aging infrastructure -...
TRANSCRIPT
Aging InfrastructurePresented At:State and Local Government Law Institute
May 9, 2008 Presented By:
Mark HallemanInfrastructure Management Group, Inc.
Bethesda, Maryland
Laura Swisher, Esq.Washington Suburban Sanitary Commission
Laurel, Maryland
May 9, 2008Page 2
AgingInfrastructure
What Is Infrastructure?
• Essential facilities and servicesthat support the economicproductivity of a community
– Utilities, hospitals, governmentservices
• Assets involved in the movementof goods, people, water, andenergy
– Toll roads, shipping, pipelines
• Includes assets that are privatelyowned or operated
May 9, 2008Page 3
AgingInfrastructure
Classes of Infrastructure
Utilities Transport Other
Water systems Roads Parking Hospitals
Wastewater Systems Bridges Storage facilities Schools
Solid waste Rail Cell towers Housing
Electrical Systems Transit Parks Judicial
Gas Distribution Airports Recreation Correctional
Economic Social
May 9, 2008Page 4
AgingInfrastructure
Global Overview
May 9, 2008Page 5
AgingInfrastructure
Global Urbanization
Source: United Nations, 2006
The world’s urban population is projected to grow at twice the annual paceof the total population.
May 9, 2008Page 6
AgingInfrastructure
Anticipated Growth in InfrastructureDuring the next 25 years, modernizing and expanding urban infrastructurewill require approximately $41 Trillion
Projected cumulative infrastructure investment needed during the next 25 years to modernize obsolescent systems and meetexpanding demand, broken down by region and sector.
Source: Strategy + Business magazine (Spring 2007) by Booz Allen Hamilton, Inc.
May 9, 2008Page 7
AgingInfrastructure
US Infrastructure
May 9, 2008Page 8
AgingInfrastructure
US Infrastructure Report Card
Overall Grade = D
D-
D
D
D-
D+
C
D+
Wastewater
Transit
Solid Waste
Schools
Roads
Rail
Public Parks andRecreation
D-NavigableWaterways
D+Hazardous Waste
C+Energy
DDrinking Water
DDams
C-Bridges
C-Aviation
ASCE Grading scale: A=Exceptional; B=Good; C=Mediocre; D=Poor; F=FailingSource: 2005 American Society of Civil Engineers (ASCE) Report, who gave U.S. infrastructure a “poor” rating based on the condition and performance ofassets, capacity versus need, and funding versus need.
May 9, 2008Page 9
AgingInfrastructure
Source: ASCE 2005 Report Card
Total Investment Needs = $1.6 Trillion over 5 years
$s, B
illio
ns
Note: Not all asset classes graphically represented
Over $2,700 / US taxpayer per year
Annual US Infrastructure Funding Need
May 9, 2008Page 10
AgingInfrastructure
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Population
Total
Registered
Motor
Vehicles
Vehicle Miles
of Travel
Lane Miles of
Road
Impacts of Urbanization on Transportation
In 2006, traffic congestion inthe US caused:
• 4.2B hours in travel delay
• 2.9B gallons of wasted fuel
• $78B estimated cost tosociety
Reasons for Current Road Traffic CongestionPercent Increase 1982-2000
Source: The Road Information Program (TRIP) analysis of U.S.Census Bureau, Federal Highway Administration FHWA Data, 2000.
Source: Texas Transportation Institute (TTI)Urban Mobility Report, September 2007
May 9, 2008Page 11
AgingInfrastructure
US DOT estimates investment needs of:
• $131.7B per year for 20 years to meet increased demand
• $78.8B per year for maintenance of existing structures only
Millions Vehicle miles/year
65 million vehicles
250 million vehicles
400 million vehicles(estimated)
Transportation: Highways and Bridges
May 9, 2008Page 12
AgingInfrastructure
Water and Wastewater Systems
• Over the next 20 years:– $232B - $402B needed for investment in drinking water systems
(CBO)
– $331B - $450B needed to replace and build new wastewaterinfrastructure (EPA)
• In 2005, Congress cut funding for wastewater management forthe first time in 8 years.– Bush administration has reduced funding 33%, to $730M, for FY06.
