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PLANNING & PROGRAMMING COMMITTEE MARCH 20, 2013

SUBJECT: PUBLIC-PRIVATE PARTNERSHIP PROGRAM

ACTION:

ACCELERATED REGIONAL TRANSPORTATON IMPROVEMENTS PROJECT (ARTI)

APPROVE RECOMMENDATIONS

RECOMMENDATIONS

Authorize the Chief Executive Officer to:

A Receive the draft schedule of actions required to finalize the Public-Private Partnership (PPP) procurement of ARTI (Attachment A);

B. Enter into a bid stipend agreement in an amount of $900,000 with each of the unsuccessful, qualified, short-listed proposers submitting responses to the ARTI Request for Proposals (RFP);

C. Work with Caltrans and the State of California (the "State") to secure enactment of State Budget authority for allocation of funds for Caltrans' share of ARTI operations and maintenance costs, and any approvals needed to secure the allocation; and

D. Enter into Funding Agreements and Amendments to Existing Funding Agreements with Caltrans for preliminary preparation work commencing FY13 in anticipation of the ART I Project, not to exceed $1 0 million.

ISSUE

ARTI Draft Schedule Attachment A outlines our draft schedule for advancing the ARTI project from March 2013 (Caltrans and LACMTA signing the cooperative agreement) through early 2015 (financial close and notice to proceed). The next major milestone we anticipate achieving is the issuance of the Request for Qualifications in May 2013.

Bid Stipend Agreements Board approval is necessary to authorize the payment of a stipend as compensation for each of the unsuccessful responsive proposers and to purchase their work products, including but not limited to, alternative technical concepts which in turn will entitle LACMTA to use these products in implementing the ARTI project.

California State Budget Account Our current assumption is that the ARTI concession agreement will require the developer to operate and maintain the state highway elements in ARTI over the full 35-year term of the contract. Caltrans will have the funding responsibility for these operation and maintenance (O&M) activities, as a component of the availability payment stream which will also span the full contract term. A State budget allocation is needed to secure this funding stream to allow Caltrans to make these payments. As the State is currently working on its FY14 Budget, staff needs to initiate discussions with Caltrans and the State so that should the ARTI project go forward as a PPP, we will be in a position to proceed on schedule.

Funding Agreements and Amendments There are currently in place several funding agreements between LACMTA and Caltrans for the 1-5 HOV/Truck Lanes project and the Soundwall Package 10. LACMTA and Caltrans will need to enter into amendments to the Existing Funding Agreements to reduce the grant amount from $38 million to $4 million and redefine the limited scope of work. The parties will then enter into a new Funding Agreement for Caltrans' performance of certain preliminary preparations associated with the ARTI Project starting July 1, 2013, including preliminary procurement activities, preliminary engineering, planning, and environmental compliance in an amount not to exceed $10 million.

DISCUSSION

Stipend A common industry standard, and one recommended by the Federal Highways Administration (FHWA), is to pay a stipend to each of the unsuccessful short-listed proposers. The Board has authorized the payment of stipends on several recent design-build projects including the Crenshaw/LAX Transit Corridor Project, and the Board is being requested to authorize the CEO to enter into bid stipend agreements for the Regional Connector Transit Corridor Project.

The bid stipend is to compensate each of the unsuccessful responsive bidders and to purchase their work products, which may include, but not be limited to, alternative technical concepts. LACMT A would be entitled to use all of the purchased work products in implementing the Project. These work products often result in cost-saving features that may be subsequently incorporated into the consortium contract, resulting in a lower overall project cost. Equally as important, offering a stipend demonstrates to

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the PPP industry a commitment to attract qualified proposer teams and stimulate competition.

The recommended stipend of $900,000 is actually less than the industry average of 0.25% of the Project capital cost. This is due in part to the fact that the highway projects in this package are fairly straightforward and do not require extensive design work to prepare a bid . The stipend is priced on the recommendation that LACMTA targets a shortlist of three teams with an absolute maximum of four teams.

The stipend would be prorated based on the timing of the payment. For instance, if the procurement is cancelled soon after release of the Request for Proposals, the stipend payment would be $100,000, increasing monthly up to the full stipend amount of $900,000 payable to unsuccessful proposers, or to all proposers if the procurement is cancelled at the end of the procurement timeframe. This results in a financial obligation to LACMTA in the range of $1.8 million (2 unsuccessful teams x $900,000 each) to $3.6 million (4 proposing teams x $900,000 each).

