NEWBERG-DUNDEE TRANSPORTATION IMPROVEMENT PROJECT. Milestone 1 Final Report Feasibility Assessment

Transcription

1 NEWBERG-DUNDEE TRANSPORTATION IMPROVEMENT PROJECT Milestone 1 Final Report Feasibility Assessment

2 C/O Macquarie North America Ltd. Suite 2664, 1055 Dunsmuir Street Vancouver, BC, V7X 1K8 Phone: (604) Fax: (604) Newberg-Dundee Transportation Improvement Project Milestone 1 Final Report 12 DECEMBER 2006

3 TABLE OF CONTENTS 1. Executive Summary 5 2. Overview Introduction Purpose of Report Public Private Partnership Delivery Definition of a Public Private Partnership Benefits of PPP Delivery The Early Partnering Approach to PPPs PPP Features for the Newberg Dundee Project Development Plan Introduction Description of Project and Corridor Project Modifications and Extensions Funding Options Federal Earmarks Gas Taxes Vehicle Registration Fees Regional Property Tax Increases Land Value Capture Tolling Funding Summary Tolling Overview Types of Tolls Toll Levels and Categories Method of Payment Electronic Toll Collection Key Tolling Policy Issues Preliminary Investment Grade Traffic Study Introduction Data Sources Forecasting Model Development Socioeconomic Characteristics Economic indicators Growth Assumptions Bypass Tolling Options Sensitivities 66 Milestone 1 Final Report PAGE I

4 3.4.9 Comparison to Previous Forecasts Tolling the 99W and the Bypass Traffic and Revenue Forecasts Complete Summary of Tolling Options Preliminary Technical Review Risk Transfer Cost Estimate Assumptions Baseline Case Capital Cost Review McMinnville Extension Cost Estimate Cost Benchmark Key Capital Cost Drivers and Potential Cost Savings Lifecycle Cost Estimates Operations and Maintenance (O&M) Cost Estimates Tolling Operation Cost Estimates Key Performance Criteria Schedule Financial Feasibility Analysis Financial Model Overview Financial Feasibility Analysis Methods to Reduce the Required Toll Level and Improve Viability of the Project Level of Tolls and Funding Gaps Consideration of Extensions Public Communication & Public Education and Acceptance Plan Public Education and Working Group Joint Determination of Tasks Summary of Public Attitudes Outline of the Current Situation Opportunities & Obstacles to Public Acceptance Proposed Approach to Gaining Public Acceptance Timing Conclusions Preliminary Implementation Plan Introduction Allocation of Risk Overview Project Delivery Organizational Structure Oregon Transportation and Improvement Group Role of Technical Advisor Design Build Procurement and Risk Transfer 133 Milestone 1 Final Report PAGE II

5 4.3.4 Operations & Maintenance Procurement and Risk Transfer Financing Procurement and Risk Transfer Implementation Agreement Key Issues Concession Agreement Term of Concession Scope of Concession Key Features of the Newberg Dundee Project Preliminary Financing Plan Introduction Revenue Profile & Mechanisms to Bridge the Funding Gap Background Differences between public and private financing Funding Gap Capital Grants Operating Period Performance Availability Payments Revenue Shortfall Guarantees Subordinated Debt and Subordinated Equity Instruments Contribution of Existing Assets Taxation Incentives Upside Sharing and Recapturing the Value of Public Sector Investment Financing Structure Equity Senior Debt Keys to Creating Value Debt Financing Strategy Approach to Sourcing Debt United States & International Bank Debt Bonds Bank vs. Bond Debt Private Placement Monolines Case Studies Alternative Financing Instruments TIFIA Private Activity Bonds TIFIA vs. PABs State Infrastructure Banks (SIBS) GARVEEs Construction Support Package 160 Milestone 1 Final Report PAGE III

6 5.6.1 DB Contract Security Package Construction Letter of Credit Financial Structure Summary Summary Primary Financial Assumptions Assumptions Book Summary Next Steps Assessment Overview Development of Milestone Two Scope Project Development Schedule 164 Appendices Appendix A: Appendix B: Appendix C: Appendix D: Appendix E: Public Education and Acceptance Materials Detailed Construction Schedule Construction Cost Estimates Traffic and Revenue Forecasts Financial Model Assumptions Milestone 1 Final Report PAGE IV

7 1. EXECUTIVE SUMMARY Background America s economic future depends on our ability to keep people and goods moving efficiently and safely. However, this imperative is threatened by competing budget priorities and an aging infrastructure of roads and bridges, many of which have reached or exceeded their useful lives. Throughout the United States and here in Oregon, mobility demands far outpace the funding available to support and maintain existing transportation infrastructure let alone make meaningful improvements to the system. This problem can be especially acute in rural and suburban areas as available tax dollars are channeled to meet the transportation needs of urban metropolitan areas. OR 99W Bypass southwest of Portland is such a case. Proposed for more than two decades, the Bypass has strong local support and is key to the revitalization of towns and cities along the way. Unfortunately, for the people served by the project, it is far down the list of federal, state and regional funding priorities. Recognizing the challenge, the Oregon Legislature passed Senate Bill 772 in 2003, removing a number of barriers to the formation of Public Private Partnerships that could help finance and deliver important transportation-related projects years ahead of when they might otherwise be available. In February 2006, the Oregon Department of Transportation (ODOT), under its Oregon Innovative Partnerships Program (OIPP), signed a Public Private Partnership (PPP) agreement with the Oregon Transportation Improvement Group (OTIG). The purpose of the agreement was to deliver new transportation infrastructure projects to the state years ahead of when they might otherwise be built. As the first order of action, ODOT entered into a Pre-Development Agreement (PDA) with OTIG to advance toward implementation, the Newberg-Dundee Transportation Improvement Project (Bypass), an 11 mile bypass to Highway 99W designed to provide a solution for the unacceptable levels of current traffic congestion. Recently, OTIG conducted a traffic survey, which identified heavy commuter, truck and visitor traffic passing through the Newberg-Dundee area to Portland or the coast as the biggest contributor to the congestion problem. This pass-through traffic makes up over 50 percent of the total traffic volume on 99W and it is growing. The communities along 99W are not the only ones affected by this issue. Small towns and cities across the state face similar problems. The solution? For more than 20 years, local leaders have been pushing for construction of the Bypass to improve mobility for everyone and provide pass-through travellers with faster, safer and more reliable travel through the area. For local citizens, most importantly, the Bypass would provide a new and important community asset that would remove heavy traffic from town centers allowing local leaders to take additional steps to revitalize the downtown areas and improve the local economy. This Report This report has been prepared by OTIG to establish the commercial and financial viability of the Newberg Dundee Project based upon an analysis of cost and available funding and potential revenue parameters. Considered in the report, at a high level, are the network implications of roadway alternatives. Milestone 1 Final Report PAGE 5

8 This report builds on a previous report submitted by OTIG in March 2006 and includes substantial new information, particularly as related to traffic forecasts, project costs, available financing and potential revenue forecasts, and public participation. While preparing this report, OTIG managers and staff were careful to listen to the concerns of local leaders, residents and travelers. They then established the following guidelines for developing the report to give state and local leaders a menu of options for moving the project forward: Provide local leaders with a means of control over downtown revitalization plans. Provide travelers with control and new choices over how much speed and reliability of travel they want through the area. Develop an approach that is fair to local residents and motorists. Guarantee that the revitalization program will proceed in timely fashion over a five to ten year period so that promises made to revitalize local economies are in fact realized. Thus this report: Lays out a menu of options that state and local decision makers can choose for developing the project and addresses points specified in OTIG s Pre-Development Agreement with ODOT. Quantifies costs associated with financing, developing, operating and maintaining the project. While these estimates are preliminary, they are an important step forward in establishing cost parameters for the project. Presents a menu of financing options including the use of tolls to fund the project. Identifies the target toll levels for various options that would be sufficient to fund the cost to finance, construct, operate and maintain the Bypass. The report examines tolling as a primary source of funding and discusses various tolling options. However, it is clear from the financial feasibility analysis that tolling the Bypass alone would result in a significant funding gap and the revenue generated would not be adequate to cover operating and maintenance costs. Other tolling options can bridge the funding gap while charging a reasonable toll amount. Advantages of PPP Delivery Public sector capital available for highways is limited and government agencies have limited resources to ensure that cost overruns and delays do not occur. PPPs find better ways of mobilizing private sector capital and management capabilities to ensure the efficient delivery of public infrastructure. The advantages of PPPs are now well proven, with countries all over the world using them to great success. The contract ensures construction on time and on budget, and thus shields taxpayers from budget overruns and lengthy construction delays. The private sector partner ensures that the design meets the performance standards at the lowest possible construction cost. This typically results in savings of 15-30% relative to Government delivery. The private sector partner is responsible for finance, thereby ensuring that interest rate, repayment and other financial risks are not taken by taxpayers. Milestone 1 Final Report PAGE 6

9 The private sector partner operates and maintains the road for 30 years or more to stringent performance standards. The partner is therefore strongly motivated to design a road that will last, and quickly repair any problems which may arise. Because of the integration of Design, Construction and Operation, PPPs typically achieve further cost savings of 15-20% in maintenance costs over the life of the infrastructure. Development Plan The Newberg-Dundee Bypass is approximately 11 miles long, and lies along the south sides of Newberg and Dundee. The Bypass provides an alternative route to the OR 99W highway that passes through the downtown cores of Newberg and Dundee. The eastern terminus is located east of Newberg in the Rex Hill area and the western terminus is located at the intersection of OR 99W and OR 18 (McDougall Corner) near Dayton. The Bypass is proposed currently in draft EIS studies as a four-lane, limited-access Expressway with an operating speed of 55 miles per hour, four proposed interchanges, a landscaped median and enhanced bicycle facilities. Access to the Bypass is restricted to interchanges. Funding Options OTIG has reviewed the funding options most commonly used to finance transportation projects in Oregon along with the use of tolling. The following major funding options have been identified for the Project and are discussed in the report: Federal Earmarks Gas Tax Vehicle Registration Fees Regional Property Taxes Land Value Capture Tolling Tolls have been identified as a primary potential source of funding for the Newberg-Dundee Project. The concept of employing a user-pay system is an increasingly popular and effective tool for financing needed road projects. There is considerable support for this option from local leaders and residents if it will result in faster, safer and more reliable travel. Electronic Tolling Regardless of the option or combination of options eventually chosen to fund and develop the Bypass, it is imperative that any toll or fee collection system that may be used does not slow traffic. Electronic tolling is such a system. Motorists, commuters, commercial vehicle operators and other travelers who choose to use electronic tolling could opt to obtain a small electronic sticker (e-sticker) and affix it to their vehicle s windshield. The sticker could be used to pay the toll or fee electronically without stopping. Similar non-stop electronic systems are in use across the country and have proven very popular with motorists. For the purpose of this report, electronic tolling is considered as a collection method for all scenarios, with tolling options gradually moving from the initial combination of cash and electronic tolling to all electronic tolling after several years of operations. Milestone 1 Final Report PAGE 7

10 Other electronic tolling issues discussed include interoperability, customer service and violations enforcement. Preliminary Investment Grade Traffic Study The preliminary investment grade traffic study covers the development of the traffic and forecasting model and the presentation and discussion of results. There has been an intensive data collection exercise which included origin destination surveys at four locations in the Newberg Dundee area over two days and an in-depth market research Stated Preference survey. It also involved a review of socioeconomic parameters and the development of a network model which enabled testing of the effects of a number of different tolling regimes. The results show low levels of traffic on the Bypass under the two different tolling options tested. The financial feasibility analysis demonstrates that the revenues collected under Bypass-only tolling are insufficient to fund the project thereby making Bypass-only tolling financially unfeasible. As result of the inability of the Bypass-only tolling options to finance the project, OTIG has investigated alternative methods of tolling including 99W Tolling, One Way 99W Tolling and three Pass Through Tolling options. The goal of all of the options is to generate sufficient revenue at a reasonable toll level to fund the Project, maximize the use of the Bypass, and reap the environmental and social benefits associated with removing as much through traffic from the local centers of Newberg and Dundee as possible. OTIG believes that should any tolling option be adopted, it must be fair to residents and people traveling to visit the area while providing a strong incentive for traffic traveling through to Portland and the coast to use the faster and more reliable Bypass rather than continuing to clog local streets. This Report defines residents of communities of Newberg and Dundee as local residents as they are directly impacted by tolling 99W and the Bypass. However, this definition is further expanded to include additional communities as locals under the third Pass Through Tolling scenario. Further analysis may be undertaken with an alternative definition of local residents, however noting that the expansion of the definition of a local resident will ultimately result in higher tolls for those that are left as eligible to pay. The decision to define who is and who is not a local resident will ultimately be decided by public policy makers. The following table describes the proposed tolling options examined. Milestone 1 Final Report PAGE 8

