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APPENDIX D Case Studies The example projects analyzed for best practices in public-private sector relationship build- ing are described in detail in this appendix. Alameda Corridor--California 1. Description of public-private partnership initiative: The 20-mile Alameda Corridor con- nects the ports of Long Beach and Los Angeles with downtown Los Angeles rail yards. While the construction of the Corridor began in 1997, its inception was about two decades earlier. The Corridor reduced the miles of rail in the area by about one quarter, cut out about 200 rail-highway crossings, and has reduced the need for cross town truck movements of cargo. In addition to easing freight and passenger congestion, there are reductions in air and noise pollution compared with those under the baseline traffic conditions. 2. Timing of project: Construction on the first of the series of Corridor projects began in 1997. The Corridor opened to rail traffic in spring 2002. 3. Beneficiaries: The region, local residents, carriers, and general public all benefit. Significant changes are less congestion, far fewer grade crossings, expedited freight movements between ports and rail yards, lower air and noise pollution, construction on-the-job training. The website for the Alameda Corridor lists several benefits. These include greater efficiency of cargo distribution; removal of 200 highway rail crossings; reductions in rail, truck, and auto emissions; reductions in noise from rail; creation of thousands of jobs over the course of the project; an achieved goal of 22% participation by disadvantaged business enterprises (DBEs); and outreach and job training programs. 4. Financial: The Alameda Corridor was completed within its budget of $2.4 billion. Half the money was raised by issuing bonds; the remainder came from government or quasi govern- ment sources (from ACTA website): · $1.2 billion from revenue bonds issued by Alameda Corridor Transportation Authority; · $394 million from ports of Long Beach and Los Angeles; · $347 million in grants from Los Angeles County Metropolitan Transportation Authority (LACMTA); · $400 million 30-year loan from U.S. DOT; · $154 million in other state and federal sources plus interest income. According to ACTA, debt is being repaid through use fees levied on the railroads. Over 30 years, these fees are to increase annually, from a minimum of 1.5% up to 3% per year, depending on inflation. Current charges are $19.00 per loaded container (20 ft); $37.00 (40 ft); $42.00 (45 ft). Empty containers are charged $5.00 for 20 ft; $9.00 for a 40 ft; and $11.00 for 45 ft. 5. Participants: ACTA, a joint powers authority, created in August 1989, built the corridor. ACTA comprises members of the LACMTA, a member from each city council (Carson, 49
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50 Public and Private Sector Interdependence in Freight Transportation Markets Compton, Huntington Park, Long Beach, Los Angeles, Lynwood, South Gate, and Vernon), and representatives from the ports of Long Beach and Los Angeles. More than 124 engineer- ing and construction firms participated in the series of projects that make up the Alameda Corridor. As of now maintenance and operations are the responsibility of a committee made up of people appointed from Burlington Northern Santa Fe Railway, Union Pacific, Port of Long Beach, and Port of Los Angeles. 6. Political issues: ACTA is a joint powers authority created in 1989 for the project. It was responsible for outreach to both the public and government agencies at all levels and for coor- dinating all aspects of the project. ACTA, each of the eight cities along the route of the Cor- ridor, and the County of Los Angeles signed Memorandums of Understanding that outlined administrative details such as procedures for building permits. The cities are Carson, Comp- ton, Huntington Park, Long Beach, Los Angeles, Lynwood, South Gate, and Vernon. ACTA also facilitated cooperation among other players--the contractors and construction com- panies, ports of Long Beach and Los Angeles, Union Pacific, and Burlington Northern Santa Fe. A member of LACMTA is part of the Authority. 7. Source of idea: A history of shared ideas, concerns, and relationships in the region preceded the initiation of the series of projects that make up the Alameda Corridor. From informal debates and meetings, the process went forward to initiating research studies, pinpointing possible objectives, and forming a governing body to oversee the project. In 1981 Southern California Association of Governments (SCAG) created the Ports Advi- sory Committee (PAC), which undertook both highway and rail access studies. The PAC included representatives from local and federal (U.S. Navy and U.S. Army Corps of Engi- neers) governments, from the ports of Los Angeles and Long Beach, and rail and trucking industries. In 1985, the Alameda Corridor Task Force (ACTF) was created. Its membership was also made up of concerned public and private organizations, and it was expanded to include the California Public Utilities Commission and the cities along the corridor. ACTF recommended creation of a joint powers authority to have design and construction respon- sibility. ACTA was created in August 1989. 8. Administration: Currently, ACTA is a joint powers authority. It has design and construc- tion authority. Members of ACTA come from LACMTA, from each city council (Carson, Compton, Huntington Park, Long Beach, Los Angeles, Lynwood, South Gate, and Vernon) along the Corridor, and representatives from the ports of Long Beach and Los Angeles. 