Bridging the Gap

User financing is one of the innovative ways local and state leaders are bridging the gap between dwindling federal funding and rising infrastructure costs.

When Spanish-controlled Cintra (Grupo Ferrovial) paid billions of dollars for a 99-year lease on Chicago’s Skyway, the city’s actions were simultaneously hailed as ingenious and treasonous. Are we selling out America to foreign countries simply to fund infrastructure?

For tolling and transportation, some states have invented creative financing alternatives. The North Carolina Turnpike Authority (NCTA) has several projects currently under consideration, which may be funded using a combination of tolls and TIFIA loans. However, even with this combination, North Carolina may possibly face a $200 million funding gap. One creative approach to fill it is through subordinate debt. “This is somewhat like a public-private partnership (P3), but NCTA would still run it,” explains David Burgess, PBS&J senior ITS analyst and consultant. “With subordinate debt, the loan becomes subordinate to all other debt incurred.” NCTA received numerous responses to its request for expressions of interest (RFEI) for subordinate loan funding options. Upon selecting a suitable option NCTA will issue a Request for Proposal (RFP) for the funding.

Florida is one of the fastest growing states in the nation and has faced many challenges in funding infrastructure projects. Rising construction costs, Right-of-Way (ROW) costs, and lack of contractor availability have been some of the greatest challenges. In Seminole County, voters approved a ten-year, penny-sales tax initiative to address capital improvement needs—mainly schools and transportation—not once, but twice.

When compared to other means of raising revenue, such as a gas tax, “[the sales tax] actually generates $60 million annually in revenue, compared to a gas tax, which would have generated approximately $1.2 million annually,” explains Pam Hastings, Seminole County public works administrator.

Proactive planning and smart spending in this second generation sales tax will save taxpayers money in the future. “The ability to expand, if necessary, is available without having to acquire more ROW,” said Gary Johnson, Seminole County public works director.

Florida’s Turnpike Enterprise (FTE) has earned a reputation as a leader in building transportation infrastructure. In 2002, Florida’s state legislature challenged FTE to prove that a government agency could manage public assets using best private-sector practices. Primarily financed through its toll and concession revenues, the Turnpike is proof that user financing for tolling/transportation infrastructure is a viable option. In 2007, the legislature passed House Bill (HB) 985, increasing the Turnpike’s bonding capacity to $10 billion and including a provision that allows annual toll rate indexing to the CPI (no less than once every five years).

Sustainable Water Infrastructure

Water is not a commodity; it is a basic necessity of life. A recent press release stated that studies “estimate the funding gap for this critical infrastructure at [$300 billion to] $500 billion over 20 years” (Water Industry 2007).

Although the government has been a major financial contributor in the past, that role is changing. Unlike transportation, the water industry may not be suited for private ownership. The questions then become: What is the future role of federal government, and how do we finance improvements to existing infrastructure and build new infrastructure?

Some communities are devising innovative financing to build new facilities or retrofit existing ones. The City of San Diego is one example. Using public-private financing for the expansion of its methane production facilities, the use of methane as an alternative energy source is a “green” project for two main reasons: it saves money and it saves the environment.

The City of Seattle implemented a Design-Build-Operate (DBO) approach to develop a water filtration plant. As John R. (Woody) Wodraska points out, “Communities are looking to consultants for answers to the question: how do we pay for this? Alternative delivery systems such as DBO and DBOT (Design-Build-Operate-Transfer) are a way for the public and private sectors involved in the project to reduce the contingencies.” The city ultimately negotiated a contract for a filtration plus ozonation facility at a cost of $101 million for a DBO approach versus $171 million using the conventional Design-Build-Bid process. Wodraska notes, “while there is no one-size-fits-all for financing, certificates of participation (COP) offer another possible financial alternative to sustainable water infrastructure.” COP is a pledge of future revenues to finance water infrastructure.

All of these projects demonstrate that there is no pat answer to the infrastructure funding gap. Bridging the gap will take not only creative financing options, but also innovative legislation and a shift in national political priorities.