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66 T R A N S P O RTAT I O N F I N A N C E
which would allow the Treasury to issue $3 billion per toll projects have focused on new bridge spans and
year in tax credit bonds. greenfield projects off the Interstate system. Acceptance
of new toll road financing tools has varied. In deliver-
ing these projects, sponsors have used a range of tools,
Alternative Revenue Sources which are discussed in more detail elsewhere.17 They
include the following:
In the past several years several papers and studies have
been prepared on the potential for generating alternative · The franchise or concession financed with equity
sources of transportation revenue to replace, over time, and taxable debt;
revenues lost as the revenues derived from the current · The 63-20 nonprofit corporation as the obligor
method of taxation based on motor fuels decline. A thor- on tax-exempt debt, with private involvement maxi-
ough recitation of these alternatives is beyond the scope mized under the Internal Revenue Service management
of this paper. Instead, refer to NCHRP Report 37714 and contract rules;
two resource papers prepared for the Second National · A state or regional toll authority's issuance of tax-
Conference on Transportation Finance.15, 16 These analy- exempt revenue bonds, with award of a designbuild or
ses summarize numerous alternative revenue sources and a designbuildmaintain contract to manage project
evaluate them in accordance with a variety of criteria. cost and schedule risk; and
On the basis of this work and the policy analyses of oth- · A state agency's issuance of general obligation
ers, the AASHTOAGCARTBA Joint Committee advo- bonds to finance a new toll facility, which in effect
cated the creation of a blue ribbon task force to recommend retains toll revenue risk.
to Congress alternative motor vehicle fuels and new user
fees to be levied to ensure that Highway Trust Fund rev- Each of these approaches has strengths, weaknesses,
enues are sufficient to maintain system performance. This and suitability criteria. The following are examples of
conference is an opportunity to push this recommendation toll road developments since the Second National
further toward reality during reauthorization. Conference on Transportation Finance:
· The Tacoma Narrows Toll Bridge is being developed
Tolling through a designbuild contract awarded to a Bechtel-
Kiewit team and financed by the state of Washington
If Congress fails to adopt maintaining system perfor- through the issuance of general obligation bonds.
mance as a goal, state departments of transportation · The Central Texas Turnpike Project, a network of
and regional transportation authorities may neverthe- new toll roads near Austin, is being developed in part
less pursue the resources they need to cover such by an enhanced form of designbuildmaintain con-
costs. In recent years new state and local sources of tract awarded to Fluor Daniel and Balfour Beatty18 and
revenue for transportation have proliferated. One of financed by a combination of tax-exempt revenue
them, which varies widely in acceptability from bonds issued by the Texas Transportation Commission,
region to region, is the use of toll revenues to cover at general obligation bonds issued by localities, a
least a portion of the costs of the development of new Transportation Infrastructure Finace and Innovation
capacity. Act (TIFIA) loan backed by toll revenues, and gas tax
In both the Intermodal Surface Transportation funding commitments by the state.
Efficient Act of 1991 and TEA-21, Congress opened the · The Las Vegas Monorail is being developed by a
door to limited tolling of the Interstate system. While a designbuildoperatemaintain contract awarded to a
few states have placed a tentative toe in the water, most Granite/Bombardier team and financed with fare box/adver-
14 Reno, A. T., and J. R. Stowers. NCHRP Report 377: Alternatives to 17 For descriptions of the many forms publicprivate partnerships
Motor Fuel Taxes for Financing Surface Transportation Improvements. can take, see the following: Hedlund, K., PublicPrivate Partnerships:
TRB, National Research Council, Washington, D.C., 1995. The Public Owner's Perspective, in DesignBuild for the Public
15 Clary, L., C. Hand, R. Creamer, and G. Branagan. Alternative Sector (M. C. Loulakis, ed.), Aspen Publishers, 2002; Allison, B., C.
Transportation Revenue Sources. In Conference Proceedings 24: Boock, K. Hedlund, B. Papernik, N. Smith, and G. Yarema, Surface
Second National Conference on Transportation Finance, TRB, Transportation: Tools in the Privatization Tool Box, in Privatizing
National Research Council, Washington, D.C., 2001, pp. 137144. Governmental Functions, Law Journal Press, 2001; and Yarema, G.
16 Bemis, G. Expected Future Availability and Cost of California S., Transportation Project Delivery: Options, PublicPrivate Roles
Gasoline and California Excise Tax Revenue Projections. In and Suitability Criteria, in AASHTO Project Finance Institute
Conference Proceedings 24: Second National Conference on Proceedings, 2002.
Transportation Finance, TRB, National Research Council, 18 Russell, P. E., and J. Curren. The Texas SH 130 Procurement.
Washington, D.C., 2001, pp. 157167. Public Works Financing, Vol. 165, Oct. 2002, pp. 2833.
