency, now it delayed until 2027 and it's coming. So, beyond the 2027, highway is going to be facing with a 215 billion shortfall in the next transportation bill.
All right. This is why we are continuing to look for additional funding sources to help address -- to pay for the essential infrastructure need, while waiting for Congress to figure out how to fund for Highway Trust Fund.
And, by the way, the U.S. highway and transit subcommittee held a hearing on the state of the Highway Trust Fund at 9:30 this morning, and the title of that hearing is, Running On Empty. It is so true!
Here's another reason there's about 4.3 million miles of public roads. Only a little bit over 1 million miles are eligible, for Federal and Federal only fund capital, not operating and maintenance. Local owns, over 70 percent of public roads and over 50 percent of the bridges, there's about 620,000 bridges in this country, and they are not in good shape. Implementation of Value Capture had to be at the local level and local make that decision, so, that is why we will continue to seek new funding sources to help pay for essential infrastructure needs while waiting for congress to address Highway Trust Fund issues. Transportation improvement create value & generate revenues mostly happened and enjoyed at the local level. Value Capture can help to advance critical project while waiting for Congress to address this shortfall. Value Capture & Asset recycling Strategies will provide an on-going sustainable gap funding source. Thus, to bring our nation transportation system to the acceptable condition, Local should be part of transportation solution
So, what is the Value Capture? Value Capture is an innovative funding approach for capturing or recovering a portion of the economic benefits created by transportation investment and recycling Value Capture revenue streams to fund new and needed transportation improvements. Those benefits are mostly happened and enjoyed at the local level. It is widely used to finance transit investments in the U.S. So, when the public sector made an investment in transportation improvements such as transit station or interchange, it creates value at the local level. The type of improvements that increase accessibility, enhance safety, reduced travel time can attract new development, create jobs, economic activities such as sales tax, payroll tax, and increase property values. You can recover some of these revenues to fund infrastructure needs.
We group Value Capture into seven broad categories, and today we're going to be talking about the asset concessions or monetizing the infrastructure assets or asset recycling use globally, so, I'm using that for this webinar. Well, the P3 concession, project, that's another term.
Value Capture is a set of powerful funding techniques that can help address funding gaps. Should be considered in the funding sources for transportation improvement solutions. There are three primary benefits from Value Capture. The first one, is accelerate project delivery by making investments available earlier in the development process. Second, it provides local matching share to State & Federal Grants. The Bipartisan Infrastructure Law provides opportunities for Value Capture Transportation districts to apply discretionary grant directly.
Third, getting the project off the ground. Because it provides an opportunity to access to Capital Markets and Federal low interest rate loan programs. And I want to mention, that all of the Federal innovative finance programs are the loan programs. That means you must have resources to repay them in order to leverage low interest rate loans. Can be used in wide range of settings including urban, suburban, or rural projects. It helps fund capital projects as well as operation and maintenance.
Okay, so, what is the asset recycling? It comes in many different names. Okay? And the two that I think we probably hear all of the time is monetizing existing assets, Brownfield infrastructure assets, or the global calls Asset Recycling-- what you call asset recycling. Okay? Regardless of what it is called, the process of implement asset recycling is very similar.
So, what is asset recycling? It is a type of Value Capture strategy, and public and private partnerships concession structure, involves the value of land and facility recycling. There is no definitive model for asset recycling, but it is understood, it's a way for the public sector to fund a new transportation project or program, or revitalize, or monetize existing facilities using the money from the sale of unproductive asset that costly to maintain and lose value overtime or enter into the log-term lease concession of the revenue generated facility. The new infrastructure being funded by asset recycling money, may not be a revenue generated facility, like roads and bridges improving, or improve of the complete street projects, or invest into the new and emerging technology to make the road smart, and bring the city to the small city.
There are three notable global examples that the first one is the Australia asset recycling model that we heard about in the last five to seven years. And the American asset recycling model, where it's a proven success, and it dated back to 2005 for highway that we just don't talk about. However, today you will hear from three executive experts that are going to share their program with you later. And the third one is Brazil CEPAC, CePACs stands for Certificates of Additional Construction Potential Bonds. Is an innovative market-based land value capture technique used successfully in São Paulo, Brazil dated back to 2004. A technique of leveraging private moneys to finance public investment in neighborhood revitalization using up zoning and construction permit through public-private auctions and are openly trade in stock market.
Now, let looking at an Australian Model, introduce in 2014 by Australian Federal government. The total program cost $6 billion in Federal incentive or bonus grants and its last 2 years. The Australian governments signed the National Partnership Agreement on Asset Recycling as a short-term funding program to stimulate the economy. The Federal Government provide a 15% bonus as a condition to sales or leases of infrastructure facility and are available to all states and territories on a first come-first serve basis
The process is the public agency, like the state, county, city, municipal government, or territories, their governance structure is similar to our can sales or leases their existing assets such as toll roads, airports, and electric utilities, or port. The Australia’s federal government paid the state government an additional 15 percent of the negotiated lease or sell price.
To receive this money, the public agency can have to reinvest the money into the new upgrade infrastructure project.
The American model are very much similar to Australia model, and it date back to 2005 in highway, and it proven success. It is similar, however, the Federal does not provide the incentive payment as a condition for states or locals to sell or lease their infrastructure assets During the leasing period, the public sector retained ownership while the private sector maintains and operates the facility in exchange for the revenues generated from this facility. Keep that in mind, and this is a short-term funding for unfunded new project or program. The current model ignores the benefits and economic value of new development and economic growth generate from the new infrastructure assets. Eventually you will run out the money from the leased revenue. So, eventually, a lease revenue will deplete.
Here's the process. There are much more detailed of the process on the Website, and I'm only going to touch on a couple important steps. Okay? To implement asset recycling, the first step is known what you own by taking asset inventory, identifying the asset condition to prioritize for rehab or replacement program as well as to design the preservation program. And the next step to identify the asset can either sell, if they are so unproductive, it costs you to maintain, or provide no benefits, and it might be better to sell them, and the revenue generate asset to enter into long-term leases concession, to get the money to fund for unfunded projects or programs.
And those are very likely-- well, those assets are very attracted to the private sector.
The next step, you assemble a legal and financial team, that had expertise and expertise sell or leases of the public assets. Those team -- well, are going to perform financial analysis of the future revenue and expenditure of the roads. They need to understand the private sector tax benefit, as well as the private sector financial statement to be able to get more or fair money for your assets.
If the existing facility has Federal fund, you must follow Federal requirements and obtain the Federal approval. Communication to the stakeholder, communities, as well as your employees, are very important, and specifically, for the revenue generated facilities, the employee needs to know that their interests are protected.
And next step is to develop and issue a request for proposals (RFP) for competitive bids. This is a very lengthy process, because a lot of analysis is going to be done in this stage by the consultant and make sure you got the more money, if you sell the assets. You want to get a fair market and if you enter into the lease concession, you want to make sure you got a fair amount of upfront money for your assets.
So, the negotiation process can be a very lengthy, and you go execute the sale or lease agreements for existing assets and receive upfront payments by monetizing existing assets.
You also need to have a strategy how to use of upfront lease payment to fund new unfunded infrastructure program or projects. Two strategies are possible: Reinvest the lease revenue into assets that have the same economic value or revenue generate asset as the leased asset or reinvest into the public, infrastructure need, even those that do not generate the revenue, like replace the off-system bridges, rural roads improving, or completed project to enhance safety to the public. You also need to investigate a Value Capture strategy that may become more viable to use in tandem with asset recycling, to provide additional funding sources for the new unfunded infrastructure investment or future infrastructure investment. It requires a P3 enabling legislation, and this slide provides you states with the P3 enabling legislation.