9. Best practices: The most important elements in the process were cooperation and coor- dination among a diverse set of public and private constituencies. A history of informal and formal conversations provided a foundation on which to build. Many of the organi- zations involved are competitors for customers, for funding, for scheduling and sequenc- ing of projects, but they were able to work together as partners on a project to benefit a wider set of interests. ACTA was created specifically for this project, as a joint powers agency. It is this agency that has overseen the process of design and construction of the Corridor. 10. Challenges: Lack of funding and buy-in by the private sector might have killed the project. The critical $400 million dollar loan from the U.S. DOT made it possible to gain adequate funding from other sources. The initial reluctance of the railroads to become involved in such a complex project was overcome by the dire financial condition of the Southern Pacific Railroad, which helped force them to step up and participate because they were so in need of support for their continued operations. (The Southern Pacific was subsequently merged into the Union Pacific Railroad.) 11. Application: The Alameda Corridor program has been recognized by the U.S. DOT as an example of a successful, large-scale public works freight infrastructure program, in part for its public benefits, and because it was on time and on budget. Staff who have been part of
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Case Studies 51 the project make these recommendations for other public sector agencies trying to replicate the elements of success achieved in this project: · Create a governing agency with responsibility for the design and construction of the proj- ect (in the case of the Alameda Corridor this was ACTA); · Build and maintain communication and cooperation among many jurisdictions (an absolute necessity); · Sell the public on the benefits of the project through public outreach and the media. Shellpot Bridge Rehabilitation (Delaware) 1. Description of public-private partnership initiative: An out-of-service freight rail bridge was restored to operation by a joint effort between the Delaware DOT (DelDOT) and the Norfolk Southern Railroad.4 As part of the state of Delaware's Freight and Goods Movement Plan, restoring rail service over this bridge was identified by the DelDOT as one action that could be taken to improve freight movement in the state. Rail service over the bridge had ceased in 1995 under prior owner, Conrail, when it judged the bridge had deteriorated and the cost to rehabilitate the bridge was too high to justify the expense by the private railroad for the avail- able traffic. 2. Beneficiaries: With the state's assistance, financial aid was made available so that the new rail owner, Norfolk Southern, could be convinced to restore to operation the old movable rail bridge (the Shellpot Bridge) over the Christina River, which provides direct access to the Port of Wilmington. The Port of Wilmington, Delaware, is a seaport at the confluence of the Delaware and Christina Rivers, 65 miles from the Atlantic Ocean. The port is owned and operated by a state public entity, the Diamond State Port Corporation. The port is served by truck via Interstate 95 as well as by rail service provided by two Class I carriers, the Norfolk Southern and CSX railroads. The Port is a major Mid-Atlantic import/export gateway for maritime cargo and trade. It is the leading port in North America for the import of fresh fruit, bananas, juice concentrate, and meat. The port also handles import/export automobiles and roll-on/roll-off (ro/ro) cargo through the port as well as traditional bulk cargo, such as lum- ber, steel, paper and pulp, and petroleum products. The Port Authority, the port customers, and the state all stood to benefit from bridge service restoration. 3. Source of idea: Virginia Port Authority (VPA) was searching for ways to increase its market share of U.S. waterborne commerce. Members of VPA went to Rotterdam and England with a representative of Norfolk Southern to learn how and with what success marketing and oper- ations of European transfer facilities and inland ports were accomplished. In tandem with this effort, it was necessary to quantify Virginia's potential market for freight traffic. Results of an earlier study (1980s) had shown that Virginia was not a large consumer or producer state by itself (due to low population density and lack of manufacturing). 4. Opportunity: When the bridge closed, rail service to the port degraded as port-related traf- fic was rerouted on Amtrak's Northeast Corridor (NEC), increasing transit times and decreas- ing reliability. Following the 1999 takeover of the bridge by Norfolk Southern as a result of the split up of Conrail, the potential for traffic over the bridge increased as Norfolk Southern was more interested in East Coast north-south rail traffic than Conrail had been. However, at the time, the infrastructure improvements needed and the poor cash position of Norfolk Southern following the Conrail take-over meant the railroad itself did not have the capital to make the investment. 4 Case study adapted from NCHRP Report 594, "Guidebook for Integrating Freight into Transportation Planning and Project Selection Processes," Transportation Research Board of the National Academies, 2007.
