Value Capture Webinar Series

Capacity Building Webinar:
Capture Value from Existing Assets to Fund Previously Unfunded Infrastructure Projects and Case Studies - Raw Transcript

October 24, 2019

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[music] Ladies and gentlemen thank you for standing by, welcome to our call, all participants are in and listen only mode, later we will conductor question-and-answer section, I would now like to turn it over to your host please go ahead.

Thank you, hello everybody on behalf of today's welcome to the Value Capture innovation, my name is Pepper, I will help address any technical problems, you will find the audio: information below that you can submit questions you will also have the opportunity by phone and we will give more instructions with that when the time is right please send me up in the bright corner chat pod, select start chat with host. I will do my best to work through any technical problems you are having. We will run up to 3 PM Eastern standard Time, followed by Susan Shaw mega project director, then we will hear from Mark Pascarella, debt management from the Indiana Finance Authority. We will Q up questions at the end of each presentation and we will have Q&A session at the end of the webinar. The speaker's presentation slides will be available for download at the end of the webinar. If you are interested in the evaluation credit hours, we will provide information at the end of the webinar on how to a pain confirmation of your purchase patient today. -- We will at the end of the webinar have information on how to confirm your participation today Desmond how many are participating, please answer the Poll questions if you haven't already. Okay. I think we are now ready to begin the first presentation. We will now hear from Thay Bishop from the Federal Highway administration, you can start as soon as you see your slides.

Thank you Pepper, Good afternoon and good morning to everyone. I will briefly discuss today the EDC-5 innovations, key distinctions, the Value Capture & Asset Recycling Strategies Overview, Federal influences on Value Capture and the project examples. Federal Highway currently implement the fifth of every day count initiative or EDC-5, this is the state base model that identifies and rapidly deploys proven yet underutilized innovations to shorten the project delivery process, enhance roadway safety, reduce traffic congestion, and to improve environmental sustainability, EDC is a two-year cycle. Federal Highway works with the state and local transportation agencies, industry stakeholders to identify a new collection of innovations to champion every two years. 10 innovations were selected for the EDC-5, Value Capture is one of those 10 innovations. EDC-5 capture innovation promotes the Value Capture techniques as part of the funding and financing strategies to provide a reliable and sustainable transportation gap funding, accelerated project delivery process, enhance roadway safety, reduce traffic con and to save time and money. Distinction of funding versus financing, Funding or revenue repaid financing. Value capture and asset recycling are revenue sources, funding is the revenue and the capital that pays for the constructions and ongoing maintenance of asset of services. Financing can be paid as you go or borrowing, note, financing can not create revenue but the federal innovative finance program can lower the borrowing cost, meaning more money can go towards the construction and lower the project cost. Value Capture versus tax. Unfortunately many define value capture as any tax imposed to the property owners, this is not correct, here are the differences. Tax force contribution to the generated revenue for the public services, mandatory taxes provided by the general law, everyone pays regardless if you benefit from the public investment. Value Capture is revenues that come from specific property owners who benefit due to the properties near to the infrastructure investments that made by the public sector. It is not a revenue generating but a way of compensating the public sector for the portions of the cost of the special services or transportation infrastructure investment. authorization for the value capture comes from the power of the local government. Local makes the decision on implement Value Capture strategies and control the revenue generate from value capture, in general, value capture recovers a portion of the value created by the transportation investment from the beneficiaries.

Here are some of the reasons of why the state and local agency should interest and consider all alternative revenue sources including Value Capture and asset recycling strategies. The American Society of civil engineers gave the American infrastructures a D+ rating on the 2017 infrastructure report. It also estimates that it will take 4.6 trillion dollar over the 10 years to get the American infrastructure where it needs to be.

Here's the problem. Almost every infrastructure that the state and local are responsible for really not on a good condition. The infrastructure assets will compete against for a limited funding source such as federal fund which already declined or diminished. So just don't wait for the federal come to rescue. Start searching for the supplement funding sources because your infrastructure cannot wait. Let looking at the highway systems, the state and locals which are like in facing highly capacity and condition funding crisis, beyond the congestion problem. The nation highway system is reaching the end of it useful lifecycle. Increase in cost of replacing due to aging and decaying infrastructure because chronically underfunded and years of deferred maintenance. The costly fixed as failed or fixed worse first approach to the maintenance puts the state and the local furthers behind and every dollar in deferred maintenance requires to invest 5 to 7 dollars in future capital expenditure. Unfortunately the future is here. In order to successfully combat the system condition, the state and local would need to have a comprehensive plan to maintain the new and existing highway system. In addition, the additional funding is also needed to address the completed Street to accommodate all transportation modes. Specifically address the pedestrian death in the country. We all agreed that the lack of funding can impact safety, eroded economy, and quality of life can be impacted.

I am not sure you aware that there are at least 4.2 million miles of public roads in the country, only one million miles are funded with federal-aid highway funding. Keep in min that federal-aid only fund for capital and not operating and maintenance. Roughly 900,000 miles are in the urban areas, those are heavy traffics so the level of deterioration which might even worse than D+ -- The major funding sources for federal-aid highway system comes from the highway trust fund and it is sustainable, in order to keep the highway trust fund solvent, every year since 2008, Congress has transferred general fund money into the highway trust fund, a total of 143.6 billion has transferred to date.

