Infra Insight Blog : written by Nossaman LLP Infrastructure attorneys, covers infrastructure project delivery, including Public-Private Partnerships, Operations & Management Agreements, policy, and news.

On June 22, 2010 the Texas Department of Transportation’s I-635 project became the first U.S. highway public-private partnership (P3) to achieve financial close in 2010. LBJ Infrastructure Group - a Cintra-led consortium - will build, finance, maintain and operate a 17-mile corridor which includes managed lanes in the congested Dallas-Fort Worth area. This project along with the North Tarrant Express (NTE), one of three U.S. transportation P3s to close in 2009, are nationally significant for advancing the use of managed lanes to address congestion.

The projects are notable not only for their magnitude and the method in which they will be developed, but also for their unique tolling and financial characteristics. Specific precedent setting-features include:

• The projects are valued as the largest transportation greenfield P3 projects in the United States and include construction costs of $2.7 billion for the I-635 and $2 billion for the NTE.
• The projects confirm the importance of Transportation Infrastructure Finance and Innovation Act (TIFIA) and private activity bonds (PABs) as financing mechanisms. The I-635 includes the largest amount of PABs for a U.S. toll road concession. The TIFIA loans of $850 million for I-635 and $650 million for NTE are the second and third largest to close.
• The Dallas Police and Fire Pension System is an equity partner in the private developer for both projects, making it the first pension fund to invest directly in infrastructure development in the U.S.
• They are the first two projects to obtain federal tolling authorization under the United States Department of Transportation’s Express Lanes Demonstration Program.
• To the extent that toll revenues exceed specified levels, the private developer will share up to 75% of the excess toll revenues with the Texas DOT.

The I-635 and NTE validate toll concession P3s as a viable method for delivering needed transportation projects in the United States.  For example, with the I-635, Texas DOT was able to leverage $489 million in public funds to deliver a project worth over $4 billion including costs for design, construction, operations and maintenance.  If past is prologue, the P3 market can expect more P3 toll concessions, as well as managed lanes projects, in the future.

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On June 1, the Georgia Department of Transportation (GDOT) announced the shortlist of qualified proposers for the West by Northwest Project.  The three shortlisted teams are eligible to receive the Request for Proposals for the project, which is expected to be issued in the fall. The selected teams are as follows:

The West by Northwest Development Partners

• Equity: VINCI Concessions and OHL Concesiones.
• Lead Contractors: Archer Western Contractors, OHL USA and the Hubbard Construction Company.
• Lead Engineering Firm: Parsons Transportation Group.
• Lead Operations and Maintenance Firm: VINCI Concessions and OHL Concesiones.

The Georgia Mobility Partners

• Equity: Cintra Infraestructuras, MINA USA (subsidiary of Meridiam Infrastructure) and Grupo Soares da Costa.
• Lead Contractors: Ferrovial Agroman and Prince Contracting.
• Lead Engineering Firm: AECOM Technical Services.
• Lead Operations and Maintenance Firm: Cintra Infraestructuras, MINA USA and Grupo Soares da Costa.

The Northwest Atlanta Development Group

• Equity: ACS Infrastructure Development.
• Lead Contractors: Dragados USA and C.W. Matthews Contracting Co.
• Lead Engineering Firm: PBS&J.
• Lead Operations and Maintenance Firm: ACS Infrastructure Development.

In addition to being GDOT’s first project under its new P3 program, the West by Northwest Project is viewed as a vehicle to reinvigorate the metro Atlanta and statewide economy.  Further information is available on the GDOT website. 

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The IBTTA is discussing the future of tolling existing interstate capacity in light of the Federal Highway Administration’s decision to reject Pennsylvania’s application to toll Interstate 80.

My opinion?

The political barriers to tolling existing interstate capacity are just as real and monumental as raising the gas tax. In the short to mid term the more likely scenario is an acceleration of the trend to toll new capacity within existing interstate rights of way. The Ft. Lauderdale I-595, the Ft. Worth North Tarrant Express, and the Dallas I-635 are all recent examples of blending existing nontolled interstate upgrades with new tolled lanes. I project many more such projects which will benefit all concerned with less political friction. In reauthorizing the highway program Congress should follow the recommendations of the National Surface Transportation Infrastructure Financing Commission and give the states more leeway to utilize this tool.

