SOUTHERN BELTWAY US-22 TO I-79 PROJECT 2013 FINANCIAL PLAN Pennsylvania Turnpike Commission Allegheny and Washington Counties, Pennsylvania January 2013
Table of Contents... 1 Introduction... 2 Project Need and Purpose... 2 Project Location... 3 Maps... 4 Project History... 4 1. Project Cost Estimate... 5 2. Implementation Plan/Cash Flow... 6 3. Updated Financial Plans... 7 4. Risk Identification and Mitigation Factors... 7 5. Cost and Revenue History... 8 6. Cost and Revenue Trends... 8 7. Revenue Shortfall Mitigation... 9 8. Summary of Significant Cost Reductions... 9 Value Engineering (VE) to Reduce Costs... 9 Other Cost Reduction... 9 9. Summary of Significant Cost Increases... 9 10. Summary of Major Responsibilities of Parties Involved... 9 11. References... 10 1
Introduction PTC Southern Beltway The Southern Beltway, also known as S.R.0576 and PA Turnpike 576, is located in Allegheny and Washington Counties, Pennsylvania. This Pennsylvania Turnpike Commission (PTC) project was identified in PA Act 26 of 1991 which amended PA Act 61 of 1985. The Southern Beltway will provide needed transportation improvements between I-376 at the Pittsburgh International Airport (PIA) in Allegheny County and I-79 at the Allegheny/Washington County Line. The, because of its cost, complexity and level of federal participation, is a Major Project and warrants a Financial Plan as an aid to fiscal management of its implementation. An initial request and Financial Plan for this project was submitted on November 14, 2007 by the PTC when requesting the Southwestern Pennsylvania Commission (SPC) to include the in the 2007 Transportation Improvement Program (TIP), Twelve Year Program, and the 2035 Transportation and Development Plan. The SPC subsequently amended the 2035 Plan in 2008, and included the US-22 to I-79 Project as an illustrative project when the possibility of a Public Private Partnership was considered by the PTC. However, private funding for this project did not materialize. This SPC amendment contained an Financial Plan that identified a total cost of $659 million in year of expenditure dollars. On November 27, 2012, the PTC subsequently requested that the SPC amend the new 2013-2016 TIP and 2040 Long Range Plan (LRP) and stated an updated Financial Plan, that identified new committed funding sources, would be submitted to the Federal Highway Administration (FHWA) and SPC. This updated Financial Plan provides a revised financial strategy for moving this important project forward to completion. This document has been prepared in accordance with FHWA s latest Financial Plan guidance. This guidance indicates the major subject areas and information to be contained herein. Project Need and Purpose The Southern Beltway will support economic development in southwestern Pennsylvania and improve east-west mobility in the circumferential corridor south and west of the City of Pittsburgh. The US-22 to I-79 Project will provide safe, efficient transportation improvements in the corridor between US-22 and I-79, and ultimately improve access to the PIA from the south. It will be compatible with local, regional, and national planning efforts, and will improve access for employment, industry, truck traffic, emergency services, and future growth areas by providing a modern transportation facility that enhances transportation continuity locally and regionally. The project is expected to address the following transportation needs and deficiencies within the corridor: Poor circumferential mobility to adjacent job and planned growth areas Only two-lane roads are available for traveling in an east-west direction through the corridor Poor east-west mobility for auto, transit, and truck travel The transportation network is inadequate to serve economic development plans Safety concerns because of the deficient roadway network The purpose and major benefits of completing Southern Beltway from US-22 to I-79 are: Makes critical side road connections and improves travel times Relieves congestion while improving safety Increases potential for orderly economic development in Findlay and North/South Fayette Townships in Allegheny County and Robinson, Mount Pleasant, and Cecil Townships in Washington County Significantly improves access to the PIA for traffic travelling north on I-79 2
Project Location This 13-mile long is the second of three projects for the proposed Southern Beltway, a four-lane, limited access, tolled expressway. The entire Southern Beltway will run a total of approximately 31 miles, west to east, from I-376 at the Pittsburgh International Airport (PIA) to the existing Mon/Fayette Expressway (also known as PA Turnpike 43). It generally follows the Allegheny County/Washington County line. The first six-mile project of the Southern Beltway from PIA to US Route 22 was opened to traffic in October, 2006. The third 12-mile project will run from I-79 to the Mon/Fayette Expressway and intersect with PA Turnpike 43 just north of the existing S.R. 0136 interchange (Exit 44). Due to financial constraints (no funding sources currently identified), there is no estimated completion date of the I-79 to Mon/Fayette Project. (Refer to Figure 1 below) Figure 1: Southern Beltway/Mon-Fayette Expressway Regional Network Map 3
