[bouldercouncilhotline] Hotline: Fwd: Responses to HPTE Questions

[cmosupport at bouldercolorado.gov]

Sender: Winfree, Tracy

Dear City Council,


Mayor Appelbaum and I both requested CDOT/HPTE to reply to Council Member Weaver's questions. Please see the below responses. 


Thank you,
Tracy Winfree. 




From: Drumm - CDOT, Angie [mailto:angie.drumm at state.co.us]

Sent: Tuesday, February 18, 2014 3:56 PM
To: Winfree, Tracy
Cc: Nicholas Farber; Michael Cheroutes - CDOT
Subject: Responses

 


 


Hey Tracy-- below are the responses.  Thanks!  Angie


 

1) For me, the lane configuration, management, and use seem pretty well-conceived.  Most of my questions are about
 the financing and public private partnership arrangements.

2) My summary of the project finances is as follows (both Phase 1 and Phase 2 included).  I would love for staff to confirm or correct this summary:

$497M total project construction costs
$323M from governmental bodies (RTD, DRCOG, CDOT, HPTE, local gov't)
$174M involvement by Plenary Rods Denver (PRD, a private firm):
- $20M equity
- $20M private loan
- $20M private activity bonds (issued by High Performance Transportation Enterprise on behalf of Plenary Roads Denver)
- $54M Phase 1 Transportation Infrastructure Finance and Innovation Act (TIFIA) loan assumed.  This is bonded debt.
- $60M Phase 2 TIFIA loan generated and assumed by PRD.  This is bonded debt.
So PRD puts up $20M in equity, levers another $154M (with a lot of state and Federal help), and gets 50 years of cash flows, including I-25
 toll lanes.  HPTE and CDOT privatize the maintenance (including snow removal), operations, and upkeep.
If the HPTE were to do this we 1) couldn’t borrow the full $60M from TIFIA for Phase 2 based on our cash flows, it would be more around $50M; 2) We also couldn’t borrow $20M in PABs, more like $10M in
 this case; and 3) It then would be difficult to raise another ~$50M for the Project.  This would also mean that CDOT/HPTE would be keeping the revenue and O&M risk, which could cost us more money down the road.
3) Couldn't HPTE and CDOT have assembled essentially the same financing package without PRD?

The HPTE Board considered the use of traditional financing secured by revenues from the project in making its decision to pursue the project as a concession.  The bonding analysis was revisited several times during the process using
 a variety of interest rates and assumptions.  Traditional municipal bonds have a 30 year repayment period and federal TIFIA financing typically has a repayment period of 35 years from completion of construction, which is roughly equivalent to a 40 year financing
 time frame. Financing Phase II of the US 36 project was more problematic than financing for Phase I as it does not generate revenue at a rate similar to either the I-25 HOT lanes or phase I and for phase II RTD  could not make available as much funding as
 it did for Phase I.  Given the objective of moving ahead with Phase II immediately to honor the RTD commitment and to complete the corridor improvements in a single process, a financing gap existed and the private equity and subordinated debt provided by the
 concessionaire filled that gap.  A fifty-year concession period was needed to provide a repayment profile for the subordinated debt and the equity.  Absent this approach it is difficult to state exactly when HPTE could have moved forward with Phase II as its
 advancement would have required either significant additional funds from either CDOT or another partner, or demonstration over time that the toll revenues Phase I generated were materially higher than predicted in the traffic and revenue study.

4) How do TABOR restrictions limit or prevent doing this project without a PPP?
Currently, more than 80 percent of CDOT’s $1.1 billion budget is dedicated to maintenance of the current system, allowing little else to improve congestion and mobility. Due to inflation and increases
 in fuel efficiency, as well as a federal budget that did not change in the last authorization, CDOT is unable to keep pace with the growing demands on the statewide transportation system. P3s are a strategy to leverage limited state resources with the private
 sector.
 Last gas tax was increased 20 years ago. Recently, polling was conducted to determine the voters willingness to approve a transportation increase in 2014.  Results were not favorable—broad sentiment that
 is not the time to raise taxes and tying that increase to the gas tax or a vehicle mile travel tax was very unpopular.  Therefore, CDOT needs other tools in the toolbox in order to respond to infrastructure needs.
 5) CDOT asserts that without the PPP, this project would not happen for 20 years.  Why is that?

This project was originally in the DRCOG Regional Transportation Plan for the 2030-2035 horizon.
 6) Why did the HPTE want to pass off the TIFIA repayment obligations?  Would terms and interest rates be more favorable if held by HPTE rather
 than PRD? 
Transfer of risk---there is some uncertainty in exactly how the managed lane will perform over the long term. If toll collections come in below projections, the concessionaire is on the hook to make sure
 the debt is repaid. Otherwise that risk would be on HPTE.  Also, the rates for TIFIA are the same for HPTE as they are for PRD (the loan interest rates on their homepage).
 7) Why does CDOT want to privatize the routine maintenance of all of US36, including snow removal?  Are there performance risks with this
 arrangement?
 CDOT and HPTE came to the decision to bid out snow and ice removal because we didn’t want to incentivize the Concessionaire to push
 the snow and ice on to the general purpose lanes since they will have the responsibility on the managed lanes.  The Concession Agreement has extensive maintenance performance obligations. If they’re not met, PRD will be required to pay the state penalities.
 There is significant empirical evidence nationally to suggest that the public sector will receive value through reduced O&M costs under the concession model.   CDOT estimates this maintenance to be approximately
 $798,900 per year for the state to maintain over the fifty year review period under the public model.  The concessionaire proposal requires a state payment of $675,000 per year, or $123,900 per year less than the benchmark set by the department, resulting
 in savings to the state of approximately 15 percent.  In both the public and concession model, the new express lanes would be maintained using toll revenues.
 O&M cost variances could result from higher materials cost due to inflation as well as higher than expected snow and ice removal costs.  If highway maintenance and operation costs are greater than $675,000
 annually, the concession model puts the entire liability for those additional costs on Plenary, increasing the value to CDOT of the concession model.  Under the public model CDOT would be responsible for those additional costs, with potential liability to
 CDOT as high as a $3 million nominal cost over the term.  In Net Present Value terms, the potential exposure to the state could total approximately $14.5 million assuming revenues were insufficient to fund 50% of the total project O&M.
 I am interested in understanding these issues and learning about options for future regional transportation projects.  Aside from the complex
 nature of the project financing, questions about maintenance, and the potentially questionable duration of the private involvement, this seems like a highly beneficial project.  I would hope for maximum transparency in the contract terms when a private enterprise
 is going to toll and maintain a major regional arterial for 50 years. 
 

 

-- 
Angie Drumm

Local Government Liaison


Office of Policy and Government Relations


Colorado Department of Transportation 


Office: 303 757 9105 Cell: 303 809 4026


*Please Note: As of October 8, 2012 my email changed to
Angie.Drumm at state.co.us
Please update your address book accordingly. Thank you!