You can see what others have to say about it at the ITBBA’s blog Tolling Points.

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“It was the best of times, it was the worst of times…”  Dickens could have been describing 2009, as the P3 market continued to look strong, notwithstanding the economic downturn. Last year three significant P3 deals reached financial close in the United States: in March the I-595 in Florida, in October the Port of Miami Tunnel also in Florida, and mid-December the North Tarrant Express in Texas. All were remarkable in their own right, and cumulatively earned Nossaman the top spot in Infrastructure Journal’s league tables in the North American Transport P3 legal advisor category. 

We take a look back at what made the deals remarkable and what 2010 might bring…

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Ahead of schedule, NTE Mobility Partners has announced that the Texas Department of Transportation’s North Tarrant Express Managed Lanes project has reached financial close. Under the PPP deal, NTE Mobility - a Cintra-led consortium - will build, finance, maintain and operate a 13-mile corridor in the congested Dallas-Fort Worth area. The $2.02 billion project includes funding from $400 million worth of private activity bonds (PABs), $650 million in TIFIA credits, $573 million in investment from TxDOT, and $427 million in equity from NTE Mobility. The project reached commercial close in June 2009.

Last week’s unwrapped bond offering was oversubscribed 2.4 times, highlighting the market confidence in PPP deals. The Dallas Police and Fire Pension System is a 10% equity partner in NTE Mobility, the first pension fund to invest directly in infrastructure development.

Additional segments of the North Tarrant Express will be developed under a pre-development agreement with an affiliated developer, upon successful completion of negotiations. The North Tarrant Express projects, coupled with the IH-635 PPP deal and the Dallas Fort-Worth Connector design-build project highlight the role of the DFW Metroplex as a national laboratory for developing innovative approaches to solving transportation problems.

The North Tarrant Express project is the third PPP deal to reach financial close in 2009, after the I-595 Managed Lanes Project and the Port of Miami Tunnel Project, both in Florida. 

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On October 8, 2009, FHWA issued electronic toll collection rules in response to a 2005 SAFTEA-LU law, which in all respects reiterate the status quo for the tolling industry and provide no guidance or standards with respect to SAFTEA-LU’s goal of progressing towards a nationwide interoperable electronic toll collection system.

With regard to interoperability, Section 950.7 of the rules require the tolling agency to identify: (i) the projected users of the facility; (ii) the predominant electronic toll collection systems likely utilized by users of the facility; and (iii) the non-cash electronic technology likely to be in use for the next 5 years in that area, including a requirement that the tolling agency demonstrate that “the selected toll collection system and technology achieves the highest reasonable degree of interoperability with both technology currently in use at other existing toll facilities and with technology likely to be in use at toll facilities within the next five years in that area.” 

All of these requirements specifically focus on existing and local interoperability, but do not require a specific standard for nor set a specific path to achieving national interoperability. The comments that FHWA received in response to the Notice of Proposed Rulemaking suggested that setting a specific interoperability standard would be premature pending changes made possible with wide scale adoption of 5.9 GHz technology. Moreover, the response to comments also made clear that there was no clear consensus around what standards national interoperability should be built. Thus, FHWA adopted a rule that essentially maintained and encouraged existing trends toward achieving regional interoperability, and provided for reasonable opportunities for motorists outside of particular toll systems to pay tolls through alternative means. 

Hence, the “interoperability requirements” set forth in these rules have long been the industry standard in developing tolling collection systems. Well before these rules were promulgated, tolling agencies have spent considerable time and money researching these identical factors in developing toll collection systems. Without any federal rules requiring toll agencies to move towards a nationwide interoperable system, toll agencies will likely continue to focus its efforts on developing toll collection systems that are generally accepted and used in the local area, which is entirely acceptable under these newly promulgated federal rules.

FHWA signaled its intent to address interoperability again as new technologies come on line and if the demand to true interoperability increases.

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California will soon have a new authority that can authorize California transportation agencies to toll transportation facilities, eliminating the need for legislative approval for each tolling project. 