OCR for page 79
MEETING THE CHALLENGE TO REAUTHORIZE TEA-21 67
tising revenue bonds, interested-party subordinate debt, and tant procurement tools that have gained wide commer-
private-sector donations.19 cial acceptance.
· Macquarie purchased California Transportation · Traffic and revenue consultants, rating agencies,
Ventures' Caltrans franchise to develop and operate the and bond insurers will continue trending toward more
SR-125 toll road, with construction planned to be conservative projections.
financed later this year through the placement of equity · In many jurisdictions (Texas and Florida being
and taxable debt supported by a TIFIA loan. notable exceptions) tolling will remain a tough sell
· Legislative approval has been obtained for the for several reasons. First, where the need is great-
Orange County Transportation Authority to acquire in est--rehabilitation and improvement of existing
early 2003 the already operating SR-91 express lanes, "free" facilities--there is little precedent nationally
assuming the taxable nonrecourse debt with a likely and indeed a broad perception among the public that
tax-exempt refinancing later in 2003. they have already paid for the facilities--they should
· The Transportation Corridor Agency recently not have to pay for the facilities again. Second, local-
announced plans to combine the credit of the San ities, on the basis of campaign promises of some can-
Joaquin, Foothill, and Eastern toll roads. didates for local and state office, often wrongly
believe that plenty of money is available, and if they
Any generalizations about trends these transactions only push hard enough, they can out-politic their
suggest is dangerous, but allow me a little risk-taking. neighbors for gas tax allocations and avoid tolling.
Absent any change in federal law or policy, we might Third, as Grote et al. have pointed out, communities
expect the following: generally underestimate the consequences of waiting
for public funding: construction cost escalation,
· Some jurisdictions will drive financing outcomes costs of congestion and accidents, and missed eco-
toward the lowest cost of money, even if that diminishes nomic gain from early project completion. Fourth,
private-sector innovation and risk shifting. where courageous leaders do crop up to campaign
· TIFIA, Grant Anticipation Revenue Vehicle for tolls as the best means to grow the pie, federal
bonds, and state infrastructure banks have proved to be policy offers little incentive to rebut local interests
valuable tools in highway financings. with a stake in the status quo, antiacceleration,
· The requirement that all debt senior to TIFIA be "keep it in the slow pipeline" philosophy.
investment grade inhibits the use of developer equity or · The tax-exempt credit markets have proved to be
subdebt, which in and of themselves are valuable tools highly efficient in pricing project risk. The advantage to
in financial structuring. toll road sponsors of this market, unique in the world,
· TIFIA's springing lien provision will drive projects will continue to drive financing and project delivery
into the hands of insolvency-proof borrowers (i.e., pub- structures away, with an exception here and there, from
lic agencies with significant tax revenues) and away the taxable debt/private equity model.
from single-purpose private or nonprofit borrowers, · Few tolled facilities will produce borrowing
which again are valuable structuring tools. capacity sufficient to cover all of their costs. This will
· The cost and schedule certainty that the Federal drive finance plans for a single project quite logically
Transit Administration requires in full funding grant and efficiently toward combining state and federal gas
agreements for new-start transit projects, that rating taxes, local government contributions, revenue bonds,
agencies require for start-up toll bonds, and that owners and, if available, TIFIA.
are requiring to avoid all-too-common "sticker shock"
differences between estimated and actual construction If we assume these observations to be true and assume
costs20 will continue to drive issuers toward designbuild further that tolling would be a desirable outcome, what
and designbuildoperatemaintain contracts,21 impor- can we do to encourage more tolled capacity? I hope this
conference can offer a concrete list of suggestions, but the
19 Testimony of Robert Broadbent, Las Vegas Monorail Company, following will serve as food for thought:
before the Subcommittee on Housing and Transportation, Senate
Committee on Banking, Housing, and Urban Affairs, June 26, 2002. · Toll road financings would benefit from the combi-
20 Flyvbjerg, B., M. S. Holm, and S. Buhl. Underestimating Costs in
Public Works Projects: Error or Lie? APA Journal, Vol. 68, No. 3,
nation of tax-exempt debt, private equity, and incentive-
Summer 2002, pp. 279295. based service contracts, an end that can be accomplished
21 For excellent discussions of designbuild contracting, see Smith, by changes to the Internal Revenue Code. Legislation to
N., and C. D. Ryan, Design-Build for Highways, Bridges, Rail, Mass do just that passed both houses since TEA-21, but
Transit and Airports, in DesignBuild for the Public Sector (M. C. President Clinton vetoed the larger bill for other reasons.
Loulakis, ed.), Aspen Publishers, 2002; and Boock, C., B. Papernik,
and N. Smith, DesignBuild Contracting and State and Local
· While other states have struggled, we need to
Agencies, in DesignBuild Handbook, Aspen Publishers, 2001. understand what Texas and Florida have done right in
