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Law & Policy

Mileage-Based User Fee Alliance Promotes Alternate Source of Transportation Funding

Posted in News, Policy

The Second Annual Conference of the Mileage-Based User Fee Alliance (MBUFA) was held in Washington, DC on February 24, 2015.  The MBUFA is a non-profit organization that promotes awareness and education about mileage-based user fees as an alternative for the future funding of improvements to the U.S. transportation system.  Attendees included policy makers, public sector representatives and private sector stakeholders weighing in on the topic “Sustainable Transportation Funding, Road User Fees: Is There Another Option for Achieving Financial Sustainability?”   The concept of a mileage-based user fee is to charge users of transportation infrastructure for its use, rather than relying on gas taxes primarily as the source of transportation infrastructure funding.  The MBUFA conference opened with Representative Earl Blumenauer (D. Ore.), who discussed two bills he introduced to address the nation’s aging infrastructure.  The first, the UPDATE Act would phase in a 15 cent increase in the gas tax over the next three years, then transition to a long-term alternate funding source to replace the gas tax entirely.  The second bill, the Road Usage Charge Pilot Project, would establish a grant program of $30 million to determine the costs and benefits of mileage-based user fee systems.

A subsequent panel spoke to an existing research project and study on the requirements of multistate mileage-based user fees, congestion pricing and implementation.  The panelists described the study, and a case study in the mid-Atlantic, and the I-95 Corridor Coalition’s long-range vision that resulted in a long-range vision that set forth all of the functions that would need to be accomplished by a multistate MBUF system that encompasses all miles traveled by all vehicles by state and jurisdiction as well as tolls and congestion-based charges.

The conference also featured a panel discussion of private sector experts who described the implementing technologies that are already available.  The panelists were asked what the “magic number” might be to allow states to implement a MBUF at no cost to the state.  The experts agreed that that number would vary based on the desired services associated with the fee and other unique factors.

More information about the Mileage-Based User Fee Alliance can be found here.

Will we see a trend for direct pension fund investment in US greenfields infrastructure?

Posted in PPPs, Tollroads/ Turnpikes/ Managed Lanes

Although historically the investment profile for pension funds has focused on established brownfields assets, the Canadian Pension Plan Investment Board (CPPIB) has recently invested $525 million AUD into the greenfields NorthConnex road tunnel in Sydney, Australia in partnership with experienced road operator Transurban and the Queensland Investment Corporation (QIC). CPPIB’s investment comes hot on the heels of the Public Sector Pension Investment Board’s (PSPIB) investment into Indiana’s I-69 availability toll-road project as part of the successful consortium and the Dallas Police and Fire Pension System’s (DPFPS) 2010 equity investment in Texas’ LBJ  Freeway (I‐635) availability managed lanes toll-road and may suggest an increased willingness for pension and infrastructure funds to invest in greenfields projects.

It’s no secret that the US P3 infrastructure market is growing, resulting in an increased appetite for infrastructure investment, so what might it take to develop investment by pension and infrastructure funds in US greenfields P3 projects?

Increase investment in infrastructure by relevant funds.  For the better part of the last decade, the US market has heard of an intention within pension funds to increase investment to infrastructure – usually to around 3% of the total fund investment. We have also seen an increase in the number of US funds specifically geared towards infrastructure investment and many examples of fund investment into de-risked projects (eg Teachers Insurance and Annuity Association – College Retirement Equities Fund acquisition of half of Actividades de Construcción y Services’ stake in Florida’s I-595 Corridor P3 project). If, however, infrastructure fund investment is to truly play a pivotal role in solving the US’s current infrastructure challenges, then there is no doubt the total investment percentage should continue to increase to match international fund investment leaders such as Canada (5%) and Australia (6%).