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52 Public and Private Sector Interdependence in Freight Transportation Markets 5. Context: DelDOT had created a Freight Rail Plan in 1999, just before the Conrail merger was completed that had examined the state's rail system and identified key issues affect- ing rail service into and out of the state. One of the primary goals of the 1999 DelDOT Freight Rail Plan was to increase rail's mode share for freight in Delaware, to which re-established rail service across the bridge could contribute. As Norfolk Southern pro- vided service to key industries and their facilities in the state, restoration of the Shellpot Bridge and associated infrastructure was identified as an important strategy in meeting these goals. Because Norfolk Southern had separately recognized the Shellpot Bridge as a desirable project (even including the bridge rehabilitation in its long-term capital invest- ment plan), the company was interested in discussing options with the state for advancing the project. 6. Challenges: The state and the railroad overcame their hesitancy to work together on the project. From the public side, DelDOT was hesitant to expend money and effort on a freight project. This project is another example of when states conduct freight planning activities and develop freight improvement projects, there can be uncertainty associated with spending public money on a privately owned infrastructure where the public cannot be sure that the public benefits will be fully realized (i.e., "what if we build this and they do not come?" Can the railroad generate the business to justify the public investment?). The railroad was hesi- tant to invest at that time because the expected ROI did not justify going forward when they had so little capital available after the Conrail purchase and when taking on additional debt would negatively affect its credit rating and therefore its ability to access additional capital for other purposes. 7. Financial: The solution developed jointly between the DelDOT Secretary and Norfolk Southern management to address these issues was a part grant, part loan financing. The restoration of the Shellpot Bridge was estimated to cost $13.9 million, with DelDOT providing a $5 million grant to the railroad and the remaining $8.9 million provided as a loan. The loan was struc- tured with a sliding-scale payback agreement in which the bridge is essentially operated as a toll facility (a sliding per-car tariff is charged based on overall volume) that guarantees DelDOT a minimum payback each year while encouraging the railroad to develop traffic over the restored line. This form of agreement allowed both parties to share the risks and rewards of restoring the bridge. DelDOT was guaranteed that it would make back its money from the loan with the minimum payback guarantees. While, with successful expansion of the rail busi- ness, DelDOT could make back more than the original loan outlay, essentially repaying some of the grant and permitting funds to be invested in other projects. 8. Best practices: This project worked because of a clear mix of public and private benefits and the desire of both sides to make the project work. An understanding on the part of the pub- lic sector of the business requirements for funding and the timing of financial flows made negotiations possible to complete. There was high-level advocacy for the project both from within the office of the Secretary of DelDOT as well as within the senior management of the railroad based on an understanding of each organization's respective needs. The bottleneck elimination aspect of this project helped narrow the scope of potential public and private ben- efits to be described to potential stakeholders and therefore helped gain acceptance from both sides for the deal. Freight Action Strategy for Seattle-Tacoma Corridor (FAST) 1. Description of public-private partnership initiative: The FAST corridor comprises about 25 separate projects. One, the SR 509 Port of Tacoma Road, has been completed and seven others are under construction. The purpose of the FAST Corridor is to move freight from
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Case Studies 53 the ports to the mainlines more safely and efficiently. The emphasis in this project is to replace grade crossings with grade separations. 2. Timing of project: Efforts on the part of multiple groups to understand the changes and congestion in the region began in 1994 and 1995. The Puget Sound Regional Council (PSRC) and the Ports were concerned that mobility issues were affecting the ports' com- petitive stance. Then, in 1994-1995, Burlington Northern Santa Fe (BNSF) Railway decided to open an abandoned line that went through the City of Auburn. The acrimony caused by this decision turned into a court case that went to the U.S. Supreme Court over the issue of whether a city had a say in the re-opening of long abandoned rail. During this time both the railroad and the city were discussing mutual concerns about grade separa- tions. In 1995, the State Legislature created a Freight Mobility Committee. Thus, by 1995, various people and levels of government were discussing their concerns about mobility, congestion, and safety. At the Port of Tacoma, a leader in the Intermodal Department was beginning to talk about the "big picture," that is, integrating local concerns into regional ones. In 1997, Texas Transportation Institute (TTI) was hired to develop a matrix to prioritize projects that the different agencies and jurisdictions had identified. Here again the emphasis was on how a given project would work not only locally but also regionally. There was still no funding for these projects. However, based on the TTI report, there were 20 signatories (ports, railroads, and state, regional, and local organizations) to a Memorandum of Understanding that outlined a funding strategy and recognized the sequencing of possible projects. Although the agreement expired in the fall of 1998, the intent and content continued to be followed. Applications for funding were submitted under the conditions of TEA-21 in 1998. Orig- inal estimates were for $360 million. The state DOT agreed to contribute 50% of the cost, the federal government 25%, BNSF agreed to a corridor wide contribution