State OKs private financing for roadwork

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The Indiana Department of Transportation will press ahead with a request for proposals on Interstate 69 from Bloomington to Martinsville, in hopes that a public-private partnership will stretch limited state funds.

Language in the recently adopted state budget allows the Indiana Finance Authority to enter public-private partnerships for non-tolled freeway projects, which would include the final stages of I-69.

Brown Brown

INDOT wants to involve the finance authority because its public-private partnership on the Ohio River bridges project helped knock design and construction costs from an estimated $988 million to $763 million, and the completion date moved from June 2017 to October 2016.

“The state and private sector was interested in repeating the success of the Ohio River bridges procurement as much as possible,” INDOT spokesman Will Wingfield said. Indiana’s portion of the joint project with Kentucky is to build the East End Crossing, connecting Interstate 265 in Indiana and Louisville.

Interstate 69 would be Indiana’s first public-private partnership on a highway project that didn’t involve toll money. Seventeen firms, including East End Crossing contractor Walsh Construction, expressed an interest last year in designing, building and financing Section 5. The Indiana Finance Authority will likely issue a request for qualifications to narrow the field in the next month, Wingfield said.

The Major Moves fund, created from the $3.8 billion lease of the Indiana Toll Road, helped pay for the first four stages of I-69, but there’s no money for the final two legs, which would convert State Road 37 to a federal highway from Bloomington to Indianapolis.

INDOT estimates the 21-mile Section 5 will cost $394.1 million. There’s no detailed estimate for Section 6, but it could be more expensive given the cost of urban land.

Tolls are not an option, thanks to language Rep. Matt Pierce, D-Bloomington, had inserted on the state statute on public-private partnerships two years ago. So INDOT leaders hope the state and a private-sector partner can finance the work from existing revenue streams.

“I-69 needs to be completed at some point in time,” House Ways and Means Chairman Tim Brown said.

Republican leaders have already drawn criticism for continuing to pour money into I-69 when INDOT estimated its future funding shortfall at $250 million.

INDOT allocated more than a third of its federal highway funds, $281.3 million, this year for Section 4 from Crane to Bloomington, now under construction. That 27-mile section is estimated to cost $589 million.

“I’ve been saying all along, the amount of money being spent on I-69 is not proportionate to the benefits of the road,” Pierce said.

The term “public-private partnership” might conjure images of a huge payment generated from privatization of a public asset, a la the Indiana Toll Road.

That’s not what the state is contemplating for I-69. Even if tolls were an option, traffic counts probably aren’t high enough for a private firm to count on future revenue to cover its financing.

Pierce Pierce

That was the case with the East End Crossing. Although the bridge will carry a toll, the money will go into state coffers to help cover Indiana’s future obligations.

The state will make $392 million in milestone payments through construction, expected to be completed in October 2016, then $33.5 million a year for 35 years in “availability payments,” or money from existing state and federal revenue streams.

The total cost to Indiana, in current dollars, will be $1.5 billion. The savings stem from the fact that the Walsh team is responsible for designing, building, financing, operating and maintaining the project for a fixed sum, Wingfield said.

Availability-payment schemes are relatively new, and transportation-industry observers are looking at the Ohio River bridges project as a test case, because Kentucky will build its new toll bridge on Interstate 65 with $1.3 billion in traditional financing.

“Frankly, I don’t think it makes a lot of difference,” said Peter Samuel, editor of Toll Road News in Frederick, Md.

“The big thing is traffic and revenue risk,” he said. Under Indiana’s East End Crossing deal, he noted, Indiana has to pay the contractor “whether the project is viable or not.”

Samuel said he views availability-payment deals as design-build contracts, coupled with outsourcing of maintenance and operations.

But INDOT argues that its public-private partnership will save money in the long run. Kentucky’s financing doesn’t include the cost of operating and maintaining the bridge, also to be built by Walsh Construction, for 35 years, Wingfield said.

Under Indiana’s deal, there will be no payments for construction-cost overruns, and the contractor has to maintain the bridge to Indiana’s standards for 35 years.

“There are significant risks they assume,” he said.•

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