11 Bypass Tolling Distance Tolling Point Tolling Tolling all traffic utilizing the Bypass All traffic on the Bypass is tolled based on the number of miles traveled on the Bypass and a charge per mile. All traffic on the Bypass pays the same toll at a specified point on the Bypass regardless of the actual distance traveled. 99W Tolling All traffic is tolled at Rex Hill so that all traffic traveling on the Bypass or 99W has to pay a toll. This is applied to traffic in both directions. One Way 99W Tolling All traffic traveling on the Bypass and 99W Southbound at Rex Hill, Northbound south of Dundee, Southbound access to the Bypass on Hwy 219 and Dundee Interchange pays a toll. It tolls all traffic entering the Newberg/Dundee area but does not toll traffic leaving the Newberg/Dundee area. Pass Through Tolling Pass Through Tolling Local Residents Excluded Pass Through Tolling Local Residents & Visitors Excluded Pass Through Tolling Additional Local Communities & Visitors Excluded All pass through traffic using 99W and all traffic on the Bypass is tolled, with the toll collection point located at Rex Hill. Pass through traffic is traffic that does not include Newberg or Dundee as the final trip destination. Local residents of the Newberg and Dundee area do not pay to use 99W and incur a flat toll of $1 to use the Bypass. Local residents of the Newberg and Dundee area do not pay to use 99W and incur a flat toll of $1 to use the Bypass. Visitors, defined as those users that remain in the Newberg and Dundee area for more than two hours, do not pay to use 99W. Local residents of the Newberg and Dundee area as well as surrounding communities do not pay to use 99W but incur a flat toll of $1 to use the Bypass. Visitors, defined as those users that remain in Newberg and Dundee for more than two hours, do not pay to use 99W. OTIG s analysis shows that the Project is not financially feasible under a Point or Distance Toll that is charged only on the Bypass. The 99W and One Way 99W tolling concepts provide much higher revenues as vehicles are required to pay a toll to travel on 99W or the Bypass. The 99W Tolling option generates the highest revenues and subsequently requires a lower level of tolls to fund the Project. However, OTIG has met with various stakeholder groups and has not determined whether this toll scenario is within the bounds of public acceptability. Therefore OTIG has also analyzed three additional scenarios that would not require locals to pay to travel on the 99W. These refined options focus on tolling only traffic that is passing through Newberg and Dundee and are thus categorized as Pass Through Tolling including the following: Pass Through Tolling Local Residents Excluded Pass Through Tolling Local Residents & Visitors Excluded Pass Through Tolling Additional Local Communities & Visitors Excluded Under each of these scenarios the toll rates are set at a level that fully funds the Project aside from contributions from ODOT for the entire Right-of-Way and $50 million towards construction costs. The resulting tolls under the Pass-Through Tolling options range between $2.60 and $8.50. Scenarios for lowering the toll are also explored along with the resulting funding gaps that would have to be filled through funds generated by non-toll revenues such as property tax or gas tax increases. Milestone 1 Final Report PAGE 9

12 OTIG has analyzed options 1 through 4 in sequence, noting that the lowest toll level required to fund the Project ($2.00) requires all traffic that enters Newberg and Dundee to pay a toll, including local residents. At the other end of spectrum residents of Newberg, Dundee and additional surrounding communities are allowed to continue to use the 99W for free but must pay a flat toll of $1.00 to drive on the Bypass. In this option, visitors whose duration of stay in Newberg or Dundee is two hours or longer are not required to pay a toll to use the 99W. As expected, the amount of traffic required to pay a toll is reduced substantially as indicated below. This results in fewer motorists sharing the cost of the Project and therefore higher toll levels. In this option, vehicles are required to pay a $4.00 flat toll. Trip Type - Rex Hill Survey (June 2006 origin destination survey) Newberg - Dundee Residents (7,4 80 cars) 22% Visitors (7,480 cars) 22% Additional local co mmunit ies ( 2,72 0 cars) 8% Tolled (16,320 cars) 48% It is important to note that toll rates for this study were determined by the toll s ability to cover the Project costs with the exception of $50 million which is a reasonable expectation of the amount of external funds available to the Project. Preliminary Technical Review Construction costs for the Project are estimated to be between $373.7 million and $493.2 million, including Right-of-Way costs. The high estimate reflects delivery of the Project under a traditional Design-Build approach, and the low estimate reflects the high-end of potential cost savings that could be realized under a Design-Build program using performance specifications as proposed under the PPP approach. Unit prices for the different construction elements were typically based on historical bid prices over the preceding 12-month period. Prices for construction elements such as asphalt and steel are currently subject to wide cost fluctuations, so estimates presented in the report were based on best estimate projections. Comparisons were also made with the pricing/estimating approach of other western Departments of Transportations such as Caltrans, WSDOT, and UDOT as well as similar roads throughout the United States. Construction cost reductions are a key focus as they have a significant impact on the Project s financial feasibility. Key Capital Cost Drivers and Potential Cost Savings OTIG identified the chief elements driving the cost estimates. The following capital cost drivers were identified by the percentage of total project costs for the individual project elements. These project Milestone 1 Final Report PAGE 10

13 elements make them eligible for very close scrutiny to identify potential areas where value engineering can be used to reduce costs without adversely impacting the overall performance of the project. The key capital cost drivers include: Interchanges - Potential cost savings are $26.2 million Bridges and Culverts - Potential cost savings are $28.1 million Earthwork and Pavement - Potential cost savings are $10 million Right-of-Way (ROW) - Potential cost savings are $14 million Design and Construction Testing and Monitoring - Potential cost savings are $17.1 million Construction Contingency Potential cost savings are $24.1 million Further Costing Work Cost estimates will be refined continually as design work progresses and alternatives are narrowed to develop the locally preferred alternative. Cost estimates presented in this report include: Lifecycle Cost Estimates Operations and Maintenance (O&M) Cost Estimates Tolling Operation Cost Estimates Key Performance Criteria A preliminary review of existing ODOT design-build specifications is underway. To date no obvious issues have been noted. This is, however, an ongoing process and review and refinement suggestions will continue through the next phase when the development of a design-build procurement package is a key work product. Schedule The project schedule contained in this report provides summary level details outlining the key activities for project implementation. OTIG is optimistic that the Design-Build Notice to Proceed can occur shortly after the Record of Decision (ROD) is obtained. The design-build contract duration is not expected to exceed 36 months for an operations commencement date in OTIG will work closely with ODOT to find opportunities to accelerate the schedule and achieve an earlier ROD, which could result in an earlier operation date. Financial Feasibility Analysis The financial feasibility analysis is based upon a preliminary traffic and revenue forecast, construction costs and estimates of operating and maintenance costs, lifecycle costs and tolling operational costs. The financial feasibility analysis performed by OTIG indicates the level of toll required to fund the project given a $50 million funding gap and ODOT retaining the responsibility of purchasing the Righof-Way. A target toll level could not be calculated for Point and Distance Toll on the Bypass as the operating revenues generated by tolling under these scenarios were insufficient to pay for the operating costs thereby preventing payment of debt and/or returns to equity holders. The following table summarizes the tolls required by 99W Tolling option and the Pass-Through Tolling options analyzed in the report. Milestone 1 Final Report PAGE 11

14 Target Toll Levels ($50m funding gap; $2006) Option Flat Toll Variable Toll Peak Off Peak 99W Tolling $2.00 $4.50 $1.00 Pass Through Tolling Local Residents Excluded Pass Through Tolling Local Residents and Visitors Excluded Pass Through Tolling Additional Local Communities and Visitors Excluded $2.60 $6.10 $1.30 $3.50 $8.50+ $1.80 $4.00 n.a. n.a. The toll levels should be viewed as an estimate in a possible range of +/- 25 cents. A Pass-Through Tolling option that excludes local residents and visitors was carried forward for further sensitivity analysis as this appears to OTIG to be the most politically and publicly acceptable toll level and method. OTIG explored several methods to lower the target toll of $3.50 by: Reducing capital costs Increasing real tolls Changing the length and scope of concession Using subordinated debt Employing state performance payments The above methods would decrease the toll by a range of $ $1.80. At this early stage in the funding analysis, no firm conclusions should be drawn until decision makers have a chance to thoroughly assess the alternatives. In the end, any option chosen will require the efficient use of non-stop electronic toll collection, strong incentives to use the Bypass, strong motorist education, marketing and willingness of local officials to implement their revitalization plans. As part of the Pre-Development phase, the McMinnville extension has been evaluated to determine if it is reasonable and financially feasible. Initial high level cost estimates indicate a cost of between $210 and $260 million. However, OTIG believes that including the McMinnville extension will not attract sufficient additional traffic to provide payment for the capital costs of the extension and would in fact contribute to the funding gap of the Bypass. At this point it is recommended that no further study of this option is planned. Public Communication & Public Education/Acceptance Results & Plan The assessment of public attitudes performed for purposes of developing the plan showed high awareness of the congestion problem as well as the proposed Bypass solution. However, while recognition of the need for congestion relief is high, the Newberg-Dundee community requires further information and education about possible financing options for the Bypass, specifically: Milestone 1 Final Report PAGE 12

15 Further explanation of the reasons for a PPP approach. More information on the mechanics of tolling and an illustration of how modern non-stop electronic toll collection works. The report recommends that OIPP, in conjunction with OTIG, initiate a grassroots information, education and participation program with residents in the OR 99W corridor, the business community, media, local leaders and elected officials to keep them abreast of any potential funding gap, the partnership, options for funding the Bypass and the potential use of tolling. Preliminary Implementation Plan The Preliminary Implementation Plan (PIP) will identify and outline issues, critical path(s), and major hurdles that will be addressed in the Implementation Plan. The plan will focus on elements that must be addressed in the Implementation Agreement. The report indicates the Newberg-Dundee Project is most suited to proceed as a design-build-financeoperate (DBFO) transaction, where the government grants its private sector partner the right to develop a new piece of public infrastructure. A DBFO structure would be governed by a concession agreement entered into between ODOT and OTIG. At all times OTIG will be the party legally responsible for ensuring the requirements of the Project Agreement are met. Concession Agreement The toll road concession agreement specifies the period during which the concessionaire is granted exclusive rights to manage and operate the road and receive payment in the form of tolls or availability payments. Concession terms typically range from 40 to 60 years although recent concessions are substantially longer. OTIG has proposed a concession with a term of 50 years as a starting point. During the next milestone ODOT and OTIG will jointly determine the length and breadth of scope that is appropriate for the concession. Preliminary Financing Plan The Preliminary Financing Plan will provide guidance on development of the financial aspects of the Project through Milestone Two of the PDA. It covers the revenue profile and mechanisms to bridge the funding gap, financing structure, strategy for procuring the required debt financing, analysis of alternative financing instruments, an outline of the required construction support package and an agreed assumptions book for the sample case financial model. The Project s cost structure includes Construction, Operation & Maintenance, Lifecycle and Tolling Operation costs, with the current total cost assumption of $379 million. Importantly, this assumes that ODOT funds the acquisition of Right-of-Way for the Project. The discussion of the funding options concluded that the Newberg-Dundee Project is most likely to be financed solely through toll revenues. In the event that the toll revenues are not sufficient to cover all the costs of the Project, government sources such as Availability Payments or Payments Based on Traffic Volumes may be explored along with other alternative sources of funding. Next Steps Assessment Following review of this report and before the completion of Milestone One, OTIG, in conjunction with ODOT, will prepare a Next Steps Assessment to describe the recommended next steps for the Newberg Dundee Project. ODOT and OTIG will each determine, on the basis of this report and the Next Steps Assessment, if they have the basis to move forward to the next Milestone. Milestone 1 Final Report PAGE 13

16 GLOSSARY OF TERMS AADT means Average Annual Daily Traffic utilizing the road. Availability Payments refer to the payments made by the State to the Concessionaire for making the highway available for use by motorists. Payments are typically made during operations and are usually paid by government regardless of the traffic volumes, however may be decreased if the Concessionaire incurs any performance failures such as failure to address accidents within a certain amount of hours. Bankability the ability of the Project to service principal and interest on debt finance as well as provide adequate yield and total return to equity investors over reasonable commercial time frames and with a reasonable degree of confidence. The return should reflect the amount of risk taken by the investor. Bypass Distance Tolling means that all traffic on the Bypass is tolled based on the number of miles traveled on the Bypass and a charge per mile. Bypass Point Tolling means that all traffic on the Bypass pays the same toll at a specified point on the Bypass regardless of the actual distance traveled. Bypass Tolling refers to tolling all traffic utilizing the Bypass. Concession refers to a right of a private entity to operate a public asset, granted under a Concession Agreement for a specific term before transferring full ownership back to the State. Concession Agreement refers to an agreement between the State and a private company about the provision of what is generally considered to be public services by the company. The agreement establishes the rules with which the company must comply with regard to its operations. Construction Letter of Credit refers to the type of security that enhances the credit rating of the Project by providing additional liquidity for the obligations under the Design Build Contract for the benefit of debtholders. EIS, or Environmental Impact Statement, is a detailed document required by NEPA that describes the impacts on the environment as a result of a proposed action. It also describes impacts of alternatives, as well as plans to mitigate the impacts. Elasticity (of Demand) refers to a measure of responsiveness of travel demand to the change in level of tolls. Electronic Toll Collection (ETC) refers to modern electronic tolling systems that allow users to set up a prepaid account, attach a transponder to their vehicle, and pay the toll electronically at highway speeds, without stopping. ETC does not require vehicle tracking and is governed by privacy control measures. Equity Internal Rate of Return, or Equity IRR, for an investment is the discount rate for which the total present value of future cash flows equals the cost of the investment. It is the interest rate that is that produces a zero net present value. Exit Tolling refers to the type of tolling where each vehicle is charged a toll as the vehicle exits the route on an off-ramp. It is typically a flat charge per exit. Milestone 1 Final Report PAGE 14