The gap between revenue and spending is widening. According to the Congressional Budget Office projection in January 2019 a future five-year reauthorization bill would need to cover a projected at 68 million shortfall. A six-year bill would need to cover 89 billion shortfall. By the way coming up next year. In keeping in mind the fund only addresses 1 million miles of public roads, the remaining three point two million of the nation's public roads improvements and operating a maintenance will have to come from alternative sources. This is why we are continuing seeking new funding sources to help pay for the infrastructure needs. Value Capture is untapped revenue sources, available for the state and local public agencies to help fund infrastructure needs and meet other objectives. Value Capture and asset recycling strategies will provide ongoing sustainable gap funding sources.

What is Value Capture? Value capture includes the value created from an infrastructure investment and directing those funds to pay for new infrastructure projects and program. When the public sector made an investment in transportation improvements such as transit stations to highway interchange, it creates value at the local level. The type of improvements that increases accessibility, enhance the safety, reduces travel time can attract the new development, or economic activities, and increase the property values nearby. While the public sector will typically pay for the facility, the value accrues to the private property owners in the form of windfall. The Value Capture only seeks to recover a portion of the value accrued to the property owners and returned to the public sector to fund additional transportation projects. Value capture can be used in the wide range of setting including urban, suburban, and rural setting. It could certainly help to fund capital projects and operation and maintenance.

Value Capture Techniques Summary. We define value capture broadly to include land value capture, cost recovery, and revenue generate from the publicly owned facilities. So land Value Capture is just a subset of the Value Capture funding technique that we have defined here. We have grouped the value capture techniques into seven broad categories, today we are covering the concession asset recycling. Don't just recycle the value of the existing infrastructure asset without capturing some of the value generate from the new transportation investment such as new developments and economic activities. -- Developments and economic activities.

Value capture is a set of powerful funding techniques that can be supplement traditional funding. Should be considered in funding and financing sources for transportation improvement solutions. >> In general, it can fund up to 50% of the project cost depending on the Value Capture technique some techniques can fund up to 100% of the project or program costs such as the transportation utility fees or the assessment district techniques. Achieve fundamental of value capture strategy is only beneficiaries of transportation infrastructure contribute to its cost. It can provide a reliable and sustainable funding source to fund for the 3.2 million miles of nonfederal aid public road capital improvements and the operating and maintenance expenditures. It will also provide the local matching shares for the state and federal grants. As well as provide opportunity to access to the federal low interest rate loan programs. Attract private capital. it can be used in urban, suburban, or rural projects. What's asset recycling >> it's an effective ways to leverage the public capital in a resource constrained environment, the name comes from the idea that the value of the old infrastructures facilities that the public invested long time ago and paid for. Some can generate revenue such as toll road and other might just consider a sunk cost such as underutilized land or facilities. The value of the property recapture in the form of long-term leased to the private sector and received upfront lease revenue to pay for unfunded infrastructure projects or program. The new infrastructure being funded with the asset recycling revenue may not be a revenue generated facility for example, rural road improvements, or improvement of complete street projects. Or invest in the new technology to bring the city into the smart cities. Asset recycling has primarily been promoted as a way to fund infrastructures at the no cost to the taxpayer, and no additional government debt. We have a limited experience in asset recycling. However, the highway transaction dates back to 2005 and the transit dates back to the late 90s.

Three notable global examples are Australian asset recycling program, the Brazilians Value Capture recycling model, and the American asset recycling model. You have heard about the Australian asset recycling in the last several years, it is a worth to spend some time.

In 2014, the Australian government signed the national partnership agreement on asset recycling as a short term funding program to stimulate the economy. By encourage the state and local government to sell or lease publicly owned assets to the private sector to pay for the new unfunded infrastructure projects. If the state privatized a public existing asset such as toll roads, airports, and electric utilities, or port. The Australia's federal government paid the state government an additional 15% in the negotiated lease or sell price. To receive this payment, the state had to reinvest the proceeds into new infrastructure projects. and the funding would be given on the first come, first serve basis. In the 2016/17 years, the federal government finalized agreement with 4 states and territories worth 3.2 billion and leveraging the total of 23 billion in infrastructure spending. It cost the federal government 6 billion in incentive grants.

Now let looking at the asset recycling American model it is really similar to the Australians model except the federal does not provide incentive payment as a condition to the state on local to sell or lease their infrastructure asset. There is no definitive model in America. The structure depends on state objectives and the project specific. Typically the public sector enters a long-term lease concession of an existing infrastructure facility with the private sector such as toll roads, airports or you see underutilized land. The private sector pays public sector an up front lease payment to lease existing publicly owned infrastructure facility. During this leasing duration, the public sector retains ownership facility while the private sector will operate and maintain the facility in exchange for the revenue generated from this facility. The public sector then uses the lump sum lease payment to invest in the new infrastructure project or program, then the new asset then becomes an existing asset and the value can be recycled in the future.

It will require a state enabling legislation, currently, authorized in 36 states and the District of Columbia and Puerto Rico.

This flowchart provides a typical P3 concession transaction structure, whether existing facility or a new facility. A revenue generate facility or non revenue generate facility. The structure might be slightly different depending on the state. Or of the project is specific.

