Chapter 15 Transportation Improvements Financing Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan
CHAPTER 15 TRANSPORTATION IMPROVEMENTS FINANCING INTRODUCTION As part of this long range plan, the costs of implementing the recommendations for highway and transit projects are compared with the funding reasonably expected to be available. This cost comparison clarifies the financial issues that may need to be addressed in the process of building the region s future transportation system. This plan s financial analysis was developed in response to the requirements for a financially constrained plan that was introduced in the Intermodal Surface Transportation Efficiency Act (ISTEA) and continued in the Transportation Equity Act for the 21st Century (TEA-21) and the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) legislation. This plan considers both capital costs and operation and maintenance (O&M) costs associated with the preservation and continued operation of the existing transportation system, as well as the costs associated with the recommended improvements which are presented in this plan. It also projects revenues from all sources that will be available to pay for these improvements. Funding Expectations Establishing a metropolitan planning organization s (MPO) regional transportation plan fiscal forecasts for a 20 year planning horizon in today s transportation environment is a challenging endeavor. Federal transportation funds are authorized through six year legislative cycles. The current six year federal transportation legislation, SAFETEA-LU, expires September 30, 2009. Federal funding authorizations for the post SAFETEA-LU six year timeframe will not be known until new national transportation legislation is adopted. An additional complication affecting future federal funding estimates is that current revenue projections suggest that the federal transportation trust fund may be depleted by 2009. The trust fund has historically provided the revenue to finance the authorized funds in the six year transportation legislative actions. Funding for transportation improvements is provided from federal, state and local sources. Future funding levels expected for the planning period covering 2008 through 2030 were estimated based on past trends, and through consultation with the Ohio Department of Transportation (ODOT), the Kentucky Transportation Cabinet (KYTC) and the Indiana Department of Transportation (INDOT). The estimates are based on the best available data. Due to the nature of estimating future conditions, assumptions are necessary but are done with care in order to present the most reasonable scenario possible. An estimated $8.35 billion ($5.99B in Ohio, $2.15B in Kentucky and $.21B in Indiana) is expected to be available over the 26 year planning period from traditional sources. The region also expects to receive funding under the major projects category. Funds for replacement/rehabilitation of the Brent Spence Bridge are showin in Figure 15-1. Estimates of expected funds are listed in Figure 15-1, as well. Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan 15-1
Estimated Annual Revenues Ohio New Capacity Total Figure 15-1 Transportation Funds Summary by State Annual Average Planning Period Total Available TIP Balance Available 117,596,625 3,002,150,431 470,386,500 2,531,763,931 OH O&M Total 98,451,125 2,463,149,090 393,804,500 2,069,344,590 OH Non-Hwy Total 21,143,125 528,979,929 84,572,500 444,407,429 State of Ohio Total 5,994,279,449 948,763,500 5,045,515,949 Net OH Available (capacity + non-hwy) 2,976,171,359 KY New Capacity Total 68,506,750 1,713,970,652 274,027,000 1,439,943,652 KY O&M Total 15,962,875 399,375,233 63,851,500 335,523,733 KY Non-Hwy Total 1,339,375 33,509,828 5,357,500 28,152,328 State of KY Total 2,146,855,714 343,236,000 1,803,619,714 Net KY Available (capacity + non-hwy) 1,468,095,980 IN New Capacity Total 2,875,000 71,929,636 11,500,000 60,429,636 IN O&M Total 5,035,875 125,992,577 20,143,500 105,849,077 IN Non-Hwy Total 388,875 9,729,265 1,555,500 8,173,765 State of IN Total 207,651,478 33,199,000 174,452,478 Net IN Available (capacity + non-hwy) 68,603,402 Region Subtotal 331,299,625 8,348,786,641 1,325,198,500 7,023,588,141 Brent Spence Replacement 2,924,700,000 2,924,700,000 Region Total 331,299,625 11,273,486,641 1,325,198,500 9,948,288,141 Source: OKI. The following approach was used to estimate the amount of available funds for projects in the OKI region shown in Figure 15-1 for the planning period from 2008 to 2030. Revenues expected to be available are estimated using expenditures in the region over the last several years as a proxy. Average annual expenditures by funding source (local, state and federal) type (major new, bridge and O&M, mode (highway or nonhighway) and capacity enhancing (uses the federal conformity guidance of analyzed or not analyzed) are compiled using the OKI Transportation Improvement Program (TIP). OKI TIP data for the federal fiscal years 2004 through 2011 was used in the analysis. These funding levels are not guaranteed but are assumed to be the best available information. This analysis includes all federal funding used for transportation projects as well as non-federal funding for projects that are regionally significant or those used to match federal funds. Non-federal funds include those from state, local or private sources. Using the eight years in this analysis period, OKI is able to estimate an annual revenue stream that is then extrapolated over the 23 years of the planning period (2008 to 15-2 Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan
