Financing Surface Transportation in the United States: Forging a Sustainable Future—Now! (2012)

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39 BREAKOUT SESSION 4 Expecting the Unexpected Assessing Project Risk and Its Impacts on Financing Sharon Greene, Sharon Greene and Associates (Moderator) Lowell Clary, P3 Development Company Bill Van Meter, Denver Regional Transportation District Kathleen Sanchez, Los Angeles County Metropolitan Transportation Authority Alistair Sawers, Consultant to Arup HigHWay–managed laneS Project: i-595 managed laneS Project, florida Lowell Clary of P3 Development Company gave the first presentation of the breakout session and provided a comprehensive overview of the I-595 Corridor Roadway Improvements Project in Fort Lauderdale, Florida. The express lanes are part of a 35-year term public– private partnership (P3) featuring a design–build–finance– operate–maintain (DBFOM) fixed-price contract. The project has a 5-year construction schedule, and comple- tion is estimated for July 2014. Of the financing, $1.2 bil- lion has been allocated for construction and $1.8 billion for operations and maintenance. The express lane project financing includes equity, a bank loan, and a Transporta- tion Infrastructure Finance and Innovation Act loan. An availability payment of $64 million (indexed to inflation) will be used. Mr. Clary emphasized that the payments must be earned by meeting performance metrics. While a key feature of this project is reversible express lanes, additional safety, operational, aesthetic, infrastruc- ture, and engineering enhancements are being undertaken over several years. They include congestion pricing; state- of-the-art emergency access and infrastructure; bus rapid transit providing peak-period service during the construc- tion of the project; improvements to the New River section of the Greenways System providing a countywide network of safe and clean bicycle, pedestrian, and equestrian paths and nature trails, sidewalks, and waterways; ramp improve- ments; bypass bridges; auxiliary lanes; and sound barriers. tranSit Project: eagle P3 Project, denver, colorado Bill Van Meter of the Denver (Colorado) Regional Transportation District (RTD) discussed the innova- tive financing approach of the Eagle P3 Project. In 2008, RTD identified a $2.7 billion funding gap for the FasTracks transit program. To address it, RTD decided to pursue the Eagle P3 project and successfully applied for entry into the New Starts Penta-P program, which recognized the risk transfer associated with these proj- ects to streamline the Federal Transit Administration New Starts risk reviews. The Eagle P3 is a DBFOM of a new commuter rail system consisting of two new com- muter rail lines, with a 46-year concession (40 years operating). RTD will retain ownership of all assets at all times, and all revenues generated by the proj- ect (fares, advertising, parking, etc.) will remain with RTD. RTD will also retain fare policy decisions. The total project cost is $2.48 billion, and RTD is review- ing bids from two concessionaires. The concession is expected to finance up to 40 percent of the capital costs with a combination of private-sector equity and debt. Progress payments will be made during design and con- struction and availability payments during operations and maintenance, with all payments adjusted for per- formance. Mr. Van Meter also presented an illustra- tive table that shows which risks are shared, which are retained by RTD, and which will be transferred to the concessionaire.

40 FINANCING SURFACE TRANSPORTATION IN THE UNITED STATES multimodal tranSPortation Program: loS angeleS county metro P3 Program, california Kathleen Sanchez of the Los Angeles County Metro- politan Transportation Authority gave a presentation on LA County Metro’s P3 (Alternative Project Delivery) Program. The agency is proceeding with a P3 program to accelerate delivery of projects. The public partner is assuming most of the project development risk, and the private partners will be asked to assume project imple- mentation risks such as financing, design and construc- tion, and facility operations and maintenance. A project selection process is being used to review 85 projects and determine which should be advanced for private-sector participation. Fourteen were selected as high P3 poten- tial, and six were selected by the Metro Board for initial acceleration. Three are highway projects (I-710 South Corridor, SR-710 North Extension, and the High Desert Corridor), and three are transit projects (Crenshaw Cor- ridor Light Rail, Metro Red Line Westside Extension, and the Regional Connector Light Rail). The final presentation was given by Alistair Sawers, a consultant to Arup. He summarized his recommen- dations on the transfer of project risk, including when transferring risk makes sense and its impacts on financ- ing. He presented a risk matrix and a value for money analysis. He discussed the differences in financing under AAA and BBB rating scenarios, cost contingencies, insur- ance and bonding, required funded risk reserves, con- tingent liabilities, cover ratios in project finance, and required equity returns for investors. Mr. Sawers described a conventional risk matrix that is used more to allocate than to price risk and that could be used for fixed-price turnkey construction contracts, P3 concessions agreements, project finance loan agree- ments, and feasibility studies. He characterized revenue forecasting as an imprecise science and provided a table that demonstrated the high frequency of inaccurate demand forecasts in public works projects.