The state of practice in this country. I mentioned earlier there are no definitive models.

Each project structure differently. It depends on state objectives and the project profile specifics. However it is understood as a way for the public sector, to fund new transportation projects or programs or to rehabilitate the existing facilities using the proceeds from the sale. Or the long-term leases of the public facilities or land. Asset recycling title used in european-- We call it a different thing. But it really is the same. Some transaction dates back to 2005. You will hear now from Mark Pascarella, the director of debt management at the Indiana Finance Authority shortly on the Indiana Toll road project. You will also hear from Susan Shaw, the mega project director at the Virginia Department of Transportation on the transform 66 outside the beltway project. These projects are prime example of how asset recycling can benefit the state and local if structure the lease agreement properly. There are other projects which are listed in details on the Value Capture website.

Looking at the asset recycling and the Value Capture strategies. Using the American model. A Value Capture and asset recycling strategies ensure reliable and sustainable and expanding the revenue sources, here is how it works. The process will start with the public sector identifying an existing infrastructure assets for the potential sale or long-term leases to the private investor by.

The first step is taking the inventory of all government owned assets

it really is simple, you can start with ask for the list of all the asset inventory from the accounting office in your organization. You also identify the asset condition to prioritize your rehabilitation, replacement, and the preservation programs, it will help you to determine how much money you will need and when you need. There are significant information in the highway system it's really readily available, you can get information on bridge condition from the bridge inspection data. as well as the pavement condition from the pavement system performance. The next step, within that inventory, you will identify an asset that you can be able to sell or enter into the long-term leases to get upfront cash payment for the underfunded program and projects. And then the next step at least what I did anyway. I sent out the request for the information to the potential investors.

Your financial advisor will help you on that, and through the process, the procurement process. At the end you would enter a long-term lease agreement with the private sector. Using the lease revenue to fund the unfunded Infrastructure projects or Program, there are two strategies that needs to happen here.

You can take some of the proceed to reinvest to the needs of the public, even if those assets do not generate the revenue for example, replace the off system bridges, those bridges are in poor condition. And rural roadway improvement projects, or to fund for the complete street projects to enhance safety.

You can also use some of the revenue to invest in a new road or bridge that had the same economic value as the leased asset such as the new toll road.

The infrastructure funded by the lease revenue, create economic activities, new development, new jobs, increase the property value near the infrastructure investment. It will provide the state with ongoing sustainable revenue by sure that they continue capture revenue created by new the transportation investments. The new infrastructure asset will now become an existing asset, and you can recycle the value in the future using the Value Capture strategy.

By the way this can be a very useful strategy for both urban and the herbal communities. In the urban areas, it can attract new the private partners who could taking over the old facilities while generate the revenues for improvement to other infrastructure facilities, that they will need to spur the economic development and increase the regional tax revenue, at the same time, the state can also could use some of the lease revenue to pay for infrastructure upgrades in the rural communities that lack of the economies of scale to raise funds themselves.

Benefits of asset recycling and value capture strategies. I mentioned some of the benefits already. It can advance infrastructure project without having to borrow, increase debt or new taxes, levies, or tolls. Provide a reliable and sustainable alternative revenue to supplement traditional funding sources by capture value from the new infrastructure projects to ensure continuous recycle value from upfront lease proceeds and economic activities. Recover the value of the mature unproductive infrastructure which would cost more just to maintain and losing the value over time.

Provide funding to enhance and speed up project delivery, you would be able to get the project off the ground quicker with the lease proceeds. Or access to the federal low interest loan program. Much more importance is that encourage collaboration between the state and the local private sector.

Let Looking at the influence of the Federal in Value Capture and Asset Recycling Strategies. It is limited. Only when the existing infrastructure asset had Federal funding such federal grant then the state and federal will have direct influence. You would need Federal highway approval. The US DOT strongly supports capture. For example one of the criteria on the Build grant is the non federal revenue for transportation infrastructure investment. Certainly with Value Capture revenue can help to get the grant approval. Federal highway assemble value capture implementation team, The team from multidiscipline experts are available to assist on call requests. The team focuses on communication and outreach. We bring you the awareness of Value Capture and its applicable to highway projects such as our webinar series and on call support. For technical assistance, we are implementing the peer program which includes peer training and peer exchange for those agencies interest in value capture initiative. We partner with leading state, local, and tribe who has successfully implement value capture. We also has expert consultant to assist us deliver technical assistance

-- In terms of clearing house. We use the web platform making information available to you. Keep in mind this is always evolving. We can only if date the information become available to us. You can help us as I mention the value capture strategies implement at the local level. In many cases, we would not aware of. You can help us. If your state, local, or tribe government, has implement Value Capture, in any technique we would love for you to share with us. We would like to highlight them, and make it available for others to learn from.

By the way we have completed a Value Capture implementation manual. And we plan to roll it out on November 19. I believe the registration is open. If you haven't registered please do so.