2030). Figure 15-1 presents the funds that can reasonably be expected to be available. OKI conservatively assumes that funding levels will remain approximately equal to the actual funding levels identified over the 2004 to 2011 period based on guidance from ODOT s 2008 Business Plan. Revenues are adjusted upwards a very conservative 1 percent per year. It is assumed that the relative proportion for expenditures, such as the proportion of O&M funds versus capital, will remain the same through the planning period. Once the regional revenues were identified for each state, the dollars available for new projects were determined by subtracting the funds required for currently programmed TIP projects and O&M. It is important to note that the funds identified in the regional subtotal of Figure 15-1 contain those that the region receives on a formula and non-formula basis. Formula based funds are those that OKI or other local governments receive on an ongoing, annual basis. For example, they are generally apportioned on a formula basis and are therefore, repetitive and predictable. It is assumed that the non-formula based expenditures in the 2004 to 2011 period will continue accelerate to provide funding for the replacement of the Brent Spence Bridge (discussed below). These funds include all non-federal matching funds, discretionary funding and other non-federally sponsored projects. Included in this revenue estimate is $60 million declared by the Clermont County Transportation Improvement District (TID). These are in the form of Residential Improvement District (RID) and the sale of bonds by the TID which are underwritten by the County, TID and Miami Township. Also included in the Ohio revenue estimate is $10 million from the Ohio Department of Development for diesel emissions retrofit program projects and $20 million RID funds in Liberty Township, Butler County. MAJOR PROJECTS The region has one project that is expected to be a major project, replacement and rehabilitation of the Brent Spence Bridge (BSB). A major project is defined by the Federal Highway Administration as one expected to cost over $500 million. $2.92 billion for the BSB project are assumed to be from new revenue sources designed to handle major projects. The BSB project is considered the most important project for the region and will be constructed. Project development continues and a preferred alternative will be identified by late 2009. A financial plan will be developed after more design details and right of way cost are more fully understood. A historic perspective and funding options explored to date are provided in Appendix F which has been excerpted from the Brent Spence Bridge Replacement/Rehabilitation Project Planning Study Report, September 2006. Several options remain to be explored for funding the project but the commitment to implement the project is unwavering. To date $35.4 million has been committed from sources at the state and federal level. These funds are listed in the OKI TIP and are committed to preliminary engineering, environmental and right of way purchase. Several major steps and milestone reports have been completed for the project including a public involvement plan, red flag summary, purpose and need statement, existing and future conditions report, planning study report, and travel lane study. Environmental and traffic analysis are underway. Certified traffic will be completed in June 2008. A conceptual alternatives study will be delivered in October 2008 and a recommendation for a preferred alternative will be identified by fall 2009. Draft Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan 15-3
environmental document completion is scheduled for September 2010 and the final environmental document scheduled for April 2011. Construction is planned for 2015. According to 23 CFR 450.322(f)(10), The financial plan shall include recommendations on any additional financing strategies to fund projects and programs included in the metropolitan transportation plan. In the case of new funding sources, strategies for ensuring their availability shall be identified. Though construction funding has not been secured for this project, the regional effort to secure earmark funding has been unwavering. The significance of the Brent Spence Bridge project corridor is such that the likelihood of successfully securing the needed earmarks due to the impact this project will have on regional and national goods and passenger movement is nearly certain. Therefore, OKI is including the project in the fiscally constrained plan. Figure 15-2 Ohio Revenue Estimates ($5870 million) $929 $2,872 TIP O&M New $2,069 SOURCE: OKI. Figure 15-3 Kentucky Revenue Estimates ($2141 million) $342 $1,463 $336 TIP O&M New SOURCE: OKI. 15-4 Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan
Figure 15-4 Indiana Revenue Estimates ($208 million) $69 $33 TIP O&M New $106 SOURCE: OKI. Federal Funding Sources A significant part of the funding shown in Figures 15-2, 15-3 and 15-4 flows into the region from federal sources. This expectation is based on estimates of the region s share of funds from programs authorized and appropriated by Congress. The region s share of these federally funded programs is based on the assumption that current funding levels will rise by 1 percent per year through 2030. The current SAFETEA-LU programs that provide funding for the region s transportation system are described below. Interstate Maintenance The Interstate Maintenance (IM) program finances projects to rehabilitate, restore and resurface the interstate system. Reconstruction is eligible if it does not add capacity. However, high-occupancy vehicle and auxiliary lanes can be added. The match rate for this program is 90 percent federal and 10 percent state or local. It is administered by the states. National Highway System The National Highway System (NHS) consists of 160,000 miles of the nation s major roads. It includes all interstate routes, a large percentage of urban and rural principal arterials, the defense strategic highway network, and strategic highway connectors. The match rate is 80 percent federal and 20 percent state or local. Surface Transportation Program The Surface Transportation Program (STP) is the most versatile type of highway funds. Roadways that have a federal functional classification of urban collector or higher in urbanized area or rural major collector or high in non-urbanized areas are eligible for STP funds. These funds may also be used for capital projects for transit agencies, regional planning and bicycle and pedestrian facilities. Once the funds are distributed to the states, 10 percent is set aside for the Hazard Elimination and Safety Program (HSP) which promotes safety construction activities and railway crossing improvements. Transportation Enhancement (TE) projects also receive 10 percent of the STP funding Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan 15-5
levels. Projects that receive OKI allocated STP funds are initiated by OKI in consultation with ODOT, KYTC and INDOT. The roadways eligible for this category of funds include those that have a federal functional classification of rural major collector or higher. Other modal projects eligible for STP funds include capital transit projects, commuter rail, bus terminals and facilities, carpool projects, traffic monitoring, and bicycle and pedestrian facilities that are above and beyond the TE allocation. In addition to OKI s STP allocation, estimates are also developed for OKI s share of the discretionary funds potentially available for safety construction activities, TE and a portion of the funds that can be used anywhere in the state. Congestion Mitigation Air Quality The Congestion Mitigation Air Quality Improvement Program (CMAQ) provides funds for transportation projects in maintenance areas for ozone and carbon monoxide. These projects contribute to meeting the attainment of national ambient area air quality standards. The OKI region is eligible for these funds because of its designation as an ozone maintenance area. Transportation projects and programs are eligible for CMAQ program funds if they are associated with documented emissions reductions and do not add to the existing roadway capacity. Bridge Replacement and Rehabilitation Program This program enables the states to replace significant bridges that are unsafe because of structural deficiencies, physical deterioration or functional obsolescence. Forty percent of a state s bridge funds may be transferred to the NHS or the STP programs for purposes consistent with either program. The match rate is 80 percent federal and 20 percent state or local. Federal Transit Administration Funding The Section 5307 formula grant program makes funds available on the basis of a statutory formula to all urbanized areas in the country. Section 5307 funds may be used for highway projects in Transportation Management Areas (TMAs), all urbanized areas over 200,000, or any other area a governor requests if all needs related to the Americans with Disabilities Act are met, the MPO approves, and there is a balanced local approach to funding highways and transit. For capital projects, the match rate is 80 percent federal and 20 percent state or local. Capital funds are used for transit maintenance, such as replacing buses, as well as other projects. For operating assistance, the match rate is 50 percent federal and 50 percent state or local. Operating assistance is capped at a percentage of the total Section 5307 apportionment for each urban area. The Federal Transit Administration (FTA) Section 5309 discretionary program is a potential funding source for the recommended rail transit system. Funds are split 40 percent for new starts, 40 percent for rail modernization and 20 percent for bus and other. The match rate is 80 percent federal and 20 percent state or local. ODOT also administers the FTA Section 5310 Program known as the Specialized Transportation Program. This program provides funds for projects where existing transportation services are unavailable, insufficient or inappropriate. The program provides an 80 percent federal share for capital projects. 15-6 Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan
During 2007, OKI was named the Designated Recipient for FTA Sections 5316 Job Access and Reverse Commute (JARC) and 5317 New Freedom programs. The JARC program focuses on providing transportation services for welfare recipients and low income persons to work and work related activities. The New Freedom program focuses on projects that go beyond the requirements of the Americans with Disabilities Act. As the Designated Recipient, OKI is responsible for soliciting and awarding projects that are selected on a competitive basis and are based on the Coordinated Public Transit- Human Services Transportation Plan for the OKI region. The Cincinnati urbanized area received approximately $1.2 million in JARC funds and $763,000 in New Freedom funds for combined fiscal years 2006 and 2007. State and Local Funding Sources Some of the ODOT highway programs are listed below. A portion of the statewide allocation will be used for projects located in Butler, Clermont, Hamilton or Warren counties. County Local Bridge Program The County Local Bridge Program (approximately $32 million annually in Ohio) provides funds for bridge replacement and rehabilitation and is administered by the County Engineers Association of Ohio (CEAO). The standard federal participation rate was reduced to 90 percent in fiscal year 2006 after toll revenue credits were no longer available. Each county has a $5 million overall federal funding limit for projects within any four year program period. Funding is only provided for construction unless the program manager determines that preliminary engineering and right of way costs are warranted. County Surface Transportation Program The County Surface Transportation Program (CSTP) has two components. There is a regular construction funding program for eligible roadway improvements and is administered by the Ohio Department of Public Safety (ODPS) for safety studies. The CEAO serves as the program manager and is responsible for project selection, funding criteria and program priorities. ODOT provides federal CSTP funds to counties each year through the CEAO. The program is funded at approximately $20 million annually with $750,000 set aside for safety studies. A roadway must be functionally classified as an urban collector or rural major collector or higher to be eligible. Also eligible are local or rural minor collectors on the Federal-aid Rural Secondary System as designated on January 1, 1992. Eligible activities include new construction, major reconstruction, resurfacing, restoration and rehabilitation (3-R projects), bridges not eligible for County Bridge funding, guardrail construction and reconstruction, center line and edge line striping and raised pavement marker projects. The standard federal participation rate is 80 percent on roadway projects, 100 percent on safety projects and 100 percent on safety studies. Local Major Bridge Program The Local Major Bridge program provides federal funding to counties and municipalities for bridge replacement or major bridge rehabilitation projects. Funds are for construction only for local major bridges that carry vehicular traffic. These are defined as moveable bridges or bridges having a deck area greater than 35,000 square feet. Approximately Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan 15-7
$25 million annually is available in Ohio and ODOT will provide up to 80 percent of the eligible costs for the project. Municipal Bridge Program The Municipal Bridge Program (approximately $8 million annually in Ohio) provides funds for replacement and rehabilitation of bridges that carry vehicular traffic on a public roadway within municipalities. Bridges funded under this program must be at least 20 feet in length; be listed in the ODOT Bridge Management System with a sufficiency rating value of 80 or less for rehabilitation, or less than 50 for replacement; and be classified as structurally deficient or functionally obsolete. ODOT will provide up to 80 percent of the eligible costs for construction only. The municipality is responsible for the balance of the construction costs and all costs associated with preliminary engineering, environmental studies and documents, final design and right of way. The local match for construction is required to be cash. Noise Walls Program The Noise Wall Program provides funds for retrofitting existing highways with noise barriers. The annual statewide budget has been $5 million. Projects must meet Federal and State Eligibility criteria to be eligible for funding. Noise abatement measures will be authorized only for projects that were approved before November 28, 1995 or are proposed along areas where at least 90 percent of the land development or substantial