AB 798, a bill sponsored by state treasurer Bill Lockyer and recently signed by Governor Schwarzenegger, creates a new state level agency, the California Transportation Finance Authority, with the limited purpose of issuing revenue bonds for new capacity or improvements to the “state transportation system” at the request of a public sector “project sponsor”. Project sponsors include the state department of transportation (Caltrans) as well as regional or county transportation agencies. Eligible projects include a wide range of transportation improvements, including highways, streets, rail bus or related facilities owned and operated by Caltrans or other project sponsors. The Authority is governed by a seven member board chaired by the State Treasurer, and includes local agency representatives appointed by the State Legislature.

In addition to establishing a statewide “conduit” revenue bond issuer, the new law makes further advances in the use of pricing to pay for needed transportation improvements. 

With passage of AB 798, highway projects that meet the normal planning and environmental review requirements would be eligible for tolling if they meet the requirements for financing through the new Authority, even if they are financed by other means. 

The only political approval that would be required for these new toll projects would be a majority vote by the board of the project sponsor authorizing the imposition of tolling, OR majority approval of the voters in its jurisdiction. 

AB 798 has been described by Treasurer Lockyer as promoting “public-public partnerships” vs the “public private partnerships” for transportation projects approved earlier this year, thus giving Caltrans and local transportation agencies another option to consider.

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The Florida Department of Transportation (FDOT), announced at a press conference in Miami today that it has reached financial close on the Port of Miami Tunnel Project. 

FDOT, in partnership with Miami-Dade County and the City of Miami, entered into an agreement with MAT Concessionaire, LLC (MAT) which includes Meridiam Infrastructure Finance, S.a.r.l. and Bouygues Travaux Publics as equity members. The $900 million public-private partnership (PPP) deal uses an availability payment structure that provides for payment to MAT over 30 years after completion of construction, which is expected to occur in five years. This is the second transportation infrastructure project in the United States to use an availability payment structure, following the recently closed FDOT I-595 Corridor Improvements Project. 

Financing for the project includes a $341 million low-cost federal loan through the Transportation Infrastructure Finance and Innovation Act, equity contributions from MAT, and $330 million in loans from the following senior lenders:

• BNP Paribas
• Banco Bilbao Bizcaya Argentina
• RBS Citizens
• Banco Santander
• Bayerische Hypo
• Calyon, Dexia
• ING Capital
• Societe Generale
• WestLB

The Port of Miami Tunnel will link the Port of Miami facilities on Dodge Island with MacArthur Causeway and I-395 via twin 42’ diameter tunnels under Biscayne Bay, increasing the Port’s competitiveness and relieving congestion in downtown Miami by diverting passenger and freight traffic to I-395 and improving access to I-95. The project also includes widening of MacArthur Causeway and other roadway improvements.

Bouygues Civil Works Florida, Inc. will design and construct the project with engineering assistance from Jacobs Engineering Group, Inc. VMS, Inc. will serve as the lead operations and maintenance contractor. In addition to Nossaman, FDOT’s advisors include Jeffrey Parker & Associates (financial), Parsons Brinkerhoff and T.Y. Lin (technical), and Marsh (insurance).

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Texas Department of Transportation (TxDOT) officials executed a comprehensive development agreement (CDA) with the LBJ Infrastructure Group to design, construct, finance, operate and maintain the 13-mile LBJ-635 corridor in Dallas County. Following the North Tarrant Express (June 2009), the LBJ-635 is TxDOT’s second toll concession to reach commercial close this year.

Construction is expected to begin by mid-2011 and open to traffic in late 2016. Motorists will have a choice of either using the managed toll lanes or remaining on the improved and rebuilt free main lanes. The new LBJ  highway will feature the following improvements:

• 8 rebuilt free main lanes (a foot wider than they are now)
• Additional shoulders on the outside of the main lanes
• Continuous frontage roads (two or three lanes wide)
• 6 barrier-separated managed toll lanes located between or below all frontage roads

For a state investment of approximately $445 million, these improvements will provide $4 billion of needed infrastructure to the Dallas area, as well as operations and maintenance over the next 52 years.  

