DENVER | Transportation Thread

[bunt_q]

Yes, quite a good article. It's nice to know that we have one of the only large P3s in North America going on right here in Denver. (Meridiam Group is part of one of the teams proposing on I-70.) And ironically, because of TABOR, we have a pretty good story to tell, in that the bridge surcharge is a more stable source of revenue - and harder to get rid of - than nearly any revenue stream you run into in the market.

I disagree with the article's contention that there needs to be more federal involvement to standardize contracting. There are so few megaprojects out there, it is absolutely not true that project-by-project contracting is having any detrimental effect (other than making large international equity funds think a little). Adding some cost, maybe. But that would be, in my opinion, counterproductive, as it flies in the face of state-specific processes that are more diverse, more familiar, and generally better-tailored to protect the little guy. We just need more money, period.

[TakeFive]

Originally Posted by ski82

Good article recently in FT on infrastructure and infrastructure planning that relates to the discussion on these pages. The comments are good too.

https://www.google.com/#q=infrastructure:+bridging+the+gap&tbm=nws

That is indeed an excellent read. Certainly I've been pounding the table on the current U.S. and State's inadequate investment in infrastructure.

Originally Posted by bunt_q

I disagree with the article's contention that there needs to be more federal involvement to standardize contracting. There are so few megaprojects out there, it is absolutely not true that project-by-project contracting is having any detrimental effect (other than making large international equity funds think a little). Adding some cost, maybe. But that would be, in my opinion, counterproductive, as it flies in the face of state-specific processes that are more diverse, more familiar, and generally better-tailored to protect the little guy. We just need more money, period.

Fair enough and well stated, but...

There is real value in "more" standardization of a legal framework. What makes investors nervous is not knowing, not understanding, not being able to define a predictable return because each project has its own legal guesswork as to what might happen on top of analyzing each project on its own merits. The more predictable something is which results partly from the familiar, an easily repeatable model to analyze then the stronger the interest and pricing.

[TakeFive]

Here We Go Again
Want an easy way to find more funding for transportation?

Colorado's top 2 budget leaders are worlds apart in their views on health care spending
Nov 12, 2015 by Ed Sealover Denver Business Journal

Rep. Millie Hamner, the Frisco Democrat who takes over as chairman of the powerful committee this year, said that the key to reducing a $373 million funding gap... is a bill that removes the state's hospital provider free from the general fund and converts it to an enterprise fund. “It’s artificially inflating the revenue in the budget and should have been exempted from the beginning...

And the opposition party?

Meanwhile, Sen. Kent Lambert, the Colorado Springs Republican who will serve as JBC vice chairman, said he thinks legislators need to focus more on ways to reduce spending on Medicaid...

The politics of all this are strange, silly and perplexing.

The hospital provider fees paid by hospitals to the state are merely a gimmick that works since every $100 collected by the state receives a 2 for 1 Federal match. Collect $1 billion and the Feds send back $2 billion for a total of $3 billion to cover Medicaid costs.

For states that don't like Medicaid, they tap into a different federal pot deemed "uncompensated care." Their trick has been to charge double for the uninsured figuring they won't be paid anyway but while it distorts their real cost of care, it helps towards receiving Federal reimbursement for said "uncompensated care."

Philosophical, political differences aside, it's important to understand that while Medicaid does provide better, more orderly access to healthcare what it really accomplishes is to provide good support for one "infrastructure" part of the Colorado economy - the hospital/healthcare industry, hardly a bad thing. I can't however speak to specifics of Colorado's system.

[bunt_q]

I wouldn't say Medicaid provides better, more orderly access to health care. Rather, it provides access to health care, period. Without it, there'd be none for those recipients.

The politics of this aren't complicated. Keep that revenue under the TABOR cap, you shrink government. Pull it out into an enterprise, you free up money to spend more. Republicans like the former, Democrats like the latter. It's as straightforward as a political battle can be.

[bunt_q]

Originally Posted by TakeFive

There is real value in "more" standardization of a legal framework. What makes investors nervous is not knowing, not understanding, not being able to define a predictable return because each project has its own legal guesswork as to what might happen on top of analyzing each project on its own merits. The more predictable something is which results partly from the familiar, an easily repeatable model to analyze then the stronger the interest and pricing.