One suggestion received during our one-on-one meetings with industry representatives during the Industry Forum on July 9, 2012 was to have all short-listed proposers include in their budget proposal a sum to be allocated to a stipend "pool", from which the unsuccessful proposers will receive a set amount after contractor selection. This, in essence, structures the stipend so that the winner pays the losers, and the cost is included in the project's capital budget. We will continue to evaluate this methodology for stipend payment. This method, however, entails additional interest costs to LACMT A, as the cost of the stipends would be amortized over the full availability payment period of 35 years. If financial close is not achieved, LACMTA will still be liable for the stipend payments.

State Budget Operations and maintenance (O&M) activities for portions of the state highway elements will be included in the scope of work for the PPP developer. As LACMTA's financial contribution will be limited to the capital improvements, Caltrans will have the funding responsibility for these O&M activities, except for the tolling facilities. LACMTA staff will work with Caltrans and the State to secure State Budget authority for allocation of funds for Caltrans' share of the O&M costs, and any approvals needed to secure the allocation. Funds for O&M must be secured for the California Transportation Commission (CTC) to consider ARTI as a viable PPP project and to allow Caltrans to make the O&M payments. It is important to immediately initiate these discussions with the State in order to be part of the State's FY14 Budget process. A preliminary estimate by Caltrans indicates that the cost of such O&M is approximately $100 million. The final cost of the O&M will be determined at the financial close of the procurement process.

Caltrans Funding Agreements and Amendments The ARTI project consists of the following 6 project elements:

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• 1-5 North Capacity Enhancements from SR-14 to Parker Road; • 1-5 North Pavement Rehabilitation from SR-14 to Parker Road; • SR 71 Gap Closure from 1-10 to Mission Boulevard; • SR 71 Gap Closure from Mission Boulevard to Rio Rancho Road; • Soundwall Packages 1 0; and • Soundwall Package 11.

LACMT A has separately programmed funds for five of these six project elements over the next 30 years. Funding for the 1-5 North Pavement Rehabilitation will come from Caltrans. LACMTA and Caltrans are currently parties to an existing Funding Agreement which provides $38 million for the 1-5 HOV/Truck Lanes from SR-14 to Parker Road and the Soundwall Package 10 (the "Existing Funding Agreements"). The financial analysis undertaken as part of the ARTI draft business case indicates that in order to build these projects by 2019, as opposed to in some cases 2040, and close the funding gap of approximately $100 million that exists on the 1-5 element, the planned high occupancy vehicle (HOV) lanes on the 1-5 should instead be implemented as high occupancy toll (HOT) lanes, with toll revenues being used to offset a portion of LACMTA's funded and unfunded costs under an availability payment structure. A final business case analysis is pending. In the meantime, delivering this project with a HOT lane facility requires supplemental environmental documentation. LACMTA Board approval is necessary to authorize and pay Caltrans to prepare the supplemental environmental documentation for the HOT Concept as part of the preliminary preparations for the ARTI Project.

While Caltrans has not yet decided to move forward with ARTI as a PPP project, LACMT A and Caltrans staff have agreed to commence preliminary preparations so that once the full and final business case information is available, Caltrans/LACMTA policy decisions are made, and the ARTI Project complies with all environmental requirements, the parties will be in a position to commence the ARTI Project on the current schedule. As part of the preliminary preparations, Caltrans' participation is needed in the preparation of preliminary procurement documents, preliminary engineering, planning, and environmental compliance. Staff believes the unused funds from the Existing Funding Agreements and consolidated funds programmed in future years will be sufficient to cover the cost of Caltrans' preliminary preparation efforts, which will not exceed $10 million.

Tolling The delivery alternative of the ART I project that shows the most promise of accelerated delivery and cost savings is a design-build-finance-operate-maintain (DBFOM) PPP procurement, utilizing an availability payment structure with a HOT lane facility on the 1-5 North Capacity Enhancement element of the project. The pending business case analysis is not yet complete with respect to LACMTA self-financing. It is anticipated the toll revenues collected from this facility will be used to offset a portion of LACMTA's cost, similar to the Expresslanes congestion reduction demonstration program currently under construction on the 1-10 and 1-110 Freeways.

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To consider building a HOT lane facility, it is necessary to undertake a supplemental environmental documentation. Funds which were allocated for the 1-5 HOV/Truck Lanes project are now available to pay Caltrans for this new work. Approval from Federal Highways Administration (FHWA) is anticipated by September 2013. At its November 2012 meeting, the Board authorized the CEO to work with the Southern California Association of Governments to amend the 2012-2015 Regional Transportation Plan/Sustainable Communities Strategy to incorporate a HOT facility on the 1-5 North, to ensure consistency with our Long Range Transportation Plan and LACMTA's PPP Program.