I also mentioned earlier, it requires experiences and expertise in implement Value Capture asset recycling. The skills needed to procure a P3 and to manage the P3 contract are in short supply in public sector. It is much more important that it is also managing the P3 contract because most of the concessions range from 40 to 99 years. Make sure the expertise available to manage those contracts. So, the slide provides states with resources dedicated to P3s.
The states of Asset Recycling practices in the country, there are a couple of types of asset recycling that I include in the map, but they are more on the Value Capture website. These projects are prime examples of how asset recycling can benefit states and locals if structure properly. The light orange states, those are the transportation asset recycling, and I mentioned the highway dates back to 2005. You will hear from three executive
In the dark orange states, those are the states that are utilized unproductive land or unproductive right-of-way for the solar farm. For example, in June of this year, the Nevada Department of Interior, sell off the leases in the Amargosa Desert -- there's about 24,000 acres of Federal owned land parcels, and get about $105 million. Those three firms turned these acreages into a solar farm.
The blue states, these states turning trash into treasure. Those are the states recycled closed landfill for the solar farm. When landfill closed it takes 10 to 15 years and costly for on-going maintenance. To turn it into solar farm that into the lease and for energy into and savings for the city.
All of the projects on this slide and much more are on the Website, on the form of the state profiles, or case studies.
All right. Value Capture by Asset Recycling Strategies ensure sustainable and expanding revenue sources that you get from the upfront lease payments. The Value Capture by asset recycling strategies, taking into consideration of the new infrastructure, funded by asset recycling lease revenue, will spur economic development, create economic activity, new jobs, increase property value near or adjacent to the new infrastructure investment, generate on-going long-term revenue such as new tax revenues to the public sector by ensuring continuous recycle and capture revenue created by new transportation investment. It is the gift that keeps on giving. The newly built infrastructure assets can also be recycled again in future with value capture strategies.
And, of course, the new infrastructure assets now become part of the asset inventory.
And this could be a very useful strategy for both urban and rural communities. In urban areas, it could attract new private partners who could take over the old facility (roads or transit systems) while generating revenues for improvements to other infrastructure facilities, spur new development, create job, increase regional tax revenues. States could use to pay for infrastructure upgrades in rural communities that lack the economies of scale to raise funds themselves
Okay. So, benefit of asset recycling Value Capture strategies, basically, provide a gap funding, and investment need without having to borrow the money, increase or new tax revenue, or you pay back the outstanding debt, leveraging the private sector technical expertise and innovation. Create long-term gap funding by ensuring continued recycling and capture of revenue created by new transportation investments. Generate a reliable & sustainable revenue source such as new tax revenues, create jobs & improve economy
All right. There are much more resources on the Website, and this slide provides you the resources with embedded links take you to a location on the Website.
And I want to spend time on the funding opportunities that you should be aware of. You are probably already familiar with every day count discretionary grant. There are two grants, STIC Grant and AID Demonstration Grant. I embedded the link to take you to a Website with much more detailed information. And the Bipartisan Infrastructure Law authorized a new grant program totaling $100 million over five years to fund state and local government technical, financial, and legal advisory service costs for alternative project delivery. This money managing by the Build American Bureau, the grants will enable recipients to develop and evaluate public-private partnerships - including asset concessions - to explore opportunities for innovative finance and deliver
There are two grants under this fund, 1.) the Technical Assistance Grants will be awarded to build organizational capacity to explore innovative finance opportunities in a portfolio of assets and projects and 2.) Expert Services Grants will be awarded for project development of identified assets, including hiring professional services to explore opportunities for leverage.
The Bureau expects to issue the Notice of Funding Opportunity before the end of calendar year 2023 or sooner. Currently, the team plans to issue two fiscal years of awards, totaling $40 million. No more than $4 million can be awarded to grantees in a single state.
I embedded link so you can click in it, will take you to a Build American Bureau that you can find all of the information.
With that, it concludes my presentation, and I'm going to turn it over to Pepper.
>> PEPPER SANTALUCIA: Great. Thanks so much, Thay for that. We do have a couple questions in the chat, but in the interest of time, we're going to move to our next presenter, and we'll get those questions, time permitting, at the end of the webinar.
At this point, I will introduce our next presenter, Mark Pascarella. And just give me a second here. Mark served as Director of debt management for the Indiana financial authority since January 2011. Mark is responsible for developing and executing innovative financial structures in order to provide the proper financial structure for new projects, manages the current debt portfolio and investment portfolio for the Indiana finance authority.
Mark also serves on the Board of Directors for the State Debtors Network and was recently selected to serve on the debt management committee for the government finance officers association.
Prior to joining the Indiana financial is authority. Mark worked as lending office for the Federal Home Loan Bank of Indianapolis.
Mark I'm going to turn things over to you now.
>> MARK PASCARELLA: Sound great. I really appreciate it, Pepper. I want to take one second before I start to say a couple things. I do appreciate everybody who is listening in on this, for a couple reasons but the main reason is it is always great to talk about the great things Indiana is doing, and also it is a way to bay back, I have learned a lot from these types of seminars, so my ability to present here hopefully ads to your organization, I know I have taken value to hear about other people's stories.
The other thing, as we talk about the Indiana toll road, it is not only a story which goes back to 2006 which seems so long ago, but it is a story that has kind of evolved over time, and in records to the modernization of assets, I think it is a great case study but also just an interesting story of how the twists and turns have happened and how, again, I think we view this very positively in Indiana.
Without further ado, we can go ahead and move to the next slide here, and this is just going to provide some background. So, the Indiana toll road is 156-mile toll road that runs east to west or west to east, depending which way you're traveling across Northern Indiana. By northern, I mean northern. It is right by Michigan. It not only connects two states but in the middle south Indiana which has the University of Notre Dame. Hopefully you see that on the map represented in front of you.
I think the key to remember, when people do these types of transactions at the beginning, I think we all think, no problem, we'll raise rate, we'll generate income. We will be able to take care of the road, the surrounding areas will be taken care of. We'll build some new infrastructure because of this, they kind of go that it is thinking all of these positives will end up happening. Of course, the great thing about case studies, and looking back in time, to say, did that work out, which is why I think it is important no matter if we talk about Indiana or any other type of project, that we take time to look back at all of the projects and see what worked and what didn't work. It is easy to say, we went back in time, things are different. But it's important. Here demonstrates the reality that Indiana saw.
As much as was established in 1956, let's fast-forward to 2005, which was not only this project coming up, but also a key tie for Indiana due to an election and where we were physically at the time. But let's talk about the status of the Indiana toll road in 2005.
Toll road are stagnant and unable to keep up with inflation. As an example, my dad -- we lived in Cleveland, Ohio, and lived in South Bend, Indiana. The tolerate have not moved in close to 20 years, so there had within no inflation clicker, again, stagnant means stagnant. They were not moving at all. The second point, at this point we have a lot of deferred maintenance. Because, as you can imagine, the tolerates are not being increased then, either, A, they are super-efficient, or, B, you're going to have a lot of deferred maintenance. And of course, the reality, in that situation, you end up with a lot of deferred maintenance.