construction predated the existence of any highway. The program is targeted for residential areas in existence prior to the construction of a roadway. Safety Program The Safety Program provides funds to ODOT and local governments for highway safety treatments or corrective activity designed to alleviate a safety problem or a potentially hazardous situation. The program is funded at approximately $64 million annually in Ohio. ODOT will provide up to 90 percent of eligible costs for preliminary engineering, detailed design, right-of-way or construction. Projects may be on a city street or county or township road. Prioritization is based on the following criteria: crash frequency/ density, crash rate, relative severity index, equivalent property damage only rate, percent truck traffic, rate of return. Typical projects include signalization, turn lanes, pavement markings, traffic signs, traffic lights, guardrails impact attenuators, concrete barrier end treatments and break away utility poles. Urban Paving Program The Urban Paving Program provides funds for eligible surface treatment and resurfacing projects on state and U.S. routes within municipal corporations. An annual allocation is set statewide and distributed to each of ODOT s 12 districts and added to each district s annual pavement allocation. The program is funded on an 80/20 basis with local governments providing the 20 percent match for project construction costs. Local governments are encouraged to provide a higher match rate to stretch the amount of available funds. ODOT may waive or reduce the local match for cities in fiscal distress. State Capital Improvements Program The State Capital Improvements Program (SCIP) provides low-interest loans and grants for infrastructure facilities. Eligible projects include improvements to roads, bridges, 15-8 Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan
culverts, water supply systems, wastewater systems, storm water collection systems and solid waste disposal facilities. Funding is provided from the issuance of up to $120 million in bond sales annually. A set aside for the Small Government Program gives smaller subdivisions a second opportunity for assistance. A second set aside in Emergency Assistance Funds is awarded at the discretion of the commission s director for the immediate preservation of health, safety and welfare. Local Transportation Improvements Program The Local Transportation Improvements Program (LTIP) was created by the legislature in 1989 and provides an additional $60 million in gasoline tax receipts statewide each year. The program provides grants for local roads and bridge projects, which must have useful lives of at least seven years. Both SCIP and LTIP funds are distributed for local government capital projects throughout Ohio on a competitive and population basis among 19 districts established by the Ohio Public Works Commission. Hamilton County is a district by itself (District 2). Butler, Clermont and Warren counties are in a district that includes Clinton County (District 10). Funding estimates from these two programs are based on the assumption that they will be renewed when they expire. Through the two programs, the Ohio Public Works Commission provides grants, loans and financing for local debt support and credit enhancement. Eligible projects include improvements to roads, bridges, culverts, water supply systems, wastewater systems, storm water collection systems and solid waste disposal facilities. In Kentucky, funds for both the State Projects and Rural Secondary Programs are derived from gasoline tax receipts, and are expended under the direction of the Department of Highways. These funds may be used for the construction, reconstruction, and maintenance of state and county roads and bridges. Another source of state funds is from Unspecified Programs, which encompass all the state revenue that Kentucky allocates to the OKI counties that do not fall into any of the established state programs. These allocations usually finance 100 percent of these projects. As illustrated in Figure 15-3, this revenue is anticipated to be significant over the years. INNOVATIVE FINANCE Innovative finance refers to a series of administrative and legislative initiatives undertaken in recent years which have removed barriers and added flexibility to federal participation in transportation finance. Policy makers recognized they could accelerate surface transportation project development and expand the base of available resources by removing barriers to private investment bringing the time value of money into Federal program decision making encouraging the use of new revenue streams, particularly to retire debt obligations and reducing financing and related costs, thus freeing up savings for transportation system investment. These financing initiatives and techniques, which are commonly used in the private sector, are relatively new to federal aid transportation funding and are thus frequently referred to collectively as innovative finance. Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan 15-9