17 Funding Gap refers to the shortfall of funds to finance the Project after maximizing contributions of debt and equity. Interoperability refers to the extension of existing tolling arrangements to include any future toll road into the network. Lifecycle refers to the total costs of physical facility ownership and operation. It takes into account all costs to keep the physical facility in operation for its intended purpose. The cost elements typically include repairs, replacement and any other actions to assure normal trouble free operations of the facility. Local Resident refers to the resident of the Newberg and Dundee area. NEPA, or National Environmental Policy Act, articulates the national environmental policy, establishes federal agency responsibility and creates the basis or foundation of the federal decision making process. The fundamentals of the NEPA decision making process include: consideration of alternatives, examination of potential environmental impacts and mitigation, interagency coordination, public involvement and documentation. ODOT refers to the Oregon Department of Transportation. One Way 99W Tolling means tolling all traffic traveling on the Bypass and 99W Southbound at Rex Hill, Northbound south of Dundee and Southbound access to the Bypass on Hwy 219 and Dundee Interchange. It tolls all traffic entering the Newberg/Dundee area but does not toll traffic leaving the Newberg/Dundee area. OTIG refers to the Oregon Transportation Improvement Group that is led by Macquarie Infrastructure Group and supported by Hatch Mott MacDonald, Steer Davies Gleave, Frank Wilson & Associates, and Macquarie Securities (USA) Inc. PABs, or Private Activity Bonds, are a municipal security whose proceeds are used by private entities. PABs provide private developers and operators with access to tax-exempt interest rates, significantly lowering the cost of capital and enhancing project financial feasibility. Pass Through Tolling means tolling pass through traffic only on 99W and all traffic on the Bypass, with a toll collection point at Rex Hill. Pass through traffic is traffic that does not include Newberg or Dundee as the final trip destination. Pass Through Tolling Local Residents Excluded means that local residents of the Newberg and Dundee area do not pay to use 99W and incur a flat toll of $1 to use the Bypass. The toll collection point is located at Rex Hill. Pass Through Tolling Local Residents & Visitors Excluded means that local residents of the Newberg and Dundee area do not pay to use 99W and incur a flat toll of $1 to use the Bypass. Visitors, defined as those users that remain in the Newberg and Dundee area for more than two hours, do not pay to use 99W. The toll collection point is located in Rex Hill. Pass Through Tolling Additional Local Communities & Visitors Excluded means that residents of the Newberg and Dundee area as well as surrounding communities do not pay to use 99W but incur a flat toll of $1 to use the Bypass. Visitors, defined as those users that remain in Newberg and Dundee for more than two hours, do not pay to use 99W. The toll collection point is located at Rex Hill. Performance Payments refer to a stream of operating period payments over the life of a private sector concession. These operating period payments can be contractually linked to performance of the Milestone 1 Final Report PAGE 15

18 asset and would be subject to abatement for poor performance and cancelled in the event the private sector partner defaults on its obligations or abandons the project. In contrast to capital grants operating performance payments can be very effective drivers of risk transfer and can be structured precisely to achieve public sector objectives. Period Tolling refers to the type of tolling where a pre-paid amount allows the user unlimited travel on the toll road within a designated period e.g. a week, month or time of day. Project Financing refers to a common method of financing where the cash flows from a project are the sole source of repayments to debt and equity used to finance the Project. Public Private Partnership (PPP) refers to a contract between government and a private partner to provide a good or a service over the long term with financial and quality assurances for the taxpayer. Under a PPP, taxpayers are not required to guarantee the debt of the Project or repay it should the Concessionaire default. Ramp Up refers to the period of time it takes drivers to adjust their behavior as a result of new or changed route choices. Traffic volumes are often expected to be below projected levels during a ramp up period. Right-of-Way (ROW) refers to an easement or strip of land required for the location and construction of a project element, in the case of this report, the Bypass roadway. The ROW for the location of the proposed facility is acquired through negotiations with owners of property required for the construction of the facility. Sample Case refers to the set of assumptions used to determine the financial feasibility of the Project. The sample case adjusts construction costs downward by $13.6 million based upon the type of materials used during construction and similar projects, as well as a $50 million ODOT contribution to the Project. Further, OTIG assumes that ODOT will take responsibility for acquiring any necessary Right of Way, currently estimated at approximately $100 million. Shadow Toll refers to the government payments to the private sector concessionaire during the operating period that are linked to usage of the asset, typically measured by AADT. Toll Collection Point refers to the location where the toll payment is made. Tolling refers to charging a user fee to motorists utilizing a defined stretch of roadway. Tolling is used as a funding mechanism for the construction and maintenance of the Project that offers more certainty than federal or State funding sources. Transponder refers to a device that is the most common form of collecting tolls electronically. It is typically affixed to a car windshield (similar to a parking pass) and is read via radio frequency by equipment situated at the roadside, overhead gantries, or other structures, which proceed to charge the user the appropriate toll. Method of payment may include direct debit, credit card or prepaid account. Visitors are those users that will remain in the Newberg or Dundee area for more than 2 hours. VOT, or Value of Time, means monetary value people place on reducing their travel times. 99W Tolling means tolling all traffic at the toll point in Rex Hill so that all traffic traveling on the Bypass or 99W has to pay a toll. This is applied to traffic in both directions. This option may not be within the bounds of public acceptability. Milestone 1 Final Report PAGE 16

19 2. OVERVIEW 2.1 Introduction To secure Oregon s economic future, government must keep moving forward to maintain and operate a safe, reliable and efficient transportation system that keeps up with Oregon s needs. But there are challenges. For example, $6 billion is needed in the Metro region alone to meet its mobility demands over the next 20 years. Yet, these public funds do not currently exist. At the same time, the costs to study, design and construct new highway infrastructure continue to rise. The fact is traditional public financing of highway construction and improvements, principally, the Oregon State gasoline tax, has not kept pace with the increasing mobility demands and transportation infrastructure needs. Studies commissioned by the Oregon Transportation Commission and private business organizations continue to show that the existing gas tax (the last one-cent increase was in 1993) does not provide enough revenue to meet Oregon s transportation needs, even as commercial and commuter traffic continues to grow and congestion mounts. Recognizing this challenge, the Oregon Legislature passed Senate Bill 772 in 2003, removing a number of barriers to the formation of Public Private Partnerships (PPP) that could help finance and deliver important transportation-related projects which might otherwise take decades to construct, if ever. The Oregon Innovative Partnerships Program (OIPP) provides the mechanism that allows the Oregon Department of Transportation (ODOT) to enter into these PPPs. In January 2006, ODOT, under the OIPP, signed a PPP agreement with the Oregon Transportation Improvement Group (OTIG) to deliver new transportation infrastructure projects to the State. 2.2 Purpose of Report The Newberg-Dundee Transportation Improvement Project is focused on providing a bypass to Highway 99W around the towns of Newberg and Dundee to deal with unacceptable levels of current traffic congestion and allow for the revitalization of the city centers. This Bypass needs to be viewed in the context of the 99W corridor stretching from Portland, through the Oregon wine country to the coast, which is forecast to experience continued strong traffic growth over the next 20 years. The Project begins in the Rex Hill area, north of Newberg, on OR 99W and reconnects with OR 99W southwest of Dundee at McDougall Corner, and Highway 18 southwest of Dundee. ODOT has entered into a Pre-Development Agreement (PDA) with OTIG to advance the Newberg-Dundee Project towards implementation. The work is structured around specific milestones and includes off-ramps permitting ODOT to terminate the agreement if the resulting analysis does not support Project feasibility. This Report has been prepared by OTIG as required by Milestone One of the PDA between ODOT and OTIG. The objective of the report is to establish the commercial and financial viability of the Project based upon agreed cost and revenue parameters. The Project and its alternatives are assessed on their potential to generate use by toll paying motorists and to meet typical project financing parameters. This Report includes an assessment for making the Project more affordable through measures such as reducing Project costs, applying alternative types of Milestone 1 Final Report PAGE 17

20 financing, changing the Project scope as well as utilizing non-odot sources such as contributions from regional businesses benefiting from the Project, land development rights, land or regional tax increment financing. This report will also consider at a high level the network implications of the roadway alternatives including the potential for extensions to McMinnville, the I-5/99W Connect and OR 18 west of McMinnville. This report builds on a previous report submitted by OTIG in March 2006 and includes substantial new information, particularly as related to traffic and revenue forecasts and public outreach. Achievement of Milestone One is designed to allow OTIG and ODOT to proceed into more detailed and expansive phases of the PDA with a high degree of confidence in the underlying feasibility of the Project. 2.3 Public Private Partnership Delivery Definition of a Public Private Partnership A PPP is a contract between government and a private partner to provide a good or a service over the long term with financial and quality assurances for the taxpayer. There are many different kinds of PPPs, with varying levels of private sector involvement, the most common being a Design-Build-Finance-Operate (DBFO) transaction. Under a DBFO arrangement, the government grants a private sector partner the right to develop a new piece of public infrastructure under a long term "concession", which typically matches the useful life of the infrastructure. The private partner takes full responsibility for delivery and operation of the public infrastructure against pre-determined contractual standards of performance established by government. The private sector partner is paid by the right to a revenue stream, usually a user charge (e.g. highway tolls) or an annual government payment for performance (often called a Shadow Toll or Availability Payment). A DBFO PPP also offers some significant benefits to the public partners: State typically continues to own the infrastructure. The private sector simply leases, or otherwise gets the right to use, the infrastructure until the end of the concession, the length of which is determined by the government. State establishes the performance standards and may penalize its private sector partner by reducing the revenue stream in the event standards are not met. Performance standards typically relate to quality of the road, safety statistics and accident clearing. In significant cases of non-performance, government can also cancel the concession. State usually establishes the user charges or toll regime and terms on which the public can access the infrastructure. PPPs are not privatizations; State retains control under transparent performance contracts. In this respect, PPPs are no different than the way in which many other essential services are already delivered in Oregon. For example, electricity and gas utilities are largely private sectormanaged but operate under a stringent regulatory regime. When ODOT delivers new highway projects itself, without using a PPP model, it typically: Self performs design or contracts with private sector consultants to design the road, and then tenders construction to a private sector company. ODOT generally remains Milestone 1 Final Report PAGE 18

21 responsible for managing construction, and taxpayers bear the risks of any cost overruns or delays. ODOT usually issues a bond to private sector investors to finance construction, and taxpayers are responsible for repayment of interest and principal, even if the road is never completed or substantially delayed. When the road is completed, ODOT becomes responsible for operations and maintenance, elements of which it may contract out to a private company, and taxpayers bear responsibility for any quality defects or unexpected problems Benefits of PPP Delivery A PPP integrates all of the above activities into one long term contract with a private sector partner. This means that: The contract ensures construction on time and on budget, and thus shields taxpayers from budget overruns and lengthy construction delays. The private sector partner ensures that the design meets the performance standards at the lowest possible construction cost. This typically results in savings of 15-30% relative to Government delivery. The private sector partner is responsible for finance, thereby ensuring that interest rate, repayment and other financial risks are not taken by taxpayers. The private sector partner operates and maintains the road for 30 years or more to stringent performance standards. The partner is therefore strongly motivated to design a road that will last, and quickly repair any problems which may arise. Because of the integration of design, construction and operation, PPPs typically achieve further cost savings of 15-20% in maintenance costs over the life of the infrastructure. Public sector capital available for highways is limited and government agencies have limited resources to ensure that cost overruns and delays do not occur. PPPs find better ways of mobilizing private sector capital and management capabilities to ensure the efficient delivery of public infrastructure. The advantages of PPPs are now well proven, with countries all over the world using them to great success. The United Kingdom has completed over $26 billion in PPPs over the past 15 years. A survey by the United Kingdom National Audit Office confirmed the cost savings described above and found that 75% of PPPs were on time and 78% were on budget. This compared with 30% of traditional government projects completed on time, and 27% on budget. When PPPs were delayed or over budget, it was invariably because the public partner had changed project specifications during the construction period requiring the private sector to make substantial changes mid-stream. The concept of PPPs, especially for highway projects, has been embraced throughout the United States. There are now a number of successful examples, including the DBFO for the South Bay Expressway in San Diego, CA; Dulles Greenway in Virginia and the recent grant of concessions for the Chicago Skyway and the Indiana Toll Road. Other partnerships are in the works, notably in Texas and Virginia. Milestone 1 Final Report PAGE 19