What about the third point? We were able -- are we making so much excess revenue that we're able to fund infrastructure, and the answer to that was no. So, the story actually becomes pretty simple, you're not increasing tolls so therefore you have large, deferred maintenance and don't get those excess revenues to fund new infrastructure which I'm sure that's not what people thought when the toll road went online in 1956.
Why is that? There's a variety of different reason, one could be politicians in that area are not exactly excited about raising rates on people. Therefore, you have a political aversion to raising tolerate. So, because of that, all of the other problems we listed kind of happened. That's the reality that was on the road at the time the.
So, we move to 2006 and so the decision was to enter into a concession. It's P3 for all intents and purposes and Indiana has been really on the forefront of P3. I feel we looked throughout the nation at projects that have been done. Many people know there's a continuum on P3s. We have done the design build, best value and of course a monetization, and that's what is this project is monetization of tolls. So, we'll do some highlights of the P3s. The firm was Indiana Toll Road Concession Company, which is ITRCC. You'll hear me refer to that throughout the presentation, that was made up of Cintra and Macquarie Investment Group. Indiana never relinquished ownership of the Indiana toll road because it is a lease. We go back in time. There was a lot of controversy at the time of the fact we have foreign firms owning Indiana real estate as a toll road. Obviously, that's not the case but it does come up, people who are against the road will bring up that issue trying to obviously put a scare back, and obviously there's a fear of what happens if a foreign entity one your land.
>> That's not true and never true in this case at all. The state of Indiana is always going to own the land. I forgot to move my slide, I apologize for that.
Monetization P3, the ITRCC will remove all toll revenues and revenue lease setting that we talked about earlier, there was no resetting of tolerate even for inflation, was going to fall within the lease that was negotiated by the state of Indiana. So, was hopefully done to alleviate the fierce of our constituents that you could not just come in and start raising rates, however they felt justified. It was built into the lease how toll rates would actually be adjusted. So, therefore, A, there was never any surprises, B it was automatically locked in. Therefore, you see those gradual increases happening year over year, as opposed to not moving up and also a very large increase hitting. So, we tried to build that into the lease. And of course because it is a private it is not politicians on that.
In exchange, the ITRCC will provide $3.8 billion in upfront cash, that is B as in billion, that's a big number and the fact that we got it up front is significant.
The operations and maintenance of the asset would also be done by ITRCC so it would no longer be the responsibility of Indiana.
As is the case with toll revenue selection, again, Indiana gets out of, if you will, the toll road collections business and operation and maintenance of that entire 156-mile road. And there were other enhancements funded that we'll discuss here a little bit later on.
So, what are the benefits and why would we go through that. There's three we're going to discuss here today. The 3.8 billion up front is again, a huge benefit. But below that was an agreement that provided ITRCC would complete the deferred maintenance on the toll road. That -- one thing we did not -- we did talk about at the beginning of the slide we had a lot of deferred maintenance that costs hundreds of millions of dollars. By going into this agreement, the winning firm agreed to bring it up to the standards set by the state and basically to get it back up to where it should have been in the first place. So, not only do we get 3.8 but we got hundreds of millions of dollars put into the road as well that was not part of the $3.8 billion that we got.
The other benefit is that as the operation maintains comes in, specifically a private firm would be -- a lot of people would do it more efficiently in the state. Maybe, maybe not. But they base it on life cycle approach which is the most economic for them to ensure the quality but also to make sure they do it at the lowest cost as well to achieve that quality because they are financially incentivized to do so. It's kind of the carrot and the stick because if they did not perform the standards that we had in relief they suffer financial pet you lens.
Also, we build into the lease they have to hand the road back to us after 75 years. When they do send it back to us, it's going to have to be in a certain condition. Obviously excellent condition to benefit the state of Indiana so we can determine whether or not we are going to go through the same process, whether or not this is going to be something we take on ourselves. However, it is mandated, and they have to demonstrate they are building up the fund to make sure that will happen, so we're not left holding the bag with a road that's not operable when they take over in 75 years.
Collecting tolls, it's going to come back to the same situation we talked about. ITRCC has incentivization to operate the toll road in the most sufficient manner. Again, if they operate that efficiently based on the bottles more efficiently than they planned that goes to the bottom line. So, we have market forces at work at this point to incentivize them to do what is best for collections, and that could be electronic toll lane, could be a myriad much different ways to make sure they lower that cost, but they also have to provide excellent customer service that we built into the lease.
Again, we wanted to make sure ITRCC could not operate in a manner where they have gone to the bare bones of an operation staff, if you will, people who are crossing the state, whether it be truckers or travelers or people within the state traveling from toll plaza to toll plaza are not in a situation where they can't get a hold of people, billing is done incorrectly, they are charging excessive fees and it makes the customer service obviously a horrendous situation. They can't do that, because, again, they had certain metrics they had to hit within the lease. If you can't hold on that we'll penalize you.
It also provides for other enhancements, what were those enhancements? ITRCC will not hand fund to cover the toll road. They construct new police headquarters and pay for police equipment throughout the state.
A second benefit, of course, we talk about asset recycling, is going to be the state receives 3.8 billion. You notice I mention that several times, actually very important and very important we receive that money up front here in a couple of slides.
So, the state receives $3.8 billion, what is the state of Indiana going to do with that money?
If you end up wasting it, it's a great transaction, as far as interesting from a market perspective, in the end it didn't really add any value. In fact, one of the things that happened we wanted to make sure we didn't take that $3.8 billion and start plugging budget gaps because we could not constraint funding. That did not happen. We decided to take that $3.8 billion and fund it, invest in infrastructure throughout the state of Indiana.
Here's some stat we did. We funded what we call major move. In 2006 when this was consummated, we were 2.8 deficit in transportation funding. Since we have done that. The Department of Transportation has received $3.5 billion to put into the major moves program. That funded over 773 projects, I guarantee it is more by now for a pot of 3.13 billion. Remaining fund has also been assigned for projects that are still ongoing. My guess those projects are starting to wind down at this point in time from the original cash envision that we received. The 3 possibility 8 billion of that, 500 million also fund what we call the next generation trust fund which is kind of an endowment for road funding. We'll keep that 500 million corpus there, but as investment returns come above that 500 million, over a certain amount of time frame, we will then send that money to INDOT for construction projects. So, in essence they get the benefit from that funding coming in from the reserve, so, it is a nice way of money flowing into INDOT, I believe five, seven years when we do that. Not coming from taxes but coming from investment returns when we set up the endowment program.
And there are also approximately 500 million distributed to the local governments up in Northern Indiana, the toll road itself is up in Northern Indiana, not throughout the state or running northwest. They got enhancements as well because the road does go through there.
Projects funded also allowed us to move forward with projects, rather than delaying them over three, five, seven, ten years. Which of course saved us from rising construction costs.
Obviously, back then it was very important, but as I'm sure everyone knows right now, that probably ring ace much harder truth and much more pain today than it did back then. If you wait, as everybody know what is going on with inflation over the last couple of years, I don't even need to explain it, but obviously costs have exploded, projects need to be descoped or shelved all together. Whereas because we received $3.8 billion up front, Indiana was able to accelerate all of those projects and we had the cash for it, so we didn't need to go out into the bond markets and one of the other accomplishments here, if you think about it, is not only right now we get hit with inflation, but we're getting hit with rates that have soared from where they were previously, so it is kind of a double whammy. You're paying more and having to pay more just in financing cost.
