Government Entities In Highway Construction Essay

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Abstract: This case study reviews the role that a government-owned business, the Colorado Department of Transportation's (CDOT) High Performance Transportation Enterprise (HPTE) is playing in a multi-phased public-private partnership (PPP) project to implement the multi-modal US 36 Managed Lanes/Bus Rapid Transit project. Through its legislative PPP mandate and coordination with state, local, and federal officials HPTE, to date, has been effective in initiating, financing, and implementing construction on a major highway project.

Introduction/Overview

How effective are state-owned government businesses in stimulating public-private toll road, HOT and multi-modal transit partnership projects? The US 36 Managed Lanes/Bus Rapid Transit Project is an enhancement to an existing four-lane divided highway that connects the City of Boulder to Denver at its intersection with I-25. The project is one of the first to be sponsored by The High Performance Transportation Enterprise (HPTE), a government-owned business within The Colorado Department of Transportation (CDOT). The U.S. 36 Express Lanes project is also the first project in Colorado to build the infrastructure to support four different modes of travel-bus rapid transit, HOV, tolled express lanes and a separated commuter bikeway alongside the highway [1] . This case study will utilize public information including state legislative bills, the Transportation Investment Generating Economic Recovery (TIGER) grant application, annual reports, commissioned traffic studies, Federal Highway Administration information, and data from key participant websites and presentations to assess the role that HPTE has had in the US 36 project and how effective it has been in getting the project financed and implemented. The case study will explore the evolution and role of the HPTE (Section II), the Project Description (Section III), the Financial and Risk Analysis (Section IV), and the Lessons for Policy Makers and Conclusions (Section V).

The US 36 corridor (Figure 1) is home to over 27,000 businesses, including biotech, aerospace, and renewable energy firms, that employ over 200,000 workers representing nearly 17% of the Denver region's business and employment [2] . The corridor today, by CDOT estimates, currently operates at 90% capacity, with 80,000 to 100,000 vehicle trips per day, and 3 to 4 hours of severe bi-directional daily congestion. Further, by 2035 the population and employment is expected to grow by 32% and 47% respectively [3] .

Figure 1: US 36 Corridor [4] 

In addition to the heavy automobile traffic, the corridor has the heaviest bus usage in the Denver metro area with over 15,000 bus riders daily Further, over 65,000 people in Boulder have annual Eco Passes, purchased by their employers, that allows them unlimited rides on Regional Transportation District (RTD) local and regional buses [5] . The project is expected to not only help relieve vehicle congestion through the addition of managed tolled High Occupancy Vehicle (HOV) lanes, but also through the creation of a Bus Rapid Transit (BRT) service connecting regional transit to the intercity rail system; and also an 18 mile commuter bikeway adjacent to the highway [6] .

The project is being sponsored by the CDOT's HPTE in partnership with the Denver Regional Transportation District (RTD), U.S. 36 Mayors & Commissioners Coalition, nine local governments and 36 Commuting Solutions (www.36commutingsolutions.org) - a nonprofit membership organization dedicated to reducing congestion and improving active transportation along the U.S. 36 corridor. In CDOT's TIGER Grant application letter to US Department of Transportation Secretary Ray LaHood, CDOT

Executive Director Russell George stated that "The Project will provide 7,234 short-term jobs and $125 billion in long-term employment benefits that will contribute to Colorado - and the nations - economic recovery. Analysis indicates a benefit-cost ratio for [the] project of 40 to 1, yielding $10.5 billion in cumulative net present value." [7] 

Phase 1 of the project has already broken ground with scheduled completion by December 31, 2014. Phase 2 is in the final stages of choosing a concessionaire with selection expected to be made on February 8, 2013. Commercial and financial close for Phase 2 is pending the concession contract award, with the targeted opening to take place in July 2015.

Colorado's High Performance Transportation Enterprise & Public Policy

A key aspect of Colorado's PPP environment is the existence of a special entity, the High Performance Transportation Enterprise (HPTE) created by the Colorado legislature, to help drive state PPP activities. This section will look at the evolution of the HPTE and the role it is playing in the I36 project and Colorado PPP development in general.

The HPTE is a government-owned business within The Colorado Department of Transportation (CDOT) which was created in 2009 through the passage of Colorado Senate Bill 108, the Funding Enhancement for Surface Transportation and Economic Recovery (FASTER) Act. The new enterprise replaced the Colorado Tolling Enterprise (CTE) that had been established in 2002 [8] .