22 Political support for PPPs is also very strong: I want to be very clear on where the Bush Administration stands on Public Private Partnerships. We like them, we want to encourage them, and we support them. Mary Peters Federal Highway Administration, December The Early Partnering Approach to PPPs The major benefits to ODOT by utilizing an early partnering approach with OTIG are: ODOT benefits from OTIG s project and cost management expertise proven in numerous competitive tenders. As OTIG is funding costs through the Pre-Development Phase, we have every incentive to minimize these costs while still ensuring the work proceeds towards a successful Project outcome. ODOT avoids funding any development costs except in the event the Project does not proceed. ODOT has the ability to mitigate its termination costs if there are early indications that the Project is not viable. Macquarie Infrastructure Group (MIG) and Macquarie Securities (USA) Inc. (MSUSA) time and internal expertise are at risk based on successful outcomes. ODOT is assured of a competitive outcome to the Implementation Phase as the construction and financing components will be competitively tendered, and MIG and MSUSA s fees and returns are transparent and declared upfront PPP Features for the Newberg Dundee Project Like most states, Oregon s growing economy and population is dependent on a sound, safe and reliable transportation infrastructure. Unfortunately, like most states, Oregon s interstate highways are nearing 50 years of age, and many of its roads and bridges are much older and in need of replacement, retrofit or reconstruction. In addition, growing traffic congestion in urban areas calls for new ways to wring more capacity out of the existing infrastructure. Innovative partnerships have proven to be an effective way to bring private capital and expertise to the solution of pressing public problems. Project Acceleration: the Project can be delivered years ahead of when it might otherwise be available. Stipulations will be included that the Project is delivered on time and on budget by OTIG, thus shielding taxpayers from cost overruns and delays Cost Effective Design and Construction: OTIG brings the efficiencies and innovations of the private sector to the job because funding is available up front, major infrastructure projects do not have to be piecemeal as funds become available, thus greatly reducing overall cost and time. Additionally, the design will meet the ODOT-prescribed performance standards at the lowest possible construction cost. Risk and Responsibility: OTIG takes the responsibility and risk for interest rates and debt repayments, lifting that burden from taxpayers. Users Pay: users, rather than taxpayers, pay for what they use. Thus, those who benefit from the Project pay for it with tolls, thereby freeing up tax dollars for other projects and needs. Milestone 1 Final Report PAGE 20

23 3. DEVELOPMENT PLAN 3.1 Introduction The Development Plan takes into account a number of aspects that determine the final feasibility of the Project. These include: Discussion of the funding options including potential public sources as well as tolling Overview of tolling concepts, types of tolls and the key tolling policy issues Preliminary Investment Grade Traffic Study, presenting the traffic and revenue forecasts Preliminary Technical Review of cost estimates, key cost drivers and potential savings, and risk transfer Overview of the Right-of-Way land acquisition and environmental schedules Financial Feasibility Analysis including identification of required toll levels or funding gaps under different tolling and cost scenarios, as well as discussion of mechanisms to bridge the funding gap Public Communication & Public Education and Acceptance Plan, outlining the public attitudes and a proposed approach to ensuring public acceptance. Tolls have been identified as a primary source of funding for the Newberg-Dundee Project. There is considerable support for this option from local leaders and residents for the concept if it will result faster, safer and more reliable travel Description of Project and Corridor Traffic congestion on the Oregon 99W is especially acute along the section that includes Newberg, Dundee, and the area west of Dundee towards McMinnville. ODOT initiated the Newberg-Dundee Transportation Improvement Project to address these problems while preserving Oregon s natural and historic resources and improving the local economy and quality of life. The Newberg-Dundee Bypass Project is approximately 11 miles long, and lies along the south sides of Newberg and Dundee. The Bypass provides an alternative route to the OR99W highway that passes through the downtown cores of Newberg and Dundee. The eastern terminus is located east of Newberg in the Rex Hill area and the western terminus is located at the intersection of Oregon 99W and Oregon 18 (McDougall Corner) near Dayton. The Bypass is proposed as a four lane limited access Expressway with an operating speed of 55 miles per hour. Access to the Bypass is restricted to interchanges. Milestone 1 Final Report PAGE 21

24 As currently proposed in the draft EIS studies, the Bypass includes four proposed interchanges: The East Newberg (eastern terminus) Interchange will be located in the vicinity of Rex Hill. It provides free flow connections westbound from 99W to Newberg and to the Bypass, and eastbound from the Bypass to Oregon 99W and from 99W in Newberg to 99W. The Oregon 219 Interchange will be located in south Newberg at the junction of the Bypass with Oregon 219. This interchange is located inside Newberg's Urban Growth Boundary (UGB). The East Dundee Interchange will be located between Dundee and Newberg. A new connector road would link the interchange at Oregon 99W to the Bypass. The connector road intersection with Oregon 99W includes a grade separation across both Oregon 99W and the parallel railroad tracks. The Dayton (western terminus) Interchange will be located at the junction of Oregon 99W and Oregon 18W. In addition, the proposed Bypass includes the following features: The Bypass will be a four-lane limited access Expressway providing high-volume travel with minimal interruptions. The Bypass will have an operating speed of 55 miles per hour. This facility will also serve as a statewide freight highway. A landscaped median and/or median barrier will be located between the travel lanes as well as shoulders on both sides of the travel lanes. Bicycles will be permitted to travel on the highway shoulders, In addition, enhanced bicycle facilities may be provided either as part of the roadway cross-section or as a separate, parallel facility. Access to the Bypass is restricted to interchanges; no direct access will be permitted from private properties. The Bypass will be grade-separated. Major county and city roads will be Milestone 1 Final Report PAGE 22

25 rerouted under or over the Bypass. Other local streets will be rerouted away from or terminated at the Bypass. Bridges will be used to cross larger fish-bearing streams. Smaller drainages might be crossed using fish-passable culverts Project Modifications and Extensions The OIPP Request for Proposal (RFP) allowed proposers to submit Project modifications or extensions if such proposed modifications would enhance the feasibility of the proposed projects or improve the overall functionality of the transportation system. OTIG has proposed three extensions: McMinnville Extension OTIG has proposed a nine mile extension of the Newberg-Dundee Bypass Project along the alignment of Oregon 18 from the Dayton Interchange to south of McMinnville near the junction of Oregon 18W/99W. This would create a 20 mile limited access bypass of Newberg, Dundee, Dayton and McMinnville that will increase transportation benefits and the attractiveness of the Bypass by reducing total travel time and further improving traffic in the entire metropolitan area. It is anticipated that this extension will continue along the same alignment as OR18. The existing two lane and four lane sections would be brought to the standard of the Bypass i.e. they would be widened and rehabilitated as necessary to provide four lanes with an adequate median and shoulders. The location of interchanges will be evaluated based on traffic, environmental and Right-of-Way impacts. Potential interchange locations include: 3rd Street in Dayton (OR221), Lafayette Hwy (OR233), McMinnville Airport, the Medical Center and Three Mile Lane. Local roads will be either terminated at the expressway, connect to a new service road, or pass over/under the expressway. Access will be provided to all necessary locations. Milestone 1 Final Report PAGE 23

26 No additional design has been performed pending the decision on the viability of the Bypass. Should this be considered an option in the future, it will be addressed under a separate NEPA process. Under no circumstances will the NEPA and predevelopment process for the proposed extension be permitted to in any manner delay the Bypass Project. Critical issues for OTIG s proposed extension of the expressway beyond Dundee include: That it be financially feasible That it enhance the feasibility of the Bypass Project or improves the overall functionality of the transportation system. That the results of the EA or EIS are reasonable and financially feasible. As part of the Pre-Development work, this expressway extension has been evaluated to determine if it is reasonable and financially feasible (see Section ) I-5 99W Connector OTIG has proposed that the Bypass be extended eastward from Newberg to the Tualatin- Sherwood area with a connection to I-5. This would be accomplished by safety and capacity improvements to 99W between the eastern terminus of the Bypass at Rex Hill and the Tualatin- Sherwood area and the construction of a four lane Greenfield limited access Expressway between this improved section of 99W and I-5 in the vicinity of I-205. This proposal was studied at a high level in Milestone One and found to be potentially financially feasible. Although it will improve the overall functionality of the transportation system, it has not been found as yet to enhance the feasibility of the Bypass Project. At this time no further study is planned on this extension option Reach to the Beach OTIG has proposed that if the Bypass and the McMinnville Extension prove to be financially feasible, capacity and safety improvements could be made to Oregon 18W to the Yamhill County line and eventually to the Oregon coast. As this section is proposed as an extension to the McMinnville extension, the financial feasibility of this proposal has not been completed and no design, traffic or revenue studies have been accomplished. Unless the Base Project and the McMinnville extension prove feasible, no further study is planned for this option. Milestone 1 Final Report PAGE 24

27 3.2 Funding Options The term Funding Options is used to describe the various sources of funds available to support the Project. There are multiple sources of funds and OTIG has looked at the options most commonly used to finance transportation projects in Oregon as well as the use of tolling. The following major funding options have been identified for the Project: Federal Earmarks Gas Taxes Vehicle Registration Fees Regional Property Taxes Land Value Capture Tolling A key source used in this analysis is a paper prepared by an ad hoc committee (the Committee) comprised of staff from the ODOT, Oregon s six MPOs, the FHWA and the Oregon DEQ entitled Financial Assumptions for the Development of Metropolitan Transport Plans (December 2004) Federal Earmarks ODOT s current funding for the Project includes: $10.5m from Federal State and Local funds $4m from OTIA III bonds $23.5m from The Transportation Equity Act (SAFETEA-LU HR.3) earmarked for Right-of- Way These sources of funds are available to support ODOT s development of the Project, but no funds have been allocated towards construction activities or acquisition of Right-of-Way along the proposed routes. There is extremely limited potential to expand these sources of Federal and Oregon State funding in the short to medium term. There are almost no federal discretionary transportation funds left for the Federal Highway Administration to distribute as grants, and any federal funding will need to be secured as an earmark through the annual congressional appropriations process. Although funding through the 2007 appropriations bill has been requested, the total amount of funding provided is likely to be a maximum of three million dollars. Other means of securing federal funding is through the surface transportation act reauthorization (SAFETEA-LU), which is scheduled for 2009 and thus does not provide a readily available nor certain source of funding Gas Taxes Gas tax revenues have traditionally played a large part in funding infrastructure expenditures, particularly roadways. A state-wide gas tax increase could theoretically spread the costs of the Project evenly over the State. The Oregon State Gas Tax was last raised in 1991 and subsequent attempts to seek an increase have been unsuccessful. An additional gas tax levy requires legislation which introduces uncertainty regarding political will and timeliness. Despite this, the Committee suggests that a 1 cent per gallon increase per year in state fuel taxes for each year through 2030 to be earmarked for operations, maintenance and preservation is feasible. This would generate significant additional revenues, some of which Milestone 1 Final Report PAGE 25

28 could flow to the Project. While some future increases are probable, it is unlikely such sustained increases as those suggested by the Committee would be politically feasible. Furthermore, it is not clear that a state-wide increase would be granted to fund a project in a specific location. It is therefore difficult to borrow against these potential revenues given their legislative uncertainty. It should also be noted that state gas taxes flow to the state Highway Fund. Distributions from this fund are legislatively established and are currently as follows: 60.05% to state highway programs, 24.38% to county road programs, and 15.57% to city street programs. The Committee estimates that the distribution of incremental funds to the state, counties and cities will be on a percent basis. In other words, all else equal, as a state highway, the Project would receive a smaller proportion of new tax revenues than it does of current revenues. Similar problems confront plans to increase regional gas taxes. While there is a greater likelihood such taxes would be directed toward the Project, they provide insufficient security to lenders Vehicle Registration Fees Another potential funding source is an increase in vehicle registration fees. The Committee assumes a $15 per biennium state registration fee increase every eight years beginning in SFY 2010 will be enacted to be used for modernization. Assuming a percent split, this would raise an estimated $377 million for the state, $226 million for the counties, and $151 million for the cities between 2005 and As with gas taxes, while increased registration fees may be a source of additional funding, there is considerable uncertainty surrounding the political will for such increases as well as the allocation of any increases that would be available to the Project Regional Property Tax Increases Another potential funding source would be to increase property taxes in Yamhill County. This would mean that local residents would be paying for the benefits of the Newberg-Dundee Bypass, while some of these benefits would accrue to highway users from other counties. Property tax revenues are unlikely to be a sufficient source of funds given the magnitude of the Project. Property tax eligible to be collected in Yamhill County for fiscal year 2005 was just $71.8 million, of which nearly 50% was allocated to education. Funding the Project through property taxes would require a re-allocation of property tax receipts and/or a massive increase in property tax rates Land Value Capture Land Value Capture refers to methods of capturing the likely increases in property values that may be driven by the expansion of the Corridor and using this as a funding source for the Project. As increases in property value may only occur after the Project has been completed (and several years after completion in many instances), it can be challenging to use this as a revenue stream which can be used to fund construction of the Project. Typically Land Value Capture is achieved through targeted rezoning or development levies applied directly to areas which increase in value as a result of the Project, for example, to property within a one half square mile radius of the intersections. Other methods could include the grant of existing State or County land to the Project for development. Milestone 1 Final Report PAGE 26

