Client Alert

Toll Road Update

July 2009

Recent developments in the toll road industry are summarized below. These developments are based on our July 2009 research.

California

1. Doyle Drive: Dale Bonner, Secretary of the California Business, Transportation and Housing Agency stated at the Infra-Americas US P3 Infrastructure Finance Forum held in New York last month that his agency is looking to use PPPs for $10 billion to $15 billion worth of infrastructure in the next 10 years, including $8.5 billion in the next five years. The agency would like to close at least a few deals in the next 18 months in order to build public and private sector confidence in the state’s PPP process. The first deal that is on the table is the Doyle Drive project, the $955 million reconstruction of 1.6 miles of Rt. 101 with a new six-lane road south of the Golden Gate Bridge. The California Department of Transportation (Caltrans) and the San Francisco County Transportation Authority have suggested that an availability payment structure could possibly be set up with a private partner for the project.
   
   An industry workshop regarding Doyle Drive was held on July 6th and 7th in San Francisco. At the workshop, the state explained that it originally viewed a spring 2014 completion date for the roadway but it has now accelerated the project’s schedule. A preliminary procurement schedule was presented, which included the publishing of an RFQ in September 2009 and a draft RFP in November 2009. The preliminary schedule also contemplates the selection of a proposer in June-July 2010 and financial close in December, 2010.
   
   The state is considering aggregating the following four components of the project into one PPP contract: a tunnel, two interchanges and landscaping around the new roadway. The expected construction schedule for the tunnel and interchanges has been moved forward to begin in the summer of 2011 and end in early 2013. The PPP would have an expected construction cost of approximately $490 million. For more information about the project, go to http://www.doyledrive.com/. 
2. Other California Projects: Secretary Bonner mentioned the following four other possible projects at the Infra-Americas Forum but mentioned that no commitments regarding how or when they would be procured have been made: 
   
   
   1. Interstate 710 Freight Corridor: The estimated $6.7 billion project would create truck-only lanes on the 18-mile stretch between the ports of Long Beach and Los Angeles. 
   2. Gerald Desmond Bridge Replacement: The existing four-lane bridge in Los Angeles County would be replaced with a six-lane bridge that would also increase the vertical clearance for ships to enter the Port of Long Beach. Completion of certain environmental matters for the $1.1 billion project is scheduled for December 2009. 
   3. Bay Area HOT Lanes: The State Assembly approved a bill that would add 300 miles of new lanes and create a network totalling 800 lane-miles of high-occupancy toll lanes in the San Francisco Bay Area. The bill will now be considered in the State Senate. The project includes $6 billion in build-out costs and $7.6 billion in operation and maintenance costs over 30 years. 
   4. Riverside County Route 91 Corridor Improvements: The Riverside County Transportation Commission has proposed to add four express toll lanes to the existing general purpose lanes on a 14-mile stretch of Route 91 and a connected six-mile stretch of highway I-15. The project costs are estimated at $1.5 billion. More information on the project can be found at http://www.sr91project.info/.
3. Los Angeles Eyeing PPPs: The Los Angeles County Metropolitan Transportation Authority (Metro) is currently reviewing its slate of long-term projects in order to determine which could be suitable for the PPP model. Kathleen Sanchez, project manager for Metro’s Public-Private Partnerships Program, said that she believes 15 to 20 projects could be identified as PPP candidates by fall of 2009. Metro has been working on initiating a PPP program for a while and at least two projects it has considered may involve private funding: 
   
   
   1. High Desert Corridor: A potential 50-mile highway just north of Los Angeles could be built as a toll road PPP. The High Desert Corridor Joint Powers Authority is considering a range of financing options for the project. 
   2. State Road 710 Gap Closure: In 2008, Metro completed a feasibility study regarding this project which led to preliminary discussions with the private sector. The study called for two tunnels at a cost of $3.2 billion and a 50-year concession to the private operator. 
4. Senate Bill Allows Unlimited PPPs: Governor Arnold Schwarzenegger signed Senate Bill 4 into law in February 2009, which allows for unlimited transportation-related PPPs, including toll roads, until January 1, 2017. A potential PPP project would be nominated by Caltrans or a regional transportation agency (RTA) for approval by the California Transportation Commission (CTC). Approval would be subject to the project’s satisfaction of four objectives: 
   
   
   1. Improve mobility by reducing vehicle delay; 
   2. Improve the operation or safety of the relevant corridor; 
   3. Provide quantifiable air quality benefits; and
   4. Address a forecasted demand.

   Once approved, Caltrans or the RTA must hold a public hearing and then submit the final lease agreement with the public comments made at the hearing to the state Legislature and the Public Infrastructure Advisory Commission for review at least 60 days before the agreement's execution. Either body may provide comments on the proposed agreement prior to its execution, but the final execution of the agreement will remain at the discretion of Caltrans or the RTA.
   