Return on investment for shareholders.  The primary responsibility of any institutional investor is to provide a return on investment to their members. Although infrastructure funds have historically preferred brownfield assets with guaranteed income streams (and therefore lower risk), the opportunity to invest in greenfield projects with significantly higher returns (albeit greater risks) is not unprecedented. CPPIB’s investment in NorthConnex is an example of this with the funding for the capital works being provided by an innovative financing structure that leverages enhancements to the existing M7 concession including extension of the existing concession, higher truck tolls and additional gearing with the private sector party maintaining demand risk. Although the bundling of the existing toll revenue stream from the operational M7 concession differentiates NorthConnex from a pure greenfields transaction, it is likely that significant due diligence was required to ensure lessons learned from perceived failed deals where demand risk has been transferred to the private sector (eg Lane Cove Tunnel in Australia and South Bay Expressway in the United States) were adopted to ensure a robust investment.

Increase knowledge base and resourcing within pension funds. Over the years, sophisticated infrastructure investors in Canada and Australia to a lesser extent have developed in-house expertise to allow direct investment in resources rather than being reliant on financiers or external consultants.  This increased expertise allows these investors to take lead roles in consortiums bidding on transactions from the outset and to exercise a greater degree of control over design, construction, operation, maintenance and long term participation in the asset. The development of this kind of in-house expertise is critical to developing a stable platform for infrastructure fund investment.

Political stability and development of a pipeline. Given the long term nature of a P3 investment, political and regulatory stability is essential to encouraging investment. For overseas investors in the US market, this will require confidence that there is political and public acceptance of private sector investment in infrastructure. For domestic and international investors, they will require certainty that a P3 pipeline will be developed and appropriately structured so as to foster private sector investment in projects deemed suitable for P3 delivery. For the latter reason, it seems no coincidence that the investment made by PSPIB was in Indiana, one of the States who has been progressive and consistent in development of a P3 program.

When considering whether CPPIB’s Australian investment, PSPIB’s investment in Indiana and DPFPS’s investment in Texas might spark a trend towards greater investment in US greenfields P3 projects, it is probably too early to tell. Given the investment strategy of pension funds is well aligned with a robust P3 model, there will likely be continued investment in brownfields projects (including where the project is de-risked after completion).  The opportunity for greenfields P3 investment will continue to depend on the private sectors appetite for risk (including transfer of demand risk), the ability for the private sector to properly assess the likely return on investment through thorough due diligence, the nature of the asset proposed to be delivered, the level of political certainty surrounding the project and the availability within the fund to take on a higher risk investment to balance its portfolio. Watch this space…

Florida Governor Rick Scott Breaks Ground on I-4 Ultimate Project

Posted in PPPs, Tollroads/ Turnpikes/ Managed Lanes

Florida Governor Rick Scott broke ground yesterday on the I-4 Ultimate Project, which will rebuild I-4 in metro-Orlando.  The Project involves the reconstruction of 21 miles of I-4 from west of Kirkman Road in Orange County to east of State Road 434 in Seminole County and promises to bring much needed relief to one of the most congested highways in the state.  Along with developing a signature corridor with aesthetic enhancements and landscaping to convey the “Florida Experience,” the Project will provide a choice to motorists by adding two variable priced toll express lanes in each direction while maintaining the existing free general use lanes.

At the groundbreaking ceremony, Governor Scott said, “Today, I’m proud to announce that we have broken ground on the I-4 Ultimate project, a $2.3 billion investment that will dramatically improve and expand the I-4 corridor in the Orlando area. The I-4 Ultimate project will reduce congestion while continuing to make our roadways better, safer and easier for Florida families and our visitors. Transportation projects like this will encourage people and businesses from around the world to move to our state and keep us on a path to become the global leader in job creation.”

The I-4 Ultimate Project is the third transportation P3 project in Florida developed through an availability payment structure, and is the largest availability payment transaction ever undertaken in the United States.  Under the P3 concession agreement, I-4 Mobility Partners, a consortium led by Skanska Infrastructure Development and John Laing Investments, will design, build, finance, operate, and maintain the 21-mile stretch of interstate for 40 years.  The use of a P3 for the I-4 Ultimate Project will help deliver the improvements nearly 20 years sooner than would the use of conventional methods.  The Project is expected to be completed in 2021.

For more information on the I-4 Ultimate Project, please visit the project website at www.i4ultimate.com.