29 Neither of these opportunities for Land Value Capture appears to be very relevant or appropriate for the Project for the following reasons: 1. Firstly, much of the Project, including its major intersections, occurs outside the existing Urban Growth Boundary (UGB), limiting the ability to assume development and limiting community acceptance of it. 2. Secondly, an important part of ODOT planning for new projects is the Interchange Area Management Plan (IAMP) framework which is intended to ensure that new interchanges do not become overwhelmed by traffic growth beyond the design specifications as a result of new development. 3. Thirdly, there does not appear to be any significant public sector land associated with the Project which would be appropriate for development, with or without the constraints mentioned above. In these circumstances, the major land value benefits of the Project are likely to be: 1. Increases in the value of city center properties and businesses in Newberg Dundee as a result of reductions in congestion and an improvement in the environment. While these are expected outcomes they are difficult to model with precision in advance and are difficult to capture in practice. Furthermore, any value that could be captured in this area would also probably be best allocated towards improvement of the municipal street network rather than to the Bypass itself. 2. Benefits to businesses in the general corridor which accrue as a result of the reductions in congestion. This is likely to include regional wineries and casinos which are able to attract increased business. There are challenges in capturing these benefits by way of taxation as they may fall under different jurisdictions and cannot effectively be targeted by taxation levies. Accordingly the most likely method of capturing this value may be on a voluntary basis, offering these businesses an opportunity to support the Project by, for example, the purchase of bulk toll tokens at a reduced price to distribute to customers or potential customers. This may be important at the margin but is unlikely to be a fundamental revenue source for the Project Tolling Both the Bypass and the use of tolls as a funding mechanism enjoy strong local support. In addition, this approach is likely to have greater public acceptance than increases in property or gas taxes, and offers more certainty than federal or State funding sources. There are many advantages to using tolls as a source of funding for this Project. With increasing awareness of the highway funding shortage, the construction of new toll facilities is gaining support among politicians and their constituents. Tolls are the most direct user fee for highway transportation. Electronic toll collection systems allow for non-stop toll collection, eliminating the need for toll barriers that impede the flow of traffic. Some of the potential challenges that come with tolling are: The revenues derived from tolling may not be adequate to cover 100% of operating and capital costs. Concerns about diversion of traffic and failure to meet the purpose of the Project. Acceptance of optimal toll levels. Milestone 1 Final Report PAGE 27

30 When federal funds are involved, certain approvals are necessary from the Federal Highway Administration Funding Summary While each of the above funding options is a potential source of funds, increases in gas and property taxes as methods to fund projects require legislative action which is uncertain, and any funds raised are likely to be shared among various other projects. Federal earmarks are also difficult to predict and current levels are not sufficient to cover a significant portion of the estimated construction costs. Land value capture is difficult to enact and increases in property values, while probable, will likely not be maximized until the Project has had several years of operation. Tolling as a method of funding the Project has a potential to cover a significant portion of the Project costs depending upon the tolling strategy and cost estimates, and may be an effective source of funds when complemented with some of the other funding options listed above. 3.3 Tolling Overview Tolls are widely used in the United States to finance new roads and bridges, upgrade existing facilities and manage traffic flow during heavily congested periods of the day. Tolls are often regarded as a fair way to build badly needed new roads and bridges because the cost is paid by the people who derive the most benefit from these facilities rather than by taxpayers in general. Tolls have been identified as a primary source of funding for the Project. There is a very high degree of support from both local residents and users of the corridor for direct tolls to support the development of the Project. An opinion survey conducted by Davis Hibbitts & Midghall in April 2004 showed that 75% of respondents in the corridor would be willing to pay an amount for the construction of the Bypass. Given the likelihood of tolls being utilized, it is important to maintain the focal point of removing traffic from 99W be maintained under the different tolled scenarios Types of Tolls Various types of tolling have been enacted in the United States and worldwide. In general, there are four basic types: Type of Toll Distance Exit Point Period Description Each vehicle is charged a toll according to the distance traveled on the toll road. There may be multiple toll plazas along the route. Each vehicle is charged a toll as the vehicle exits the route on an off-ramp. Typically a flat charge per exit. A single toll plaza is located at a point along the route and all vehicles crossing the point are charged a flat toll. Examples include the Golden Gate Bridge and proposed twinned Tacoma Narrows Bridge. A pre-paid amount that allows the user unlimited travel on the toll road within a designated period e.g. a week, month or time of day. This system is widely used in Central Europe Milestone 1 Final Report PAGE 28

31 3.3.3 Toll Levels and Categories Benchmarking Several comparable toll roads have been included below to provide a benchmark toll charge per vehicle and a truck toll factor. While these comparables provide valuable information, it is important to recognize that each toll facility is unique in terms of travel corridor demand characteristics, congestion levels and the availability of alternative routes. Note that examples of tolled bridges, tunnels and long distance toll roads have been purposefully omitted to improve the comparability of the data. Estimated Toll Charge Rates* Facility Length (miles) Car Toll Full Length Car Toll Per Mile Truck toll factor Foley Beach Express, AL 6.0 $2.00 $ San Joaquin Hills, CA 15 $3.50-$4.25 $0.23-$ E470, CO 10 $2.75 $ Bee Line West, FL 8.4 $0.75 $ Veterans Expressway, FL 16 $1.75 $ Georgia 400 Extension, GA 6.2 $0.50 $ Southern Connector, SC 16 $2.00 $ Cross Island Parkway, SC 7.5 $1.00 $ Dulles Greenway, VA 14 $2.50 $2.70 $ $ * Assumes cash tolls, discounts available for ETC The table shows the average toll per mile at $0.18 ranging from $0.33 for Foley Beach Express in Alabama to $0.08 for the Georgia 400 extension Vehicle toll classifications Typically on a toll road or bridge the users are tolled according to vehicle classification. Although there is no standard classification of vehicles into tolling categories, it is usually determined by one or more key characteristics including weight, length, height, vehicle type or number of axles. Vehicle Toll Classifications Facility Categories Description Foley Beach Express, AL 6 By number of axles: 2, 3, 4, 5, 6 and More than 6 San Joaquin Hills, CA 3 2 axles/3-4 axles/5 or more E470, CO 8 By number of axles: 2, 3, 4, 5, 6, 7, 8, 9 Indiana Toll Road, IN 9 Ranging from 2 axle-4 tire to oversized vehicles E407 Toronto, ON 3 Light vehicles (less 5,000kg), Heavy single unit (over 5,000kg) and Heavy multiple unit (over Milestone 1 Final Report PAGE 29

32 Facility Categories Description 5,000kg) Cross Island Parkway, SC By axle Base toll rate + $0.75 per additional axle Truck toll factors Trucks are typically tolled at a higher rate than passenger vehicles given that trucks usually have a higher value of time, and cause additional wear and tear on the road surface. Truck tolls are usually expressed in terms of a truck toll factor which is simply a multiple of the passenger vehicle toll. There is a wide range of truck toll factors but the majority starts at around double the passenger vehicle toll rate. The higher truck toll factors for each facility are typically applicable to vehicles with a high number of axles, which typically represent a very small proportion of the total traffic Differential tolling Toll charges can be set to vary based on a fixed schedule (peak/off peak, weekday/weekend) or they can be dynamic where toll rates change depending on the levels of congestion that exist at a particular time. This ensures that motorists traveling at the most congested times of the day pay a greater toll than at less congested times. I-15 in San Diego is the most advanced example of differential tolling in the US, where tolls can vary by up to $4 based on real time travel conditions with a maximum variation of $8 during severe congestion. The development of electronic tolling now allows facilities to offer reduced toll rates for certain categories of electronic transponder users Exemptions On-duty public service vehicles such as police, ambulances, fire trucks and official government vehicles are generally exempt from tolls. In this way, toll roads offer public benefits as emergency vehicles are able to travel faster during peak congestion periods Toll level changes over time The Concession Agreement typically defines how often and how much toll rates are allowed to increase. In most cases tolls are permitted to increase annually and are linked to an escalator such as nominal GDP/capita, inflation, average weekly earnings or specified fixed increments. Toll levels at some of the older toll facilities in the US are set by toll agency boards or transportation commissions. Toll rates on some of these facilities have not been increased for many years. For example, the I-87 section of the New York State Thruway last had a rate change in The result is that large increases are often applied when facilities are faced with mounting maintenance or capital expenditure costs. In order to address changing economic conditions a toll adjustment mechanism is typically put in place to set a maximum toll that is periodically adjusted with quarterly, semi-annual or annual frequency. Note that the adjustment typically only sets the upper limit on the toll allowing the concessionaire to set the toll at a lower amount if the concessionaire believes it will increase total traffic volumes and therefore total traffic revenue albeit at a lower toll per vehicle. The following is the mechanism that has been used in several toll road transactions, most notably Indiana Toll Road and Chicago Skyway: Milestone 1 Final Report PAGE 30

33 Annual Toll Increase = Max (2%, CPI, Nominal GDP per capita) Consumer Price Index is a measure of inflation and reflects changes in overall prices in the economy. Annual CPI increases have ranged from 1.6 to 5.4% in the past 20 years, and % in the past 10 years. Nominal GDP per capita reflects the rise in the income levels, and, in the past 20 years, these increases have ranged from 1.96 to 6.71%. After a fixed schedule of toll increases during the early years of each concession, maximum tolls for both Indiana Toll Road and Chicago Skyway can be adjusted annually by the greater of the percentage increase in CPI, the percentage increase in Nominal GDP/capita, and 2%. Excerpt from Indiana Toll Road Concession Agreement On each Tolling Measurement Date starting June 30, 2011, the Concessionaire will be permitted to increase toll levels by the greater of (a) two percent (2%) or (b) the percentage increase of the Index or Per Capita Nominal GDP, whichever is greater, measured from January 1 to December 31 for the calendar year immediately preceding the Tolling Measurement Date. The following example is for illustrative purposes only: Measurement Dates From To 2.000% CPI GDP/Capita 1/1/ /31/ % 2.050% 1.950% Implemented on 6/30/ % Method of Payment There are as many types of payment collection options as there are types of tolling. Tolls can be collected electronically or by using traditional toll plazas where the customer pays with cash. The popular public perception of tolling is one of stopping at toll booths and throwing coins into a basket. While this method of payment, called barrier toll collection, is still wide-spread in the United States, almost all new toll roads being developed make use of Electronic Toll Collection (ETC) which eliminates the need for drivers to stop and allows them to maintain their speed. This maximizes travel time savings for users. Modern electronic tolling systems allow users to set up a prepaid account, attach a transponder to their vehicle, and pay the toll electronically at highway speeds, without stopping Barrier Barrier payment methods include a physical barrier that requires vehicles to stop and pay the toll, typically using a cash payment. Barrier systems provide a simple and effective enforcement method that guarantees immediate payment. The major costs associated with barrier tolling are toll collection staff and cash handling systems. There are relatively few back-office costs associated with this approach. Cash payment methods include staffed tollbooths, coin machines or toll buckets (where you throw in the toll payment). Proximity cards and credit cards can also be used to pay tolls. Barrier collection limits traffic throughput due to the need for vehicles to either stop or slow down significantly in order to pay the toll. Maximum traffic throughput for a staffed tollbooth is approximately vehicles per hour, which increases to vehicles per hour for an automatic coin machine lane. Milestone 1 Final Report PAGE 31

34 Open Road Tolling In recent years, many toll road systems have enacted ETC systems that allow the vehicles to pass the toll plaza without a reduction in speed. Under an ETC system, toll road users are required to obtain a transponder and set up a method of payment. The vehicle s transponder is read via radio frequency by equipment situated at the roadside, overhead gantries, or other structures, which then proceed to charge the user the appropriate toll. Method of payment may include direct debit, credit card or prepaid account. Enforcement of toll collection on those vehicles not utilizing a transponder may include cash collection lanes where traffic without transponders is diverted and required to pay. Under some ETC systems, vehicles without transponders that do not pay may have a picture taken of their license plate and subsequently mailed a bill. ETC systems have become the preferred method of tolling as it allows for the free flow of traffic by eliminating queues for cash collection toll booths. Throughput for a fee-flow ETC lane can be as high as vehicles per hour. Examples of ETC systems include the Westpark in Houston, the SR91 in California, the 407 ETR in Toronto, the Cross Israel Toll Road, the Melbourne City Link as well as several urban toll roads in Santiago, Chile. Both barrier and ETC systems are compatible with each of the tolling scenarios presented in Section In addition, barrier and ETC systems can be used in conjunction with one another. In this scenario vehicles without a transponder would be diverted to off-ramp cash lane to make payment. This may be particularly effective where electronic tolling is a relatively new concept and transponder usage is not yet widespread. This is the case in a number of facilities throughout the US including the New Jersey Turnpike, North Texas Turnpike Authority and the Florida Turnpike. However, operating a multiplicity of systems simultaneously can significantly increase implementation and operating costs and thereby reduce the Project s viability. The table below outlines compatibility between toll options and method of payment: Type of Toll Barrier Open Road Barrier + Open Road Distance Exit Point Ticket issued upon entry and paid at exit Requires multiple stops Typically cash based Payment required at exit Single stop Typically cash based Payment required in mid-trip Single stop Typically cash based ETC system No stops Use of prepaid accounts, credit cards, debit cards ETC system No stops Use of prepaid accounts, credit cards, debit cards ETC system No stops Use of prepaid accounts, credit cards, debit cards Possible to operate a barrier and open road system simultaneously Possible to operate a barrier and open road system simultaneously Possible to operate a barrier and open road system simultaneously Milestone 1 Final Report PAGE 32