of 5%, and the ports and other local and state bodies to the other 20%. The federal grant awarded allowed for fungibility--money could be moved around among the projects and the Port of Tacoma also agreed to that. BNSF, however, refused. The state's share of the funding bill was to be $4 million. Unfortunately, in fall 1998, when there was to be a referendum for bonds to raise the money, a counter initiative, Initiative 695, won at the polls and at least half of the expected FAST funding disappeared. At this point, FAST was at some risk. The fungibility clause was an enormous help in getting some projects off the ground to show federal and local people that the FAST organization could work through the funding issues and successfully complete one project. Some contractors even agreed to delay their starts (based on the earlier TTI study). The SR-509 was deemed a significant start to the effort, because it would not only free mainline capacity, but it also had high visibility in the area. Construction for SR 509 began June 5, 2000 and was completed in October 2001. The cost was $19.3 million. 3. Completion status: The SR-509 project is complete. The FAST Corridor comprises 25 proj- ects, of which 15 have been designated FAST Phase I. Many of the Phase I projects have been completed and ground was broken on some Phase II projects in 2007. Phase I work with the city of Seattle and the ports of Seattle and Tacoma has yet to be completed, but the cities of Everett, Auburn, Kent, Tacoma, and Tukwila have seen most of the planned work com- pleted. Individual projects were prioritized and approximate start dates were assigned over the initial 3-year period. 4. Beneficiaries: The region's problems with congestion will be ameliorated. Benefits will go to the Ports of Seattle and Tacoma, BNSF, and Union Pacific Railroads. Shippers can expect more efficient movements of their cargo and lower charges for container use. According to Dan Pike, since 70% of all the imports into the two ports are transshipments to the Midwest and beyond, receivers in the Midwest and east will benefit from faster delivery, as well.
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54 Public and Private Sector Interdependence in Freight Transportation Markets 5. Financial: FAST projects are funded by federal entities (27%) and a combination of public and private sources (73%). Total expected cost would be $400 million. Sources of funds are the Port of Tacoma, PSRC, FHWA, U.S. DOT, and the BNSF and Union Pacific Railroads. The SR 509 project was $19.3 million. 6. Participants: A number of agencies were involved in planning and design. These include Office of Urban Mobility; Washington DOT; PSRC; Seattle Tacoma region MPO; and Freight Mobility Roundtable. The roundtable is a committee of public and private sector representatives that provides a mechanism for collaboration and input. There is a contractor and an engineer. There are about 45 subcontractors, subconsultants, and suppliers, including engineering firms, trucking companies, and materials vendors. Ongoing maintenance and operations for each project are the responsibility of the city that has jurisdiction. 7. Political issues: Many agencies--local, regional, state, and federal--are involved, as well as two rail carriers and a committee especially created for the course of the project. These are · Port of Tacoma, · PSRC, · FHWA, · BNSF and Union Pacific Railroads, · Office of Urban Mobility, Washington DOT, and · Freight Mobility Roundtable, a committee of public and private sector representatives that provides a mechanism for collaboration and input. The group is co-sponsored by the PSRC and the Seattle Economic Development Corporation. 8. Source of Idea: Efforts to understand the changes and congestion in the region began in 1994 and 1995. PSRC, railroads, and the Ports were concerned that mobility issues were affecting the ports' competitive stance. In 1995, the State Legislature created a freight mobil- ity committee. At the Port of Tacoma, a leader in the Intermodal Department was talking about the "big picture," that is, integrating local concerns into regional ones. Although no funding existed to resolve these issues, in 1997, several of the concerned parties agreed to hire TTI to develop a matrix to prioritize the projects that different agencies and jurisdic- tions had identified. While the basic ideas about solutions have not changed, changing cir- cumstances in funding availability altered or delayed the start of individual projects. 9. Administration: There are representatives from 12 cities, 3 counties, PSRC, and Washington DOT, plus a trucking association, representatives from the railroads, and from the Freight Mobility Board. They have met monthly for almost a decade, but can meet more or less often depending on the need. Agendas for the meetings are structured to try to keep on track, with emphasis on focusing on the larger picture and reaching consensus. When the prioritization of grant requests is considered, the meetings are especially well attended. Participants are known to each other and various crises faced together over the years have cemented relationships. 10. Best practices: The most important element of success is to allow time to develop personal trust among members from the different organizations. When things go wrong or agreed on priorities have to change there is enough flexibility to isolate and resolve the issues. Making expectations realistic has been key to success, not promising more than can be delivered. 11. Challenges: The state's share of the funding bill was to be $4 million. In late 1998, there was to be a referendum for bonds to raise the money; however, a counter initiative, Initiative 695, won at the polls and at least half of the expected FAST funding disappeared. At this point, FAST was at some risk. The fungibility clause in the federal grant was an enormous help in getting some projects off the ground to show federal and local people that the FAST organization could work through the funding issues. Some contractors even agreed to delay their starts to get at least one successful completion. The SR 509 project was deemed a sig- nificant start to the effort, because it not only freed mainline rail capacity, but also had high visibility in the area.