Its primary mission is to seek out and evaluate potential PPPs [9] . Its mandate is to 1) pursue public-private partnerships and other innovative and efficient means of financing important multi-modal projects, 2) ensure that such projects are properly prioritized, 3) accelerate delivery of those projects, and 4) support Colorado's economic recovery [10] . It has the power, among others, to impose tolls and other user fees, to issue revenue bonds secured by those fees, and to enter into contracts with public and private entities to facilitate public‐private partnerships [11] . This includes the consideration of solicited and unsolicited PPP proposals; ability to borrow without voter approval; and the authority to negotiate and sign concession agreements and design-build agreements to implement PPP projects [12] .

The HPTE is governed by a seven-person independent board consisting of three members from the CDOT and four members who are appointed by the Governor from the Denver Metropolitan area, the North Front Range Metropolitan Planning Organization (MPO) area, the Pikes Peak Council of Governments MPO area, and the I‐70 Mountain Corridor area [13] 

The principal current revenues of the HPTE come from tolls collected from the I‐25 High Occupancy Toll (HOT) Express Lanes. Opened in June 2006, I‐25 Express Lanes which extend along a seven‐mile section of Interstate 25 between downtown Denver and U.S. highway 36 currently carry more than 30 percent of the person trips of the entire corridor in the peak hour [14] . Bolstered by this inherited success, HPTE in 2010 successfully pursued and won a $10 million USDOT TIGER Grant to facilitate the development of a TIFIA‐based financing plan to accelerate the reconstruction of the U.S. 36 corridor between Denver and Boulder.

Other projects that HPTE is currently considering for public private partnership funding include the I-70 Mountain Corridor Project 144 miles from C-470 to Glenwood Springs; and the C-470 Corridor project that would include two Toll Express Lanes (TEL) each direction 26 miles from I-25 to I-70 ($700 M), 12 miles from I-25 to Kipling ($350 M) and the I-70 East Viaduct [15] . Thus the HPTE is the hub of essentially all of the CDOT's current Colorado PPP highway activity.

Project Description

Under the leadership of the HPTE and it mission to seek out and evaluate potential PPP opportunities, the US 36 Express Lane Project has been innovatively financed and is now being constructed in two phases. Given the HPTE's clearly defined PPP mandate as well as the challenging economic times, a PPP approach seemed well suited to the I36 multimodal and diversified stakeholder environment. The construction phases are part of the $1.4 billion preferred alternative in the U.S. 36 Final Environmental Impact Statement (EIS) which identified an innovative alternative to the traditional approach of "building our way out of congestion." Agencies and communities along the corridor deliberately sought a smaller footprint, ultimately agreeing on a solution that eliminated the need for new general purpose lanes [16] .

The solution includes a suite of sustainable transportation solutions, including 1) a new managed, lane in each direction of U.S. 36, providing transit, High Occupancy Vehicles (HOVs) and paying Single Occupant Vehicles (SOVs) with travel time savings of up to 25 minutes one way, 2) repair and replacement of 14 bridges and 12 mi. of poor roadway surface, 3) implementation of a Bus Rapid Transit (BRT) system that connects to the regional transit system through Denver Union Station, 4) installation of Intelligent Transportation Systems (ITS) for tolling, transit information and incident management, 5) auxiliary lanes between interchanges to improve intra-corridor mobility, 6) 18-mile commuter bikeway adjacent to the highway, and 7) Transportation Demand Management (TDM) strategies to affect commuter behavior [17] .

The overall goals of the project are to enhance mobility for all travelers by providing a sustainable alternative to congestion, expands mode choice for 165,000 daily commuter, implement a reliable and innovative BRT system, integrate community design preferences, pursue sustainable implementation strategies from a social, environmental and financial perspective and demonstrate the value of local government collaboration [18] .

The first phase, estimated to cost $312 million, is to reconstruct 10 miles of US 36 from Federal Boulevard in Denver to 88th Street in Louisville/Superior. Ames/Granite Joint Venture team was selected as the design-build contractor for Phase 1 with groundbreaking taking place on July 27, 2012 (CDOT 2012). The Ames/Granite team includes Ames Construction Inc., Granite Construction Co., HDR Engineering, Inc. and Michael Baker Jr. Inc., in addition to several Denver-based subconsultants and subcontractors [19] .