True, you're not wrong, but it's not that hard either. That's all ratings agencies do. And one of the great advantages is the ability to tailor your risk transfer. Have a major river crossing/bridge project spanning mushy shores? Shift geotechnical risk. Have a highway through a 100-year old industrial area that you're moving into a trench? Shift hazardous materials risk. Have a corridor that requires the cooperation of the railroads? Shift railroad delay risk. Sure, you'll spend two days arguing about where the contract is "off market" and the effect that'll have on ratings and credit. But the point is, every one of those decisions is made purposefully. And often (but not always) the private side is better positioned to manage those risks anyways. From the public interest perspective, I believe the types of risks these large projects entail are worth an extra four conference calls and two powerpoints to walk a ratings agency through, and maybe even worth paying an extra 50 basis points for cost certainty. The result of standardization in this instance (were it to be made mandatory, at least) would probably be fewer projects, not more, because you'd lose the ability to maximize value for money.

[Cirrus]

Originally Posted by mr1138

I would love for more places to begin trying this Dutch design.

It takes more street width, so it's harder but we could theoretically do it.

However, having recently been to Amsterdam, I'm not sure we want to. That design successfully keeps bikes and cars out of each others' way, but it comes at the expense of putting bikes and pedestrian in each others' way instead. I'm not convinced it's the right answer, except in particularly high-bike/low-pedestrian environments. We need more experimentation.

Salt Lake City has one, by the way. First in the US.

[TakeFive]

"Fee simple" interest billion dollar profits?
Oh sure, happens a lot.
What about Leasehold interest billion dollar profits?
Like what?

Canadian consortium buys Chicago Skyway lease rights for $2.8 billion
WRITTEN BY DAN MIHALOPOULOS AND FRAN SPIELMAN POSTED: 11/13/2015 Chicago Sun-Times


2004 File Photo Chicago Sun-Times

A decade after investors gave the city more than $1.8 billion to lease the Chicago Skyway for 99 years, the rights to run the privatized highway and collect tolls have been sold for $1 billion more than the original price.

Chicago the rent-a-city? Anybody in Chicago concerned that the city raised property taxes by $589 million annually which was about a doubling I think?

Will the Brave New World mean that nobody owns anything any more? We'll just rent from The Man.

[bunt_q]

Originally Posted by TakeFive

"Fee simple" interest billion dollar profits?
Oh sure, happens a lot.
What about Leasehold interest billion dollar profits?
Like what?

For context - Macquarie are the State of Colorado's advisors for the I-70 P3.

Cintra/Ferrovial are one of the four bidding teams.

[TakeFive]

Originally Posted by bunt_q

For context - Macquarie are the State of Colorado's advisors for the I-70 P3.

Cintra/Ferrovial are one of the four bidding teams.

Interesting. I wasn't familiar with Cintra/Ferrovial but am familiar with Macquarie. I've been thinking 5280 Connectors or Kiewit/Meridiam Partners but maybe now Cintra is willing to up their bid?

[bunt_q]

Don't discount the fourth team. They're all top notch.

[TakeFive]

A blur of lobbyists as transportation bill takes shape
By Joan Lowy, Associated Press 14 minutes ago

There's a reason they call it sausage making...

Among the many issues: the length of trucks allowed on roads, whether recalled used cars must be repaired before they can be sold and how to pay for bridges and highways.

The bill is the lobbyists' best shot in years at getting policies their clients' like or blocking regulations they don't.

I found this paragraph relevant and interesting:

Northeastern lawmakers are angered by a proposal that would eliminate an annual $263 million transit program benefiting seven states with half the nation's transit riders — Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Delaware and Maryland. The provision would spread the money to all states through competitive grants for bus programs.

This might be good for the proposed BRT on Colfax.
Now that I think about it that's not a lot of money and I know there's been many BRT type proposals but every little bit helps as they say.

[TakeFive]

Just have to have a little faith.

Photo by Peter Jones, The Villager
RTD Director Kent Bagley expects the R Line extension into Lone Tree’s RidgeGate to spur extensive development in the burgeoning community.

RidgeGate to ‘explode’ with development, RTD’s Bagley says
November 11, 2015 BY PETER JONES The Villager

The R Line is on track to take the southeast corridor in new directions. Not only will the extension take light rail into Lone Tree’s burgeoning RidgeGate community, the R Line will finally connect southeast business and residential sectors to the commuter rail that will take passengers to Denver International Airport.