   The lease agreement may not infringe on the ability of Caltrans or the RTA to develop, maintain, operate or lease any other transportation project. The agreement may provide for reasonable compensation to the private party for adverse effects on revenues due to the development or leasing of another transportation project, except (i) projects that are identified in regional transportation plans, (ii) projects that relate to safety, (iii) improvements that result in incidental capacity increases, (iv) newly created or converted high-occupancy vehicle lanes, or (v) projects outside the PPPs boundaries. Also, non-tolled lanes may not be converted into tolled lanes unless they are high-occupancy toll lanes.
   
   The text of the bill can be found at http://www.dot.ca.gov/hq/innovfinance/Public-Private%20Partnerships/SB%204%202nd%20Ext.%20Session.pdf. 

5. Los Angeles Parking Meter System: The City of Los Angeles is expected to begin the process for establishing a PPP for certain of the city’s parking assets later this summer. The city of Chicago’s parking meter PPP that closed earlier in 2009 had a value of $1.15 billion, and Los Angeles’s is expected to be even larger if the city’s entire parking meter system is included in the project.

Florida 

1. RFQ Withdrawn for First Coast Outer Beltway: Florida Governor Charlie Crist signed legislation on June 1, 2009 that resolved the tax status of certain land in the City of Jacksonville and, thus, exempts the potential developer of the proposed First Coast Outer Beltway from property taxes. The beltway was put on hold due to concerns over the tax status of the relevant land. While certain teams were already pre-qualified, the Florida Department of Transportation (FDOT) announced on June 22, 2009 that it withdrew the pre-qualifications because too much time had elapsed and this had caused consortium members’ positions to change. While FDOT seems to be still planning to procure the project as a PPP, no date has been set as to when it will issue a new RFQ. It is anticipated that the Beltway will connect highway I-95 with highway I-10 in northeast Florida and include a total of 13 interchanges and a new bridge. It is estimated that the project will cost close to $2 billion.
   
   The aforementioned signed legislation also allows the Jacksonville Transportation Authority to enter into PPPs, as well as laying the groundwork for the development of additional PPPs for further transportation construction in Florida. More information on the Beltway can be found at http://www.fdotfirstcoastouterbeltway.com/index.asp.
2. Three Additional Projects: As of May 4, 2009, FDOT had authorized three new projects which are set to be funded with a mix of federal stimulus money, state funds and private sector financing: 
   
   
   1. Interstate Highway 4 Connector: FDOT announced that bid proposals for the build-finance project that would connect highway I-4 with the Lee Roy Selmon Crosstown Expressway in the City of Tampa are due on September 16th. The project was initially delayed because the state’s funds for the project were not allocated until 2013, but the state now plans to use $104 million of federal stimulus money it received to begin construction by early 2010. The overall estimated cost of the project is $450 million. 
   2. US Highway 19: Construction on the US 19 project, which consists of the building and financing of a number of overpasses in Pinellas County on the east coast of Florida, could begin as soon as late 2009 if the state proceeds with its plan to allocate the project with $45 million of the federal stimulus money it received. The $165 million project will be funded by federal, state and local funds. 
   3. Palmetto Section 5: FDOT expects to select a private company by August to complete the twelfth and final stage of the Palmetto Expressway widening and reconstruction, which will be the rebuilding of the junction between the Palmetto Expressway and Dolphin Expressway in the City of Miami. Construction for the design-build-finance project is expected to begin in late 2009 or early 2010 and last about six years. The project is estimated at approximately $560 million, comprised of federal and state money. 
3. South Miami-Dade Busway: According to the local press, the Miami-Dade Metropolitan Planning Organization will vote on July 23, 2009 on whether to commission a detailed study regarding converting the two-lane bus-only road into a tolled expressway that would allow private vehicles. A preliminary study proposed three alternatives for the conversion: (a) adding a toll and new signals and signs, (b) adding one or two tolled lanes and flyover bridges at intersections, or (c) replacing the busway with a tolled elevated four-lane highway. The study estimated the last option at approximately $1.8 billion. A PPP for the project has been discussed.

New York 

1. State Asset Maximization Report: The New York State Commission on State Asset Maximization, which was created to examine how the state could best maximize its assets in an effort to help ease its historic budget deficit, submitted its State Asset Maximization report on June 1, 2009. The report recommended that the state strongly consider implementing the PPP model for the construction or rehabilitation of roads and bridges, and also that the state create a State Asset Maximization Board to screen and oversee the PPP process. The report stated that the New York State Department of Transportation (NYSDOT) estimates that it will need over $175 billion over the next twenty years to address the state’s infrastructure needs. Governor Patterson immediately accepted the report’s recommendation for a State Asset Maximization Board and has indicated that PPP enabling legislation could soon follow the publication of the report.
   