I-4-Groundbreaking-Ceremony

Amtrak Bill Aims To Keep Northeast Corridor Profits on the Northeast Corridor

Posted in Rail and Transit

The House Transportation Committee has approved the Passenger Rail Reform and Investment Act, a bill that would reauthorize Amtrak and other rail programs.  The bill is substantially the same as the 2014 legislation and is described by the Committee as “bipartisan legislation that improves the infrastructure, reduces costs, creates greater accountability and transparency, leverages private sector resources, and accelerates project delivery for Amtrak and the Nation’s passenger rail transportation system.”  The 2014 bill did not receive a vote in the full House and the Senate did not take any action.  Leaders are optimistic that with Republican control of the House and Senate, there is a better chance of the legislation making its way to the President’s desk this year.

“This bill, which passed the Committee with unanimous bipartisan support last Congress, will give Amtrak the ability to modernize and improve so that they can best serve the millions of Americans who depend on their service daily,” said Rep. Jeff Denham, Chair of the Railroads, Pipelines, and Hazardous Materials Subcommittee and one of the sponsors of the bill.  “It will also cut costs, ensure greater accountability to the public, and speed up project delivery across the Nation.”

The bill includes a provision mandating that revenues generated on Amtrak’s only profitable line, the Northeast Corridor, be reinvested back into the Northeast Corridor instead of supporting other non-profitable routes. The House Transportation and Infrastructure Committee touted this provision as “target[ing] investments where there is the greatest likelihood of success.”

The Northeast Corridor runs, for the most part, on Amtrak-owned rail lines from Washington, DC to Boston.  Amtrak operates over 200 trains on the Northeast Corridor each day, and other commuter railroads operate 1800 daily trains on the Corridor.  The Northeast Corridor has over 200 million riders per year and has long been the only profitable route on the Amtrak system.  Last year, the Northeast Corridor generated revenue of over $480 million while the operating deficit from the long-distance routes was approximately $600 million.  However, due what the Committee calls Amtrak’s “black box” accounting, the revenues from the Northeast Corridor are not reinvested directly back into the Northeast Corridor but go into a general fund for Amtrak’s entire system.   The bill changes that accounting system, mandating that revenues from the Northeast Corridor be put back into Northeast Corridor improvements rather than going to support other, unprofitable routes.

Keeping the Northeast Corridor revenues on the Corridor could result in service improvements for the millions of passengers who rely on Amtrak to get back and forth between Washington and Boston each year.

California to Purchase High-Speed Trains

Posted in Design-Build, High-Speed Rail

Trainsets

On January 30, the California High-Speed Rail Authority (Authority) issued a draft Request For Proposals (RFP) for Tier III trainsets and invited industry to submit comments.

The Authority is seeking a trainset manufacturer to design, build and maintain Tier III trainsets.  The trainsets will have a minimum of 450 seats and be able to carry passengers from Los Angeles to San Francisco in less than three hours.

Firms that have submitted expressions of interest accepted by the Authority will be able to comment on the draft RFP.  All comments are due by Tuesday, February 24, 2015, at 3:00PM PST.  Prior to the Authority’s issuance of the final RFP, firms that submitted expressions of interest will be invited to participate in one-on-one meetings to discuss the draft RFP.

Rail Delivery Partner

On January 29, the Authority issued a Request For Qualifications (RFQ) for a rail delivery partner (RDP).

The services sought by the Authority through this RFQ include program management oversight, strategic advice, business planning, and management assistance.

Firms will have until March 23, 2015, at 3:00PM PST to submit their statements of qualifications.  The RDP contract would be for services through 2022.

More information is available on the Authority’s website:

http://www.hsr.ca.gov/Programs/trainsets/index.html

http://hsr.ca.gov/About/Doing_Business_with_HSR/contracts_for_bid.html

President Releases 2016 Budget Proposal

Posted in News

Earlier today, President Barack Obama released his approximately $4 trillion budget proposal for Fiscal Year 2016, which begins on October 1 of this year.  While the President’s proposed budget covers everything from defense to diseases, he has included a particularly ambitious proposal for transportation.