The financing plan for the project through project completion includes a combination fo senior bank debt, private activity bonds, a subordinated TIFIA loan and a sizeable equity contribution.

LBJ Infrastrucure Group is a limited liability corporation consisting of:

• Cintra, Concesiones de Infraestructuras de Transporte, S.A (Equity Owner)
• Ferrovial Agroman, S.A. 
• W.W. Webber LLC 
• Bridgefarmer & Associates, Inc. 
• Meridiam Infrastructure Finance (Equity Owner) 
• Macquarie Capital (USA) Inc. 
• Ferrovial Infraestructuras S.A 
• Grupo Ferrovial 
• Meridiam Infrastructure, S.C.A. SICAR 
• Dallas Police and Fire Pension System (Equity Partner)

The presence of the Dallas Police and Fire Pension System within the group is notable as further evidence of public pension funds’ interest in making direct investments in transportation infrastructure.

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The Government Accountability Office (GAO) has endorsed USDOT’s policy of allocating Highway Trust Fund (HTF) apportionments based on total lane miles in each state – including miles of highway built, operated or maintained through public private partnerships (PPPs). 

Each state’s share of the nation’s highway system (quantified as “lane miles”) has factored in federal aid allocations since 1976, though initially this measure excluded tolled facilities. In 1998, Congress greatly expanded the use of the lane mile funding formula with TEA-21, and eliminated the exclusion of toll roads from the allocation formula.

On guidance from GAO, Congress has used lane miles as a proxy for need, rather than relying on direct measures of need.  Under a “direct need” model, a state that let its roads crumble might be able to demonstrate a greater need, and garner more federal aid, than a state that responsibly invested in maintenance.   

GAO’s report, prepared for Senator Jeff Bingaman of New Mexico, describes the high level approach Congress has taken, which bases funding decisions on “states' highway system needs taken as a whole, not on direct state highway system construction or operating costs.” Under this approach, states can pursue critical transportation projects through PPPs without fear of diminishing their share of HTF dollars. 

GAO’s ruling recognizes the political and fiscal realities facing state transportation agencies. Denying inclusion of these PPP projects in the HTF allocation calculus would put states that have demonstrated their need for more funds and taken positive steps toward self-help by reaching out to private partners at a disadvantage. 

The report follows on the heels of two new bills introduced by Senator Bingaman, one of which, if adopted, will place a heavier burden on states seeking to deliver transportation projects through PPPs.  The Transportation Equity for All Americans Act (S. 884) would reduce the funding such states receive through their Highway Trust Fund allocation by changing the grant allocation formulas for several programs to exclude privately operated facilities from the state network. The bills are currently before the Senate Committees on Environment and Public Works and Finance. 

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Arlington County is seeking to delay (or possibly derail) a project designed to ease congestion and add new lanes to Northern Virginia’s clogged 95/395 corridor.  Arlington has challenged the Categorical Exclusion (CE) granted by the Federal Highway Administration (FHWA), which allowed the project to move forward without a full environmental analysis.

Arlington is concerned that the new lanes will “increase congestion throughout the corridor, and lengthen travel times, especially for transit.”  Buses, carpools (HOV-3), motorcycles and emergency vehicles will have free access to HOT lanes.

Drivers with fewer than three occupants will be required to pay to access the lanes.  Fully electronic tolling on the HOT lanes will allow customers to pay tolls with E-ZPass - eliminating the need for toll booths.

Tolls will rise with congestion, following a strategy known as “congestion pricing” that has been embraced with great success in San Diego and Orange County.  As the price goes up more people exit the lanes, maintaining free flow of traffic.

Fluor-Transurban, Virginia’s private sector partner charged with building and managing the new lanes, is no stranger to set-backs. Fluor has been doggedly pursuing HOT Lanes in Virginia since 2002.

Northern Virginia’s congestion woes are a serious concern - only Los Angelinos lose more time in traffic each year, according to the Texas Transportation Institute’s 2009 Urban Mobility Report. This lawsuit will likely focus pressure on the I-495 HOT Lanes project to prove the viability of the congestion pricing model for the Washington Metro Area. 

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