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Road Pricing as Innovative FinanceRoad Pricing as Innovative FinanceAn AssessmentAn Assessment
Genevieve Giuliano
International Symposium on Road Pricing
November 2003
Presentation OverviewPresentation Overview
• What is innovative finance?• What explains changing perspective on
finance?• Road pricing as innovative finance: some
examples• Conclusions
What is Innovative Finance?What is Innovative Finance?
Everything that is not traditional finance– Grant-based, pay-as-you-go, no risk (?)
Innovative Finance– Accelerated use of traditional funding sources– Use of non-traditional funding sources, public
and private– Use of new institutions for infrastructure
provision, ownership, management– Privatization
Innovation ContinuumInnovation Continuum
Ownership/mgmt
Fu
nd
ing
Public funds, pay-as-you-go
Conventional debt (bonds, loan programs)
Leveraged debt (Garvees, SIBs)
Private funds, ownership, mgmt
Public/private finance partnerships (TIFIA)
Public
Pu
blic
Private
Pri
vate PPP finance, build,
operate
The Problem: California Capital Outlays (1998 The Problem: California Capital Outlays (1998 dollars) Relative to Population Growthdollars) Relative to Population Growth
0
0.5
1
1.5
2
2.5
3
3.5
PopulationCapital Outlay
Source: Center for Continued Study of the California Economy (CCSCE)
More of the Problem: California Travel and More of the Problem: California Travel and Infrastructure GrowthInfrastructure Growth
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Annual VehicleMiles (Millions)
Taxable GasolineSales (Gallons, noaviation)
State Lane Miles
Conventional ExplanationConventional Explanation
Declining productivity of the fuel tax Rising costs of maintaining an aging system
– 80% of state transportation expenditures in Calif. Rising construction costs
– Planning and environmental review– Public sector inefficiencies– Politics and delays– I-105: 34 years, $3 billion
Budget crises, tax revolts
A Closer Look….A Closer Look….
Shift in perceptions re role of government– Public sector as provider of last resort– Benefits of competition, profit motive
Shift in understanding industry structure– Contestability as sufficient condition for
competition– Deregulation of rail, trucking, air transport
Lack of evidence re productivity benefits– 1990s productivity studies
A Closer Look, con’tA Closer Look, con’t
Increasing concern with environmental costs of transportation– Air pollution, habitats, endangered species,
open space, urban runoff “You can’t build your way out”
Bottom LineBottom Line
Less consensus on adding capacity, accommodating growth
Public net (social) benefits of infrastructure may not be positive
If benefits are mainly private, those who benefit should pay
(….as long as I don’t have to pay)
Risks and Project FeasibilityRisks and Project Feasibility(It’s all about risk)(It’s all about risk)
Risk related to project scale– Long time horizon, uniqueness, uncertainty
Construction– Management, uncertainty, Robert Moses problem
Operations– Costs, revenues and debt financing
Planning and politics– Environmental review, visibility, conflicts, payoffs
The Risk ContinuumThe Risk Continuum
Extent of Innovation
Pro
ject
Sca
le
SR 91$130M
Channel Tunnel£10B
Alameda Corridor$2.4B
G. Bush Turnpike$700M
Dulles Greenway$350M
Butler Highway$150M
AK I-state Rec.$360M
NJ LRT$1.1B
Big Dig ?
Some Examples:Some Examples:Payoffs and PitfallsPayoffs and Pitfalls
AB 680 Projects
Toll Roads
AB 680 Projects
Toll Roads
1989 California AB 6801989 California AB 680
Promote privately funded, built operated facilities 4 Demos PPP
– State DOT project sponsor: manage environmental review, provide access to financing
– Private entity builds, operates– BTO; state DOT retains tort liability– 35 year lease
1990 RFQ; 13 qualified consortia; 4 projects chosen
Observations on Project OutcomesObservations on Project Outcomes
SR 57 Toll road on viaduct in ROW of Santa Ana River; in fully developed area; strong local political opposition; unlikely to ever be built, despite recent study
I-80 Overly ambitious project; strong local political opposition to project and to concept
Observations, con’tObservations, con’t
SR 125 Toll road in rapidly growing suburban area; extensive environmental work adds costs and delays; turnovers in ownership due to rising carrying costs; tolls unlikely to cover debt service
SR 91 Low cost project; ROW existed; very congested corridor.
Public agency buys facility due to restrictive contract provisions that prevents adding non-toll capacity
Examples of Suburban Toll RoadsExamples of Suburban Toll Roads
SR 241/261– Suburbs of Orange County, CA
SR 73– Suburbs of Orange County, CA
SR 125– Suburbs of San Diego, CA
Dulles Greenway– Suburbs of Washington D.C.
241/261 73 125 Dulles
Length 51 mi 15 mi 10 mi 14 mi
Cost $1.8 B $1.5 B $642 (est) $350 M
Date auth. 1986 (TCA) 1986 (TCA) 1989 (AB 680) 1988 (HCA)
Date open 1993 Phase 1, not yet completed
1996 Not open
est. 2005
1995
Financing State/federal funds, bonds, private equity
Private equity, bonds, TIFIA, long term debt
Private equity, long term debt; default 1996; 1999 refi bonds
Revenue Developer impact fees, tolls, interest earnings
Tolls Tolls
Risk Assessment 1Risk Assessment 1
Scale– All projects have long payback period– All projects highly visible– Unexpected changes in conditions
• SR 73 downzoning, restrictions on development, lead to reduced toll revenues
• SR 125 changes in route due to endangered species, local opposition
• SR 91 increased demand, congestion make non-compete clause untenable, yet revenues not sufficient to expand capacity
Risk Assessment 2Risk Assessment 2
Construction– All projects had underestimated costs, unexpected
construction problems– SR 91 was least complicated, with existing ROW– Delays, environmental problems
Operations risk– Revenue shortfalls for SR 73 lead to downgrade of debt
and possibility of default– Additional problems for SR 73 – drainage control
system, wildlife corridors– Revenue shortfalls for Dulles result in default– SR 241/261, SR 73 multiple revenue sources reduces
dependence on tolls
Risk Assessment 3Risk Assessment 3
Planning risk– All projects had delays related to environmental review
SR 73, SR 125 have environmental problems• Endangered species• Wildlife habitat• Water quality
– SR 241/261, SR 73 were well advanced in review process before 1986
– Dulles consortium responsible for clearances and ROW, but no eminent domain
– SR 57 a regional priority, but a local problem
Risk Assessment 4Risk Assessment 4
Politics– I-80, SR 57 had strong local public opposition– SR 241/261, SR 73 located in sparsely populated area,
under control of single landowner/developer; similar situation for Dulles
– SR 241/261, SR 73 had strong support of County gov’t, and County took lead in EIR process
– SR 125 did not have strong local support; Caltrans as lead agency
– SR 91 non-compete clause became major problem, despite favorable performance
ConclusionsConclusions
Necessary conditions for any major infrastructure project– Strong local public support, public sector support
Toll revenues will likely not cover long-term costs – except in the very long run– Most highways are “free”– Toll roads built in mostly undeveloped areas – demand
develops over long time– High enough tolls to support long-term facility expansion
politically unacceptable or impossible with competition from untolled facilities
Conclusions, con’tConclusions, con’t
Success stories– Some toll roads have exceeded revenue expectations
(SR 241/261, SR 91)– Financing packages, institutional arrangements– Public $$ leverage– Roads would not have been built otherwise– No toll roads have closed
Public sector retains residual risk– SR 91 bought by public agency– No toll roads have closed