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Case Studies 55 12. Application: The following broad observations can be made from the experience with the FAST project that may increase the effectiveness of other public-private partnership projects. These are · Awareness of how the process can work is important at the start. · Understanding what combinations of organizations and people will be effective is important to setting up the initial structure of relationship mechanisms. · Once the right people have been brought to the table, it is important to provide incentives to keep them, or at least ensure that turnover is small enough so that the institutional memory continues. · A solution needs to be developed before the search for funding starts (one advantage is that the solution probably results in a cooperative effort.) Consensus can be a strength. Neomodal--Northeast Ohio 1. Description of public-private partnership initiative: The Northeast Ohio Intermodal Ter- minal is a 28-acre intermodal transfer facility located in Navarre, Ohio. At the time it was planned, the area was served by three Class I railroads. Built with federal funds in 1995 and owned by Stark Development Board (SDB), it faced difficulties when Conrail was sold and traffic diverted elsewhere. In summer 2000, the Wheeling and Lake Erie Railroad (W&LE) and Canadian National (CN) railroads signed an agreement to supply train service to and from the terminal. Neomodal is also a designated Foreign Trade Zone (#181). 2. Timing of project: The process began in the early 1990s when a large manufacturer in the region became frustrated in its efforts to expand. To assist it in moving a rail spur, the state was instrumental in gaining funding. Construction of the facility occurred in 1995 and took about 6 months to complete. The project was on time and on budget. 3. Completion status: The intermodal transfer facility was built in 1995. 4. Beneficiaries: Local and regional economy benefited with the preservation of jobs and the creation of new jobs when Fleming Foods undertook its major expansion. The Neomodal Terminal, which is part of a designated Foreign Trade Zone, was expected to act as a mag- net for new business. 5. Financial: The state of Ohio applied for an ISTEA grant and the state made a non-recourse loan to SDB to build Neomodal. In turn, SDB had the responsibility to run Neomodal effi- ciently and to market it. After operations start up, any profits (net toll fees) were to go back into a revolving loan fund that was set up by the state of Ohio. Those funds were designated for three agencies, a local (NE Ohio) transportation agency, the Ohio Erie Canal Corridor, and a third agency. The facility was built within budget. Financial arrangements took about 2 years from start to finish. 6. Participants: While the state of Ohio retained oversight, SDB hired the engineers and archi- tects. They had help with the design of the terminal from Norfolk Southern and CSX rail- roads, who at the time wanted to gain a presence in the Cleveland area. When the project began, the area was served by three Class I railroads; Conrail, Norfolk Southern, and CSX. However, when Conrail was broken up, its Collinwood Terminal was taken over by CSX, which moved its business there, and the Neomodal terminal languished. A turning point came in 2000 when W&LE and CN signed an agreement to use Neomodal. W&LE has a lease to operate the facility. A subsidiary of the Wheeling Corporation, Intermodal Operators, Inc., runs Neomodal on a day-to-day basis. 7. Political issues: Ohio DOT and a senator from Ohio worked together to apply for (federal) ISTEA funding for the project. 8. Source of idea: In the early 1990s, a large manufacturing firm in Stark County wanted to expand its operations, but it was unable to do so because a rail line was at the edge of its prop- erty and the firm did not wish the expense of moving it. If the firm were to leave, 400 jobs would be lost. On the other hand, if it undertook its expansion, it would be adding another
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56 Public and Private Sector Interdependence in Freight Transportation Markets 200 jobs. In part because of the size of the economic impact involved, the Ohio DOT inves- tigated the issues and brought in an Ohio senator. They decided to apply for an ISTEA grant to move the rail spur to allow expansion of the company (Fleming Food Co.). When this project was successfully completed, Ohio DOT applied for and received full funding--$11 million-- for a demonstration project to build an intermodal transfer facility. Existence of the facility was to relieve congestion and lower emissions and noise pollution. 9. Administration: Once the funding was available SDB, a private developer, received a non- recourse loan. Stark had primary jurisdiction over the course of the project. 10. Best practices: The innovative financing was a major key. The money was made available for the project from ISTEA funds by the federal government via the state government. Then, a non-recourse loan was provided to a private corporation, SDB, to design, build, and oper- ate the terminal. The Neomodal Terminal is a Foreign Trade Zone site (#181). 