This slide provides you with the link to the resource on the website. There are couple funding sources that you should be aware of. The first one is the STIC grant. For example. You want to implement Value Capture, it require some sort of analysis, for the asset recycling you would need an inventory and asset conditional assessment. Some of states and local do not have resources to undertake this type of study. You certain should apply for this grant. The second funding source is the aid demonstration and up to one million annually. For example you have a project and want to use value capture and value capture technique that you have not implement before. You should consider apply for this grant. The process of apply for these grants, contact information, and other information are available on the Center Accelerate Innovation. The links provided on the slides. This is a conclusion of my presentation I now turn it over to pepper.

Thank you Thay. We have questions, for Thay?

Mary can you tell the participants if they'd like to ask a question by phone, if you would like to press a question please press star one on your telephone, otherwise your line is open and you will be able to remove yourself by pressing Pound to pick if you're using a speakerphone Pound 2. Please let us here take a second to see if we have any interested in posing questions by phone.

We have no questions of the phone at this time.


We do have a couple of questions coming in. Can we demo the presentation? I can answer that. We will have a download you will have an opportunity to pull them down towards the end of the webinar. We will provide those and when the recording is made available the slides will also be available at that time. We do have a question before that. Can Value Capture be implemented even if the state doesn't have PIII legislation?

I think you do need the state enabling, to be able to do that.

Just to clarify. As they are recycling Value Capture is a fairly broad method of tools. Depending on the context, it may be a different answer.

In specific it will be enabled.

This answer that Thay gave us.

We have another question. Can you provide examples of the types of infrastructure that are considered viable from the private sector perspective for recycling?

Based on what? The Australian model, it can be a total, it can be any facility really. It depends on where you sell, or where did you enter into the long-term lease? For this pulling get into the long-term lease on the electric utility, in this country what we see is basically the projects. Also under viewed part for the [Indiscernible - low volume] in Colorado, specifically using a structure of the health facility. They would generate 540 million funding for the rural project. Then a long list on the Value Capture website. And it gets into much more detail that you can find much more information there. Okay is there any questions? From Michael Davies, are there analytical tools that can generate for us it recycling, or other value captured techniques?

There is the analytical tool, I think this question would be good for Mark Pascarella to answer that. To generate 3.8 billion of funding. Really it is basically that you can use PIII analytical tool that we have on our website. To calculate the asset value recycling as well. The asset recycling termed and used by the country, this country we are referred to as a concession infrastructure asset. You will see that. Of the P3 on all websites.

You are talking about the P3 value tool?

Yes absolutely. Thank you.

Yes we did get a question from Tom about the Australian example, that you say in the 15% subsidy in the federal government, he asked if it applies to the total cost? Or the value of the recycling proceeds?

Basically it is whatever the proceeds that are negotiating at the time of closing, the contract would be a private sector. Ending up the 15% being applied, not the total cost of the project no. >> Okay in the interest of time, it looks as though we entered the questions in the chat pod at this time. I think we will now turned to the presentation by Susan Shaw by the Virginia DOT, Susan you can take it from here.

Great thanks good to be here this afternoon. [Indiscernible - low volume] >> We will talk about networking conjunction with that and the out side development which is what driving us to look at the PIII model, and during the NEPA document study phase identifying solutions in the corner in that quarter. Definitely a little bit more east-west with a.m. peak in the morning we also see congestion throughout the weekends pretty much all day they are just bread differently we want to address those issues and also want to improve multimodal mobility along the quarters for about two miles the Metro system which collects around the region in the median portion of 66. This plans to go out to the center area for Fairfax County which is about halfway through the quarter, that is one of the things we wanted to make sure that our system worked with it, enhancing transportation safety in the corner of the reliability in terms of the scope of the project. Looking at needs we identified two map express lanes consistent will have flexible transponder for HOV HOV-3 requirements, and any who have three or more can travel in that quarter, they are not told. The prices do not here only here in the managed lanes they currently on the quarter, on the eastern end of the quarter, we have HOV lane today that has requirement of HOV trend nine for the moment, for the HOV-2, outside of those lanes we have three general purpose lanes open to all traffic no toll. We know there is existing operational challenges in the quarter where we have issues and we would like to address those in the system, as a part here for the throughout transit working group, we had a working group identifying what transit and other multimodal improvements can work hand-in-hand with the system we were developing. Those elements include new park and ride lot 2, demand strategies and also bicycle trail improvements along portions of the court are providing 11 miles of trails that don't currently exist today. This shows the cross-section, you could see the middle green space 42 wide median we are providing preserving for Metro as a talked about. The 2 express lanes separated with flexible bollards, in the photo below, shows the existing express lanes on the capital Beltway today. When we begin procurement we wanted to pursue. We didn't know if it was public or privately financed. We continue to compare both options. During the time we wanted to keep the transportation and compare to the public delivered option. The state would provide the financing we would collecting the toll and the revenue directly. We did want to deliver a project that best meets needs the public, we had a number of reforms, two of them are the P3 legislations incorporating all of these in our process. Mainly you needed certain points for certain buy-in and oversight committees looked at key terms of the contracts. We were required to present that to the public on the P3 agreements, the key terms and conditions of that agreement. During our procurement we looked at three different basic project delivery models the traditional toll concession referred to as P3 or DBFOM, the state would retain the concession period and looking at 50 years. In our case we compared with the period of operational maintenance in a five-year term. We would extend it at the end of five years to the maximum of 15 years, then the traditional just design build the model. Now all of these did have the ability for alternative concepts during our procurements and that phase we show in the third bullet in all of those we issued three different RFQ's for each different models. All at the same time. We then received qualification statements from teams that participated against any or all of the three different models, they could elect and put in for one or two of the models, or all three. We did end up with five teams that submitted qualification statements, against those three options. They were pretty much the same team, just without a financing partner on the 2, three of the teams only submitted on the finance piece. We did also ask that they submit what we called conceptual financial proposals, the information that they provided remained confidential and we used it to analyze which of the three methods we wanted to move forward with. In terms of procurement. One of the key pieces to our procurement, even with that decision on the December 2015, we decided to go with the traditional P3 model, we wanted the public models on the table until we actually reached our commercial close. So we continued to work on that and the steps that we needed to make sure that the public option was on the table, to continue to compare the pricing that we received against the model. In terms of the keys here of terms and provisions I won't read through all of them, but some of these are important to lay the groundwork on how we did procure it. We did use the 50 years with the term, the private sector has 100% of the tolling risk. There is no protections for HOV levels, and as I mentioned HOV-3 are free, and we do have limited protections for alternate facilities. You will see that on the Next Slide. They were very limited to adding general purpose lanes. Which pretty much you have to have as a protection. And then we also had if the Metro system was extended within the first 10 years of the operation. We felt it was pretty safe given the amount of time it takes to get the current extensions this region has received significant FDA funding for their system. We also have the financial model with the requirements throughout the life of the term. The first years in towing, and to support the transit solutions that we identified in the quarter not completely to pay for but to supplement some of those effort we identified and we had a funding plan for that anticipating that we would have purchasing buses and providing additional commuter routes and service, bus services in the quarter, we laid out a plan for that, the developer is only making that payment not responsible or delivering any of that operations and maintenance, and other express lanes, the developer is responsible for the operation and maintenance of the express lane, the state retains O&M responsibility for the purpose plane, on the other systems, we have excluded snow and ice, we are responsible to do that on our other system which in this particular developer, they came through and they are going to be responsible for that. Then we have interim milestones based on some project features we felt would deliver safety improvements while we were in construction we built them into the contract come we didn't feel the developer would be incentivized to add though so be added the milestones.

