Poole, Minnesota highways

8/7/2019 Poole, Minnesota highways

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Safeguarding and Modernizing

Americas Highway

Infrastructure

byRobert W. Poole, Jr.

Director of Transportation Studies,

Reason Foundationwww.reason.org/transportation

[email protected]
http://www.reason.org/transportationhttp://www.reason.org/transportation


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Overview of Presentation

The problems with the status quo:

its not just lack of fundingHow 21st-century tolling addressesthese problems

How PPPs could fit inand why

Minnesota applications


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Major Funding Shortfall

FHWA Conditions and Performance Report,every 2 years

Latest one (2006) shows the following:

Annual capital spending:$70 billion

Investment needed to maintain performance:$79 billion ($9B/year shortfall)

Investment needed to improve performance:

$132 billion ($62B/year shortfall)


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Why the shortfall:

Decline in real value of the fuel tax ($1997)

1950 1960 1970 1980 1990 2000 2010

Average

5.00

4.00

3.00

2.00

1.00

0

Centsp

ermile


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Second major problem:

Political allocation of highway funding

Federal level

High-growth donor states get less, but theirneed for new capacity is more.

Record-high level of earmarks--funds low-priority projects at the expense of high-priorityones.

State level

Pressures to fund projects in every districtsomajor lumpy projects dont get funded.


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Third major problem:

Maintenance as the neglected stepchild

Cutting ribbons is dramatic; properannual maintenance is not.Lowest-bid construction often leads tohigher life-cycle costs.But, deferring maintenance is an easybudget cut, compared with many other

state budget needs.Highways and bridges lack anendowment fund to ensure properongoing maintenance, reconstruction.


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Its an institutional problemPolitical incentives lead to spending onnumerous low-priority projects, making

large lumpy projects hard to fund.System is biased toward newconstruction vs. adequate maintenance.

Low-bid process leads to higher life-cycle

costsbecause cheap constructionrequires more maintenance.

But maintenance is all too easy to defer.


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Why finance

highway development?

Fairness: those who benefit from theroadway pay for it as they use it,over its useful life.

Benefits sooner: needed projects putinto service years or decades

sooner.Backlog catch-up: excellent way tocatch up with unmet needslikedeficient bridges.


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GAO on toll finances advantages:Provides new revenue source;

Promotes more effective investment

strategies;Better targets spending for new andexpanded capacity;

Leverages existing revenue sources,via private-sector investment.

Source: GAO-06-554, June 2006


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Maintenance endowments

First priority for toll revenues isoperating and maintenance costs.

Toll road must be in top shape topersuade people its worth paying.

Enforced via bond covenants.Thus, tolling solves themaintenance problem.


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Tolling and life-cycle costsFinancing based on 30-40-year model.

Makes sense to minimize life-cycle costs, not

initial cost.Electronic toll collection costs a small fractionof 20th-century toll plazas.

Hence, 21st -century toll roads are a wiser

investment than gas-tax roads.


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Common perception:

toll roads are just a side-show.

Only 5,000 route-miles of toll road,

of which 2,800 are on theInterstate system (FHWA).

Toll revenues are only 5% of total

state highway revenue.BUTnew data challenge thatperception.


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Tolling is an important factor in new

highway capacity.

Since enactment of ISTEA law in 1991:

147 new toll projects in various stagesof development.

Encompass 22 states + Puerto Rico.

If all built, would be 13,800 new lane-

miles.Estimated cost: $75 billion.

Source: PB Consult report for FHWA Office of TransportationPolicy Studies, April 2006


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And tolling is major fraction of new

limited-access capacity

Were only adding about 150 route-

miles/year of limited-access highway.

Tolling accounts for 30 to 50% of this total,since ISTEA (50 to 75 rt.-mi./year).

PB finds the rate of tolled, limited-accessprojects increasing to nearly 150 rt.-mi./year.


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Electronic tolling makes road

pricing feasible:

HOT lanes as on I-394

Express toll lanes for congestionrelief on major freeways

Priced lane is Virtual Exclusive

BuswayTruck-only toll lanes couldaccommodate growing freight traffic.


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Priced Lane Projects, 2007


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What does the private sector

have to offer?

Why not continue with public tollagencies?

Private concession model offers:

Large pool of new capital

Ability to raise more for a given project

Risk transferMulti-state potential

A more commercial approach

Innovation


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How toll concessions work:Company designs, finances, builds,operates, charges for use of facility

for N years;Competitive selection process;

Project financed based on credible

toll revenue stream;Public interest protected viaprovisions in the concessionagreement.


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New sources of capital:Taxable debt market

Bank financing

Equity

Corporate/sponsor equity

Public share offerings

Institutional investors (pension funds,insurance companies, buyout firms)


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More funding from a giventraffic projection:

Traditional toll agency finance:

30-year tax-exempt bondsStringent coverage ratios

Global toll finance model:More aggressive growth projections

40+ year financing

Equity providers willing to take trafficrisk

Depreciation benefits


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Risk transfer (from taxpayers to

investors)


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Multi-state projects (toll truckways)


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Innovation to solve

difficult problems

Value pricing (91 Express Lanes)

Value engineering (Beltway HOTlanes)

Missing links (A86 tunnel)

Elevated expansion (Tampa)

Noise solutions (CityLink)


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91 Express Lanes,

Orange County, California


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Value-engineering the Washington,

DC Beltway HOT LanesVDOT plan to add 2 lanes each way toSW portion of Beltway: $3B, opposition

Private concession proposal:Eliminated a pair of breakdown lanes

Reduced number of access points

Replaced Jersey barriers with pylons

Slashed number of property takesBottom line: $1B + community support


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Missing Link on Paris A-86 Ring Road:Toll Tunnels


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Double-Deck, Cars-Only Tunnel Slashes Cost


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Tampas elevated express toll lanes


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Elevated Tollway with Sound Tube

(Melbourne)


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Concession Agreement Protects the

Public Interest

Length of term

Toll rate caps (formula)Performancerequirements/penalties

Buyout provisionsDefault provisions

Amendment provisions


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Possible Minnesota ApplicationsState already has a PPP law;review and update, if necessary.

Rebuild major bridges

Twin Cities Express Toll/BRTnetwork

Possible toll truckways on I-35and/or I-94


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Summary: How tolls & PPPs

address the institutional problems:

Investors seek projects with solid

ROIlarge lumpy projects.Same entity designs, finances,owns and operatesminimizes life-

cycle cost.Maintenance endowment built in,along with replacement funding.


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Safeguarding and Modernizing

Americas Highway

Infrastructure

byRobert W. Poole, Jr.

Director of Transportation Studies,

Reason Foundationwww.reason.org/transportation

[email protected]
http://www.reason.org/transportationhttp://www.reason.org/transportation

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Poole, Minnesota highways