This second Southern Beltway Project from US-22 to I-79 has progressed in cooperation with local townships, the Pennsylvania Department of Transportation (PennDOT) and the FHWA. The PTC has identified funding sources for this project and anticipates construction and opening by the year 2021. Starting at the existing partial interchange (Exit 6) at US-22 for PA Turnpike 576, the PTC will complete all necessary ramps to extend the 4-lane expressway to the east. A new interchange (Exit 9) will be constructed to access S.R. 980 via Beech Hollow Road in Robinson Township, Washington County, then provide another interchange (Exit 11) with S.R. 980 and Noblestown Road near Mt. Pleasant Township, Washington County. The Beltway proceeds east to a new interchange (Exit 16) for S.R. 50 in South Fayette Township, Allegheny County. The Project ends with an interchange (Exit 18) to access Interstate 79 at the Allegheny/Washington County line, just south of the existing I-79 Safety Rest Area (See Figure 2). Project History Figure 2: Southern Beltway The PTC, in conjunction with PennDOT and FHWA has followed environmental and planning guidelines established under the 1969 National Environmental Policy Act (NEPA), Section 404 of the Federal Clean Water Act, 1991 U.S. Intermodal Surface Transportation Efficiency Act, TEA-21 of 1998, and SAFETEA-LU of 2005. Additionally, a USC Title 23, Section 129 agreement is in place with FHWA. A Final Environmental Impact Statement (FEIS) using 200 scale mapping was prepared and submitted by the PTC for the in September, 2006. On September 3, 2008, the FHWA issued a Record of Decision (ROD) that identified the Recommended Preferred B-2 Alternative as the Selected Alternative. The issuance of the ROD allowed the PTC to proceed with the final design of the project. 4
The PTC continued to advance the through pre-final design (using refined 50 scale mapping). In July 2009, Design Field View (DFV) Plans were prepared and submitted to PennDOT and FHWA and the FHWA approved the plans in January 2010. The PTC is now ready to proceed with final design and prepare final plans, specifications, estimates, and bid documents for construction. The PTC commenced purchasing right-of-way in 2010 and continues today; only properties that are totally affected by the Recommended Preferred B-2 Alternative alignment have been/are being purchased. 1. Project Cost Estimate The Southern Beltway US 22 to I-79 Project is considered a Major Project as costs exceed $500 million dollars. The total project cost estimate includes all costs required to complete the Post NEPA FEIS reevaluations, environmental mitigation, design costs, right-of-way, utilities relocations, public outreach, construction costs, management and inspection costs and contingencies. The estimated cost to complete the provided in the 2006 FEIS was $659 million in Year Of Expenditure (YOE) dollars. In August, 2006, the PTC asked Urban Engineers of Philadelphia, PA to independently validate the Project Cost Estimate. Urban s Cost Validation Report identified a range of costs for this urban interstate project from $578 million to $742 million with their independent YOE cost estimate at $640 million. The 2007 SPC amendment contained a PTC Financial Plan that identified a total cost of $659 million in YOE dollars. In January, 2008, the Southwestern Pennsylvania Commission (SPC) approved the US 22 to I-79 project for incorporation in the Long Range Plan and the Transportation Improvement program. The January, 2008 SPC amendment contained an initial financial plan reflecting a total cost of $659 million in year of expenditure dollars. At Design Field View (DFV), the cost was estimated at $669 million, in 2010 dollars. In January, 2010, when PennDOT and the FHWA approved the PTC s DFV plans, the project was estimated at $669 million, only 1.47% higher than the FEIS cost. These estimated costs included contingencies as recommended by PennDOT. In December, 2012, the PTC reviewed and refined the US-22 to I-79 cost estimate and concluded the project could be constructed at reduced cost of $632.5 million, in 2010 dollars. All costs have been calculated in accordance with industry standard estimation methods. Quantities were calculated from the approved line and grade or detailed design plans and provided by the section design teams. Unit costs were then developed based on a number of factors-statewide yearly average bids, local average bids, usage of a particular time, or a combination thereof using sound engineering judgment. The ongoing slow economy and significant reduction in highway construction activity in western Pennsylvania (resulting in extremely competitive material and bid prices in recent years) have all contributed to very low inflationary influence. Recent relative stability in oil/fuel prices has also muted inflationary impacts. PTC project experience indicates no inflation (and even actual construction unit prices deflation) since 2008. There is no way to know when this will change in the current uncertain economic environment. If it does change, the PTC will adapt the Financial Plan in future annual updates. 5