This slide shows how we compared in a very high level manner, how we compared the three models. In the first column was our first original analysis, the P3 analysis done early in the project come we didn't have a early fully defined project scope, and we had a rough idea estimating at that time, back in the 2013, 2014 timeframe that we would need $900 million-$1 billion of public subsidy in addition to support the toll revenue. That was early on. And as we refined the scope, and narrowed that scope I would say. Two only considering these only two express lanes in the only two directions we were concert conscience, to reduce that funding cost, and we also got better analysis on her traffic and revenue. Our estimate during our procurement, that we would need between four and 6 million in upfront public funding. We actually identified and allocated $6 million to the project for that purpose. So when the developers submitted their final financial proposal to us, they had the maximum that they could require was 600 million in public funding. There financing model had to include the annual payment for transit capital modeling expense, and these were annual payments that needed to be embedded in their financial model. And then we also had a requirement to provide $350 million for future quarter improvements not identified. That amount really came out compared to the public option. For the public option. We would have a 40 year payback scheme an extra 10 years of revenue. Pretty much would represent the last 10 years. This was required when compared against the public option to provide at some point during the term. And then the final column is the actual result that we got from our competitive bid procurement, in 2016, when we received those bids. You can see the winning bidder, we had to comparative bids that met the terms that I laid out in the middle column. The winning bid required zero upfront public funding, we return the 600 million we previously identified. It does include the annual payments that we had laid out. Also towards the end of the term providing for future improvements, they also made a concession payment to the department for the common loan as part of their overall project financing, they made a payment I'm hundred and 70 -- 570 million -- Than other types of improvements were set aside in the quarter. This was the result of the agreement that we signed. With express mobility partners, you can see the team that they have, listed with her ADM the design build in a joint venture with Alan Myers, this is a $2.2 billion construction project, and in terms of the other benefits that we seen and we see this in 2016. The important piece of the express lanes very much true in this quarter. Integrating transit into our management lanes, we see as an important feature of the lien, they are providing lanes where people can drive and know that they will have a consist travel time because the congestion is being managed through tolling. That gives us space, where these types of services will be provided in a consistent and reliable manner, this is really critical in our region, today we have HOV lanes along 66, but immediately adjacent, and they break down significantly today. We are struggling in our systems where we have those types of HOV lanes, that are not barrier separated. The toll revenues them being used for both infrastructure and also to help subsidize the services provided in that quarter. That is an important part of those features. Another project I wanted to touch on. 66 inside the Beltway. This is the project that is a state operated part-time express lanes. This is one I know somebody asked that question earlier, bout P3 legislation, I would say in this case. This is a project where there is no provider the state is actually managing the facility, and it was prior to us converting to a part-time express lane, it was two lanes in each direction, and during the peak direction and the peak hours, it is HOV only, the entire roadway. What we did was convert that extend the tolling hours previously 2 1/2 hours. Extended to four hours in each direction. It currently is HOV 2, when it comes online it will convert automatically to HOV-3, different from other express lane facilities because there is not an immediate option next to come you get on that entire facility, it is managed lane facility.