   The report can be found at http://www.nysamcommission.org/. The report cited the following PPP projects that could serve as pilot programs: 
   
   
   1. Kosciuszko Bridge: Construction on a replacement bridge is expected to begin in 2013 and last five years at an estimated cost of $1.4 billion. The state could, however, accelerate this time table by implementing an availability payment scheme or user demand payment scheme with a private partner. 
   2. Bridge Improvement Program: An estimated $275 million project, New York state could solicit a private partner to restore/replace and maintain approximately 290 state and local short-span bridges (about 100 feet long or less). The state could pay the private partner availability payments over a 25-year period. 
   3. Robert Moses Causeway Bridge: A portion of the bridge requires major rehabilitation or a full replacement due to heavy summer traffic. The report recommends that a PPP be created in order to accelerate the repairs. The cost for the project is estimated between $100 million to $250 million. 
   4. Buffalo Harbor Bridge: The state and the City of Buffalo are currently in the midst of preparing a study regarding the construction of a bridge between Buffalo’s waterfront area and its downtown business district. The state and city hope that the bridge project will receive federal infrastructure funding next year, otherwise it will have to wait four to five years before possibly receiving such funding. The report recommends a PPP be created to build and maintain the bridge. 
   5. Gowanus Expressway: Approximately $70 million is spent annually to operate and maintain the Gowanus Expressway, a portion of highway I-278 that connects the borough of Brooklyn with Manhattan, Staten Island, Queens and Long Island. Currently the state hires contractors and consultants for the operation and maintenance of the expressway, but the report recommends that a PPP between the state and a single private concessionaire would lower the costs due to consolidating the existing contracts and would also allow for the development of a long-term solution for rehabilitating the expressway. 
   6. Tappan Zee Bridge: The report also commented on the Tappan Zee Bridge/Highway I-278 Corridor Project, a plan to replace the Tappan Zee Bridge in New York and add new bus and commuter rail systems to serve the neighboring areas. The project would be one of the largest ground transportation projects in the country and the cost is estimated at $16 billion in 2012 dollars. The report does not definitively advocate the PPP model, but instead declares that the size of the project and its multi-transit elements require the state to openly and honestly investigate all the possible financing options available. Despite the potential to generate large amounts of revenue, the report declares that tolling alone could not cover the project’s funding. 
2. Port Authority Bridges: The Port Authority of New York and New Jersey (PANY&NJ) appointed advisors on March 1, 2009 for possible long-term leases of three of its bridges, the Bayonne Bridge, Goethals Bridge and Outerbridge Crossing. The bridges, all which connect the state of New Jersey with Staten Island, New York are nearing the end of their useful lives after being constructed over 75 years ago. All three bridges collect tolls for vehicles that enter New York. The toll is usually $8.00 for cars, however the toll is lowered to $6.00 for cars crossing the bridge during off-peak hours and that are equipped with the E-ZPass electronic toll collection system..
   
   
   1. Goethals Bridge: The Goethals Bridge has been mentioned by PANY&NJ as likely being the first of the bridges to be replaced, and replacement has been estimated at $1.6 billion. This four-lane, 7,100 foot bridge is a major route between Brooklyn, New York and New Jersey because of its accessibility to the New Jersey Turnpike and other major New Jersey roadways and its direct connections to the Verrazano Narrows Bridge (which connects Staten Island and Brooklyn). The bridge had two-way Average Annual Daily Traffic (AADT) of approximately 77,000 vehicles in 2008. 
   2. Outerbridge Crossing: The four-lane, 8,800 foot Outerbridge Crossing had two-way AADT of approximately 83,000 vehicles in 2008 and is popular because of its accessibility to the New Jersey Turnpike and New Jersey’s Garden State Parkway from the southern end of Staten Island. 
   3. Bayonne Bridge: The four-lane Bayonne Bridge stretches just over one mile and connects Staten Island’s northern end with New Jersey. It provides connections to the Staten Island Expressway, which leads into Brooklyn on the east and the Goethals Bridge on the west. The Bayonne Bridge had two-way AADT of approximately 20,000 vehicles in 2008.
      
      PANY&NJ is a bi-state authority that manages its assets separate from the jurisdictions of New York and New Jersey. Also among PANY&NJ's assets are the George Washington Bridge, Holland Tunnel, Lincoln Tunnel, PATH electric rail system, JFK International Airport, LaGuardia Airport and Newark Liberty International Airport.

Puerto Rico

New PPP Legislation: On June 8, 2009, Puerto Rico Governor Luis G. Fortuño signed legislation that established the Authority for Public-Private Partnerships (Authority), a public body that will have the power to establish PPP’s for infrastructure projects. The Authority will have five members and will form a separate committee for each proposed PPP. The members and committee will assess the credentials of each project, and the committee will be able to issue RFQs and negotiate contracts. The final decisions will rest with the governor. A copy of the new legislation can be found at http://www.gdbpr.com/documents/2009-06-08-APPs-ing.pdf.

