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8/7/2019 Poole, Minnesota highways
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Safeguarding and Modernizing
Americas Highway
Infrastructure
byRobert W. Poole, Jr.
Director of Transportation Studies,
Reason Foundationwww.reason.org/transportation
http://www.reason.org/transportationhttp://www.reason.org/transportation8/7/2019 Poole, Minnesota highways
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Overview of Presentation
The problems with the status quo:
its not just lack of fundingHow 21st-century tolling addressesthese problems
How PPPs could fit inand why
Minnesota applications
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Major Funding Shortfall
FHWA Conditions and Performance Report,every 2 years
Latest one (2006) shows the following:
Annual capital spending:$70 billion
Investment needed to maintain performance:$79 billion ($9B/year shortfall)
Investment needed to improve performance:
$132 billion ($62B/year shortfall)
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Why the shortfall:
Decline in real value of the fuel tax ($1997)
1950 1960 1970 1980 1990 2000 2010
Average
5.00
4.00
3.00
2.00
1.00
0
Centsp
ermile
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Second major problem:
Political allocation of highway funding
Federal level
High-growth donor states get less, but theirneed for new capacity is more.
Record-high level of earmarks--funds low-priority projects at the expense of high-priorityones.
State level
Pressures to fund projects in every districtsomajor lumpy projects dont get funded.
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Third major problem:
Maintenance as the neglected stepchild
Cutting ribbons is dramatic; properannual maintenance is not.Lowest-bid construction often leads tohigher life-cycle costs.But, deferring maintenance is an easybudget cut, compared with many other
state budget needs.Highways and bridges lack anendowment fund to ensure properongoing maintenance, reconstruction.
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Its an institutional problemPolitical incentives lead to spending onnumerous low-priority projects, making
large lumpy projects hard to fund.System is biased toward newconstruction vs. adequate maintenance.
Low-bid process leads to higher life-cycle
costsbecause cheap constructionrequires more maintenance.
But maintenance is all too easy to defer.
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Why finance
highway development?
Fairness: those who benefit from theroadway pay for it as they use it,over its useful life.
Benefits sooner: needed projects putinto service years or decades
sooner.Backlog catch-up: excellent way tocatch up with unmet needslikedeficient bridges.
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GAO on toll finances advantages:Provides new revenue source;
Promotes more effective investment
strategies;Better targets spending for new andexpanded capacity;
Leverages existing revenue sources,via private-sector investment.
Source: GAO-06-554, June 2006
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Maintenance endowments
First priority for toll revenues isoperating and maintenance costs.
Toll road must be in top shape topersuade people its worth paying.
Enforced via bond covenants.Thus, tolling solves themaintenance problem.
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Tolling and life-cycle costsFinancing based on 30-40-year model.
Makes sense to minimize life-cycle costs, not
initial cost.Electronic toll collection costs a small fractionof 20th-century toll plazas.
Hence, 21st -century toll roads are a wiser
investment than gas-tax roads.
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Common perception:
toll roads are just a side-show.
Only 5,000 route-miles of toll road,
of which 2,800 are on theInterstate system (FHWA).
Toll revenues are only 5% of total
state highway revenue.BUTnew data challenge thatperception.
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Tolling is an important factor in new
highway capacity.
Since enactment of ISTEA law in 1991:
147 new toll projects in various stagesof development.
Encompass 22 states + Puerto Rico.
If all built, would be 13,800 new lane-
miles.Estimated cost: $75 billion.
Source: PB Consult report for FHWA Office of TransportationPolicy Studies, April 2006
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And tolling is major fraction of new
limited-access capacity
Were only adding about 150 route-
miles/year of limited-access highway.
Tolling accounts for 30 to 50% of this total,since ISTEA (50 to 75 rt.-mi./year).
PB finds the rate of tolled, limited-accessprojects increasing to nearly 150 rt.-mi./year.
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Electronic tolling makes road
pricing feasible:
HOT lanes as on I-394
Express toll lanes for congestionrelief on major freeways
Priced lane is Virtual Exclusive
BuswayTruck-only toll lanes couldaccommodate growing freight traffic.
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Priced Lane Projects, 2007
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What does the private sector
have to offer?
Why not continue with public tollagencies?
Private concession model offers:
Large pool of new capital
Ability to raise more for a given project
Risk transferMulti-state potential
A more commercial approach
Innovation
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How toll concessions work:Company designs, finances, builds,operates, charges for use of facility
for N years;Competitive selection process;
Project financed based on credible
toll revenue stream;Public interest protected viaprovisions in the concessionagreement.
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New sources of capital:Taxable debt market
Bank financing
Equity
Corporate/sponsor equity
Public share offerings
Institutional investors (pension funds,insurance companies, buyout firms)
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More funding from a giventraffic projection:
Traditional toll agency finance:
30-year tax-exempt bondsStringent coverage ratios
Global toll finance model:More aggressive growth projections
40+ year financing
Equity providers willing to take trafficrisk
Depreciation benefits
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Risk transfer (from taxpayers to
investors)
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Multi-state projects (toll truckways)
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Innovation to solve
difficult problems
Value pricing (91 Express Lanes)
Value engineering (Beltway HOTlanes)
Missing links (A86 tunnel)
Elevated expansion (Tampa)
Noise solutions (CityLink)
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91 Express Lanes,
Orange County, California
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Value-engineering the Washington,
DC Beltway HOT LanesVDOT plan to add 2 lanes each way toSW portion of Beltway: $3B, opposition
Private concession proposal:Eliminated a pair of breakdown lanes
Reduced number of access points
Replaced Jersey barriers with pylons
Slashed number of property takesBottom line: $1B + community support
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Missing Link on Paris A-86 Ring Road:Toll Tunnels
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Double-Deck, Cars-Only Tunnel Slashes Cost
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Tampas elevated express toll lanes
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Elevated Tollway with Sound Tube
(Melbourne)
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Concession Agreement Protects the
Public Interest
Length of term
Toll rate caps (formula)Performancerequirements/penalties
Buyout provisionsDefault provisions
Amendment provisions
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Possible Minnesota ApplicationsState already has a PPP law;review and update, if necessary.
Rebuild major bridges
Twin Cities Express Toll/BRTnetwork
Possible toll truckways on I-35and/or I-94
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Summary: How tolls & PPPs
address the institutional problems:
Investors seek projects with solid
ROIlarge lumpy projects.Same entity designs, finances,owns and operatesminimizes life-
cycle cost.Maintenance endowment built in,along with replacement funding.
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Safeguarding and Modernizing
Americas Highway
Infrastructure
byRobert W. Poole, Jr.
Director of Transportation Studies,
Reason Foundationwww.reason.org/transportation
http://www.reason.org/transportationhttp://www.reason.org/transportation