11. Challenges: The project was conceived in an environment where three Class I railroads served the area. Norfolk Southern and CSX Transportation (CSXT) were both eager for a presence in the Cleveland region to be able to compete with Conrail for traffic. However, when Conrail was broken up Norfolk Southern and CSXT went from being partners with Neomodal to being competitors. Conrail's nearby Collinwood (Cleveland) Terminal was taken over by CSXT, which moved its business there, and the Neomodal facility languished. Prior to the acquisition of Conrail, Neomodal had been handling about 6,000 containers per year from CSXT, which was trying to develop an intermodal traffic market in the region. When the traffic was shifted to Collinwood, Neomodal was left with a business base of about 600 lifts. SDB undertook several major actions to try to offset these events. During the acquisition process it filed with the Surface Transportation Board to protect Neomodal, but was unsuc- cessful. The Stark Development Board also remained in contact with CSXT and Norfolk Southern and continued to negotiate for their business, but no offers were made or taken. The enterprise has continued its active search for customers and has been able to survive in a bare bones mode. The original budget for the project had made provision for some extra funds, which had not been spent. In addition, SDB asked for and received additional money from Ohio (about $250,000). A turning point came when W&LE Railroad gained trackage rights from the Surface Trans- portation Board into Toledo, Ohio. There it could interchange traffic with CN. In 2000, W&LE signed an agreement with CN to provide domestic and international service, and both carriers are now marketing their services and rates and the Neomodal facility. SDB is also expanding its marketing efforts, to take advantage of the CN system. 12. Application: The financing arrangements developed for the facility were of great significance to the completion of the project. The state of Ohio received ISTEA funds from the federal government. In turn, the state set up a revolving loan fund. It made a non-recourse loan to SDB to build and operate the terminal. Once the terminal was operating, toll revenues were to be used for operating and other expenses. Any profit was to go back into the revolving loan fund to be used for other projects. In the Neomodal instance, these profits were to be designated to three specific agencies. Virginia Inland Port at Front Royal 5 1. Description of public-private partnership initiative: Virginia Inland Port, an intermodal container transfer facility, opened in 1989. It is a U.S. Customs designated port of entry and 5 Source: Bray, J. Robert. Virginia Inland Port: The Case for Moving a Marine Terminal to an Inland Location. American Asso- ciation of Port Authorities, Alexandria, VA, Sept. 1996.
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Case Studies 57 a Foreign Trade Zone located by an interstate highway and about 220 miles west of Norfolk and Hampton Roads, Virginia, where much of its container traffic originates and terminates. After its opening, the population of this rural area spoke out about its expectation that the port would be treated as an opportunity for regional economic development. Therefore, Vir- ginia Port Authority (VPA) hired a firm to develop a strategic plan and hired marketing and sales personnel to create a campaign to sell the facility. 2. Timing of project: The immediate driving force behind development of Virginia Inland Port was competition for cargo, especially that from Baltimore. Norfolk was apparently missing out on winning traffic because transportation costs were higher to move freight by truck from Norfolk. VPA had to come up with a way and then a site that would answer these issues. According to VPA, active research on the potential of Virginia Inland Ports began in 1984 with meetings in Rotterdam and England to discuss operations and marketing of intermodal terminals and inland ports. Over time, VPA began expanding its vision to promote and increase maritime commerce. While it had started by marketing the Port of Virginia to shippers, it moved into marine terminal development, actually constructing and operating facilities, thereby gaining rental and leasing income. VPA generates net income. Plans for an inland port were announced in summer 1987, and the port opened March 1989. 3. Beneficiaries: The project began as a way to increase revenues for VPA, which is a public agency in the Commonwealth of Virginia. Because of local interest, the concept was widened into a regional economic development project. According to James Davis of the Virginia Inland Port, results of a questionnaire to recently arrived manufacturers and other facilities indicated that Virginia Inland Port has been one element in the decision to move into the area. This decision " . . . has spurred nearly $400 million in private sector capital investments." Most of the new business is in warehouse and distribution facilities, but there is some manufacturing activity as well. VPA does have a community liaison person in place at Front Royal to ensure an ongoing dialogue with the local infrastructure and economic development people. 4. Financial: Financing of the inland port came from the Commonwealth Port Fund and VPA port revenues. The original cost was estimated at $7.3 million for acquisition and development of the site. Soil conditions and rocky terrain (underground caverns) required an additional $6 million for completion. 5. Participants: The VPA and its creation, Virginia International Terminals, Inc., were seek- ing ways to increase their revenues by increasing market share of the Ports of Virginia. They were the agencies that initiated financing and construction of the facility. As of 1998, the Virginia International Terminals, Inc., operates the facility. It is a private not-for-profit company. It broke even in the fiscal year ending June 30, 1994. The revenues are what pay for the day-to-day operations of the VPA. Virginia International Terminals, Inc., links the operations of the inland port with its own and is thereby able to coordinate container movements with rail availability and ship line departures and arrivals, and can track moving cargo. This also allows Virginia International Terminals, Inc., to monitor the volume of business for particular customers. Virginia International Terminals, Inc., is respon- sible for maintenance on equipment at the port, but VPA is responsible for the grounds and buildings. VPA fosters outreach to local economic development officials. 6. Public agency roles: VPA, the state's port authority, was created in 1952 by the Virginia General Assembly. It is responsible for gaining business for the Port of Virginia and income for the Commonwealth and was the immediate driving force behind development of Vir- ginia Inland Port. Today, VPA owns Newport News Marine Terminal, Norfolk International Terminals, Portsmouth Marine Terminal, and Virginia Inland Port.
