Financing Tomorrow's Infrastructure: Challenges and Issues Proceedings of a Colloquium (1996) / Chapter Skim
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III. FUTURE OF INFRASTRUCTURE FINANCE
III. FUTURE OF INFRASTRUCTURE FINANCE
Pages 67-105
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From page 67... ...
The basic conclusion was that in any kind of infrastructure planning you need a financial planning element from the very beginning. We published the results in November 1993 as, "High Performance Public Works: A New Federal Infrastructure Investment Strategy for America." We see an example of this financial planning now in the Intermodal Surface Transportation Efficiency Act (ISTEA)
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From page 68... ...
The Dulles Toll Road runs about 13 miles from the Beltway, I-495 west to Dulles airport. The road we just opened, called the Dulles Greenway, is 14.1 miles long, going from the Dulles airport west to the historical town of Leesburg, Virginia.
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From page 69... ...
And two, it connected well to the economic growth pattern in that corridor. The point is, you do not locate a toll road, or any other facility to which you elect to have user fees attached, just any place.
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From page 70... ...
We do not make any excuse for the toll rate because we are creating an option for the traveling public, not a demand. We have given people an alternative that is a "quality of life" enhancement.
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From page 71... ...
It was fast paced and very expensive because we probably have a heavier slice of equity than we would like to see going forward. Because this was a pioneering effort, there were a lot of skeptics who questioned whether the concept was going to work; therefore, the equity requirements were a little bit higher.
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From page 72... ...
The Dulles Greenway was opened on its 24-month anniversary to the hour. We broke ground September 29, 1993, at 11 a.m., and we cut the ribbon September 29, 1995, at 11 a.m.
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From page 73... ...
The Intermodal Surface Transportation Efficiency Act (ISTEA) came along about midway through our development.
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From page 74... ...
The Commonwealth Transportation Board decided how the roadway would be managed, designed, and operated, which are policy issues. Setting the toll rate was a joint decision between the private entity, us, and the State Corporation Commission, and it was negotiated.
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From page 75... ...
These were the people and the entities who own the toll road. The very first dollars committed to the project are the equity dollars, then the bank dollars, and later the long-term lending dollars.
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From page 76... ...
Recently, however, some reality has begun to appear as some actual projects have been created out of innovative financing and privatization the Dulles Greenway, for example. To show my bias as an economist, I believe that an understanding of finance begins with economics.
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From page 77... ...
Within transportation, the key financial mechanism for the last 40 years has been the Highway Test Fund. The primary financial cash flow for that has been the federal motor fuel tax.
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From page 78... ...
The Intermodal Surface Transportation Efficiency Act (ISTEA) was passed in 1991.
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From page 79... ...
Well, there are these things called infrastructure banks, which do not quite exist yet. They are the transportation version of revolving loan funds, which have been in existence for some time for wastewater treatment.
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From page 80... ...
You can make soft loans to private or public firms, open lines of credit, work in impact fees, provide loan guarantees, or leverage public or private funds. From the economic and planning perspectives, there are some very nice things to be said about SIBs.
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From page 81... ...
It will also be different. DISCUSSION Several questions have been raised regarding the long term viability of the Highway Trust Fund for funding state revolving transportation funds as well its possible use in financing other forms of infrastructure.
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From page 82... ...
That will require some subsidies, but the state department of transportation will also provide financial incentives for the private sector to put ideas and money in places we normally pass by. Most public/private projects around the country have been bridges or big toll roads because those are likely winners.
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From page 83... ...
Paying for a toll road you did not have before is probably a bigger issue than whether it is privately or publicly owned. The privatization model going forward will look a lot like a public agency that acts like a business.
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From page 84... ...
To some extent, I am going to use the Greenway project to draw some contrasts because it is so unusual. It is very different from most infrastructure projects in the United States that use public and private investment funds.
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From page 85... ...
In the case of the Dulles Greenway, reference was made to equity investors. Another distinguishing factor of the Greenway project, which works against being replicated in great numbers, is that a lot of the willingness to contribute high-risk equity financing came from the expectation of related return on real estate owned by some of the parties in the immediate area.
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From page 86... ...
For the most part, the financing of infrastructure projects revolves around different types and different layers of debt financing, basically with fixed rates of return and a defined schedule by which the money is to be repaid. I want to reflect on how the investment community has been involved in infrastructure finance and the criteria they use in deciding which of the newer types of projects merit investment.