It also was good, because for us, firms wanted to do business in Indiana because they understood we have cash. We have a lot of work. We have cash, so therefore they knew they were going to get paid, so we really felt like we were starting to get responsive RFPs. A lot of companies want to deploy to Indiana to work, and they thousand they were going to get paid for it which was important, private, and public partnerships need to work together.
So, all of these companies coming in and all of this infrastructure being funded and invested in by money we received from toll road, all of that is great but what in the end is that doing? Indiana prides itself on being a place to do businesses. I think it's a state that works. So, we positioned ourselves in a way that we're enhancing value. Companies warranting to build in Indiana, that employees our people, people coming to the state. People are happier, people want to stay and therefore helps with retention and also having people come here and of course enjoy their lives while they live in Indiana.
The third benefit I have, and I label it unintended consequences, a lot of times you hear unintended consequences it has a negative ring to it but our situation here is very positive. In 2005, I go back, reserve levels were negative. Indiana elected Governor Mitch Daniels decided to focus on fiscal responsibility. And in doing so, when we received $3.8 billion, we were able to significantly fund transportation at a time when we didn't really have any fund, so, trying to return the fiscal strength and in the meantime, we have $3.8 billion. We're able to do both simultaneously, most people know, if you think about a personal situation is rare.
So, we're able to build our reserves back, provide services and we're also build infrastructure. Our debt actually declined, and so our ratings sort of stabilized and then it started to move up. Well, then, remember, I kept saying let's focus on 2006? That's because we know what is around the corner. 2008/2009 great recession hits, here we are, because we are able to do this deal, we have money. We're funding transportation, our duct debt is declining. Even though we're going through the great recession, you see Indiana get updated in 2008 and 2010 to AAA status. That's obviously a big deal because you're in a situation of bad economic times, you're able to right the ship financially and put yourself in strong financial position and still at that time be able to fund infrastructure. Realistically, how often do that's really happen?
So, those are great benefits. I would love to wrap up the story and tell you how great it was. Remember, we need to revisit and look at things. What happens as that deal went through? We had a big uh-oh moment, ITRCC is going to file bankruptcy, because of the great recession, not as many miles are being driven therefore the revenues down.
If you look through the bullet points under the ITRCC concession company filing, they hit all of the major point. Style owned by IFA, still have rights negotiated in the original lease, to changes under the toll road structure because it is in the original lease. The 3.8 billion we got up front and that's really important. It is important because now we're in a situation where we received that money up front. Not over 75 years, therefore the credit risk of receiving that money was diminished once 3.8 billion went into our account. I mention that because we got that money up front. And really road operations continue usually during the bankruptcy. So, Indiana resident, truckers, did not see really any big issues. Again, there was a big storm about it. It was in the news what is going to happen and not going to happen. But this is at the end how it goes through. The lease is the final asset. The lease went through bankruptcy, eventually the firm, IFM investors was the winning bidder to buy the lease out of bankruptcy. They get the remaining 56 years at the time of the lease agreement. They also worked with us to negotiate the final package to make sure they sign off, we wanted to make sure they do it, because they are good partner was us, they look where the road was and pledging 360 million of additional improvements over the next five years. They kept that road and state where we wanted to maintain to be an excellent toll road, so when people came driving through here, they did not mind paying the tolls because they knew the road was being kept the way it should be.
My end thoughts on this slide are going to be pretty simple. You never look to see companies go bankrupt. However, they test the documents, they really test and stress the process. And in the end, while it is a bad result, they were not able to make the money they thought they would make to fulfill their full 75 years, the way the bankruptcy proceeding worked, the way the documents worked, they actually flowed through correctly and we were able to come out of it relatively unscathed and we got to keep 3.8 million dollars. We had PR headaches here and there and time we spent going through the process. In the end the process worked. It worked how it should happen. Last thing I'll say there, we spent a lot of time on the front end working on those documents. That's the reason why, you have to protect yourself in a downside scenario, we did that through the negotiation process, and we reaped the benefits.
Okay, we get to the point of how -- let's look back now. Was it successful in did anything else happen? Well, like I said, it was a story at the beginning and in fact we did have more happen, and in 2018, we worked with ITRCC to realize that our tolerates were actually in a way, although they had been growing, were low compared to our neighbors. So, at that point we were able to look at a one time, 35 percent increase in the toll rate, no extension of the lease term. We are able to do that and receive $1 billion of new money coming in, over the next two years. And while we went through that negotiation, we also had an agreement to include additional up grades and enhancements to the Indiana toll road. Now we got another $1 billion coming in from this, again we're going to go back to spending that money up in Northern Indiana with counties connected to the Indiana toll road and we have another significant source of transportation project money that has come in that, again, we don't have to tax for it. We're not asking the Federal Government for it. We're in a situation where it will fund itself, so, when I do a conclusion here, it is kind of interesting to see how this project that started in 2006 morphed and took turns I don't think anyone anticipated. That's the great thing with the wonderful structure, as it takes twists and turns it keeps functioning, and putting ourselves in position where Indiana is getting greater because these are all again investments in our state. Therefore, we're not plugging budget holes not spending that money superficially on programs we cannot continuously fund. It is all infrastructure that will help benefit the state of Indiana down the road. That's why we use the term investment.
With that, I'll hand it back to Pepper and answer questions if we have time for that or answer them later if we want to do it then.
>> PEPPER SANTALUCIA: Great, thanks, Mark, for giving us that timeline for that toll road. I'm old enough to remember when some of that stuff happened, and it was in the news. So, we appreciate giving your inside take on that.
The questions that we've been having in the chat are not specific to the Indiana toll road but hopefully as we proceed folks’ women come up with other questions. So, I'm going to go ahead and introduce our next presenter, Susan Shaw. Susan leads the Virginia DOT's mega projects in Northern Virginia, in that role she oversees over $5 billion worth of projects that include express lanes, on I66 outside the beltway, I-495 and I-95. Prior to joining Virginia DOT, she volume period as engineer for the U.S. Peace Corps in Thailand and later worked as design consultant in Northern Virginia.
Susan has more than 30 years of experience, is a professional engineer, a certified construction manager and is certified by the Design Build Institute of America. She's received numerous awards including Virginia DOT's outstanding achievement award for leadership in 2022, and outstanding achievement award for project delivery or partnership for the transform 66 outside the beltway project in 2023.
Susan, please take it away.
>> SUSAN SHAW: Thank you, Pepper, and good to be here. Hopefully I'll kind of build on some of the information that Thay and Mark have provided. I'm going to talk about our 66 outside the beltway project, but I would like to maybe start with a bill bit of background just to set the stage for how we develop our projects in our Northern Virginia area.
I think you can go to the next slide, maybe even -- yeah, there I am. You can't see me, but yeah. Just talking about the regional map in Northern Virginia, you can see the capital beltway, the kind of half of a circle there at the upper right-hand corner, that's 495 and then coming out from that, we have 66 in east/west corridor that's just been completed and then the 95 corridor which you can see in the green area.
So, already we have 94 miles in service, and other studies and construction that are currently under way.
In terms of why we look at express lanes in our region, you can go the next slide. So, one of the things that we are focused on is, on slide 4 I'm on, is moving more people through the travel corridors. Our region has plenty of traffic and congestion, and limited space, so, we're always looking to do that. We want to improve multi modal mobility in these corridors. One of the features of our express lanes is that HOV3+ travel for three on these facilities, reducing congestion by adding capacity. Again, having HOV+ helps increase ride sharing to make that a better option for people as well as to make transit through bus, van pool, more attractive. We also look to enhance safety. And we get that both by looking at providing improvements on the general-purpose lanes when we go to deliver these projects, as well as reducing congestion which has that safety benefit of reducing certain types of crashes.