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58 Public and Private Sector Interdependence in Freight Transportation Markets Virginia Inland Port's Mission and Strategic Plan (1995) recommended VPA create an economic development center to aid in regional economic development. As a mechanism to foster relationships between the private customers of the facility and the public agencies, the VPA created the Virginia Inland Port Advisory Conference, which has members from business and rail and ship lines. This advisory group acts as an information-sharing center for the facility. 7. Source of idea: VPA was searching for ways to increase its market share of U.S. waterborne commerce. Members of VPA went to Rotterdam and England with a representative of Nor- folk Southern Railroad to learn how and with what success marketing and operations of European transfer facilities and inland ports were accomplished. In tandem with this effort, it was necessary to quantify Virginia's potential market for freight traffic. Results of an ear- lier study (1980s) had shown that Virginia was not a large consumer or producer state by itself (due to low population density and lack of manufacturing). VPA moved to address other aspects of the project. It developed and maintained relation- ships with carriers, did market research, investigated equipment issues, demonstrated pos- sible cost savings for alternate container handling methods, and improved its cargo-handling facilities. However, it also needed to expand them. Norfolk Southern had been investigating ways to increase its market penetration in marine cargo, as well. Consequently, VPA com- missioned a market study to focus VPA and Norfolk Southern efforts to locate an inland port. A later report concluded that the growth potential was in the Midwest and Southeast; and that most freight traffic moved through the state rather than originating or terminating there. The market study showed that the Ohio Valley area offered potentially an additional 100,000 container moves. Additional telemarketing and sales efforts revealed almost double that--190,000 containers per year. The goal was to capture 8 to 10% of the market. Virginia Inland Port now has about 19,000 lifts per year. While the marketing plan originally envisioned international traffic, early in the port's existence, traffic was a 50/50 domestic and international mix. VPA and Norfolk Southern worked together to implement the domestic service. It is now 100% international traffic. 8. Best practices: According to Mr. Robert Bray of VPA, the Europe Combined Terminal recommendation was always to control the inland port rail and run the train on schedule at all costs. Mr. Jim Davis of the Virginia Inland Port staff credits a hard-working visionary market department for much of the success of the port. A number of the port's larger customers are not from the area and were brought in by the marketing department's efforts. Outreach and education were and remain active elements of VPA strategy. For example, there are contacts with importers and exporters, as well as ship lines, trucking companies, and freight forwarders and brokers. Currently, active outreach also includes local business leaders and rail and ship carrier personnel. There is also a full time economic development person who travels throughout the United States. Virginia Inland Port is a U.S. Customs designated port of entry and has Foreign Trade Zone status. 9. Challenges: VPA was fortunate in having the backing of the Virginia state government. The local community was skeptical and resistant at the beginning of the process. Continuing efforts at public education and providing mechanisms for opening lines of communication helped to allay fears. 10. Application: With the proviso that each situation and project is unique, a spokesperson from VPA did say that the port had current inquiries about its creation and operations from organizations in South Carolina and Pennsylvania. One suggestion for agencies looking into the possibilities of an inland port is to bring local opponents to view the Virginia Inland Port's facilities and operations.