Work to completed under Phase 1 includes 1) one express (HOT) lane in each direction from Federal Boulevard to 88th Street in Louisville/Superior (approximately 10 miles) for Bus Rapid Transit (BRT), High Occupancy Vehicles (HOV) and tolled Single Occupancy Vehicles (SOV) and reconstruction of the general purpose lanes including widening the highway to accommodate 12-foot-wide inside and outside shoulders; 2) replacement of the Wadsworth Parkway, Wadsworth Boulevard, Lowell Boulevard, and Sheridan Boulevard bridges and replacement of the U.S. 36 bridge over the BNSF Railway; 3) BRT accommodations at stations located on ramps and adjacent park-n-rides, and bus bypass ramps at several interchanges which will support new and more frequent bus service; 4) a bikeway along much of the corridor, 5) ITS equipment including for tolling, transit information, and incident management, and 6) improvement of Regional Transportation District (RTD) stations along the corridor including new canopies with enhanced weather protection [20] . The Ames/Granite group successfully addressed all the goals outlined in the request for proposals and provided the best value by beating the project completion schedule by six months. Their proposal also committed to make several improvements that were desired but not included in the base project, including extending the terminus of the project west to 88th Street and reconstructing two additional bridges on the corridor [21] . Phase 1 is scheduled to be completed by December 31, 2014 and in operation by January 2015.

While construction for the first phase moves forward, CDOT and the HPTE are evaluating alternative means for financing the remainder of the US 36 project between 88th Street and Table Mesa/Foothills Parkway near Boulder. CDOT has estimated that Phase II would cost between $120 million and $140 million [22] . Construction under this phase includes: 1) right of way (ROW) procurement and utilities relocation, 2) constructing managed lane in each direction, 3) extending the Phase 1 commuter bikeway, 4) widening, replacing, and constructing bridges and culverts, and 5) coordinating with Phase 1 construction including providing traffic control, installing toll equipment, and interconnecting with Phase 1 [23] .

Early in 2012, HPTE issued a Request for Qualification (RFQ) to evaluate prospective bidders on their abilities to satisfy all aspects of a Design-Build-Finance-Operate-Maintain (DBFOM) concession agreement including compliance with federal Disadvantaged Business Enterprises (DBE) requirements; qualifications of contracts and subcontractors to complete specified work; financial stability; and overall project approach. On May 31, 2012 HPTE subsequently identified three qualified bidders: 1) Denver Access Partners, which includes Cintra Infraestructuras, S.A. (Spain), Ferrovial Agroman US Corp. (Spain), Lawrence Construction Company (US), and AZTEC Engineering Group, Inc. (US); US 36 Development Partners, that includes Isolux Corsán (Spain), Terracare Associates (US), Atkins, Bank of Tokyo-Mitsubishi UFJ (Japan), and THB Advisory (US); and 3) Plenary Roads Denver, which includes The Plenary Group (Canada), Ames Construction, Inc., Granite Construction , HDR, Transfield Services and Goldman Sachs. An Request for Proposal (RFP) was then issued and responses received. The successful bidder is expected to design, build and finance (DBF) Phase 2 of US 36 and operate and maintain (OM) the managed lanes for the full US 36 corridor as well as for the I-25 HOV/Express Lanes, a total of about 24 miles [24] . The DBFOM agreement will likely be structured as a toll concession, allowing the successful bidders to collect tolls to pay off the initial investment and is expected to have a term of 50 years. The concession agreement is expected to be signed in February 2013 with construction beginning soon after. Barring any contract or construction issues, Phase 2 is expected to begin toll collection by July 2015 [25] .

Thus, to date, the HPTE has successfully organized financing, pre-qualification, bidding, Phase 1 construction implementation and scheduled selection of the concessionaire in early 2013.

Financial & Risk Analysis

The estimated cost of Phase 1 of the project is $312 million. The primary source of funding is $120 million from the Regional Transportation District (RTD) sales tax. Other sources of funding include $54 million from a TIFIA loan (Fitch rating BBB-), $46 million in CDOT Bridge Enterprise funds, $44 million in regional funds from the Denver Region Council of Governments, $38 million from a CDOT federal/state grant, and $10 million from a TIGER Grant [26] . In addition, HPTE is considering pursuing a Private Activity Bond [27] . Fitch considers its rating "stable" citing the projects strategic location, reasonable toll rates, strong structural protections, and moderate debt burden; however does warn that negative changes in the projected traffic volumes, economic environment, or operations could trigger a ratings action [28] 