And then our focus, and we'll talk a little about that in terms of when we procure, making sure that we get et cetera best deal for Virginia.
In terms of how the express lanes work in Northern Virginia, we use dynamic tolling, so, variable tolls set by the toll operator, they have the freedom to float those tolls, there is not a cap. And it is up to them to manage demand and keep the lanes pre-flowing and that is really the only requirement in terms much how they set the toll. There is pricing, signage, in advance of all of the entrances so that people know what their price will be for their trip, and we use toll equipment to identify the trip that each vehicle makes.
We do have sensors that monitor traffic, they adjust the toll prices as needed. And in terms of -- and everything is all electronic. There are no toll booths on our system. We use E-Z pass trans ponder which is recommended for vehicles in the express lanes, although not required there are some alternative payment methods in place today. As I said, HOV3+ travels for three and we have an E-Z pass flex available for purchase. You have a switch you can flip to HOV on when you have three or more people in your vehicle and that's 24/7. There are not specific hours, just if the system is open for tolling. If your HOV3, you travel for free. And that works on all of our E-Z pass facilities, the E-Z pass flexion works on all E-Z pass facilities. If you travel elsewhere in other states that use E-Z pass, you won't be able to use the flex part of it but in Virginia you can do that.
In terms of integrating transit into our lanes, we talk about moving more people and that's where managed lanes or express lanes as we call them here, support our vision for multi modal transportation solutions, this creates space for buses and transit vehicles, carpool, van pool toss travel at a consistent and predictable time frame and this is really important for providing faster and more reliable travel and making that transit much more attractive than if you're traveling on our normally congested system.
And so those are -- those systems integrated into our projects. We usually look to find a way to start up some of that service, even during construction, as transportation management strategies, and we've used those TMP strategies to jump-start things like bus service, and incentivize carpooling while we're under construction, even though we don't yet have the express lanes in service, it at least gives a chance for that to begin.
And then, another thing that has been increasingly important to us, is to look at embedding transit payments into the project agreements as part of the overall financial plan for the private developer, and this allows us to kind of siphon off a portion of the toll revenues to help fund transit and multi modal improvements throughout the life of the managed lane contract with the private partner.
And so, in terms of procurement and what we look for in that on the next slide, just broadly, we do, you know, want to make sure that we're protecting the taxpayers, and I won't go into a lot of detail, but I think Mark's comment about making sure you spend the time to put those protections in, we've had to use some of those ourself in some of our P3 deals, but one of the ways we protect the taxpayers with our project is that the revenue risk in terms of toll revenue is something that is born by the developer, not by the state.
We also use P3s only when they are in the best interest of the public. We need to idea the project that best meets the need of the public, and that's a lot of conversation with our region, with our local partners, with the communities along the corridor, making sure that we identify and then meet what travel and transportation needs are in every just corridor. We want to be transparent to the general public and elected official, we want P3 forms in the legislation that's 2015, so, we've been working to make sure that we are transparent, and then, you know, part of that process is having the robust comparison to a public delivery model, and, again, using the P3 only when it is in the interest of the public.
So, now I'm going to turn a little bit to transform 66 outside the beltway. So, I just talked about identifying what were the needs on the corridor, and you can see that photo in the lower left is kind of what the corridor looked like before we got started. 8 to 10 hours of congestion daily. We did have an HOV lane that was separated by striping. It was very challenging to enforce HOV rules. We had a lot of cheating that was going on. It was very easy to flip in and out of those lanes, if you saw there was enforcement ahead or found out there was enforcement ahead. So often those lanes -- they moved a little bit faster than the regular lane, but, you know, we saw they were not that -- as effective.
We had overflow traffic on parallel roads, and because that lane was not that good of an option, it continue d offer some saving, it was for HOV2, so, limited carpool, what we call culture in the corridor, so, there was some carpooling and then buses -- it was very difficult for buses to get into that lane, and then get out. They had to go through, you know, any kind of access points would be over on the right-hand side and that made that also very challenging.
In terms of just what the project was, and what we ended up in terms of identifying how to meet those needs, on the next slide you can see a typical section. We had 22 1/2-mile corridor. We identified two express lanes in each direction. Those were separated from the three general purpose lanes by those little white sticks. That's how we separate our general purpose and express lane. We did preserve space in the middle, that green area in the eastern end of the corridor, we had about two miles of D.C. metro system, but once you got past about the first two miles on the eastern end, there was no metro service. And so, we actually preserve that space in the median so, it could be extended in the future should funding get identified.
We also had park and ride lots on the western end of the corridor to facilitate both buses, as well as carpooling and those park and ride lights had direct access into the express lanes.
Then through our conversations with the public, and our regional partner, we identified the need for a parallel trail to 66. That was in the overall transportation plan for the region, for the eastern end of the corridor, so, we did provide 11 miles of new trail parallel to I-66. And just a little bit more about that on the next slide, in total it was 18 miles, including the 11 miles of trail along 66. It was a shared use path that runs along the corridor, and we also had a lot of improved pedestrian facilities on new and existing bridges over I66. So, that was a big part of our overall program.
So, a little about our project procurement. This was back in 2015, so, we looked at three different procurement options. We actually issued request for qualifications across three different delivery models. We looked at a design build. Very traditional design build model. We looked at design build operate and maintain model which has operations for the first five years with the ability to extend that to the next 15 years. So, financing offices in those next two methods and we looked at a third option that included financing and we allowed technical concepts on all three of those models. So, as part of that process, we also asked for conceptual financial proposals from the short-listed team and based on our analysis of those conceptual financial proposal, we were able to then select which method, which delivery model was the best for the Commonwealth. And I will say, while we selected the P3 model, we maintained the public option on the table until the deal was finally signed with our private partner.
So, it took us about a year from that time frame before we actually reached commercial close with a P3 partner. So, this chart shows across four different funding -- financing categories. Our original analysis that was done prior to us even starting a P3, and then our 2015 analysis if we financed a public option and then the results of our procurement with expressed mobility partners.
So, in the first case, we looked at a pretty high-level estimate and that was based on a larger scope, and we looked with tolling. We estimated we would need about a billion dollars in up front public funding. And there was interest in the project, but that was a pretty hefty amount to identify from public funding. So, we kind of sharpened our pencils, worked through the NEPA process but also looked to come up with something that was actually more financeable.
And in 2015, we estimated that that kind of scaled back a little bit and largely that was done through minimizing footprint, in the corridor, and also looking what the limits of the project were, but we estimated we would need up to 600 million in public funding. But in that package, we were also looking to receive the equivalent of $800 million in annual transit payment and also 350 million in future corridor improvements. So, you can see that with the work we did. We were able to get a project that had much more benefit to u-and by demonstrating that. We were able to identify the $600 million to make that available during the procurement process if needed.
And then the last row, you can see the result of our procurement, the winning bidder did not use any of our up-front public funding. They were able to provide the $800 million in net present value, in terms of the transit capital and operating costs, and also embed into their financial model a future payment that were the -- in the vet present value, were equivalent to $350 million, and then, in addition to that, we received, at the financial close, we received a concession fee payment of $500 million. That provided $500 million for projects in the -- in and around the 66 corridors.