35 Type of Toll Barrier Open Road Barrier + Open Road Period Possible multiple checkpoints to check pass Cash or credit card based Electronic monitoring system Cash or credit card based Possible to operate a barrier and open road system simultaneously Electronic Toll Collection Electronic transponders and video tolling are the two key alternatives available for the implementation of ETC. ETC involves identifying a vehicle when it passes through a toll collection point followed by customer payment via a pre-established account or by settling an invoice that is sent to them after using the facility Transponders Electronic transponders are the most common form of collecting tolls electronically. Transponders vary in cost between $10 and $40 per unit depending on functionality and have an estimated useful life of 5-15 years. A transponder is issued after the customer has set up an account linked to a payment source such as a credit card or bank account. The transponder can either be paid for by the transponder issuer, the customer or a combination of both, depending on commercial arrangements. Another alternative is for the customer to provide a refundable deposit for each transponder provided. The issuer can be a single toll facility, a consolidated enterprise covering a geographic area or specific number of facilities, a public agency or a regional authority. Where more than one transponder issuer operates in a particular market, it is important that interoperability agreements are in place to allow transponders from one issuer to travel on other facilities without any adverse impact on the customer. A traditional transponder account is funded with an initial amount on opening and then is automatically replenished when it reaches a specified minimum account balance. The replenishment amount can either be specified by the customer or based on usage patterns. Merchant fees are generally payable on all credit card transactions associated with each account and can amount to 2% of the amount drawn Video Tolling Video tolling is the term used to describe the identification of vehicles using license plate recognition technology. The license plate of each vehicle is recorded as it passes through the tolling point using front and/or rear cameras mounted on overhead gantries. The image is then processed to determine the license number before being matched to a customer for billing purposes. License plate images are first reviewed by optical character software before passing to manual review if the image is not of sufficient quality to be successfully reviewed electronically. Video tolling can be implemented on a pre-paid or post-paid basis. A pre-paid video account operates on a similar basis to a transponder account, where the customer lodges their license plate details when setting up an account. For every video transaction, their account is debited for the amount of the toll. Various casual user products can be established for users that are infrequent customers or will only use the facility for a certain period. These customers can Milestone 1 Final Report PAGE 33

36 purchase the right to travel on the facility prior to travel for a specified amount and register their number plate when doing so. Post-paid video tolling requires the issuance of invoices to customers after traveling on the toll facility. Generating revenue via video tolling depends on the ability to identify and locate users as well as enforce the collection of levied tolls. A percentage of video tolling users will not be identified due to issues capturing and reading images. Further, a comprehensive and effective enforcement regime is required in order to collect tolls and levy appropriate administrative charges. Reciprocal enforcement agreements with surrounding jurisdictions are also required in order to collect tolls from out-of-state users Key Tolling Policy Issues Oregonians are recognizing tolling as a viable option to fund road and transportation projects in cases where the State is unable to provide sufficient funds. As the list of projects that are immediately supportable through tolls grows it is important to identify the key policy issues that need to be addressed to ensure the tolling system is efficient and accessible. Policy issues are also important when considering tolling policies enacted in neighboring states, such as Washington State, that will impact Oregonians Interoperability Interoperability allows the extension of existing tolling arrangements to include any future toll road into the network. Although Oregon does not currently have a toll road network, there may be plans to expand the system in the future and to integrate this system with neighboring States. This is one of the main developments in other toll road networks in the US where Florida has moved to one interoperable system (Sun Pass), while in the northeast US E-Z pass operates as one system which continues to expand, with New Hampshire and Maine soon to join. For any toll road in the greater Portland network, it is reasonable to expect a significant number of vehicles with non-oregon license plates will use the facility, primarily from Washington State. It will be important that an efficient, cost effective approach is available to collect tolls from these vehicles. This is most likely to be in the form of a bilateral interstate interoperability agreement that will allow the facilities to access identification records for non-oregon vehicles in order to send bills and collect tolls from these users Customer Service Centers Customer service involves managing the customer interface as well as completing all backoffice activities associated with toll collection and account management. Customer service includes: Establishing and maintaining customer communication channels such as a website, telephone contact line, service center shop front and offsite kiosks as appropriate to handle any inquiries or complaints Creating and maintaining customer accounts Issuing transponders and managing transponder inventory Reconciliation of toll transactions and payments as well as and reconciliation against customer accounts These activities can be handled by individual facilities themselves but economies of scale are achievable by aggregating them across a number of facilities or a geographic region. Milestone 1 Final Report PAGE 34

37 Aggregation also provides direct customer benefits such as a single point of contact and consistent customer service levels across facilities. It is conceivable that the State of Oregon would enact a policy to implement and operate customer service centers Violations Enforcement Violations enforcement is a key issue for all non-cash forms of toll collection (particularly video tolling) and is required to ensure customer compliance. A typical enforcement process involves capturing an image of the license plate of non-complying vehicles when passing through a toll collection point and then having procedures for seeking payment from these customers. These procedures can include confirming whether the customer has a valid account, issuing demand notices, court action and denial of vehicle registration. Fines and administrative costs are levied on violators to recover the costs incurred in the enforcement process Tolling Policy Legal Issues Oregon Law Currently, the only tolling policy requiring legislative approval relates to violations enforcement where images of license plates are captured and used to enforce violations or collect video tolls. This invariably introduces privacy concerns relating to sharing of potentially sensitive personal information. Note that these privacy concerns have been successfully addressed in other parts of the United States where Macquarie operates toll roads, such as California and Virginia, through the passage of State legislation protecting the privacy of its citizens. To allow for violations enforcement through image capture of license plates, Oregon would require legislation to be passed. The earliest opportunity to introduce legislation would be in 2007 through the Oregon Legislative Assembly. The legislative process typically lasts about six months, beginning in the middle of January. This legislation is currently not part of the Governor's legislative program, so bill introduction would necessarily involve a state legislative sponsor or legislative committee introduction. Tax and Legal Issues Most toll roads in Europe include VAT (Value Added Tax) in the calculation of the toll rate. However OTIG currently understands that there are no state sales taxes in Oregon and as such toll rates would not include any such tax. Enforcement can take the form of penalties applied for non- or late payment (usually set to recover costs), a regular commercial collection process, cancellation of a user s toll device and license renewal/plate denial as a final step. Approaches similar to those listed above have been applied in other jurisdictions where free flow toll roads exist. Alternatively, legal measures can be applied but this may require new legislation or amendments to current regulations. In this scenario, if a toll remains unpaid for a specified period, it may become a legal offense and a penalty notice could be issued to the registered vehicle owner and dealt with in a similar manner to traffic offenses. Tolling Existing Roads A number of the tolling options considered later in the report require all non-local traffic traveling on the Bypass or 99W to pay a toll. This option requires consideration of the issue of tolling an existing road. Interstates are generally not authorized to be tolled unless an exception is Milestone 1 Final Report PAGE 35

38 provided under a nominated pilot program. OTIG understands that there is no such tolling prohibition issue with 99W as this road is not an Interstate facility Key Legislative Requirements Based on the discussion above, implementing legislation to address privacy concerns associated with electronic tolling as well as establishing effective toll enforcement are key items to be addressed early in Milestone Two. These will help provide the framework required to successfully implement the Project. Milestone 1 Final Report PAGE 36

39 3.4 Preliminary Investment Grade Traffic Study Introduction The traffic and revenue study covers the development of the traffic and forecasting model and the presentation and discussion of results. There has been an intensive data collection exercise which included origin destination surveys at four locations in the Newberg-Dundee area over two days and an in-depth market research Stated Preference survey. It also involved a review of socioeconomic parameters and the development of a network model which enabled to test the effects of a number of different tolling regimes. The tolling regimes initially analyzed included tolling the Bypass under two different types of tolling: Bypass Distance Tolling: all traffic on the Bypass is tolled based on the number of miles traveled on the Bypass and a charge per mile. Bypass Point Tolling: all traffic on the Bypass pays the same toll at a specified point on the Bypass regardless of the actual distance traveled. The results of the Bypass Tolling options show low levels of traffic and revenue on the Bypass (in the region of just over $2 million in 2010) due to a range of reasons including: Relatively short stretch of road means there are limited potential time savings. While there is congestion on the corridor, it is quite localized and time specific, with journey time data showing consistent travel times at around 14 to 16 minutes (with the highest in the PM Westbound at 20 minutes). The opening of the Bypass removes some traffic from the 99W, improving travel times (by up to 3 minutes in the PM westbound direction) and therefore reducing the attractiveness of the Bypass. Toll applied is at the lower range of values observed elsewhere in the US, but analysis shows that it is optimal in terms of traffic and revenue. Although from a low traffic and revenue base, Bypass Tolling tests show considerable increases in traffic in the latter years of the concession as congestion increases on 99W and the assumed traffic grows over time, making tolls relatively less expensive in the future. However, analysis shows that the Project under a Point or Distance Toll on the Bypass is not financially feasible. Therefore, in light of the inability of the Bypass Tolling to pay for the Project. OTIG put forth two innovative tolling options that involve tolling traffic utilizing 99W as well as the Bypass: 99W Tolling: this option consists of tolling all traffic at the toll point in Rex Hill so that all traffic traveling on the Bypass or 99W has to pay the toll. This is applied to traffic in both directions. This captures the highest number of vehicles of all the tolling options. One Way 99W Tolling: this option consists of tolling all traffic traveling on the Bypass and 99W Southbound at Rex Hill, Northbound south of Dundee and Southbound access to the Milestone 1 Final Report PAGE 37

40 Bypass on Hwy 219 and Dundee Interchange. It tolls all traffic entering the Newberg/Dundee area but does not toll traffic leaving the Newberg/Dundee area. As expected, the two 99W tolling concepts provide much higher revenues as all traffic has to pay a toll to use the 99W and the Bypass. In addition, 99W Tolling generates higher revenues than One Way 99W Tolling option (and subsequently lower required level of tolls to fund the Project). The focus of the analysis has thus been on the 99W Tolling option. Through discussions with various stakeholder groups OTIG recognizes that tolling all traffic may be publicly unacceptable and therefore has put forth three additional refinements to 99W Tolling that in all cases exclude local residents of the Newberg and Dundee areas from having to pay a toll to drive on the 99W. The refined options, referred to as Pass Through Tolling options, include: Pass Through Tolling Local Residents Excluded Pass Through Tolling Local Residents & Visitors Excluded Pass Through Tolling Additional Local Communities & Visitors Excluded. This Report defines residents of communities of the Newberg and Dundee areas as local residents as they are directly impacted by tolling of the 99W and the Bypass. However, this definition is further expanded to include additional communities as locals under the third Pass Through Tolling scenario. Further analysis may be undertaken with an alternative definition of local residents, however noting that the expansion of the definition of a local resident will ultimately result in higher tolls for those that are left as eligible to pay. The decision to define who is and who is not a local resident will ultimately be decided by public policy makers. Under each of these scenarios the toll rates are determined at a level that fully funds the Project aside from a contribution from ODOT for the entire Right-of-Way and $50 million towards construction costs. The rationale is that by clearly defining the tolls required to fully fund the Project, public discussion can move towards selecting the preferred option. The resulting tolls under the Pass Through Tolling options range between $2.60 and $8.50. OTIG s public outreach research indicates that this level of toll may still be too high to be publicly acceptable. OTIG has therefore included in the financial feasibility section of the report an estimate of the funding gap that would result from a variety of lower tolls. Any funding gap would have to be filled through funds generated by non-toll revenues such as property tax or gas tax increases. Finally, it is important to note that each One Way 99W Tolling, 99W Tolling and Pass Through Tolling option will maximize the use of the Bypass and the environmental benefits associated with removing as much through traffic from 99W as possible Background Preliminary forecasts for the Newberg-Dundee Bypass Project were developed as part of the feasibility analysis carried out in March That analysis used existing data sources and was based on a number of assumptions and parameters. As the Project has moved forward a more comprehensive and rigorous forecasting exercise is required to forecast traffic and revenues. This report summarizes the extensive work undertaken to provide a forecasting toll which allows the testing of different tolling alternatives on the Bypass. We consider that the selection of a Milestone 1 Final Report PAGE 38

41 preferred option will permit the development of an Investment Grade traffic study on the back of the work and analysis carried out. The term Investment Grade is an often used but seldom defined term. A formal definition is difficult to find although recent informal discussions with staff at Standard & Poor s London Office who specialize in rating toll roads (and other transport infrastructure projects) suggested this definition: We generally assume Investment Grade traffic forecasts are undertaken and reported in such a way and to such a level of detail that they can be forwarded, without too much 'overlay' by the financial advisors, for investor scrutiny. A standard public sector traffic forecasting report would be the usual 40 pages describing the model build and 3 pages on sensitivity testing. For investment-grade, we would expect, maybe not the exact opposite, but more of a balance in favor of sensitivities and stress tests and with all assumptions explicitly defined. Steer Davies Gleave believes the ideal Investment Grade forecast would: Have recently observed data for all key components, especially in-scope demand. Be based on parameters specific to the project area, not imported from other areas. Not rely on third party models and data, or if they did, these would be independently audited and confirmed as fit for use. Clearly identify all assumptions, explain key risks and quantify their impact. As important, we believe if there is a weakness in the methodology or data this does not necessarily mean the forecasts are not Investment Grade, rather such concerns should be clearly and explicitly reflected in the presentation of the results and the uncertainty envelope around a central forecast Project Characteristics Toll roads involve a significant up front capital expenditure to create a fixed asset with a long life. This creates substantial ongoing financial liabilities in terms of debt repayment. In addition, while some of the operations and maintenance costs relate to toll usage, significant elements of the operating and maintenance costs are incurred irrespective of use. Consequently, the capacity of the business to generate additional revenue cannot be significantly scaled up during periods of high demand and, more critically, scaled down during periods of low demand, while the converse is true of financial outgoings. As such it relies on a utility style demand market of regular day in day out use and is unlikely to be successful if it relies simply on distressed purchase users. With these principles in mind we can consider three basic forms of toll facility: River Crossings or similar physical natural barrier and usually a bridge or tunnel Networks or long inter urban routes Congestion Busters The first sort of toll road (river crossings) is also the oldest and most easily understood and accepted by the traveling public. While the size of the bridge or tunnel can vary (at one extreme you might have the Confederation Bridge to PEI in Canada and at the other you might have the Emerald Mountain Expressway in Alabama) the same basic characteristics normally apply. They will either be the only crossing of the physical natural barrier for some distance (e.g. the Golden Gate Bridge) or they will operate adjacent to other tolled facilities (e.g. the Detroit- Milestone 1 Final Report PAGE 39