2. Implementation Plan/Cash Flow The Implementation plan for construction and Cash Flow for financing is provided in Figure 3 below. The construction and cash flow by year is shown over a 9 year period. Recent PTC construction project experience indicates virtually no inflation in recent years. The PTC anticipates that construction will be bid in 2013 and will begin in 2014. Completion of the Early Action Bridges over US Route 22 would be in 2015. Subsequent construction sections will be identified when final design commences in 2013 and will be constructed through 2021. Southern Beltway US-22 to I-79 Cash Flow Statement by Fiscal Year (in Millions) Note: PTC Fiscal Years Ending 5/31 Revenues Starting Res. Balance Escrow Proceeds Excess OFT Revenues TIFIA Proceeds OFT Bond Proceeds Revenue Subtotal Costs Project Costs Running Reserve Balance 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total 158.929 158.929 50.000 50.000 13.078 12.993 13.704 14.016 14.366 14.639 14.639 14.956 12.099 124.489 129.905 129.905 169.176 169.176 158.929 63.078 142.898 13.704 14.016 14.366 14.639 183.815 14.956 12.099 632.500 (9.886) (25.928) (30.668) (24.649) (109.470) (163.813) (162.613) (93.374) (12.100) (632.500) 158.929 212.121 329.091 312.127 301.494 206.391 57.217 78.419 0.001 0.000 - Figure 3: Implementation of Planned Construction and Cash Flow The PTC intends to apply for a Transportation Infrastructure Finance and Innovation Act (TIFIA) Loan for this project. The TIFIA program provides Federal credit assistance to nationally or regionally significant surface transportation projects. The Federal TIFIA program is designed to fill market gaps and leverage substantial private co-investment by providing projects with supplemental funding. Under Moving Ahead for Progress in the 21 st Century Act (MAP-21), the total amount of TIFIA credit assistance may not exceed 49 percent of eligible project costs. The PTC anticipates requesting just under 20% of eligible costs. The PTC is requesting that the SPC amend their Long Range Plan and Transportation Improvement Program to include the in order to qualify for a TIFIA Loan. The PTC will be responsible to repay the TIFIA Loan within 35 years after the project s substantial completion. 6
The relies equally on current available sources of revenue as on future financing. For project revenue, the PTC has cash on hand of approximately $158.9 million currently identified for the. An Oil Franchise Tax (OFT) Escrow Restructuring is expected to provide an additional $50 million in 2013. The PTC will also commit future annual OFT revenues received from the state from 2013 through 2021 totaling $124M. The federally-subsidized TIFIA Loan and PTC bonds will cover the remaining costs, which is less than half of the total project cost. To be conservative, the PTC plans to apply for a federally subsidized TIFIA Loan in 2013 and receive the loan in 2014. TIFIA loan requested is $129.905M. Future bond funding totaling $169.176M is not needed until fiscal year 2019. A bond is a debt investment issued by public transportation agencies to fund long term capital projects. They are essentially loan agreements between the PTC and investors. The PTC is obligated to pay specified amount(s) of money at specified future dates until the bonds(s) mature. The TIFIA Loan and PTC bonds are backed by proceeds from the PTC s portion of the current Oil Franchise Tax Revenue commonwealth allocation. The PTC s current funding streams are sufficient to support the TIFIA Loan and bond issue, and would only be enhanced by any state initiative to raise additional transportation funding through raising the cap of the OFT. In summary, Figure 3 shows that total revenue equals total costs by 2021. 3. Updated Financial Plans The will be partially financed from revenues derived from the PTC s allocation of State Oil Franchise Tax Revenues. PTC will utilize a combination of its established Senior and Subordinated lien Oil Franchise Tax Revenue capital markets bonds, a TIFIA loan on parity with the Subordinated Bonds and Oil Franchise Tax Revenue pay-as-you go sources derived from existing fund balances, proceeds from an escrow restructuring and available cash flow. This Financial Plan will be updated annually and will be reviewed by the FHWA and reported to SPC. 4. Risk Identification and Mitigation Factors Based on the committed funding sources previously described, the following summarizes the potential risks and risk mitigation strategies: The PTC has submitted a letter of interest to FHWA asking to be invited to apply for a TIFIA Loan. If the PTC does not receive an invitation to apply, or if the PTC does not ultimately receive the entire amount of the $129.905M, the PTC must reassess, in subsequent annual Financial Plan updates, how to finance this project funding shortfall. Options might include re-scoping the size or construct it in phases or sub-stages. Act 26 of 1991 amended Act 61 of 1985 which mandates the PTC to study, design, and construct the Southern Beltway and provides State Oil Franchise Tax (OFT) revenue to the PTC for these projects. The actual amount of future Oil Franchise Tax revenues collected by the Commission depends upon a number of factors, including specifically the rate of consumption of motor fuels and the substitution of alternative energy sources for motor vehicles. If this revenue source is reduced, then the PTC must reassess, how to finance this funding shortfall. Options might be to re-scope the size or construct it in phases or sub-stages. Future annual Financial Plan updates will address this possibility and funding strategy. 7