And I would just say, in Virginia, our code requirements, do respect the use of toll revenues to -- they have to be used for projects that benefit the toll payer. So, there are some limitations on what the use of those fund are, but they are generally used in the corridor for other improvements. So, moving on to the next slide, again, this is just more in terms of the results that we do have expressed mobility partners. That agreement was signed into December 2016. It is a 50-year concession that will go through 2066. It is a consortium of several companies, Cintra, APG and Meridiam. And the design-build contractor was between joint venture of Ferrovial and Allan Meyers. And I talked about the benefits, those first three amounts I just walked through in the prior slide, but also the 600 million that had been identified in both V DOT's six-year plan, as well as local regional plan, that money was returned and able to be used for other projects.
And I would just note our project did open on time in November of last year. And we are still, you know, kind of working on wrapping up and closing out the project.
So, just a little bit about how the project is functioning today. So, just to give you a little idea of how things have been going, and this data comes from our toll operator, express mobility partners. So, about a million dollars -- sorry, a million trips in lanes in trips each month in the express lane. In terms of the user base, about 350,000 unique vehicles have used the express lane, and that's as of July 2023.
In terms of pricing, which you know you hear a lot about, I would say, in terms of pricing, about 80 percent of the drivers pay under $40 a month. So, there's only 20 percent that are paying more than 40 ooze. I think what that shows, people are not typically using these on a daily basis, but they are using them when they need to and when it makes sense.
And just on average, a light customer, what they determine a light customer, uses the -- has a tolling bill of about $30 a month for the 66 projects.
And then, in terms of, you know, how is transit and carpooling going in the lane? The HOV3+ and motorcycle that is travel for free, there's 7,000HOV trips per day, that was in May of this past year. Buses are using the lanes as I noted. 1200 transit trips per weekday.
In terms of the annual funding, that actually started in 2021, and it is continuing today. And so those payment are being made. And then school buses are also using that -- using that service or using the lanes to transport about 400 students twice a day.
And one thing I meant to mention, as I'm wrapping up here, is that, you know, we're talking about, you know, asset recycling, and benefits, but we estimated about two-thirds of the $2.3 billion project, went into reconstruction of 66, as well as new bridges across 66, and that two-thirds all were assets that were coming back to the state. And so, you know, not to mention the use of the right-of-way, which is probably the most valuable asset that we have, but the state received new infrastructure as part of this deal, which are going to -- is going to lessen our cost for maintenance in the 66 corridor, so, I think all of those are important things to note about the overall project.
And lastly, I have my contact information, which is on here. I am a very short-timer at VDOT, so, my e-mail won't work much longer but my phone number should, and I also listed Michelle Shropshire who is acting Director here in the Northern Virginia mega project. She's another contact for you.
And with that, I'm going to turn it back over to Pepper.
>> PEPPER SANTALUCIA: Thank you so much, Susan. We do have a little bit of time for -- and I saw at least a couple questions, and I -- I want to remind if anyone is listening, to the webinar over the phone and they want to ask a question by phone, they can press 1-0 on their phone and it will put you into the queue, and operator, if we do get anyone raising their hand that way to ask questions, please let us know.
But, Susan, there was a question from Jonathan about whether you use value for money analysis to compare the P3 versus traditional delivery, and for those who might be familiar with value for money, you don't find explaining what that term actually connotes, that would be helpful.
>> SUSAN SHAW: I will just say I'll probably get out of my area of expertise, we have a P3 office that conducts those analyses. I know that's what they use, and that is something that we use with our P3s and looking at them. So, I'm going to defer to someone else to explain that.
>> PEPPER SANTALUCIA: Sure. Thank you. Go ahead, Susan, I'm sorry.
>> SUSAN SHAW: That's it. Yeah.
>> PEPPER SANTALUCIA: Okay. So, I'm going to at a link to the chat that does provide some more information about value for money analysis. Perhaps you can explain this relationship between VDOT and this Virginia office, P3 office.
>> SUSAN SHAW: So, we have a P3 office that, they're the ones that are in the lead during procurement. And we work very closely together. So, my office, we're up here in Northern Virginia, we deal with identifying the project scope. We work very closely with them coming up with technical requirements. They, typically, are -- have consultant teams that help them look at revenue estimates at how to structure the financial aspects of the P3 deal, so, that is -- they are generally in the lead during procurement with us supporting them on the technical side and as it flips to project delivery, that kind of switches and they really engage throughout the life of the contract in terms of meeting the -- all of the requirements during the contract. We have an operations group that focus on customer service, how the toll lanes are operating but anything related to commercial or financial issues, the P3 office stays engaged with that.
>> PEPPER SANTALUCIA: Okay. Thank you. That's very helpful. In the prior presentation Mark alluded to, how economic recessions or other economic -- macro-economic changes can impact concessionaires, I wonder if there's a way to use toll concessions during the pandemic in the Northern Virginia area?
>> SUSAN SHAW: Yes, I know this they were impacted for sure. They saw a big decline in revenue and traffic. And actually, on our 495P3 project, which opened back in 2012, there's there was a downturn at that time, and that project was refinanced because their toll revenue in the early years, which was less than what they anticipated but that's where I think, you know, the state is protected from that, because the revenue risk is on the private sector. So, we've seen that through a couple of recessions, I think, or downturn, and I think that's also, you know, why we've been setting the term for 50 years, because that allows for recovery should something like that happen.
>> PEPPER SANTALUCIA: Great. Thank you so much, Susan. I do see some more questions about value for money analysis. We may answer those questions and provide those answers on the Website.
At this point, we'll move to our final presenter today which will be Laura Vina-Arias. Laura joined the P3 authority in 2001. Previously worked as a traffic modeler in P3 projects around the U.S., Puerto Rico, and Colombia. She also worked as a project manager for the link 21 rail project in northern California. Since joining the P3 authority, Laura has managed all of the P3 authority probably, including the San Juan bay Cruz P3 project and tollway monetization project she'll be talking about today, as well as desirability and convenience studies for the cave park and authority authority's nine regional airports.
Laura, please go ahead.
>> LAURA VINA-ARIAS: Good morning, good evening, everybody, I'm really pleased to be here spoken to you all, hearing about all of the project, it's interesting, in my past life I did work on the team on the I-66. It is great to see the full circle of that project. As it shows, I'll be talking about the big project that we just announced yesterday. Basically, we had a commercial closing on Monday, and this project, I assume is going to be in the news or has been on the news for a couple of weeks after yesterday, big announcement. But before I walk through the project, I wanted to give you an overview of the reasons behind this project, and the fiscal situation in Puerto Rico and rationale for the project. It won't sound a little, or quite similar to the Indiana toll roads project, because we had a very similar situation here. I'm not sure how many may know, but in 2016, Puerto Rico filed bankruptcy and the Federal Government placed a board, a fiscal, an oversight board. We saved unsustainable burden of 70 billion in debt and 50 billion in unfunded pension liabilities with no legal path to restructure our abilities and stable finances. As a result. We lost access to the capital market.
However, after a number of years, in March 2022, the government successfully implemented its plan of adjustment closing a huge chapter in the municipal restructuring. Basically, we were able to reduce our debt by 51 percent, give or take.
In December 2022, the Puerto Rico highway and transportation authority emerged from its title 3 restructuring process. This process reviews HTA's debt from 80 percent from 6.5 billion to $1.2 billion.