Because it is state operated the toll revenue and a good portion of it covers the operations and maintenance which is fairly low cost. Then the bulk of the revenue will go to multimodal projects in the quarter. We have a local transit group multijurisdictional group that is the group that will be looking at the project allocations in determining how to distribute the funding through the toll revenues. Talking a little bit more about that, the commuter choice program, you could see so far we have had first round of projects close to $20 million, 20 projects in the quarter. State legislation that requires any toll revenues collected and they will have to fit the payer, the project doesn't have to be located in that corridor specifically, but they will need to travel and that corner. In the western area of the county, they have buses that service this core door. -- We will identify projects in the quarter. That can be used but not exclusive to transit and has been focused on it up until now. Outside the Beltway how we integrated the new parking lot, creating a culture on the 60 6/4 on the 90 5/4 we see a lot of carpooling, which we see in the 66 quarter. What are the key things if you are looking at this that you would need to make sure that you have a corridor in this, you can see some of those key features, and high demand in the corridor, do you have injection, their desire to get on a HOV-3, needing to be diverse in support an area that can support paying tolls, and population growth around your corridor and to help you be successful. This is the 5 million we receive through procurement, because of the Virginia code we need to have benefited the facility, and we have a number of goals in the project. For the concession projects we used the Northern Virginia transportation facility. Spread broadly across the range of projects. You could see a listing of the various project categories, quite a fill, and in conjunctions to the rail line, VRE, the Manassas line, which money is going towards those projects as well. With that I think I am turning it back to pepper.

Great Susan thank you.

Mary, I think we can open up the phone lines at this point. Folks if you have a question for Susan that you would like to ask by phone, you can follow the instructions that Mary will provide now. >> Once again if you wish to ask a question please press star one on your telephone keypad, the phone will indicate your line is open, and Star 1 it is to ask a question. >> We have no questions over the phone line at this time.


I saw you ask a question about value analysis, do you want to elaborate on that in this point?

>> We can follow up on that point if others have questions on the value for the analysis in these types of projects. We do have one more question being posed in the chat pod.

In the interest of time we can answer towards the end of the webinar. At this point I would like to introduce Mark, from the Indiana finance Authority, Mark Pascarella, as soon as you see your slides you can begin.

As a way of introduction, I am Mark Pascarella, director for the debt management finance Authority. Before I start my presentation I want to give a brief background on any finance authority and who we are for the folks that are on the phone who have similars that upset or thinking about setting up similar setups. The Indiana Finance Authority is technically not the state of Indiana we are a cause I. The main reason for that historical knowledge, the state of Indiana is prohibited from issuing debt under the Constitution therefore the cause I set up so the state can access the capital markets and large capital projects without having to worry about violating the Constitution. The Indiana finance Authority operates as an investment bank for the state of Indiana cause I the part -- This is a cause I see and any real large capital projects that will come through the Indiana finance authority, including debt influences, and any strong financial analysis when you are talking about public and private partnerships, and modernizations, which is a form but doesn't include any financing, you will see I ESA involved, the other aspect when we're talking about P3's, most people on the phone do realize there is a full spectrum of what we call P3, all the way right out to sales. We have a finance authority set up for one central house if you will to have the expertise to be able to handle all these different types of procurement. Obviously an organization I'm a proud of and interesting because we are able to keep it in-house small and developed these different types of projects. With that being said, the focus today I will have is in the toll road, which is mentioned briefly before. [Indiscernible - low volume] without toll roads being generated you can even think about infrastructures and the previous bullet we were unable to handle maintenance facilities on the property itself, many different reasons. A lot of the reason there was no political rest or wealth to increase tolls, in doing so, it looks like it is the sort of the short-term win, and these people that are utilizing those assets of course the problem goes along they are unable to keep up the maintenance along with funding maintenance, and we in fact in the way expressing what was mentioned earlier for every dollar for the preferred maintenance, 5 to 7 dollars of future capital needs. [Indiscernible - low volume] we are able to be proactive taking care of opportunities coming our way, in 2004, it was not the case where Indiana was.

Slide number three met, when we dive into the concession of the toll road, private public partnership? It was a monitoring station of the public private, you will hear me refer to them for the rest of the presentation as ITRCC I thought a very interesting one and choices on how they will do it, colleagues here in Virginia, one of the big things they found out. What we found out was that we found out how to extract the most value through the procurement process. The most hungry asset compete, through that competition we were able to extract as much value as we could it ended up being 75 year lease. Of the state of Indiana never relinquishes toll, it is never owned by the concessionaires, that is important later on in my presentation we will talk about the asset from the state perspective and most people looking at it, is the toll road, and the actual asset we will talk about later slides. The modernization of P3 revenue rates are set and how much they can be approved or raised it's not just something that is given to the concessionaire being in the finance authority, we have a responsibility they are not only abiding by their own rules but the ratesetting cannot be changed without our approval. No protections built in there were in toll roads but no guarantee on traffic volume. No guarantee they would make their money back, it was truly a risk transfer and how it was set up you hear about risk transfer, in this case it really was transferred to the concessionaire as we see later, the ITRCC provided to the state upfront in cash, responsible for the asset 3.8 billion. After the 75 years in a predetermined condition after 75 years the state of Indiana understood they will receive a asset back.