An investment grade traffic and revenue study was produced for Phase 1 which is also applicable to Phase 2. The study focused on traffic growth patterns in the US 36 corridor and potential risks to toll

revenue. The study included an economic growth analysis conducted by the independent Economic and Planning Systems (EPS) which considered a wide range of economic and travel factors including current

volumes and travel times, population and employment projections, toll rates estimated time savings, and multi-modal corridor sharing [29] . The findings of the study using the variables conditions was then used as input into the travel demand models that led to a range of estimates for future toll revenue [30] . These estimates were then included in CDOT's TIGER grant application [31] and in the concession RFQ and RFP circulated to potential bidders in 2012 (see Table 1).

Table 1 [32] 

2015, 2025, and 2035 Estimated Weekday Revenue Per Roadway

Revenue Maximization

Reduced toll revenue due to lower traffic usage has been identified as one of the primary risks to potential investors and concessionaires. In addition to long term growth, higher fuel prices and changes in the value of time were other factors which could impact project return on investment. The TIFIA Loan Agreement and the Master Trust Indenture provide certain credit protections to mitigate project risk, including reserves, additional bonds test, and a rate covenant. The security for the TIFIA loan will be a gross pledge of toll revenues collected on the U.S. 36 managed lanes. CDOT/HPTE has agreed to maintain tolls to produce debt service coverage on all senior and TIFIA debt of 1.30x, and debt service coverage on any future senior lien debt of 1.40x [33] . Further, prior to completion they will also establish a TIFIA debt service reserve equal to maximum annual debt service over the next five year period [34] .

Phase 1 is being constructed by the Ames/Granite group under a design-build contract. Under such a contract, the contractor is at risk for all elements of the design including preliminary engineering and pricing, and if design fails to meet the specified requirements; and all aspects of the construction including labor, schedule, varying site conditions, weather-related and other delays, cost overruns, additional land requirements, compliance with environmental requirements, geological obstructions, and safety and security. The Phase 2 concessionaire has not yet been selected and the concession

contract has subsequently not been signed. However, the RFQ and RFP for Phase 2 is looking for a concessionaire that will design, build, and finance (DBF) Phase 2 construction and, also, maintain and operate the complete infrastructure delivered in both Phase 1 and 2 [35] . Thus, in addition to the design-build risk outlined above, the concessionaire will likely assume addition risks associated with the financing of Phase 2, and the operations and maintenance of the final project infrastructure when completed. This includes repairs or maintenance work affecting availability, failure to meet operating performance standards, operation and maintenance costs, and the condition of highway at the end of concession period. Certain risks will likely be shared by HPTE and the concessionaire including non-discriminatory legislative changes and force majeure.

Lessons for Policy Makers and Conclusions

Since the project is not yet completed, the ultimate success of HPTE in implementing the US 36 Managed Lanes/Bus Rapid Transit project is still to be decided. However, to date, HPTE appears to fulfilling its mission in regard to this project. Phase 1 financing, including the securing of a TIGER grant, TIFIA loans, and financing guarantees from state and local entities was successfully organized, and construction has commenced using a CDOT/HPTE negotiated design-build contract. The design-build contract includes several innovative concepts including: 1) implementing the first bus-on-shoulder program in the state to provide for more reliable bus travel, 2) constructing the first buffer-separated Express Lane in Colorado, where the Express Lane is separated from the general traffic lanes by a four-foot striped buffer rather than a solid barrier, and 3) installing an Active Traffic Management System on the highway to display relevant traveler notices such as travel speed and lane closures. The multi-modal facet of the project is also an innovation. The project will provide multiple travel choices to users whether they choose to drive alone, carpool, bike or take BRT [36] .

The lessons learned from this case study for policy makers is that state-owned government entities like HPTE can be effective in initiating, financing, and implementing construction of major multi-modal

highway projects such as US 36 Managed Lanes/Bus Rapid Transit project. Further, it appears that much of the HPTE's success to date is tied to both its ability to effectively with state and local officials and the mandate it was given by the Colorado legislature through Senate Bill 108 and other PPP legislative initiatives. By early-2013, another measurement of HPTE's PPP success should occur with the selection and signing of the concession agreement. However, the ultimate measure is still to come with the completion of the project in 2015 and the subsequent start of operations (including toll collection) and maintenance by the selected concessionaire.

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