The state's outstanding debt is pursuant to a master trust agreement and such debt is entitled to the lien on and security interest in HTA pledged revenue. Basically, more than half of our -- close to 89 percent of HTA's revenues come from the toll roads. However, as part of plan of adjustment, HTA retained the right to reduce the outstanding debt through a P3, and we'll need to redeem in full all of the outstanding debt. That's how the P3 authority come into play in this equation, similar to what Susan was saying, and the relationship of the P3 authority in Puerto Rico, is like a procurement office, we're all P3. We have the mandate to do the P3, and we support the government entity, in this case, HTA in this process, once signing and -- is done, it is the government entity responsible for the oversight and monitoring of these concessions. P3 authority only has a role in annual audits and report.
Puerto Rico has been, and Thay mentioned this in slide one of the few jurisdictions in the U.S. with organized P3 program. We have a robust and successful program under act 29 of 2009. And the use of this framework is ideal to meet our goals and objectives in addressing the island's infrastructure issues.
This program, the P3 program provides clarity for many uncertainties with respect to P3 selection and contracting and follows the five key components of successful P3 programs identified by the world bank, clear public policy, strong legal framework, institutionality responsibility. Responsible financial management and good government arrangement.
Over the past decade the government has had a success in harnessing best industry practices and expertise and now how to do the infrastructure project by interacting with the private sector. In this case the government enter into a mutually contractor relation IP that results in afford delivery of public goods and services to all of the citizens.
We have, has part of success stories we have three actions as he is recycling project, we have 1.2, 40-year concession payment for PR-5. In 201 was extended to a 50-year contract in 2016 and the concession company is Metropistas which is subsidiary.
We have 615 million 40-year concession agreement for the Munoz Marin International Airport. And last year we signed a 15-year operation and maintenance cons session with the Luma Energy.
In addition to the active recycling, we have three other contracts under our belt for the operation and maintenance of the electric power transmission distribution system. The system to the municipal islands, this is a ten-year contract, and operation, maintenance and eventual decommissioning of the Puerto Rico electric power authority base load generation plants and gas turbines. This is a ten-year contract.
As I mentioned earlier, the P3 has a robust framework man dated by law which includes -- this is basically our process. We first conduct our feasibility study to look at models to deliver the project. Then we create, or the -- if the project gets advisable to proceed as P3, the Board of Directors of the authority creates the committee, basically a five-member committee that negotiated a contract, and the procurement process in private sector throughout. We have a request for qualification phase and RFP phase. When we winter into the RFP, we cannot exchange information or speak publicly about this process. After that, proposals received. The committee evaluates the preferred proponent and process of approval which we have a Board of Directors of the authority, Board of Directors of the entity and Governor's approval.
In addition to this, and this a result of the fact of 2016, the F01B has to approve any contract over $10 million. Once all of those approvals arrived, we can sign the agreement and that's what we did on Monday -- for this project.
Diving into the project per se, which is the interesting part, this project not only is a mechanism for HTA to pay outstanding debt. There are other objectives that HTA wanted to address and the government. Basically, HTA has faced a fundamental challenge as it aims to remain financially suitable over the long term. While overseeing adequate transportation network capable of supporting economic growth and development.
HTA has been historically Ahn I believe to maintain the highway due to a combination after factors these include funding constraint, aging infrastructure, rising capital cost, shrinking budgets and lack of asset management planning, among others.
For some perspective, HTA had an increased toll rate on the road since 2005, until 2022 last year, they had the first increase as a result of a plan of adjustment.
On going budget deficits have required HTA to follow strategy that provide oar advertises needs that require urgent investment while disregarding minor and preventive maintenance work.
Procuring network ranked below national standards were asserting condition and service methods, according to the Puerto Rico transportation asset management plan. 17 percent of the interstate pavement is in poor condition. Above the 5 percent maximum required, specified by FHWA.
In addition, 30 percent of non-interstate pavement in Puerto Rico are also in poor condition. The condition not only impacted the likelihood of crashes but also affect travel times and reliable. At such this project aims at modernizing the existing infrastructure to improve ability, accessibility and safety while addressing the financial constraints, the HTA phases.
The this matches the key metropolitan an area in major industries and tourist destination. Transactional levels surpassed 2018 levels and are expected to continue growing. So, this is a very table asset. I don't know if many of you know about the hurricane that hit in 2017, they affected the infrastructure along -- throughout the entire island, and we have faced challenges in improving and recovering from that national disaster.
The project has an attractive growth potential with mechanisms to increase toll rates of CPA and may include additional assets if completed, such as DTL extension on one of the roads that it's not part of the asset right now, but the government may consider, if the project moves forward.
Further, we have -- Puerto Rico as a whole has been showing a strong post-bankruptcy performance, and we made significant progress while addressing financial fiscal challenges to bring back to P3's experience the project, we are leveraging some successful P3 section such as PR22 and PR5P3 agreement which was the first P3 we had in Puerto Rico since 2011 after act 29 was enacted.
We have a strong P3 program with clear and transparent procurement process.
As I said earlier, we had -- our process starts with desirability and convenience study. In that study we look at five options for delivery. One stayed status quo, and the other four were a combination of different alternative options one of them being a full bundle of the four road that HTA still operates, or just putting each toll road in different bundles, operating the roads, or putting one toll road, HTA keeping the operation and maintenance of the others.
As a result, only bundling of all of the toll roads resulted in HTA being able to acquire all of the objectives they had in mind. Paying the debt, $1.6 billion, and huge capital program that needs to go throughout the four toll roads.
So, as a result, we are talking, and I haven't mentioned which toll roads there are, but we're basically talking about four-year concession agreements with improvement financing operation, and maintenance of PR20, PR52, PR53 and PR66.
PR52 goes north to south and is the most congested roads, and heavy traffic on the island. We have PR53 in the east-southeast. Two chunks. The yellow line you see on the map, then we have PR66 in the northeast, and PR20 which is part -- it runs through the major metropolitan area of San Juan.
These roads have -- present about 360,000 daily transactions, and a total of about 150 million revenues. As you can see, PR52 carries most of the traffic, and the revenues for these roads, and from the D&C, leaving -- they currently subsidize the -- -- threw the PR20, 52, 43 and 66, if we put in concession PR52, we are leaving HTA with a huge burden for the maintenance of these other roads.
Through a P3 agreement, we achieved this agreement was signed between HTA and Puerto Rico's toll roads, a concession formed by infrastructure, they are also the ones that manage the PR22 and PR5 in the north that I mentioned earlier. So, we now have two concession companies one running PR 22 and PR5 and the other running these four-toll road under a parent company that's averted infrastructure.
We were able to transfer major operational risks that were seen by HTA. The one risk that HTA keeps through this transaction is that they guarantee all revenues, all toll revenues. This is a result of the precedent of PR22 and PR5 and might be new or unknown for some of -- not guaranteeing those revenues but that's something we couldn't move away because it was their precedent.
Secondly, we're requiring the concessionaire to make capital improvements necessary to bring road in compliance to operating standards in a timely basis.
Thirdly and most important, we are receiving an upfront payment of $2,850 million to repay the outstanding obligation. Our outstanding debt was 1.6 billion. So, we have $1.2 billion extra for HTA to use for other projects throughout the island.
