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RV 2015: How to Start: Project Funding Lessons and Strategies by Henry Kay

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Where do you go for millions -- or billions -- of dollars? Securing federal and local funding for big transit projects can be overwhelming. Where do you even begin? Hear from leading strategists in three regions that found their pot of gold: Los Angeles, Salt Lake City and Washington's Maryland suburbs have billions of dollars of new rail projects, and their regions are reaping the benefits. Specially geared to regions who are just beginning to think about project funding, hear strategies for leveraging changes in agency governance, raising local revenue and maximizing its immediate impact, attracting federal investments, and using private investment to reduce upfront costs and achieve value over time.

Moderator: Sean Libberton, Principal, WSP | Parsons Brinckerhoff, Inc., Washington, DC
Henry Kay, Director, Transportation Planning, RK&K, Baltimore, Maryland
Hal Johnson, AICP, Manager of Project Development, Utah Transit Authority, Salt Lake City, Utah
Mark Linsenmayer, AICP, Director, Countywide Planning & Development, Metro, Los Angeles, California

Published in: Economy & Finance
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RV 2015: How to Start: Project Funding Lessons and Strategies by Henry Kay

  1. 1. PROJECT FINANCING THROUGH A PUBLIC-PRIVATE PARTNERSHIP Rail~Volution 2015 Dallas
  2. 2. •16 mile LRT line •21 stations •74,000 daily riders
  3. 3. Dilemma: How to Cover the State Share? StateFederal County Total capital cost $2.4 billion
  4. 4. An Old Standby and A New Opportunity Maryland Transportation Trust Fund  Supports Maryland’s entire transportation program – transit, highways, airports, ports  Replenished by Transportation Infrastructure Investment Act of 2013 • Generates $4 billion in additional funding over six years • Indexed key revenue sources to inflation, including gas tax and transit fares Maryland Public-Private Partnership legislation  Created a stronger, more predictable, streamlined process for future P3 projects
  5. 5. Transit P3 Basics Precedent from Europe, Asia, Australia, Canada  U.S. projects based primarily on Canadian experience Combines the design, construction, financing, operations and maintenance into one umbrella (“DBFOM”) contract Shares risk between owner and a concessionaire Allows concessionaire to manage costs and innovate to mitigate risk and earn return on investment 5 year construction + 30 year O&M period Based on performance standards not detailed specifications Payments are tied to construction cost, financing, capital renewal and operating performance Handback standards protect long-term public interest Concessionaire selected through competitive process with “best value” selection criteria
  6. 6. P3 Capital Funding Sources Private Funding (e.g., TIFIA Loan, Private Activity Bonds, Bank Loan) ~1/3rd Public Funding (e.g., FTA New Starts, State Funds, Local Funds) ~2/3rds Concessionaire Equity Concessionaire Borrowed Funds Construction Progress Payments Planning/ Preliminary Engineering /Right of Way
  7. 7. Typical Scope of a Transit P3 Concessionaire responsible for:  Final Design  Construction of Purple Line and some 3rd party improvements  Financing the project (in part using public funding contributions) Owner responsible for:  Acquiring right of way  Public outreach  Owner quality assurance Concessionaire responsible for:  Operations, maintenance, and capital renewal/replacement  Asset handback requirements at end of P3 term Owner responsible for:  Fare policy, specification of minimum amount of service  Ridership and fare revenue risk  Electricity costs  Police protection O&M and Capital RenewalDesign and Construction < 30 Years >< Approx. 5 Years >
  8. 8. How Does the Concessionaire Get Paid? Progress Payments paid monthly for up to 85% of earned construction value, subject to annual caps Revenue Service Availability payment of $100M-$500M made upon achieving RSA Availability Payments O&M and Capital RenewalDesign and Construction < 30 Years >< Approx. 5 Years >
  9. 9. Schedule of Payments to Concessionaire Financial Close Construction Phase Revenue Service Availability Progress Payment Concession Ends Operating Phase Progress Payment Availability Payment Availability Payment . . .. . .
  10. 10. Availability Payments APs are performance payments in the O&M term AP amount is tied to the concessionaire’s performance  Owner makes deductions if the concessionaire doesn’t meet performance standards APs cover  O&M  Capital renewal & replacement  Repayment of private debt Operations & Maintenance Capital Renewal & Replacement Repayment of Private Debt & Return to Equity
  11. 11. Conceptual Cash Flow: DB vs P3 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 NetAnnualCashFlow Year DB P3 Construction peak year Planning, design, procure- ment Intermittent capital renewal and replacement O&M phase; increased service level O&M phase; initial service level
  12. 12. Preliminary analyses; industry outreach Value for Money analysis Internal project delivery workshops Request for Information to the P3 market Industry Forum P3 screening process and analysis Pre-Solicitation Report to MD Stakeholders P3 solicitation approach approved by Board of Public Works Request for Qualifications Process to Determine P3 Potential
  13. 13. Why a P3 on Purple Line? Operational factors  Increase likelihood of consistently excellent, highly responsive service; natural stand-alone asset Risk transfer efficiencies  Integrate various elements into a single agreement that clearly outlines optimal allocation of project risk between the public and private partners Whole life-cycle planning and cost optimization  Provide greater incentive to make investment decisions that are optimized over life of asset Schedule discipline  Create strong incentives for concessionaire to maintain schedule discipline during project delivery and startup Enhanced opportunities for innovation  Offer the private sector with opportunities and incentives to propose enhancements to the design and delivery approach that could benefit long- term O&M performance Potential financial value  Due to operational benefits, risk transfer efficiencies, life-cycle planning, scheduling discipline, and innovation opportunities of the P3 approach, there is potential for long-term financial value relative to a traditional project delivery approach
  14. 14. FTA Integration Federal share will be New Starts funds MTA will use federal funds for progress payments  Approach keeps administration of the FTA simpler and assures earned value meets or exceeds federal investment  Since FTA may be spread over 8-10 years, MTA will front fund the federal share FTA funding is important component of financial plan, but…  P3s require financial close (closing the deal and executing loans) on a timely basis, and  FTA process not designed for P3s MTA approach is to work with FTA to begin key New Starts reviews early, before bids are submitted
  15. 15. TIFIA Integration TIFIA loan will generate significant savings  Estimated savings is >$30M per year over life of concession First transit P3 w/ a private TIFIA loan TIFIA has independent approval process To simplify process for TIFIA and create level field for bidders, MTA negotiated draft Term Sheet with TIFIA Each proposer has option to bid to the term sheet
  16. 16. Pulling It All Together FinancialClose Commercial Close Preferred ProposerID’d ProposalsDue FinalRFPIssued DraftRFPIssued ShortlistIssued RFQIssued Presolicitation Report IndustryForum RFIIssued P3 Solicitation Process TIFIA Process LetterofInterest CreditReview Initiated Indicative Rating Prelim.Term SheettoBidders CreditCouncil Q&ASession w/Bidders LoanExecuted BorrowerInfo Submitted BeginFinancial Assessment FFGA Congress.Review Confirm/Finalize Reports BeginRisk Assessment NEPAROD FFGARec’in AnnualReport FEIS Published FTA NEPA and New Starts Processes OMBReview FinalizeFFGA&OSTReview
  17. 17. Contact Henry Kay Director, Transportation Planning RK&K | hkay@rkk.com Jeff Ensor Director, Project Delivery & Finance Maryland Transit Administration | jensor@mta.maryland.gov

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