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From page 87... ...
Two large toll road financings in California had access to lines of credit from the federal government. Both the Foothill Eastern Toll Road Project and the San Joaquin Hills Project were done through transportation corridor agencies in Orange County.
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From page 88... ...
With regard to start up toll road facilities, I will just make a few comments about special assessments and proffers. It is important to understand that, generally, special assessments as they are used and applied around the country are a recurring type of revenue stream that allow you to bond against the payments, which occur over time.
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From page 89... ...
In the last few years, more than $3.5 billion of investment capital has been contributed to four start up toll road projects alone: the two California projects I mentioned earlier, the Dulles Greenway, and the E - 70 project in suburban Denver. E - 70 is a loop road that goes almost all the way around the Denver area and will also serve the new Denver airport.
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From page 90... ...
That is a real watershed change, but it is a tangible indication of investor belief in these projects and the purposes they serve. Taken all together, we see a lot of interest in financing infrastructure projects.
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From page 91... ...
Those projects are more like the projects that have followed, and they are fundamentally different from the Greenway project in this respect. Greenway fits a model that is typically referred to as "build, operate, transfer." General Williams talked about how the state gets the project back at the end of the 40-year franchise.
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From page 92... ...
I will fall back on some of the lessons learned from the experience with the two recent California toll roads. These projects were so big that even though the state had originally identified them, there was no prospect of funding them for many years to come.
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From page 93... ...
The federal transportation planning requirements say that when you have a problem like that you have to do a major investment study. It lays out the whole multiyear process.
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From page 94... ...
That idea has begun to sink in a little bit, but aside from that, casino owners are really pretty much on their own track.
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From page 95... ...
For example, although the cost of building a fire station and providing the apparatus can be significant, the annual operating costs of fill-time firefighters dwarf the annual capital costs. It is always interesting when I go to local communities that the discussion of retrofitting a facility or adding a modular addition takes up more time in public hearings than the operating expenses, fringe benefits, and other things that really eat up budgets.
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From page 96... ...
But they are almost unique among cities. In growing jurisdictions, operating costs must also be evaluated.
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From page 97... ...
That is an example of how levels of service change, which, to me, is the major reason jurisdictions cannot afford to operate and meet the challenges of growth. A sidebar of that example is the development community in Baltimore County, who said, they were willing to pay their fair share, willing to pay impact fees.
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From page 98... ...
Because elected officials are reluctant to raise property taxes, new funding approaches are needed. By conducting a fiscal impact analysis, a jurisdiction can focus on how development and the provision of infrastructure and related operating costs will affect the need for additional revenues.
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From page 99... ...
These could include: special or assessment districts private financing impact fees developer contributions/agreements revenue bonds real estate taxes real estate transfer taxes
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From page 100... ...
We are going to implement an adequate public facilities ordinance, which means unless we have capacity for new development, we are not going to allow it to be authorized." There have been several states where that threat has been made, and they have allowed the new revenue exaction of impact fees. By the way, the National Association of Homebuilders has not come out against impact fees.
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From page 101... ...
By Filly understanding the capital costs, operating expenses, and revenue sources available to a jurisdiction, a community can better understand how it can meet the demands of new growth and maintain the level of service to current residents. By going through this process, the community will also be "educated" on the need to budget for replacing existing infrastructure.
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From page 102... ...
Timothy J Brennan is a professor of policy sciences and economics at the University of Maryland Baltimore County Campus and senior fellow at Resources for the Future in Washington, D.C.
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From page 103... ...
Nancy Connery is a private consultant, author, and lecturer on public investment, management, and infrastructure issues and a member of the Board on Infrastructure and the Constructed Environment of the National Research Council. She is the former executive director of the National Council on Public Works Improvement and serves as advisory editor and contributor to The Public's Capital, an infrastructure newsletter published jointly by Harvard University and the University of Colorado, Denver.
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From page 104... ...
The firm concentrates in the following areas: fiscal impact analyses; evaluation of impact fees; capital facility
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From page 105... ...
Williams is executive vice president and chief operating officer of Rebuild Incorporated. He is the former chief operating officer of the Toll Road Investors Partnership II where he was responsible for managing the construction of the Dulles Greenway.
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