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Case Studies 59 Chicago Area Consolidation Hub 1. Description of public-private partnership initiative: In Hodgkins, Illinois, near Chicago, United Parcel Service (UPS) initiated building a 1.9 million sq ft operating facility, called Chicago Area Consolidation Hub (CACH), as a national distribution center to expedite its east-west traffic. UPS located its facility by the BNSF's Willow Springs Yard. Once construc- tion began, it became clear that infrastructure changes had to be made to allow optimum access and use of the facility. UPS paid for the 1.25-mile feeder road/interchange that led to/from I-294, and improved signals in the area. It and a consortium including BNSF Rail- way, two municipalities in the Chicago area, Illinois DOT, and other government authori- ties shared the cost of improved interchanges (UPS paid for one-third of the interchange). 2. Timing of project: Conceptually, the project began in the mid 1980s, as UPS began think- ing about its need for a national consolidation point of sufficient size to make the project worthwhile, in a geographically accessible area, near a major arterial interstate, with ade- quate rail connections and with an available, sizable labor force. The building began in July 1991, and the first package moved in March 1995. 3. Beneficiaries: UPS, local population, and commuters were the anticipated beneficiaries of the project. UPS built the facility to improve its ability to deliver packages. Service levels are up. The company was given incentives by the state. In return, UPS guaranteed 2,700 full time equivalent jobs (80% part time, 20% full time). There are a total of 9,000 employees. Part time employees do get medical, dental, and optical benefits and, if they send for their pre- scriptions by mail, part of this cost is reimbursed. There are also education assistance pro- grams and courses provided onsite. Working with two of the public transit entities, UPS got bus service for its employees out to the facility, and it reimburses its employees for part of their fares. UPS agreed to build a connector road--75th Street--to connect Willow Springs Road at one end of the property to Santa Fe Drive at the southeast tip of the property. The road is 1 mile long. The road was then turned over to the village of Hodgkins, which main- tains it. The existence of the road has ancillary benefits because it allows emergency vehicles an easier path to get from one part of town to another. The access road and interchanges aided both the company and the commuters by expediting freight shipments and relieving congestion. UPS underwrote costs for signalization and turning lanes to aid traffic flow. A highway rail grade separation, rail over road (cost shared by UPS and BNSF), and highway access (costs shared with UPS, state, and the toll authority) to the rail terminal were pro- vided. UPS gained some property and sales tax abatements. UPS pays real estate taxes to Hodgkins, and the town in turn has been able to lower taxes to its residents. Residents pay no property tax (there are taxes for education and so forth). 4. Financial: The UPS facility cost $150 million and was paid for entirely by UPS. For trans- portation costs, public funding was 71% and UPS was 28%. Grade separation cost was $15.3 million. IDOT and BNSF shared the cost, with IDOT providing $8 million and BNSF the remainder. Interchange cost was $10.8 million. IDOT paid $2.5 million, Hodgkins Municipality paid $5.5 million, and Illinois State Toll Highway Authority paid $2.8 million. The total cost of transportation was $26.3 million 5. Participants: A number of parties were involved in the process. Design and construction of the building revolved around the 65-mile conveyor system, which was designed by UPS engi- neers. There was a general contractor for the project. UPS is responsible for the ongoing maintenance and operation of the building, although some contractors assist the company. 6. Political issues: The site of CACH was originally the site of General Motors' Willow Springs Fisher Body Plant. The factory had been in existence for about 40 years. It was the Illinois Department of Commerce and Community Affairs that contacted UPS about purchasing the land and buildings. The governor at the time was aggressively seeking to enlarge the busi- ness base in the state. The state also offered funds to build an off ramp from I-294.
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60 Public and Private Sector Interdependence in Freight Transportation Markets In turn, the Department of Commerce and Community Affairs involved other agencies: IDOT and the Illinois State Toll Highway Authority, an independent body responsible for maintenance and operation of the interstate funded by tolls collected. There were some strong objections on the part of local citizens who were concerned about noise, vibrations, and traffic. One of the decisions made by UPS to allay fears was to build a one-half mile berm and to plant 100 trees to soften the effect of the construction. 7. Source of idea: The idea for the project began in the mid 1980s, when UPS began thinking about its need for a national consolidation point of sufficient size to make the project worth- while, in a geographically accessible area, near a major arterial interstate, with adequate rail connections and with an available, sizable labor force. The land and building purchased was the site of the General Motors' Fisher Body Plant. The Illinois Department of Commerce and Community Affairs contacted UPS about the site. The state offered funds to assist UPS. UPS built its facility, but recognized other improvements were necessary to make it viable. It also had received incentives from the neighboring towns of Willow Springs and Hodgkins to build there. 8. Administration: UPS was the driving force behind the project. The company developed and maintained ties with the major players--local citizens, municipal and state government, and BNSF Railroad, and negotiated transportation-related funding. 9. Best practices: One entity (UPS) worked closely with all partners (villages, state, and rail- roads) and maintained those contacts so that all had input. 10. Challenges: Negotiations with the governor's administration had been smooth. The state gov- ernment had been seeking businesses to augment the state's revenues. However, the state was facing some serious financial troubles in the early 1990s and fiscal restraints were going to be necessary. As a result of a change in governor, all financial agreements came up for review, including those for UPS, and all agreements had to be re-negotiated. Re-negotiation took approximately 1 year. In late 1990, UPS and the state of Illinois also signed a formal private- public written agreement. 11. Application: Much of the process involved working with unique local issues. However, UPS would use the practices it developed if it were to build another facility. The most sig- nificant advice is to start working immediately on building relationships with local and state governments. 12. Most important advice: Communication was key to the project, with transparency in terms of plans and ability to adapt to the changing political environment while the process was underway.