The President’s proposed budget provides $94.7 billion in funding for the Department of Transportation (“US DOT”), covering infrastructure development and safety enhancement in highways and bridges, transit, railroads, and aviation.  The President is proposing a one-time, mandatory 14% tax on American-based companies’ overseas profits to help fund the Highway Trust Fund, along with the current gas tax.  Similar “repatriation” proposals have been made in the past by both Democrats and Republicans.

In particular, the proposed budget includes a $478 billion, six-year surface transportation authorization, including the following highlights:

  • A permanent authorization of the Transportation Investment Generating Economic Recovery (“TIGER”) program, which was first implemented under the American Recovery and Reinvestment Act of 2009, and $1.25 billion per year to the TIGER program each year of the surface transportation authorization bill;
  • $18 billion to address freight bottlenecks;
  • Increasing transit and inter-city passenger rail funding to $144 billion;
  • $1 billion per year for the Transportation Infrastructure Finance and Innovation Act program, which provides credit assistance to projects of national or regional significance;
  • Funding for a new Interagency Infrastructure Permitting Improvement Center and a Permitting Dashboard within the US DOT, both intended to modernize the permitting process for infrastructure projects;
  • A new Fixing and Accelerating Surface Transportation program, which will dedicate $6 billion to incentivize state and local agencies to improve safety and address peak traffic demand management;
  • Establishing a National Infrastructure Bank, with $7.703 billion allocated over the next decade to help leverage public and private investment in infrastructure of national or regional significance; and
  • Creating two new bond programs:
    • Allocating $258 million over the next decade to American Fast Forward bonds, which are taxable bonds modeled after Build America Bonds and which provide state and local governments an alternative to traditional tax-exempt bonds; and
    • Tax exempt Qualified Public Infrastructure Bonds, which may be used on eligible projects such as airports, docks and wharves, mass commuting facilities, facilities for the furnishing of water, sewage facilities, solid waste disposal facilities, and qualified highway or surface freight transfer facilities owned by state or local governments and available for general public use.

The proposed surface transportation authorization in the President’s budget is different from last year’s GROW AMERICA Act proposal in two significant ways: (1) the new proposal will last six years; and (2) last year’s proposal did not include a formula for funding.

It should be emphasized that the President’s proposed budget is just that – a proposal.  Congress is required to take action on transportation and all other policy areas which, along with a Presidential signature, will enact changes.  With the most recent fix to the Highway Trust Fund expiring at the end of May 2015, work on this issue cannot start soon enough.

FDOT Study Finds Significant Cost and Time Savings with Design-Build Project Delivery

Posted in Design-Build

According to a recent internal study conducted by the Florida Department of Transportation (FDOT), the design-build project delivery method provides significant cost and time savings as compared to the traditional design-bid-build delivery method.  The study examined FDOT contracts from 2008 to 2012 that were valued between $30 million and $70 million, a group of contracts that included 11 design-build contracts and 47 design-bid-build contracts.  Looking in particular at a $55 million, 814‑day design-build project, the study found that the use of design-build results in a total cost savings of $6.4 million and a total time savings of 656 days.

Lowest Price Not Always Best Value

The study also compares best value selection to low bid selection to determine what value FDOT and the traveling public receive when the winning proposal for a project is not the lowest-priced proposal.  Although a design-build firm’s price proposal reflects the price of the design and construction of the project, the FDOT study finds that this price does not fully encapsulate the value that FDOT and motorists receive.  Often times a winning design-build firm’s technical proposal includes innovative elements that provide additional value which should be taken into account.

Secondary Benefits Often Provide True Value

Between January 2012 and January 2014, FDOT received proposals for 42 design-build projects.  Out of these 42 projects, 31 were awarded to the proposer with the lowest bid price and lowest adjusted score.  Eleven of the 42 projects were awarded to design-build firms that did not provide the lowest-priced proposals.  The proposals for these 11 projects often included design features that were better than the minimum acceptable design.  These improved design features were often made possible by secondary benefits in cost and time savings to the design-build firm and by the design-build firm’s willingness to take on risks that FDOT would not typically assume in the design phase of a design-bid-build project procurement.