Governor Fortuño stated that over the next three to five years PPPs could bring nearly $7 billion in investment in projects related to landfills, reservoirs and dams, renewable energy, transportation and the Tren Urbano electric rail transit system. Projects will be eligible for certain favorable tax treatments such as 100% property tax exemption and low income tax rates for the private partners.

Puerto Rico is planning to hold an industry forum in September to discuss its candidates for possible PPPs and Reuters has reported that the government wants six deals underway by year’s end.

Texas

1. No Extension for PPP Authority: Texas's authority to enter into PPPs is set to expire later this year as Governor Rick Perry’s special legislative session in early July 2009 ended without an agreement to extend the state’s power to enter into PPPs. 
2. Grand Parkway Industry Forum: A coalition of seven counties in the Houston area will host an industry conference on July 21, 2009 in Houston, Texas for groups interested in PPP opportunities for the Grand Parkway project, a 180-mile highway that would encircle the Greater Houston region. The total project involves 11 stages (two have already been completed) and costs are expected to exceed $5 billion. Newly constructed segments are expected to be delivered via the PPP model and be tolled. More information can be found at http://www.grandparkwayprogram.com/index.asp. 
3. North Tarrant Express: The $2 billion design, build, finance, operate, maintain project will widen and reconstruct a number of state and interstate highways. It has been reported that the state will contribute $570 million and a consortium led by Cintra and Meridiam will contribute the rest. While reports had suggested that the Texas Attorney General may hold up or reject the deal, the Texas Attorney General’s office approved the comprehensive development agreement and TxDot and the consortium recently executed the agreement. 
4.  I-635 (LBJ Freeway): Infra-Americas has reported that a consortium led by Cintra and Meridiam is set to reach commercial close within weeks on an agreement with TxDot on the $2 billion project that would have the consortium design, build, finance, operate and maintain improvements to I-635 in the Dallas area. It was thought that delays in the North Tarrant Express project may affect the I-635 deal, however those doubts may have subsided now since TxDot has signed a comprehensive development agreement for North Tarrant Express.

Alabama

PPP Legislation Enacted: Alabama’s House of Representatives and Senate approved legislation (HB217) in early 2009 to create the Alabama Toll Road, Bridge, and Tunnel Authority, which will have among its powers the ability to enter into PPP agreements for new roads and bridges. The bill was enacted by the governor on May 22, 2009.

Michigan

1. Bi-National Bridge Project: The Detroit Regional Chamber of Commerce held a public forum on April 23, 2009 to introduce the Detroit River International Crossing project to professionals in the finance, construction and legal industries. The project, a joint American and Canadian effort, would build a second bridge across the Detroit River to connect the city of Detroit with Windsor, Ontario in Canada, and also create an interchange with highway I-75. The bridge would be built one mile south of the existing Ambassador Bridge, which tolled almost 3 million trucks and 4.5 million cars in 2008.
   
   Michigan and Canada have stated that they both prefer to set up a PPP structure for their respective portions of the project. Total estimates for the project are at least $3 billion. The Canadian government has already set aside $1.3 billion for the project, and Michigan lawmakers are urging the U.S. government to do the same.
   
   A coalition including Manuel Moroun, the owner of the Ambassador Bridge, has filed two lawsuits to stop the project. The coalition cites adverse impacts on the local communities, environment and the business of the Ambassador Bridge. Michigan has filed its own lawsuit against Moroun alleging that he began to build a new bridge without the proper government permits.
2. New PPP Office: Michigan has set up an Office for Public-Private Partnerships under the state’s Department of Treasury.
3. Possible Lease of Parking Assets: It has been reported that Detroit’s Mayor is considering entering into a PPP for the city’s parking assets.

Massachusetts

MassDOT Can Enter Into PPPs: On June 26, 2009, Governor Deval Patrick signed legislation which absorbed the Massachusetts Turnpike Authority into a newly established Massachusetts Department of Transportation which would have authority over most of the state’s transportation functions. The new department will also be able to engage in PPPs.

Arizona

PPP Legislation: Arizona passed a bill (HB 2396) that establishes a framework for the Arizona Department of Transportation (ADOT) to enter into PPPs, including PPPs for toll roads. The bill was signed into law by Governor Jan Brewer on July 13, 2009.

Pennsylvania

Pittsburgh May Lease Parking Assets: On June 30, 2009, Pittsburgh’s City Council and the city’s mayor approved a new five-year fiscal recovery plan for the city under Act 47. The plan contains a proposal to lease the city’s parking garages to a private operator in order to fund the city’s pension.