They would be ultimately responsible for toll collection the operations and the setting of the toll, and provide funds for other enhance that benefit the states that we will talk about in few slides. Focusing on three main benefits that came from the concession. The first I will focus on right now. The immediate benefit that came to the state of Indiana. First you can't talk about the transaction without $3.8 billion coming to the state of Indiana upfront cash that came in upon closing. They were not delayed payments over time where we had a financial risk. Immediately they received 3.8 billion. The agreement agreed ITRCC, bringing up standards set by the state. The previous slide I talk about deferred maintenance major operations had been kicked down the can down the road if you will. Has a multiplier effect not only did we get 3.8 billion of rent they agreed to provide the funds needed just to get the toll road back to where it should've been when we went through the leasing process. They agreed to operate and maintain using the lifecycle approach. They are more efficient at that time.

The ability for that function, just like all done these days there provided for in the lease.

That point in time they will have to make payment to the date there is a penalty if they don't keep up with the standards. Hand back requirement echo in five years they will look to receive it back in the condition. Should we do modernization again? The start of that point 65 years left now, they will have a road in good condition and then deferred maintenance when we talk about this, you hear that term not just the fact that there road is not in good shape nothing to do to modernize. Everyone understands tolling is different becoming much more efficient [Indiscernible - low volume] 2.8 billion went directly into transportation ending at the we had deficit for the deficit at the time, and actually 2.3 million of that 3.8 to go directly into the transportation funding throughout the state of Indiana one thing I will mention about the money, this will play into the benefit number three. The state of Indiana was not in state good shape, the monetization started to happen in the money started to flow in, they did not plug gaps or pay off any internal loans they had, or disguised, they do not use the money for it. They built future capital projects enhancing through economic development, and such a condition to conducive businesses and florists in a place of living and people want to be in such a place, we did not use it to plug any gaps, the reaction has been very negative, at the end they didn't really benefit. The major moves directly put into INDOT, totaling $1.3 billion, we still have some funds left over. They have been earmarked, that is still being invested that's not forget it has been a big number. $500 million trust fund out of that in which we received. Invested by portfolio managers, and what ends up happening, the 500 million whatever returns we get over a certain period of time, those returns whether interest earned or capital gains are sent back for INDOT two more projects. We also out of that 3.8 500 million was distributed to governments for development projects. All of them they did do, the locals cannot turn around to cover deficit. That was not the point in monetizing for 75 years. Due to acceleration of projects. Actually this benefits one of those that comes circular in my opinion. You reduce the cost of construction if you delay projects cost rise, you reduce your cost by being able to accelerate projects. The added benefit you get to enjoy earlier. If these back if you are funding capital projects bringing economic development, those get realized earlier, creates more activity and revenue continuously sick healer. Then they figure out how they can monetize. Setting up business districts, you get into a whole world of finance the world starts to open up when this is done properly by funding projects that will work in the state of Indiana. The last slide I have as far as benefits. Unintended consequences, my thought process was always negative. What did I do? What will my consequences be? What will I not be able to do? In this case as we go through the case studies you will realize these concession points, they are positive. Unbeknownst to a lot of people we were unaware what happened after 2006. To take you back taken away from building transportation right now reserves were negative. The state was not in a good financial position Governor Daniel's main point was that fiscal responsibility can be brought to state of Indiana we discuss what can help us return to fiscal strength instead of more debt structure throughout the state, we already didn't have any money for a rainy day fund, it would've been a big drag we were able to build the structure. Started to decline rating stabilized. 2008 2009. Unfortunately the state budget is being strapped when employment issues are propping up. You still need to meet services. We still need to provide essential services. By doing the ITR deal the concessionaire we were able to focus on the money that we had keeping reserves drop, considered very strong we allowed not only to keep track with peers but also prime ourselves with opportunities, and proven what we were doing Indiana was up, rated AAA 2010 and 2008 I think a pretty marvelous happen. The greatest recession and here we are as a date been able to be upgraded a lot of that did have to do with receiving the $3.8 billion some stories they can take an a in the expected turn I don't think they had it in the models they did not predict the recession to be of that as it was the toll road had a lot of stress and taking care of the draft for the debt we got to the point ITRCC would enter bankruptcy. They did that in 2018, and we had the right continued even though the Baker the was considered in proceeding. No impact on the three.8 billon received by the state during this process it was little impact to the drivers on the road every day. For the state of Indiana a very important discussion point. In reality there wasn't much of an impact except to monitor process. If you go to the second or third slide I refer to it as a lease that was the asset that they owned. Therefore nothing happened but they did go through the bankruptcy process it was auctioned off. And they had retained the ability to the ability, we could take a nap role in vendors. They decided to keep ITRCC infrastructure name, therefore still exist, they had the lease came through 66 years and remaining, and they pledged 260 million investment improvement over the five years. With car efficiency, and with the travel dynamics I think they would have people in 2019 as opposed to 1956 travel plans have changed and the need have changed. And then all of the right to be maintained, bankruptcy is a scary word, but as we came through it, nothing negative happened to the state, and we had to monitor process and had to get used to concessionaire and new players. It obviously takes a toll and has cost. This was a lot worse than actually what happened to the state. The state actually came out really well. Out of that process. As an update to the Indiana toll Road, last year the I SA here and the IFA worked with ITRCC, based on current market conditions, the details the state will receive $1 billion over two years. In exchange we will enact one time 35% increase on the toll rate, only applying class three, or these or above vehicles, no changes made to the lease, there is no ownership change. We still own it, there's no different types of O&M to provide, they are still originally required, then the toll that mentioned change, no other roads change or mechanisms for them to raise rate on an annual basis, therefore it also did the same except we up to the class III with the 35% one time increase. Why do we do that? Obviously does provide income for the state. And on the other side. We looked around. We were still behind where other entities priced there toll roads where price was concerned. We were a bargain, if you are a bargain to people who are utilizing an asset, then they are benefiting, you are subsidizing them as opposed to them paying fair wage that other states had been charging. The benefit of the proceeds will benefit the county. Another significant resource for transportation projects and will add more value to the state of Indiana, the two-pronged attach, able to accelerate projects and costs, enjoy projects sooner which we highlighted and discussed. We can do all of this without actually issuing debt, they are truly paying for these projects and the economic benefit can be found directly with the state of Indiana, and not they great we have the benefit now we have to pay for the next 25 to 30 years. In availability payments, they have a role in our portfolio to say we do not have any transportation debt is not true, but we use this P3 to help keep Indiana moving forward in opportunistic about issues and business opportunities coming our way to enhance for our state constituents, the last slide as you see. It opens it up for questions. I want to make two points. Number one. As we talk about this in the beginning for the P3, one of the states that has been leading along with Regina, different types of these modernizations and assets, one being the availability payment model, which is the DBF OOM -- DBFOM We can have discussions on, and also we have a fair amount of money no financing involved, but contractors can be and how much value they can deliver. Also questions on how we determine what we will use as far as a metric or a model, the value for money is of course mentioned, the only thing we do, a part of adding value for money, we have any public options is weighed against any type of P3 projects that come up. I think with the ITR's, where the state needed to be honest with themselves, the political issues on whether or not we can raise rates in operational financial issues, this made it difficult to raise money and the capital market, on the total road, these were all taken into an account, the modernization of that was the best choice. A good story. I will stop there. My contact information is there, if you would like to reach out talk to me individually, I would be happy to answer any questions that you have.