The innovative elements of these 11 projects included design features that provided speedier project delivery, savings on future maintenance costs, and greater operational safety or service level as compared to the minimum acceptable design customary in design-bid-build procurements.  In some cases, the proposers provided warranty periods that were longer than what FDOT already requires or warranties for elements where FDOT does not presently have warranty requirements at all.

The report of the study contains several examples of innovative elements from some of the design-build contracts that FDOT has awarded to firms that did not provide the lowest-priced proposal.  These examples, and the report in full, can be found here.

Port of Miami Tunnel

I-595 Corridor Improvements

I-4 Ultimate

California Launches Road User Charge Pilot Study

Posted in News, Policy

This Friday, January 23, 2015, California will take the first step in investigating a road user charge pilot program as an alternative to the gas tax when the CTC convenes the Road User Charge Advisory Committee meeting.  The committee was created last year by SB 1077 which authorizes a pilot study.  California joins a handful of other states that are exploring road user charge pilot programs, including Oregon, Washington, and Minnesota.

The 15 member committee is made up of representatives of local and regional agencies, privacy advocates, auto groups and state officials.  According to the authorizing statute, the committee is to come up with recommendations to the Secretary of Transportation on the design of a pilot program.  Based on the recommendations of the committee, the Transportation Agency would implement a pilot program which would be implemented by January 1, 2017.

University of California Shortlists Three Teams for UC Merced 2020 Project

Posted in PPPs, Social Infrastructure

The Regents of the University of California (the “Regents”), on behalf of the University of California, Merced (UC Merced), announced today that three teams have been shortlisted to submit detailed proposals for the Request for Proposals (RFP) phase of the UC Merced 2020 project.

The three shortlisted teams and their equity members are (in alphabetical order):

  • E3 2020:  Balfour Beatty Investments, Inc.
  • EP2 Developers:  Edgemoor Infrastructure & Real Estate LLC, Plenary Group (Canada) Ltd., and Education Realty Trust, Inc.
  • Merced Campus Collaborative:  Lend Lease (US) Investments, Inc., Macquarie Capital Group Ltd., and ACC OP Development LLC

The Regents received six responses to its Request for Qualifications (RFQ), which was reissued on September 25, 2014.  The three shortlisted teams will now enter the RFP phase, which will solicit detailed proposals for the comprehensive development, design, construction, financing, operations, and maintenance of academic, administrative, research, recreational, student residence, and student services buildings.  The planned campus expansion is intended to support projected enrollment growth from 6,200 current students to 10,000 students by the 2020-2021 academic year.  The project will be developed on a 219-acre university-owned site which includes the current campus and 136 acres of adjacent, undeveloped land.  Proposals are expected to be received in late 2015.

Additional information about the shortlisted teams is available on the project website.

New President Ready to Take the Reins of International Bridge, Tunnel & Turnpike Association

Posted in News

Javier Rodriguez, P.E., Executive Director of the Miami-Dade Expressway Authority (MDX), is ready to begin his role as president of the International Bridge, Tunnel and Turnpike Association (IBTTA) for 2015.  Rodriguez was elected during IBTTA’s 82nd Annual Meeting and Exhibition in Austin, which brought together nearly 1,000 transportation leaders from more than 20 countries to discuss innovative practices, policies, technologies, funding options and business models transforming mobility for drivers worldwide.

As the executive director of MDX, Rodriguez led the charge in converting MDX’s expressways to an all-electronic system.  Before joining MDX in 2007, Rodriguez spent 16 years with the Florida Department of Transportation, including four years as Director of Transportation Development.

“I am honored to lead IBTTA and its members during this critical time for infrastructure investment,” said Rodriguez. “Our economy and mobility depend on the quality of our highways, bridges and tunnels and the tolling industry is front and center providing solutions to address congestion, mobility, interoperability, and the reconstruction of highways.”

Rodriguez will be a key player in IBTTA’s ongoing efforts to obtain flexibility for the states to meet their individual transportation funding challenges, including through the use of tolling on existing Interstate System routes.  Rodriguez will also head up IBTTA’s Moving America Forward public awareness campaign, which IBTTA launched in 2013 to highlight the benefits of tolling to elected officials, policymakers, the media, and the general public.  For more information about the Moving America Forward campaign, please click here.