|Posted on Monday, August 08, 2005|
We Mean Business. Illinois Business.
Private money fuels large transportation projects elsewhere
Although the Illinois and Missouri Departments of Transportation currently favor scaling back the New Mississippi River Bridge project as Plan B to keep it alive in the face of federal funding uncertainties, The National Council for Public-Private Partnerships says there's another way.
As the St. Louis region's business and political leadership waits and hopes for close to $300 million annually over the next six years to build the $1.6 billion span and related road work, discussion continues as to whether private sector involvement should be considered. In July, the latest federal transportation reauthorization bill was extended for an eighth consecutive time.
Rick Norment, executive director of The NCPPP, says the public-private partnership approach is increasingly being used effectively as a means of making large-scale transportation projects happen. Norment says the approach can be an ideal compromise between struggling to fund huge transportation projects all with federal and state dollars and completely privatizing the effort.
"The Trans-Texas Corridors are a great example of a working public-private partnership," he said, referring to a 50-year, $145.2 billion to $183.5 billion multi-use network of commuter and freight rail, utilities and telecommunications infrastructure across the Lone Star State - one that is in the early planning stages. "This massive effort to realign and expand Texas' transportation system would never be possible without help from the private sector."
A public-private success story Florida can tout, according to Norment, is the agreement between the city of Orlando, the state of Florida and Universal Properties - the real estate arm of Universal Studios - by which Universal paid for a new interstate interchange.
"Both public and private sector partners realized that when that interchange was put in, it would increase the property value substantially," he said. "There were 200 to 300 acres that there was no access to. Through a TIF (tax increment financing) arrangement, 75 percent to 80 percent of real estate revenues are paying off the bonds to build the interchange."
The private sector partner may wear a number of different faces, he said; it may be a real estate firm, a highway construction company or an entity that partners with a city or county and assesses user tolls - as in the case of the Chicago Skyway.
In this example, Norment said, the city of Chicago turned the management reigns over to Chicago-based Schlickman & Associates, a transportation consulting firm. By helping a consortium known as Cintra-Macquarie in its winning bid, the company secured a 99-year lease with the city; Cintra-Macquarie is paying $1.8 billion for use of the toll concession and it hopes long-term, efficient management will result in operation of the Skyway at a cost less than what the city charges in regulating the tolls.
Meeting the congestion factor head on, Schlickman & Associates rolled out a variable-rate tolling program for truckers driving heavy rigs with three axles or more. The program, which took effect along the Skyway in February, offers a noticeably discounted toll rate if truckers travel the stretch during the evening, after peak commuting times.
Why don't more major road projects involve private players? Norment says the answer may include two factors: 1) the mindset of federal and state public transportation entities and 2) the level of risk and amount of time private partners are willing to invest to reap a long-term reward.
"Experience has illustrated that it takes time to put these (public-private) deals together," he said. "One of the reasons a state DOT will go into a project like this is that it will take less time to structure the financing. The negotiation time on some of these transportation projects is as little as one year, with a two- to three-year construction timeframe - versus a five- or seven-year state DOT funding program."
The Dulles Greenway, a 14-mile, limited-access highway carrying vehicles from Washington D.C.'s Capital Beltway and Dulles International Airport to Leesburg, Va., was a $340 million project funded through a 42.5-year lease by a private consortium known as Toll Road Investors Partnership II. To finance it, TRIP II put up $40 million in equity and secured $310 million in privately placed taxable debt. Ten institutional investors provided $258 million in long-term, fixed-rate notes. Three large banks agreed to provide the construction funding and $40 million in revolving credit. Loans on the greenway, which opened to traffic in 1995, are being repaid with toll revenues; financing is secured by a first mortgage and security interest in the developer's right, title and interest in the project.
Would any of these models fit the New Mississippi River Bridge project scenario?
Jim Pennekamp, executive director of Leadership Council Southwestern Illinois, says that the idea of public-private partnerships is one that arose years ago in the early planning stages of the new bridge effort.
"Early on in the planning, (funding) alternatives were explored," he said. "At that time, the decision was made by IDOT and MoDOT that traditional financing was the best option. I know at this point, we're waiting for a hopeful resolution of the federal transportation bill. Once we find out what happens, then in fact we can pursue other discussions. I think most people's attitude right now is that the discussion is open-ended."
Pennekamp added that the models referred to by Norment work in a market where there is significant land appreciation.
"I don't think that model would work in the context of the New Mississippi River Bridge," he said. "The only revenue stream that I am told would work is tolling, and it's controversial."
U.S. Rep. Jerry Costello, a Democrat representing Illinois, says tolling the new bridge would negate one of the goals of the project - to reduce congestion from Illinois across to Missouri.
"Traffic congestion is only getting worse," the congressman said. "And tolling just one bridge (across the Mississippi River) will not work. You would either have to toll all of them or none of them."
Bruce Holland, chairman of the transportation committee of Leadership Council Southwestern Illinois, says the Lake of the Ozarks, Mo. formed a transportation district and built a half-mile toll bridge there to open up opportunities for development. The public-private partnership included the Missouri Highway Commission, the Lake of the Ozarks Community Bridge Corp. and the Four Seasons Corp.
To fund the $28.78 million project, the bridge corporation sold tax-exempt toll revenue bonds to cover construction costs. A total of $43 million in bridge system refunding bonds were sold to fund the debt service. The bridge, which connects Horseshoe Bend and U.S. Business Route 54, was completed in 1998.
"In the planning of the New Mississippi River Bridge, there has been discussion all along about public-private partnerships," said Holland. "But I don't see that it's going to be like O'Fallon, Mo., where they built Highway K (from Interstate 70 to Highway 40) for development purposes. In that instance, it was actually the municipality that said 'We'd like to see it happen.'"
MoDOT had planned the Highway K project into its multi-year transportation funding program, but Holland said the revenue stream was spread over too many years to satisfy the city of O'Fallon.
"So the city funded the construction of the road and it was a great success," he added. "It opened up a lot of property for development."
Holland says he would be surprised if there were private sector players willing to fund construction of the New Mississippi River Bridge, but that there have been Missouri-based discussions about total privatization.