The current slow economic conditions and observed reduction in highway construction activity in Western Pennsylvania have contributed to very low inflation. The PTC has not experienced any significant inflationary pressure on construction bid prices since 2008. The PTC expects very little inflation for the next several years. However, if higher inflation is realized in later years, PTC could adjust the level of the future/proposed bond issue. The PTC will adjust the Financial Plan annually as needed reflecting small changes by adjusting costs and revenues as appropriate. There may be future environmental permitting delays or changes in environmental regulations. Further, the existing Final Environmental Statement (FEIS), approved on September 3, 2008, will need to be re-evaluated. The PTC has been involved with such environmental risks and re-evaluations in the past. These have been mitigated and resolved by continued environmental regulatory agency coordination and by revisiting the environmental mitigation commitments. The PTC will continue close environmental coordination and monitoring in the future to minimize possible higher compliance costs. 5. Cost and Revenue History Actual cost expenditures have been running lower than estimated when compared with the Initial Project Financial Plan estimates on this project. The previous 12-months of final design activities and expenditures conservatively remain in line with the initial Financial Plan estimates and costs associated with design and construction, ROW acquisition, subsurface and environmental investigation activities. Further, subsequent cost estimates continue to be within the low and high range in the Cost Validation Study by Urban Engineers in August, 2006. 6. Cost and Revenue Trends The PTC and the project team used a cautious and conservative approach to cost and revenue development and will continue in the future. The PTC has experienced virtually no inflationary pressure on construction bid prices since 2008 and expects low/no inflation for several years through 2021. To guard against the potential of spikes in the cost of construction materials due to geopolitical uncertainties, the project team will continue to annually monitor and adjust project cost estimates as necessary. During final design, but before preparation of various construction sections Plans, Specifications, and Estimate (PS&E) and bid documents, FHWA will require a subsequent Cost Estimate Review (CER). Workshop and development of a Risk Assessment/Risk Registry (RA/RR) to determine risk factors that may affect the final cost estimate prior to bidding. The ultimate objective is to review and verify the reasonableness and accuracy of the total project cost estimate in Year of Expenditure (YOE) dollars, schedule, and to develop a 70% Level of Confidence Probability Curve for an updated cost estimate in final design. The PTC will incorporate all these items into subsequent annual Financial Plan updates. The CER/RA/RR Workshop is expected be a three-day event, facilitated by a CER Team from FHWA. Subject matter experts from PTC, PennDOT, Baker, the final design consultants and the future construction manager (yet to be selected) will probably participate in this workshop. Baker will also prepare a CER Report to document the CER Workshop. 8
7. Revenue Shortfall Mitigation PTC Southern Beltway As previously discussed, the PTC s current funding scenario relies on obligated Oil Franchise Tax revenues, supplemented with PTC funds based on the current cost estimate adjusted to the year of expenditure. This strategy will ease the concerns regarding statewide and regional obligation authority impacts, and will require endorsement of SPC on the FY 2013-2016 TIP and 2035 LRP. The PTC will continue to coordinate with SPC, PennDOT and FHWA regarding future TIP updates and submit Financial Plan annual updates. 8. Summary of Significant Cost Reductions This chapter is reserved for a discussion of changes in individual project elements that reduced the cost of the project by at least $10 million. When current program element cost and composition is compared with that analyzed in the initial Financial Plan, there are no individual project elements which meet the criteria. Value Engineering (VE) to reduce costs As Design Manager for this project, Baker performed VE for each preliminary design section. These studies were completed at DFV and reviewed/approved by PennDOT/FHWA and implemented by the PTC. The intent of these efforts was to identify alternative means for meeting a design section s scope but at a reduced overall project cost. For the construction phase, VE clauses will also be included in each construction contract s specifications to encourage contractors to offer alternative, cost saving means for implementing the contract design. Other Cost Reductions Cost savings were realized by such means as reducing contingencies (based on historic percentages from past completed Southern Beltway and Mon-Fayette Expressway Projects), implementation of All Electronic Tolling (AET) methods, elimination of conventional toll booths/plazas, and to defer initial construction of a Maintenance Site. 9. Summary of Significant Cost Increases This chapter is reserved for a discussion of changes in individual project elements that increased the cost of the project by at least $10 million. When current program element cost and composition is compared with that analyzed in the Initial Financial Plan, there are no individual project elements which meet the criteria. 10. Summary of Major Responsibilities of Parties Involved FHWA, PennDOT, PTC, Baker and all final design consultants continue to work together as a proactive team to ensure that the best interest of the project, sponsoring agencies and motoring public are maintained at all times. A few of the tools that assist management throughout the design phase include monthly schedule updates, annual Financial Plan updates, right of way acquisition monitoring and mapping, quarterly scope and estimate documentation, and monthly project management meetings with stakeholders. 9
11. References Financial Plan Guidance, Federal Highway Administration, Jan 2007 Major Project Cost Estimating Guidance, Federal Highway Administration, Jan 2007 Cost Validation Study, Urban Engineers, Aug 2006 10