The government is going to create perpetual fund for HTA to use for project in the future. And, lastly, we're able to meet the goal and objectives of the certified fiscal plan by contributing to the social and economic wellbeing of the Puerto Ricans. As I said, we are requiring capital improvements necessary to bring those roads into compliance with the operating standards. We have -- basically the operating standards are the capital strategy split into three tiers and ITS probably. Tier 1 needs to be completed within the first two years of the term are basically quick fixes. Drainage, signage, barrier, lighting. And initial assessments of seismic risk and rock stabilization. Most of our infrastructure or bridges are not up to code. They were built in the '60s and '70s, so they need major retrofitting. We're talking about 300 or something bridges around -- throughout these four assets. So, there needs to be -- they need to develop in the first year a plan for identifying those bridges in critical condition and setting a plan for addressing all of them.
Tiers 2 and 3 require work on the bridges and pavement structures, including the seismic retrofit and rock slope stabilization.
Tier 2 which needs to be completed within seven years of the first seven years of the concession, we are meeting state of good repair standards.
With tier 3, would need to be completed by year 12. We're obtaining 100 percent of operating standards. This is allowing HTA to continue to receive Federal fund for maintaining and operating the other toll roads assets.
If HTA were to undertake all of these projects, it would cost approximately 600 million and as discussed HTA is in no position to cover this project as all toll revenues currently being used to repay this debt.
A few key terms of the agreements. We have referred to the operating standard. They need to be met and there's policies and procedures and processes that apply to the operation and maintenance of these toll roads. The concession company has the right to establish, collect and enforce payment of tolls with respect to the operation of any vehicle in this toll road. The rate, the toll, there's a toll schedule and mechanism for the concessionaire to adjust forward annually and based on the formula of 1.5 percent of USCPI starting in 2025.
There are two revenue sharing mechanisms embedded in the contract. One is windfall revenue share or what we call excess revenue protection. This basically states that after the 12th anniversary of the closing. HTA shall be entitled to the 50 percent of the cumulative toll road revenues that exceed the initial IRR from the proponent's financial model plus 8 percent. Basically, if they are meeting their IRR, plus 8 percent, we are -- they need to share 50 percent of that access with the authority. And there are two other revenue shares for the DTL. So, PR5 it has a DTL through a portion of it. The tolls are capped at 350. The authority is currently conducting an analysis to request that to be increased. Locally we have authorization for a $6 happen but we need to go through NEPA to raise the cap.
Through this process, the authority HTA reaches or is able to attain a cap higher than $6, say $8, the concession company shall share 50 percent of that differential, so, a dollar for each transaction.
Further, as I said, the authority is considering doing extension to DTL52 to PR30. That's on the east. If done, the authority will be entitled to 60 persons of the revenues.
Lastly, a bit of procurement process which we just completed, we'll be receiving an upfront payment of 2.8 billion. The investment company is investing about 2.3 billion. In our RFQ process, we have three teams that were pre-qualified. One a consortium and another one which was a consortium. We received two proposals, it was very competitive. Scores were within less than 2.5 percent, and per our RFP we have that fine at offer process which increased a burden upfront payment by 450 million in that last round.
We are expecting to -- with this probably to repeat the success of PR2 and 25 where the burden was reduced by 75 percent in the last 12 years. Of the roads in Puerto Rico are meeting standards and all of the KPI required by the contract. We're expecting and we drafted the contract to require the same standards for these new toll roads and we think this is a success for Puerto Rico, through the bid process or as part of the financial closing. The four major banks on the island played a major role. We have international banks coming to the island, some of which have never participated in Puerto Rico, and are now seeing Puerto Rico as a place to invest. So, that's a win for the government. We are thrilled because of this closing and we're expecting to reach financial code by December of this year, in two months or so.
With that, I pass it back to Pepper, and I'm open to answer any questions.
>> PEPPER SANTALUCIA: Okay. Great. Thank you, Laura, we did have a little bit of time. A lot of the questions we've seen in the chat are very specific to the types of analysis that are needed to justify proceeding with public-private partnership or concession. You mentioned these desirability and feasibility study, I think, that's how you described them. If you could talk a little bit more about the purpose of those studies. You look at a number of different options, I'm assuming including just traditional public procurement, maybe you could say a little more about the process as you go through to assess whether P3 is --
>> LAURA VINA-ARIAS: I think in your feasibility study and short D&C, I think the first project is to see if that's feasible through a P3 project. Not every project should be done through P3. And within the P3 realm which is best alternative, or delivery model to achieve, depending on the project, and the asset and information available, we can -- and we did that for these toll roads, we have a financial analysis, where we knew the up-front payment had to be at least X amount. Part of the process we looked at, we defined those goals and objectives of the entity, we go through all of their finances, due diligence for the assets, understanding what are the capital needs required, what are other responsibilities that we have in this case, the understanding debt that we had, and we did first, in this particular study which is available on the P3 Website, you can look through it and see for all our project, the D&C study the, but we looked at what if the authority continues offering and maintaining these roads status quo and other versions of alternative delivery, including one where we basically, like would do contract management and we pay an operator to be responsible for these roads.
Based on the quantitative and qualitative analysis, it resulted that the concession of the four toll roads was the most suitable to meet all of HTA's goals, because we needed to pay the entire debt and there was a human cap needed to invest. Our D&C at that time estimated the need to about $520 million, plus a minimum of 1.6 billion for the deck, so, we were expecting an upfront payment within the 2.1 billion. We were thrilled to get higher, as far as the end result. But basically, that's what the D&C does. It sets the base of the structure and how the procurement should go. Through that process we also conducted market sounding where we talked to multiple operator, construction companies, financial experts, et cetera, to understand how they saw the transactions, what were the risks that they were seeing, what they would like to see in this transaction, we had a precedent, so, they all knew, in a way, where we were starting, so PR22 and PR5 was the starting point. We improved after 11, 12 years of that concession, we improved many things. We put more responsibility on the concession company, and we are here. I hope that answers the question.
>> PEPPER SANTALUCIA: Thank you so much. We are running short on time, so we will have to -- if there are some additional questions about value for money, that we have to answer in writing afterwards. But I want to thank the presenters, all four of them, for their participation today.
I just wanted to bring up that we still have three more presentations in our 2023 series tax exempt debt financing, advertising, names rights and sponsorships and finally a look at the Value Capture tool kit for practitioners, that is available on the FHWA Website.
I did promise to tell folks how they could get confirmation of their participation in today's webinar, and that will be by e-mailing valuecapture@dot.gov, and we will provide we will provide confirmation of your participation today.
The file -- the slides are now available in the file share window, just above the audience chat. As I mentioned in the chat, you can hover your mouse pointer over the final name. You see a downward pointing arrow that you can click to download the slides, also there's three dots in the upper right corner of that file share window. If you click that, you can then select the download all option, and that will let you bring down the slides as well to your own machine.
With that, again, I would really like to thank our presenters again, for some of them it was a repeat performance from a few years back, and we really do appreciate their willingness to come back and provide an encore performance and update us on the projects and their work in this area. We'd also like to acknowledge the ongoing support of the FHWA web conferencing office, and the past support of FHWA's Everyday Counts program.
There is an evaluation window, or tool up on the screen now. If you have a chance to give us some feedback about today's event, we'd be glad to receive it. You can also use that e-mail address, valuecapture@dot.gov to provide feedback about today's event. But we thank you for your participation and have a great afternoon. Thanks, again.
>> OPERATOR: And that does conclude our conference today. Thank you for your participation and using AT&T teleconferencing service. You may now disconnect.* * *