That R Line is obviously going to get real dang busy. I have no doubt that within a decade that Lone Tree will want a custom parlor car attached to every R Line train.

[RyanD]

SANDBAGS!!! Full speed, full weight testing continues... Oh, and I found two commuter trains under the canopy!

Fastracks Progress: Commuter Rail – Full Speed Ahead!
via DenverUrbanism

[The Dirt]

They were at a full stop in front of my house a few hours ago then gunned it in the direction of union station. These trains can move!

[Cirrus]

I love it. Looks great. Can't wait to arrive in Denver that way someday.

But man, those gritty Philly trains look out of place in gleaming Union Station. Maybe we should've built the platform canopy supports out of rusty steal to match.

Ah, that's better.


jgilber0 on flickr

[TakeFive]

I found the critical document that unlocks the secret sauce to the P3. Alas, it will take somebody with more techie ability than I to unravel this one. Give it a try if you like.

I also skimmed through the Concession and Lease Agreement. Feel free... it's 230 pages of legalese (—). Nothing of what I was wanting to see but it does give me renewed respect for those who have the know-how and patience to put such a creation together.

The most useful thing I found was a reprint from 2010 of the RTD's Notice to Proceed and which reviews the whole P3:
Denver Eagle P3 Financed, First U.S. Rail PPP
by William G Reinhardt, Public Works Financing
There's a reference to the design build component for $1.27 billion. Quite readable but a bit involved. The standout part would be this:

The winning proposal includes a capital cost of $2.086 billion, about $300 million less than the RTD’s latest estimate in February. Private financing is expected to total approximately $500 million—about half of earlier estimates—and will include equity and private activity bonds

I also found a Very Interesting piece of information
Despite Extraordinary Ridership, Vancouver’s New Canada Line is Suffering
Public-private partnerships have their costs.
November 17th, 2009 by Yonah Freemark - TransportPolitic

Yet, faced with rising operations and maintenance costs, the benefits of such private involvement are now being put into question. Despite the fact that the Canada line will soon meet its required ridership to fulfill the contract it made with InTransit, the government will have to subsidize the project to a tune of C$14 to C$21 million a year — until at least 2025. That money will go to pay off the C$700 million put in by the private side of the exchange.

The article although interesting isn't particularly relevant to Denver except for the part quoted. I believe it's called an "Activity Fee" which RTD will also pay and would be lined out in the Operating and Maintenance Agreement which I can not find. The point though is that it appears that the private investment is paid back as an accelerated fee in the agreement over what looks to be 15 years in Vancouver.

It appears that due to the creative deal-making that Macquarie set up including a double closing allowed RTD to only capitalize $2.1 billion. Rest assured that there's at least another $450 million in costs which I'll presume RTD will also have to pay on an accelerated term. An additional $50 million is included within the Bid amount.

I know I read that more than $500 million was borrowed from the Lloyds Banking Group but I didn't know specifically how much was considered a part of their private investment with RTD. Using the $450 million (not included in the Bid) brings the total cost up about $2.55 billion which actually corresponds closer to original cost estimates. That creativity was used to define and structure things is fine but one way or another it all will need to be paid.

[CastleScott]

^ Pretty interesting read, I thought I'd add that there's lots of public-private partnerships in Europe on such things as high-speed rail, highways and local urban metros..

Scott

[bunt_q]

Originally Posted by TakeFive

Nothing of what I was wanting to see but it does give me renewed respect for those who have the know-how and patience to put such a creation together.

Thank you.

Originally Posted by TakeFive

The article although interesting isn't particularly relevant to Denver except for the part quoted. I believe it's called an "Activity Fee" which RTD will also pay and would be lined out in the Operating and Maintenance Agreement which I can not find. The point though is that it appears that the private investment is paid back as an accelerated fee in the agreement over what looks to be 15 years in Vancouver.

What activity fee are you talking about? And what accelerated fee are you seeing? I am not sure you're reading it right.

If you PM me, I can see if I can track down the O&M agreement. RTD isn't a party, though, so it might not be public.