42 Windsor Tunnel and the Ambassador Bridge on the Michigan/Ontario border) and as such they have a strong market position. Given this position the main alternative to paying the toll is to travel to an alternative destination rather than to seek out an alternative route. Indeed, the distances involved in taking an alternative route are often so great that a double toll is collected in only one direction rather than tolls in each direction (as this reduces operating costs with little or no impact on usage). This is the tolling regime for the Tacoma Narrows Bridge in Washington State. The Newberg-Dundee Bypass is clearly not this type of facility. The second sort of toll facility is very common in Europe. For example most of the motorway networks of France and Italy require payment of a toll if they are to be used. Large network toll systems in the USA include the New York Thruway and the Florida Turnpike network (the latter is an example of many miles of toll route being provided, although in a series of different linked roads). Such toll roads deliver benefit to the users by providing relative small time savings per mile, but which, over long distances, accumulate to large benefits. They often have the added benefit of offering long distance stress free driving conditions when contrasted with the parallel free network. Indeed, such networks normally deliver broadly similar time savings irrespective of the time of day, the time savings being a product of the geometric differences between the two alternatives, rather than benefits related to avoiding traffic congestion. Driver behavior on toll networks is very different to the behavior when faced with relative short sections of tolled road competing with the free network. With a network the default choice can often become the toll network, especially where the toll network represents the majority of the freeway or motorway network. In such cases the choice is often between alternative tolled routes rather than between tolled and free routes. For example, the National French Motorway model can only replicate driver behavior (choice) if it assumes half the road users ignore the cost of the toll entirely in the modeling of route choice decisions. Clearly the Newberg-Dundee Bypass, at around 10 miles in length, and many miles from any other tolled facility, would not fall into this category. This brings us to the last category of toll road, which are often termed congestion busters. These are a relatively new form of toll road and generally fall into two sub categories: Urban toll roads the toll facility provides an alternative to a congested urban road network (an example would be the urban concessions in Santiago de Chile). Congested network avoiders the toll facility provides an alternative to a specific congested section of road network (an example would be the M6Toll in the UK). As these toll roads are used to avoid delays on the parallel network, their length can often be relatively short. In many ways these toll road set-ups, and particularly the congested network avoiders, are similar to the first category (the river crossings) in that users pay to cross a barrier (although in this case the barrier is one of delay and as such can be crossed, if desired, without paying the toll). The Newberg-Dundee Bypass clearly falls into this last category, and in particular, the congested network avoider sub category. The business model for such a toll road therefore relies on two fundamental principles: There is a delay to avoid (and that the very existence of the new toll route does not totally remove this delay). Milestone 1 Final Report PAGE 40

43 The delay is sufficiently great, and/or the toll is sufficiently low, for users to be prepared to pay the toll. Given these principles, there are a number of interesting aspects, from a business case perspective, to consider: As previously discussed, toll roads rely on 24/7 usage, yet congestion and delay often only occur for a few hours a day. In the case of Newberg-Dundee the journey time data collected by Steer Davies Gleave shows that speeds outside of traditional peak hours are significantly higher than those inside the peak hour. A toll road that attracts a reasonable level of peak traffic but little or no off peak traffic is unlikely to be financially viable. The new toll road diverts traffic from the free alternative. However, the diversion of this traffic inevitably reduces delays on the free alternative, making it in turn more attractive, and eroding the attractiveness of the toll route. It often only requires a relative small reduction in traffic levels (10% or 15%) for conditions on a route to dramatically improve. The following table contrasts theoretical time savings over a 10 mile route when the toll road has an average speed of 55mph compared with a range of speeds on the untolled alternative. Travel Time Comparison Speed on Free Alternative Toll Road Time (minutes) Free Alternative Time (minutes) Toll Road Time Saving (minutes) 45 mph mph mph mph mph Looking at these theoretical time savings it is worth noting that most behavioral research into tolls suggests the value of time per minute increases as the actual time savings increases and that time savings below about five minutes are often difficult to perceive and, critically, users are often not prepared to pay for such a small saving what ever the toll levied. Given this data it is worth noting that the journey time surveys undertaken for this study suggested travel times along the whole length of the route that parallel the Bypass are currently around 20 minutes in the PM Westbound direction and just under 15 minutes in the off peak. Clearly, this suggests: The Project will initially need to open with a relatively low toll. As with all congestion busters, the toll can increase over time at a faster rate than inflation after congestion rebuilds on the old parallel route. The Project performance can be considerable enhanced by revitalization measures on the free parallel route once the Project has been built. Obviously this relates to the Point and Distance Toll regimes. Considering those limitations it is important to examine range of Bypass tolling options available as part of this analysis. The examined tolling concepts include: Milestone 1 Final Report PAGE 41

44 Bypass Tolling: tolling all traffic on the Bypass Bypass Distance Tolling: all traffic on the Bypass is tolled based on the number of miles traveled on the Bypass and a charge per mile Bypass Point Tolling: all traffic on the Bypass pays the same toll at a specified point on the Bypass regardless of the actual distance traveled Disclaimer This report should only be used in association with the Newberg-Dundee Bypass Project. The projections of traffic contained within this document represent Steer Davies Gleave s best estimates. While they are not precise forecasts, they do represent, in our view, a reasonable expectation for the future, based on the most credible information available as of the date of this report. However, the estimates contained within this document rely on numerous assumptions and judgments and are influenced by external circumstances that can change quickly and can affect income. In addition, it has been necessary to base much of this analysis on data collected by third parties. This has been independently checked whenever possible. However, Steer Davies Gleave does not guarantee the accuracy of this third party data Data Sources ATR Count Data Oregon has a system of ATRs (Auto Travel Recorders) throughout the state providing permanent traffic counts. Site , located 0.3 miles east of Newberg, provides a good indication of traffic volumes entering the corridor under study. Traffic growth has been relatively limited over the last 10 years, with traffic levels around 34,100 vehicles per day in 2005 and annual growth at 1.5%. Figure below summarizes the traffic patterns over the last 10 years. Milestone 1 Final Report PAGE 42

45 Observed Traffic Grow th: Average Daily Traffic Hill Vehicles 35,000 34,000 33,000 32,000 31,000 30,000 29,000 28,000 27,000 26,000 25, Average Daily Traffic While the average growth over the period has been 1.5%, the pattern over the last 10 years has been quite varied with strong growth between 1995 and 1997, followed by slight decline in 2000 and The data then shows strong growth in 2002 and a further slight decline in The traffic growth reduction observed in 2000 and 2001 is likely to be linked the downturn in economic growth experienced in Oregon in that period. The following table presents the monthly traffic information for 2004, showing the seasonality effects during the year. Traffic is below average during the winter months, with January being considerably lower than any other month. The highest traffic months are during the summer (mainly July and August). However the seasonality level (percent of ADT traffic in a specific month) is relatively low, suggesting there is a core traffic demand. Seasonality: Monthly Average Daily Traffic (2004) Month Average Daily Traffic Percent of ADT January 27,344 82% February 32,754 98% March 33,81 101% April 34, % May 33, % June 34, % July 35, % August 35, % September 34, % October 33, % Milestone 1 Final Report PAGE 43

46 Month Average Daily Traffic Percent of ADT November 33,064 99% December 33,051 99% The daily pattern is summarized in the figure below. It shows the AM and PM peaks with the PM period showing considerably higher flows than the AM period, and a longer peak period. Observed Traffic Grow th: Hourly Flow s Hill 2,000 1,500 Vehicles 1, :00 1:00 2: EIS Model 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 Hourly Flow 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 The existing ODOT model, implemented on an EMME2 platform, has been used for the EIS process and contains 172 zones covering the area from Rex Hill to Dayton. It is a PM peak model with 2 scenario years, 2000 and These forecasts assumed that no toll is charged for vehicles traveling through the corridor. The key average daily traffic statistics of the original study (EIS element Location (Tier 1) Final, FHWA and ODOT, June 2005) are summarized below. Only results for option Modified 3J, a specific Bypass alignment, have been included in the table. Traffic Forecasts from EIS (ADT in thousand vehicles) Location Existing ADT (2002) No Build (2025) Implicit Growth p.a. Modified 3J (2025) Oregon 99W: East of Rex Hill % 52 East Newberg % 29 Newberg Couplet % 30 Between Newberg & Dundee % 20 Dundee at 5 th Street % 13 Milestone 1 Final Report PAGE 44

47 Location Existing ADT (2002) No Build (2025) Implicit Growth p.a. Modified 3J (2025) South of Dundee % 5 Bypass: East Segment N/A N/A 27 Central Segment N/A N/A 33 West Segment N/A N/A 33 This table shows traffic on the Bypass, with no toll, to be in the order of 26,500 to 33,000 vehicles per day in 2025, with slightly more traffic on the southern end of the facility. This represents between 48% and 87% of the total traffic on the 99W/Bypass corridor uses the Bypass. The implicit traffic growth rate in the corridor from 2002 to 2025 is around 1.7% Study Specific Data Collected An extensive data collection process was carried out to obtain recent and accurate travel patterns in the corridor. We believe that recently observed data for all key elements, especially in-scope demand (the traffic demand which is most likely to use the Bypass), is crucial to the forecasting exercise and serves the purpose of the investment grade study. In a congested network it is necessary to build traffic models representing different periods of the day as travel times and demand levels vary according to the congestion level. The model has been developed to represent four time periods and the periods surveyed are detailed in the table below and the data collection exercise described in the next sections. Time Period Description Code Period Day Time AM Morning peak Weekday 6:00 AM 7:59 AM OP Off peak Weekday 8:00 AM 3:59 PM PM Evening Peak Weekday 4:00 AM 6:00 PM WK Weekend Saturday 10:00 AM 6:00 PM Origin-Destination Origin-Destination (O/D) surveys were undertaken at four different locations to obtain a more comprehensive understanding of the trips in the corridor. It was only possible to interview traffic in one direction due to road space constraints and the operational difficulties associated with closing two lanes of traffic. However interviews were carried out over a 12 hour period to obtain daily trip patterns. The figure below shows the location of the survey stations. Milestone 1 Final Report PAGE 45

48 Location of O/D and Traffic Counts Sites LEGEND Traffic Counts O/D and Counts Light Vehicles Trucks The following table summarizes the sample rates from the O/D survey. Note that the high sample rate for the trucks refers to a lower total number of vehicles available for interview. Also note that the low sample rate for station 1 in the PM reflects the fact that the survey station had to be closed due to congestion levels and safety concerns. Sample Rates per Period and Site Station Vehicle type Vehicles Stopped AM (6:00-8:00) OP (8:00-16:00) PM (16:00-18:00) WK (10:00-16:00) Station 1 Light Vehicles % 4.1% 1.6% 5.8% Station 2 Light Vehicles % 9.3% 6.1% 5.8% Station 3 Light Vehicles % 12.0% 6.7% 10.8% Station 4 Heavy trucks % 25.4% 21.5% - A number of questions were also asked about the income level, trip frequency and residence of the drivers to obtain additional background on the characteristics of the drivers. The residence question was included to enable to test potential tolling regimes where a resident toll discount could be made available. Milestone 1 Final Report PAGE 46

49 Journey Times A series of journey times were also collected for two different routes as shown below. LEGEND Route 1 Route 2 A summary of the journey times collected is summarized below. The average travel time is between 14 and 16 minutes except for the PM Westbound where higher times are observed at 20 minutes. The minimum journey times range between 12 to 13 minutes and the maximum between 16 and 20 minutes, the one exception is the PM Westbound where a maximum travel time of 30 minutes was recorded. Milestone 1 Final Report PAGE 47

50 99W Journey Times (minutes) Direction Average Time Minimum Maximum AM (6:00-8:00) WB EB OP (8:00-16:00) WB EB PM (16:00-18:00) WB EB WK (10:00-16:00) WB EB Traffic Counts As shown previously traffic counts were undertaken at all sites where origin destination surveys were collected, and these were supplemented by a count between Newberg and Dundee. While interviews were carried out in one direction only, classified counts were collected in both directions. The data collected is summarized in the diagrams below. The figures show the dominant movement in the AM peak is Eastbound (to Portland) and the flows are reversed in the PM when the Westbound becomes the main flow. The highest flows are at Site 1 (Rex Hill) and traffic reduces as you move down the corridor. Hwy 219 has the lowest observed flows. AM Peak Hour Flows (6:00-8:00 period average) SITE 1 1,502 Period 49 am 1 offp Newberg pm wkd SITE 5 1, Dundee SITE 3 Heavy Vehicles Light Vehicles SITE 2 Dayton Milestone 1 Final Report PAGE 48