Innovative finance is broadly defined as a combination of special funding initiatives. In the transportation industry, the term innovative finance has become synonymous with techniques that are specifically designed to supplement the traditional methods used to finance highways. The United States Department of Transportation s (USDOT) innovative finance initiatives are intended to augment rather than replace traditional financing techniques. Over the past decade, innovative finance has undergone several transformations. Since its inception with the passage of ISTEA, innovative finance has laid foundations for several new concepts designed to fund transportation investment. TEA-21 continued the development of innovative financing concepts, including credit assistance, innovative debt financing and public-private partnerships. The current status of these programs is described in more detail below. Credit Assistance Federal credit assistance for transportation projects takes various forms. Direct loans to project sponsors may provide the necessary capital to advance a project and/or reduce the amount of capital borrowed from other sources. Credit enhancement, including loan guarantees or lines of credit, makes federal funds available on a contingency basis, thereby reducing the risk to investors and allowing project sponsors to borrow at lower interest rates. The projects themselves may often involve partnerships between the public and private sectors. Two of the most significant federal credit assistance programs introduced in recent years are the Transportation Infrastructure and Finance Innovation Act (TIFIA) and the State Infrastructure Bank (SIB) programs. Transportation Infrastructure and Finance Innovation Act The Transportation Infrastructure and Finance Innovation Act (TIFIA) (passed as part of TEA-21) authorized the USDOT to establish a new credit program by offering eligible applicants the opportunity to compete for direct loans, loan guarantees, and lines of credit for up to one-third of the cost of large infrastructure construction projects of national significance, provided that the borrower has an associated revenue stream, such as tolls or local sales taxes, that can be used to repay the debt issued for the project. To qualify, a project must have eligible costs that total at least $100 million or exceed 50 percent of a state s federal aid highway apportionments for the most recent fiscal year, whichever is less. This dollar threshold reflects congressional intent to assist major projects that can attract substantial private capital with limited federal investment. Intelligent Transportation System projects are subject to a lower threshold, a minimum of $30 million. These TIFIA projects include highway toll roads and bridges, transit systems, rail stations, ferry terminals, and intermodal facilities. State Infrastructure Banks Section 350 of the National Highway System Designation Act of 1995 (P.L. 104-59) authorized department of transportations to establish the State Infrastructure Bank Pilot Program. This program provides increased financial flexibility for infrastructure projects by offering direct loans and other credit enhancement products such as loan guarantees. SIBs are capitalized with federal and state funds. Some states augment these operating reserves through a variety of methods, including special appropriations and debt issues. Each SIB operates as a revolving fund and can finance a wide variety of 15-10 Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan
surface transportation projects. As loans are repaid, additional funds become available to new loan applicants. TEA-21 legislation limited the use of TEA-21 funds for SIB capitalization purposes to five states, of which only two are operating under the TEA- 21 provisions. The remaining 31 states that participate in the SIB program operate under National Highway System rules and may not capitalize SIBs with TEA-21 funds. However, existing SIB programs continue to offer loan products. Tax Incremental Financing Tax Incremental Financing (TIF) is a tool to use future gains in taxes to finance the current improvements that will create those gains. When a public project such as a road, school or hazardous waste cleanup is carried out, there is an increase in the value of surrounding real estate and often new investment such as construction of new or rehabilitated buildings. This increased site value and investment creates more taxable property, which increases tax revenues. The increased tax revenues are the tax increment. TIF dedicates that increased revenue to finance debt issued to pay for the project. TIF is designed to channel funding toward improvements in distressed or underdeveloped areas where development would not otherwise occur. TIF creates funding for public projects that may otherwise be unaffordable to localities. Residential Improvement District A Residential Improvement District (RID) is another name for an incentive district TIF. They work the same way as a standard TIF. Property within the incentive district is exempted from regular property taxes. The exempted property does not pay property taxes rather they pay Payments