Originally Posted by TakeFive

It appears that due to the creative deal-making that Macquarie set up including a double closing allowed RTD to only capitalize $2.1 billion. Rest assured that there's at least another $450 million in costs which I'll presume RTD will also have to pay on an accelerated term.

Staggered closings are standard practice, even without a fancy P3.

RTD will almost certainly not be subject to an accelerated term, or additional costs (where are you getting $450 million more?), that's not how these work. Look at the attachments, the Construction Payments and the Service Payments. That should be all RTD pays, though I confess to not being familiar with this transaction. I'll confirm, but acceleration is basically unheard of without a termination.

Originally Posted by TakeFive

That creativity was used to define and structure things is fine but one way or another it all will need to be paid.

Not necessarily, be careful what you assume. Read Attachment 11 as well. RTD is not at risk for increases in costs - their annual payments are largely known. The Canada article seems confused - I am not intimately familiar with that project either, but it's either bad reporting or a strangely structured procurement. Not knowing the structure of their operating payments, this part stood out to me: "Despite the fact that the Canada line will soon meet its required ridership to fulfill the contract it made with InTransit, the government will have to subsidize the project to a tune of C$14 to C$21 million a year — until at least 2025. That money will go to pay off the C$700 million put in by the private side of the exchange."

It would be surprising if there was no annual operating payment assumed - no concessionaire farebox risk either. We can do toll risk for highways (US36), but it won't work for I-70, and private fare risk most certainly wouldn't work for any transit project here. Maybe in Canada... Instead, the concessionaire here will be guaranteed an annual payment, which will go up each year. It'll almost certainly be more than the agencies would pay if maintaining it on their own, but that's simply due to the fact that we do a piss poor job of maintaining infrastructure. When we require a private entity to maintain to a higher standard, we take away our ability to choose to underfund maintenance in any given year. Open to debate whether that's good or bad, I suppose.

[TakeFive]

bunt... 2nd par. of 2nd page of the linked press release. "The DTP partners will contribute about $55 million in equity and $404 million raised through tax-exempt private equity bonds" whatever the heck those are and I did round off the numbers.

I wasn't sure how accurate the info in the press release is but certainly a good approximation. Also there were different figures quoted representing different contexts so it was hard to know exactly how they all fit together.

The "activity fee" is just a name. I'm not sure if it represents the total annual RTD payment or just the private equity part. Without the O & M agreement its speculation. It is reasonable that the $450 million would be amortized over a shorter period than 34 years like the Vancouver agreement does. Whether it's 15 years is a guess but that's still a good amount of time for paying that off.

The private group is not buying an asset; their private contribution is like a loan.

I hadn't checked the attachments... ran out out of patience. Having given 10 & 11 a look, that just looks to cover the standard stuff. Anything about the private contribution I'll assume, again, is in the O & M agreement. I would guess the O & M agreement might also incorporate any changes that might have popped up along the construction path if indeed there were any.

[bunt_q]

No that's wrong, the O&M agreement just covers the nuts and bolts of what the O&M subcontractor does during operations; the concessionaire won't do the O&M itself, it does it through that subcontract. It won't include any changes - how could it, RTD isn't even a party to that agreement. Everything you want to know is in the concession agreement.

The payments are the construction period payments and the O&M period service payments in those two attachments. Pretty sure that's it, that's all RTD pays. Of course the private equity will get paid back with a return, but that's built into the concessionaire's financial model when they bid an annual payment. You'd have to dig into the model to know when and how they are repaying the equity - the bonds are repaid through the indenture, with RTD's annual payments as the pledged revenue, no doubt. (RTD was probably the conduit issuer so as to make the bonds tax exempt, but the obligations are the concessionaire's. For I-70, the bridge enterprise will serve a similar role.)

I-70 will be structured similarly - we will require a certain percentage equity (so they have "skin in the game") and of course that equity will get a return. And different teams could finance things differently - surely they'll all have a TIFIA loan, but beyond that, private activity bonds, bank vehicles, private placement, are all viable options. But they can structure their financing and returns however they want - the "bid" we get will be a single number - an amount sufficient to repay their debt, equity, returns, and annual operating payments. More complicated than that obviously, as there are a lot of rules to ensure we get apples to apples proposals. But the bid itself, and what the public entity will pay, is not complicated - it's a single number. (Less performance deductions of course.)