We have commenced a public outreach program to discuss the 1-5 North HOT lanes with community members and stakeholders in the North County area. We have also revisited our partners in the communities where the other elements of the Project are located, updating all with respect to our anticipated new delivery dates and any changes in scope. This outreach effort will extend through March 2013; community meetings were held in Stevenson Ranch and Santa Clarita during the week of February 25. We will develop a tolling policy and request Board approval of that policy. Since this facility will be located on the State Highway system, the final decision is with the CTC, under authority granted to it by Streets & Highways Code Section 143, as to whether the facility will be tolled and delivered as a PPP project.

DETERMINATION OF SAFETY IMPACT

The actions requested will have no impact on LACMTA's established safety standards.

FINANCIAL IMPACT

Funding for this project is in cost center 4730, Highways Program, under project number 405603, ARTI (formerly referred to as Highway Goods Movement Package). The funding is a part of the total cost estimate for this package of projects, and therefore will not decrease the amount of funds forecasted to be available for other projects in the Long Range Transportation Plan (LRTP) and Measure R program.

The full financial impact of the finance strategy for the ARTI Project is still under study. Part of the business case analysis is developing a comparative finance strategy that would utilize LACMTA's existing forms of finance, such as tax exempt bonds or other strategies. Since this is a multi-year project, the cost center manager and Executive Director, Highways Program will maintain responsibility for budgeting costs in future years.

BUDGET IMPACT

Impact to Budget The source of funds for ARTI is Proposition C 25% (48%) and Measure R 20% Highway Capital (52%). The Proposition C fund sources will be reimbursed according to the Board adopted policy on reimbursement of Measure R for projects that start before they

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are eligible for Measure R funds. These funds are not eligible for bus/rail operating or capital expenses. Funds for the proposed Caltrans Funding Agreement will be from unused funds made available under the Existing Funding Agreements. No other budget sources are impacted by these actions.

ALTERNATIVES CONSIDERED

Not funding Caltrans' preliminary planning work will likely delay the overall schedule of the ARTI Program. Delay in addressing the allocation of State budget funds will impact the ability to secure necessary approvals within this year's State budget cycle which is a critical criterion for CTC to approve ARTI as a PPP project.

NEXT STEPS

Upon Board approval, staff will enter into funding agreements with Caltrans as set forth above. Staff will begin preliminary discussions with Caltrans and the State for the appropriate allocations to the State's FY14 Budget.

Once the business case analysis is complete, the LACMTA Board of Directors and the CTC must act to approve the preferred approach to the building the Project. We will return to the Board in the spring with the results of the analysis and a recommendation on how to proceed.

ATTACHMENTS

A. Draft Accelerated Regional Transportation Improvements Project (ARTI) Schedule

Prepared by: Kathleen Sanchez Public-Private Partnership Program Manager (213) 922-2421

Public-Private Partnership Program (ARTI) 6

tv~~' Roger S. Moliere Chief, Real Property Management and Development

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ATTACHMENT A

DRAFT- ARTI PROJECT PRELIMINARY MILESTONE SCHEDULE M•rc:tl E, lOU

2013 2014 2015 ACTIVITY MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN fEB MAR

Metro/ Caltrans si~n coop agreement !loard ~pprove stipend & procurement budget

l!oard approve toll in~ on 1-5 N. Express Lanes Metro issue RFQ l J Pre~re business case Bo;ord review prelimin;ory business case I ~ Board approv e TI FIA LOI

Submit preliminary business case to CTC Submit TIFIA LOI to US DOT ISsue short I in of proposer. ! J A pply for PAB allocation

Board ~pprove P~ applic~tion to the CTC

Submit CTC application for P3 I j Submit concept of operations to FHWA Presentation with ~ltra:ns at a: CTC hearin' 1 1 Issue dr~ft RFP to shorthned teams

submit RFP to FHWA for approval lssueRFP ' Recerve and eva luate proposals select preferred concessionaire I • Hold public hearing on proPOsed P3 agreement submit public hearinr; comme nts and P3 ~greement to the Legislatu re Recefve and incorporilte P3 comments from the leg•slature Caltrans and concessionaire execute P3 acreement I I Support concessionaire in TIFIA negotiations l!oard approve final fundinJ! agreement with caltrans I Finand•l dose ;md NTP for design and construction ! --- -

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