In Lieu of Taxes (PILOT). These PILOTs are the same amount as property taxes but they do not get distributed the same way as property taxes. The Ohio authorizing legislation is ORC 5709.73(C). Advance Construction Advance Construction allows states to seek approval and begin federal aid highway projects using their own funds before any Federal funds have been obligated. An advance construction project may be converted to federal assistance, either in stages or in its entirety, once there is sufficient federal aid funding and obligation authority for the project. This is common practice in Ohio. Debt Financing and Cash Flow Management Tools Because of their complexity, cost and lengthy design and construction periods, transportation projects are often financed by issuing bonds. Repayment of the bonds over several years has traditionally been covered by sources such as state and local taxes or revenue generated from highway user fees. More recently, highway and transit project sponsors have begun issuing debt instruments called Grant Anticipation Notes (GAN), backed by anticipated grant moneys. Grant Anticipation Revenue Vehicles (GARVEE) are a particular form of GAN being used for transportation projects. GARVEE bonds permit an expanded variety of debt issuance expenses to be reimbursed with anticipated Federal funds. In addition to traditional debt service using principal and interest, expenses such as underwriting fees, bond insurance, and financial counsel are also eligible for reimbursement. Previously, eligible reimbursement expenses were limited to principal repayment and were restricted to certain categories of construction Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan 15-11
projects. Debt instruments issued by special purpose nonprofit corporations, classified as 63 20 corporations by the Internal Revenue Service, may be repaid with federal aid funds if the bonds are issued on behalf of the state and the proceeds are used for projects eligible under Title 23. As of June 2004, the amount of GARVEE debt issued nationally had reached just over $5 billion. PUBLIC-PRIVATE PARTNERSHIPS States are increasingly looking to the private sector as another potential source of highway and transit funding, either in addition to or in concert with new credit and financing tools. There is a long history of private sector involvement in providing highway transportation dating back to the late 1700s and early 1800s when numerous private toll roads were built to open interior areas of the country for commerce and settlement. In more recent times, private residential and commercial real estate developers have contributed directly to the growth of the transportation network by constructing local property access roads and upgrading adjacent collector or arterial routes, or by paying impact fees to local governments for use in improving the regional transportation system. While private sector involvement in highway financing and construction slowed somewhat with the advent of dedicated public funding for highways, there has been renewed interest in private sector involvement in highway construction programs in recent years as highway budgets have been stretched. A variety of institutional models are being used including; concessions for the long-term operation and maintenance of individual facilities or entire highway systems; purely private sector highway design, construction, financing, and operation; and, public-private partnerships in designing, constructing, and operating major new highway systems. While a few states currently account for the majority of private sector financing, many more have expressed interest in the potential for greater private sector involvement. A public-private partnership (PPP) is a broad term that collectively refers to contractual agreements formed between public and private sector partners, where the private sector partner steps outside of its traditional role and becomes more active in making decisions as to how a project will be completed. The Federal Highway Administration (FHWA) has a number of initiatives underway to help remove barriers to greater private sector involvement in highway construction, operation and maintenance. These include workshops to provide states with resources to overcome barriers to PPP implementation; development of model legislation for states to use in drafting new or more flexible laws and regulations; development of a PPP Web site containing links to many PPP resources, both domestic and international; case studies of how states and local governments have overcome institutional barriers to PPP implementation; and, creation of Special Experimental Program 15 (SEP-15) that provides states the flexibility to waive certain Title 23 rules and regulations on an experimental basis to evaluate alternative approaches to PPP project delivery (FHWA s website, http://www.fhwa.dot.gov/policy/2004cpr/chap6d.htm#body). 15-12 Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan
FUNDING NEEDS Recommended projects have been identified elsewhere in this document, primarily in Chapters 8 (Roadway) and 9 (Bus and Rail Transit). A recapitulation and the associated costs are provided below in Figure 15-5 and 15-6. These figures do not include the approximate $1.03 billion programmed in the current 2008-2011 OKI Transportation Improvement Program. Figure 15-5 Regional Summary of Plan Expenditures (millions) Operations & Maintenance $ 2511 Roadway (Chapter 8) $ 6299* Bus and Rail Transit (Chapter 9) $ 767 Intelligent Transportation Systems (Chapter 10) $ 66 Freight (Chapter 11) $ 69 Bicycle and Pedestrian (Chapter 12) $ 28 TOTAL $ 9740* Source: OKI. * Includes cost estimate for Brent Spence Bridge Project. Costs provided in terms of YOE=year of expenditure Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan 15-13
Figure 15-6 Distribution of Plan Expenditures 0.68% 0.71% 7.87% 0.29% 25.76% O&M Roadway Transit ITS Freight Bike/Ped 64.70% Source: OKI. ESTIMATION OF PROJECT COSTS This plan makes the best estimate of total project costs. When available, cost estimates have been obtained from other planning partners in the region including ODOT, KYTC, INDOT, county engineer offices and local jurisdictions. Where necessary, planning level estimates derived from actual projects in the region are used to estimate project costs. As mentioned earlier in this chapter, costs for the replacement of the Brent Spence Bridge are assumed to be from new revenue sources designed to handle mega projects. The project is not considered part of the fiscally constrained plan. Project costs for items in the Rail Transit Vision Plan are not considered to be part of the recommendations of this plan and are not accounted for in this fiscal analysis. Year of Expenditure Costs SAFETEA-LU requires that this plan s fiscal constraint demonstration include estimates of project costs in terms of dollars for the year of expenditure (YOE). In other words, a project that is built in a future year would include inflation in the cost estimate. For example, 2010 projects would have the cost in terms of 2010 dollars, 2020 projects would have the cost in terms of 2020 dollars. Year of expenditure cost estimation requires a current or base year cost estimate, the implementation date (year) of the project and an inflation factor for the project to reflect the cost in terms of the implementation year. 15-14 Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan
Base Year Cost Base year project cost (BY) is developed in the documented planning process that generated the concept of the project. Some projects not originating in a documented study are estimated by staff as noted above. Year of Implementation The year in which the project is constructed is estimated by staff. Staff considered information from various corridor studies, perceived complexity of the construction process, environmental challenges, availability of right of way and revenue flow to assign projects into implementation time frames. The time frames are consistent with air quality conformity analysis years for the region of 2015, 2020 and 2030. Inflation Factor The year of expenditure is the product of the base year cost and an inflation factor. The factor is dependent on the inflation rate and the number of years between the BY and the YOE. OKI has estimated a yearly inflation rate based on information from several sources. For this plan update the inflation rate (i) is four percent per year. The formula for converting base year cost estimates to year of expenditure cost estimates is: YOE Cost = BY Cost Estimate x Inflation Factor (YOE BY) YOE Cost = BY Cost Estimate x [1+ (i / 100)] Inflation rates are developed using input from each of the three states. Each state has provided estimated inflation rates which have been amalgamated into a regional estimate for this plan update. The various phases of a project (design, right of way, utilities and construction) may have different historical rates and estimates for the future. OKI has chosen to use the average construction inflation rate because the phases are not that different and construction is the largest component of total project cost in most cases. Review of the figures provided by each state yields four percent, four percent and three and one half percent for years beyond 2008 for Ohio, Kentucky and Indiana, respectively. Therefore OKI is using four percent for the yearly inflation rate for estimating year of expenditure cost estimates. Summary Federal legislation requires the OKI 2030 Regional Transportation Plan to demonstrate that its recommendations are fiscally constrained, that is, financial resources can be reasonably expected to be available to cover the costs of the plan. As outlined above in the Funding Expectations section, approximately $7.53 billion is estimated to be available for all transportation expenditures in the OKI region over the life of the plan. The estimated cost of the recommendations of this plan is an estimated $7.2 billion. Because the value or cost of recommended projects in this plan is less than the resources reasonably expected to be available, this plan demonstrates financial constraint. Ohio Kentucky Indiana Regional Council of Governments 2030 Regional Transportation Plan 15-15