51 OP Hour Flows (8:00-16:00 period average) SITE Period 87 am 2 offp Newberg pm wkd SITE Dundee SITE 3 Heavy Vehicles Light Vehicles SITE 2 Dayton PM Peak Hour Flows (16:00-18:00 period average) 40 1,452 SITE Period 71 am 3 offp Newberg pm wkd 50 1,151 SITE Dundee SITE 3 Heavy Vehicles Light Vehicles SITE 2 Dayton Milestone 1 Final Report PAGE 49

52 Weekend Hour Flow (10:00-16:00 period average) 19 1,198 SITE 1 1,108 Period 17 am 4 offp Newberg pm wkd 34 1,120 SITE Dundee SITE 3 Heavy Vehicles Light Vehicles SITE 2 Dayton Stated Preference The main objective of the Stated Preference (SP) survey was to provide estimates of Value of Time (VOT) and any toll constants (effectively a parameter that reflects intangible or unmeasured benefits of a toll road) for a number of market segments for 99W users. These two elements are important to the Project as they are used to calculate the generalized costs of alternative routes in the traffic model, which are then used to estimate the proportion of traffic that will use the Bypass. However, it would be overly simplistic to assume it is simply a trade off between time and money. It is also clear that these relationships are not linear. For example a 1 minute time saving may be effectively valueless while a 60 minute time saving will be worth far more than 60 times the 1 minute value. This is particularly relevant for trucks where small amounts of additional time may be valueless if they cannot be converted into alternative productive activities. It is also clear our willingness to pay cash to save time varies depending on our trip purpose and trip frequency. The most obvious example being a comparison of how we might behave on a once year a year business trip compared with a five day a week commute trip. This tool also allowed us to obtain other data from drivers, including frequency of use, residence, origin and destination of trips, purpose and socioeconomic characteristics. This data was used to segment the sample and enabled us to disaggregate data by different user classes. The recruitment of potential interviewees was carried out at the same time as the origin destination surveys were taking place (June 2006). This ensured that the interviewees were actual users of the corridor and were aware of local traffic conditions. After responding to the origin-destination survey, drivers were given a flyer with information about the survey and Milestone 1 Final Report PAGE 50

53 inviting them to complete an online Stated Preference survey at two websites, including the Bypass Project web site. The actual survey was undertaken online between June 6th and July 11 th, 2006, and 220 surveys were completed; further information on the survey design and results can be found in Appendix D. SP Survey Results The discrete choice modeling process was undertaken with the completed surveys and several models with different segmentation types were tested, with and without segmentation based on income level and trip purpose. The results for the selected model are presented in the next table. The final model applied was developed from 1,280 observations, corresponding to 150 surveys. According to this segmentation, five coefficients were obtained, all of them statistically significant 1. Values of Time Obtained Segment (User class) Value ($/hr) (Cents/min) Work low income VOT Work medium income VOT Work high income VOT Other purpose low income VOT Other purpose medium income VOT Other purpose high income VOT Comparison of these results with other VOT studies suggests these are values in the lower end of the range of VOTs. However a number of factors need to be considered: Important to highlight the potential for bias in any SP survey e.g. the possibility respondents will not consider choices as they are completely in favor or against the application of a toll (although some of these non-traders were excluded from the sample). Income levels in Yamhill County are below Oregon s income levels, which in turn are below the national average. The relatively small potential time savings of the Bypass may be having an effect on their valuation Forecasting Model Development Annualization The ATR (Auto Travel Recorder) site at Rex Hill is one of the permanent traffic counters which ODOT has in place. It provides a good source of annual data with the different model period hours compared to the count data at Rex Hill to provide annualization factors. 1 A test t (t-ratio) greater than 1.96 is necessary for to be significant statistically. Milestone 1 Final Report PAGE 51

54 The estimate is done by analyzing an average week for the year and the hours represented by each time period. In this case the AM and PM peak periods represent 2 hours on each working day, while the weekend period represents 14 hours of each Sunday and Saturdays. Finally the Off peak period represents the rest of the hours, including night hours (which in traffic terms represent a small proportion of total traffic). After estimating the average traffic for each period, the amount of hours contained in each period is expanded to the week and subsequently to the year. The factors obtained are presented in the following table. Time Period Expansion Factors Code Period Expansion Factor to Year AM Morning peak 501 OP Off peak 3,447 PM Evening Peak 501 WK Weekend 1,240 The factors show the importance of the off peak period compared to the other expansion factors, as a result of the high number of hours in the year Base Model Development The forecasting model enables the forecasting of traffic and revenue forecasts for a number of toll scenarios with a Bypass in place. The model was developed in the SATURN modeling platform, using the existing ODOT EMME model as the base for this work. The ODOT network was reviewed and checked and revised zones and links were defined. The data collected from the origin destination surveys was used to construct light and heavy vehicle matrices for the various model time periods and divided by trip purpose. The table below summarizes the model user classes. Residents were defined as residents of Newberg and Dundee based on responses in the origin destination survey. User classes User number Vehicle type Purpose Resident 1 Light vehicles Work Resident 2 Light vehicles Work Non Resident 3 Light vehicles Others Resident 4 Light vehicles Others Non Resident 5 Heavy vehicles The resulting matrices are summarized in the table below. The table shows the high number of non-residents on the 99W. Worth pointing out that the survey sites were outside the Newberg and Dundee urban areas and as such a considerable number of these local, short distance trips Milestone 1 Final Report PAGE 52

55 were not captured in the origin destination surveys. These are highly unlikely to be users of the Bypass. There is a clear pattern for heavy vehicles with the highest number in the OP, reducing to around 5% in the peak and reducing even further in the weekend. Trip Characteristics (2006) Period Residence Vehicle Type Total Trips Resident Non- Resident Light Vehicles Heavy Vehicles AM 33% 67% 95% 5% 4,028 OP 23% 77% 91% 9% 3,358 PM 34% 66% 96% 4% 4,624 WK 28% 72% 98% 2% 4,061 The model was then calibrated to traffic counts and journey times, with the focus being on 99W links. The process of calibration involves a comparison between observed and modeled values to ensure the model is replicating existing network conditions. Further details on the base model development can be found in Appendix D Socioeconomic Characteristics Traffic demand growth is driven by a combination of land use, population, employment and economic growth. In this section data has been gathered for some of the main socioeconomic variables that will have an impact on transport demand in the area, and more specifically on traffic in the corridor Population The population in Oregon grew at a rate of 1.8% rate between 1990 and 2000 which is slightly higher than the growth rates observed in the US as a whole. Population of the USA and Oregon Year USA Population (000s) Growth Rate Oregon Population (000s) Growth Rate % % % % % % % % % % % % % % Milestone 1 Final Report PAGE 53

56 Year USA Population (000s) Growth Rate Oregon Population (000s) Growth Rate % % % % % % % % % % % % % % % % Average growth/year % 1.60% Total Growth % 27% Source: Office of Economic Analysis, State of Oregon The data shows strong population growth in the early 1990s in Oregon, declining towards the end of the decade when it mirrors US population growth rates. The population estimates for 2005 for the largest places in the Project area are presented in the following table. Local Population Growth City Census (forecast) Average Annual Growth Rate Dayton 2,119 2, % Dundee 2,598 2, % Lafayette 2,586 3, % Newberg 18,064 20, % McMinnville 26,499 30, % Yamhill County 84,992 90, % Portland 529, , % Oregon 3,421,999 3,631, % Source: Population Research Center, PSU The data shows that Newberg and McMinnville stand out as the most populated towns in Yamhill County with Lafayette, Dundee and Dayton being considerably smaller (population between 2,000 and 3,000). The growth in the Yamhill County towns is higher than in the county itself, Portland and Oregon (albeit for a number of locations from a low population base). Population forecasts for the area are slightly higher than observed to date, and still higher than Milestone 1 Final Report PAGE 54

57 the state wide forecast as shown in table below. Considering the findings of the previous table, it is expected that the bulk of this growth will be localized in the main towns of Yamhill County. Population Forecast Average Annual Growth Rate Oregon 3,631,440 3,843,900 4,359,258 4,891,225 5,425, % Yamhill 90,310 98, , , , % Source: Office of Economic Analysis, April Households The ODOT model has assumptions regarding the number and location of households in the study area. This data has been aggregated into the 6 zones (E, NE, S, N, W, and NW) as shown previously. The following table shows the 2000 and 2025 number of households with the resulting average annual growth. Households in the Study Area District Average Annual Growth Rate 1 1,973 7, % 2 1,066 2, % 3 1,399 1, % 4 2,356 4, % % 6 1,043 2, % Total 8,313 18, % Source: ODOT EIS Model The results show the very high annual growth in sector 1 (East Newberg) of 5.5%. This represents a growth of 360% between 2000 and 2025 and would appear a very high estimate of the increase of household numbers. This is reflected in some very high traffic growth for a number of zones which has been reduced as described later in this section Economic indicators GDP and GSP Economic growth for the USA and Oregon has been assessed by considering GDP growth in the period for the US, and GSP growth for Oregon. This is shown in the figure below. The figure shows higher average growth in Oregon, compared to the US, over the whole period with particularly high growth in the last two years. However Oregon s pattern has been more variable over the same period, with 2001 actually showing a decline in GSP. This decline is related to the 2001 US recession which affected Oregon to a greater extent than other states Milestone 1 Final Report PAGE 55

58 due to the higher concentration of employment in the industries hit hardest during the recession (particularly the dot com bust affecting the high tech cluster in Portland). The other main industries in Oregon include agriculture in the Willamette Valley (including the wine industry), tourism and logging. GDP and GSP Grow th Million of chained 2000$ 12,000,000 11,500,000 11,000,000 10,500,000 10,000,000 9,500,000 9,000,000 8,500, , , , , ,000 Million of chained 2000$ 8,000,000 90, US GDP Oregon GSP Source: Bureau of Economic Analysis ( Million of chained 2000 dollars (real) It is important also to compare economic growth in per capita terms, as increases in population can also affect GDP/GSP calculations. The following figure shows the GDP/GSP per capita in the period. The figure replicates the growth pattern seen in the GDP/GSP analysis. The growth per capita in the last years at a faster rate than the US but at a reduced rate compared to the GDP/GSP growth, as Oregon s population is growing marginally quicker than the US. Population forecasts for Oregon are at a higher rate than the US average so this is likely to drive, partly, continued economic growth. Milestone 1 Final Report PAGE 56

59 GDP/GSP per capita growth $40,000 Million of chained 2000$ $37,500 $35,000 $32,500 $30,000 $27,500 $25, US GDPpc Oregon GSPpc Source: Bureau of Economic Analysis ( Million of chained 2000 dollars (Real), and the Office of Economic Analysis Oregon (Population) Income per capita Another important indicator of economic activity is income figures, more specifically personal income data per capita (data in current dollars). The figure below shows a US growth of 4%, half a per cent lower for Oregon and a further full percent less for Yamhill. If we assume 2% inflation (CPI) rate, the income per capita would be growing in real terms at approximately 2% in the US, 1.5% in Oregon and just 0.5% for Yamhill County. The figure also shows that the pattern of growth for all three locations has been more or less similar since 1997, however overall income levels in Yamhill lag those found in Oregon (12% lower) and the US (almost 20% lower) and the gap does not appear to be narrowing. The reason behind the low income levels and growth in Yamhill County are likely to be caused by the importance of agriculture in this area. This sector of the economy has relatively low levels of income and is not generally regarded as a high growth sector. The continued development of the wine industry could potentially lead to higher growth in the future and provide a higher value added product than other agricultural activities. Milestone 1 Final Report PAGE 57

60 Personal Income per capita $36,000 $34,000 $32,000 Dollars $30,000 $28,000 $26,000 $24,000 $22,000 $20, US Oregon Yamhill Source: US Bureau of Economic Analysis ( Summary of Socioeconomic Parameters The data reviewed previously is summarized in the table below. The general pattern is that growth in Oregon and Yamhill has been slightly higher than the US average but in terms of income per capita Yamhill is below Oregon, and Oregon is below the US average. Socioeconomic Growth Factors Parameter US Oregon Yamhill Period Growth Rate Period Growth Rate Period Growth Rate Traffic Growth % Population % % % % % Household % GDP/GSP % % - - GDP/GSP per capita % % - - Personal Income per capita (current dollars) % % % The development of regression analysis between observed traffic growth (at Rex Hill) and the different socioeconomic parameters show varying degree of correlation as shown in the table below. Milestone 1 Final Report PAGE 58

61 Regression Analysis Parameter Regression R^2 Population 0.83 GSP 0.82 GSP per capita 0.78 Personal income per capita 0.72 A difficulty with the application of relationships of this kind to estimate traffic growth factors is that they are reliant on long range forecast data (e.g. GDP/GSP growth, personal income) which is generally not available or has little foundation beyond a one to two year horizon Growth Assumptions The ODOT model contains the existing and future land use assumptions for the Newberg- Dundee area, together with ODOT s population, employment and household assumptions. Therefore it is particularly important to analyze the changes in trip distribution of the model (relative growth by O/D pair). Overall the matrix grows at ~1.9% average annual growth between 2005 and However, an important component of that growth comes from trips which are not necessarily potential users of the Bypass, for example trips within Newberg. To ensure compatibility with SDG s model (25 zones), trips from the ODOT matrix were aggregated to replicate the SDG zonal structure and the ODOT s model was aggregated into six sectors in order to facilitate the analysis. The following figure illustrates the sector definition and the table provides the ODOT forecast growth. Sector Definition Newberg-Dundee Milestone 1 Final Report PAGE 59