Thank you Mark for the presentation. We do have two questions in the chat pod. I think you answered the first one during the presentation about the bankruptcy of the concessionaire.

Can you see the second question in the questionnaire chat pod?

If this is leased for 75 years, what was the total cost versus the state and how much they paid per year?

The total cost it was already built road. It was what we call already built, there was no construction per se of the actual road, the total cost of the construction as far as getting get back up to where needed to be, in the hundred million dollars, and where it needed to be in the condition it should've been, was part of the concessionaire they paid $3.8 billion in cash, and also agreed to then bring that tollroad up to the standards as part of the lease. As far as how much the state paid, the concessionaire. It is a modernization of tolls, they are taking the tolling risk. They are receiving the tolls being paid by the individuals using the tolls come they are not making payment nor are we guaranteeing that they will get a certain amount of traffic or certain amount of money made per year, they are taking the total risk, this is something I wanted off our hands, basically because of the situation that the tollroad was in 2005. I hope that answers your question?

I think so thanks. Mary I do see another question in the chat pod. Can you confirm that the lease was sold as a prophet during bankruptcy?

That term I don't think I want to handle just because it was sold for the more than the 3.8 billion that we got, again you had a situation where we had other things that we were getting from that concession at that point, first of all, there is the present value situation the toll revenue. That is what they are looking at all the way back to 2005.

I think it was probably 2000 16 -- When we got to that we got a lot more money in other ways deferred maintenance. They had a large amount of money and they had to be used just to get that up and running to where it should've been in doing a traditional procurement, that obviously that concessionaire paid a lot more than 3.8, just by the time that they were all in. I will differ from that profit question, obviously they were in bankruptcy. The concessionaire who originally wanted not profit come they lost all the equity money they put in. And as a traditional big MC, the debtholders take ownership. And then eventually the asset was auctioned off. Through the Baker MC. The key component here. When you hear Baker MC you hear a lot of negativity, in this case come the documents held up as they needed to, we didn't have to get back any of the money we received or any of the benefit, we just had to pay the overlooking of the asset transition from one concessionaire to a new concessionaire that blotted out of bankruptcy. That was our role. I think that is a really good story on making sure when you do your procurement documents that you spend the time making sure that they are done correctly in the anticipate some of these negative situations and what will happen. The state of Indiana came up out of that really unscathed.

Thank you for answering. Mary do we see here if anybody else has an answer here, and if they would like to ask a question?

Please press star one when asking the question. There are no questions over the phone. >> Okay.

I don't see any other questions in the chat pod. As we are approaching the 3 AM -- The 3 PM hour, I would send it back over to Thay, for closing questions.

Thank you I would like to thank you today, we appreciate your time. Also I would like to think here, thinking all here, thanking all thank you pepper, for all of the logistics, and the moderation of the webinar. I also want to thank you all the participants. Who have joined us today. Thank you have a wonderful afternoon. Thank you.

That concludes our conference, thank you for your participation and thank you for using AT&T conference services you may now disconnect. >> [Event Concluded]