• Increased regulatory pressure
May 9, 2008Page 13
AgingInfrastructure
• Public water and wastewater rates typically set/approved by political entity• The EPA is promoting “Full Cost Pricing”, which surprisingly does not exist
today
The Cost of Water in the US
May 9, 2008Page 14
AgingInfrastructure
Liability Issues
May 9, 2008Page 15
AgingInfrastructure
• Basic tort law– Negligence
• Inspection• Construction• Maintenance
– Nuisance– Trespass
• Limited liability under State orLocal Government Tort Claims Act– $200K per person– $500K per incident
Source: ASCE
Liability Exposure
May 9, 2008Page 16
AgingInfrastructure
Possible §1983 Claims
• Equal protection– Claim based on failure to repair in certain area based on race,
income level
• Substantive due process– No affirmative duty to protect, but if state conduct contributes to
danger, duty may be triggered• Harm must be forseeable• Conduct must “shock conscience” but if time to deliberate,
deliberate indifference may be sufficient
• Immunity defenses may be available
Civil Rights Act (§42 USC1983) provides remedy for deprivationof rights or abuse of power by State and Local Officials:
May 9, 2008Page 17
AgingInfrastructure
• Increased main breaks– Negligence, trespass, nuisance, Loss
of use?• Risk of Catastrophic Failure
– Initial explosive force between 20 to200 tons dynamite
– Large amounts of pressurized waterreleased with initial velocity of up to90 mph
• Health Concerns– Lead in DC water– Cryptosporidium in Milwaukee and
Hamilton
Water Systems
May 9, 2008Page 18
AgingInfrastructure
Water Main Break
May 9, 2008Page 19
AgingInfrastructure
• Increased backups– Health hazards– Fines for CSOs/SSOs– Negligence, trespass, nuisance
• Transporting hazardous substances through or along sewerto other property– Economic damages under negligence
• Duty to keep pipes in repair• Forseeable that failure to do so might result in contamination
– Cost of cleanup under CERCLA
Westfarm v. WSSC, 66 F.3d 669 (1995)
Wastewater Systems
May 9, 2008Page 20
AgingInfrastructure
State Infrastructure
May 9, 2008Page 21
AgingInfrastructure
Commute Lost Time and Fuel, $M/Yr
Source: ASCE 2005 Infrastructure Report Card
May 9, 2008Page 22
AgingInfrastructure
Percent of Bridges Deficient
Source: ASCE 2005 Infrastructure Report Card
May 9, 2008Page 23
AgingInfrastructure
Water Infrastructure Need Over Next 20 Years
Source: ASCE 2005 Infrastructure Report Card
May 9, 2008Page 24
AgingInfrastructure
Source: ASCE 2005 Infrastructure Report Card
Wastewater Infrastructure Need Over Next 20 Years
May 9, 2008Page 25
AgingInfrastructure
Possible Solutions or Closing the Gap
May 9, 2008Page 26
AgingInfrastructure
Infrastructure Funding Options
Traditional Option #1Raise taxes
Traditional Option #2Issue tax-exempt bonds
New Option
Public-Private-Partnerships
• More tax-payer burden immediately• Political sensitivity/resistance
• Allows conservative amount of debt to fund projects• Can potentially put pressure on state/municipal leverage and ratings
• Pay as you go• More capital for given project (debt or equity) - proceeds can be used for public policy goals• Operating risk shifted to the private sector
May 9, 2008Page 27
AgingInfrastructure
Sources UsesNOTE: Includes non-budgeted federal assistance.
MDOT-I01/07
MDOT OperatingExpenditures
Federal aid
Motor FuelTax
VehicleTitling Tax
Registrationsand MVA Fees
CorporateIncome Tax
OperatingRevenues
Bonds 21%
21%5%
MDOT Capital Expenditures
DebtService
Local Govt’s &General Fund
40%
4%
18%
16%
11%
39%17%
6%Other 2%
FY 2007 – FY 2012 Sources and Uses of Funds(in Millions of Federal and State $$)
Maryland’s Transportation Trust Fund
May 9, 2008Page 28
AgingInfrastructure
Performance Based Infrastructure (PBIs)
California –$500B needed over next 20 years• Governor Schwarzenegger - 2008 Plan to expand use of PBIs to allow
state to build, operate and maintain its infrastructure ‘better, faster andcheaper’
• Requesting legislation to:
– Expand types of projects, services and entities that can enter intoPBI arrangements
– Increase contracting flexibility
– Establish “PBI California”, a center for excellence to assist inimplementation of these projects throughout the state
May 9, 2008Page 29
AgingInfrastructure
Public Private Partnerships (P3s)
Key Components:
• Long term lease or managementagreement
• Government retains legal title tounderlying assets
• Certain functions outsourced toprivate companies that can providefunding and management
• Provide essential services
• Long-term relationship and long-termasset
Examples:
Dulles Greenway
Pocohantas Parkway
Pennsylvania Turnpike
Chicago Skyway
Indiana Toll Road
London Water System
Rome Airport
May 9, 2008Page 30
AgingInfrastructure
Recent Toll Road P3 Transactions
91 Express Lanes (1991)Riverside, CALength:10 miles, expansionConcession: $130 million inconstruction
South Bay Expressway (2005)San Diego, CALength: 9 miles, greenfieldConcession: A portion of the $650million project cost
State Highway 121 (2007)North of Dallas, TXLength: 23 miles, greenfieldConcession: $5.68B, $620mm inconstruction, $2.93B revenue sharing
Trans Texas Corridor (2005)Oklahoma to MexicoLength: 316 miles, greenfieldConcession: $1.2B, est. $6Bconstruction
State Highway 130, Seg. 5&6 (2006)Greater Austin, TXLength: 40 miles, greenfieldConcession: $25 million, $1.3B inconstruction, revenue sharing
Dulles Greenway (2005)Loudon County, VALength: 14 miles, existingConcession: $533 million
407 ETR (1999)Toronto, Ontario, CanadaLength: 60 miles, existingConcession: $3.1B
Chicago Skyway (2005)Chicago, ILLength: 8 miles, existingConcession: $1.8B
Indiana Toll Road (2005)Northern INLength: 157 mi. existingConcession:$3.9 B
Northwest Parkway (2007)Denver, COLength: 9 miles, existingConcession: $603 million
Pocahontas Parkway (2006)Richmond, VALength: 9 miles, existingConcession: $611 million
Capital Beltway (2007)Northern VALength: 14 miles, new HOT lanesConcession: $1.3 billion construction
Concession Fees Paid 17,373,000,000$
12,310,000,000$
Private Investment Summary
Construction Cost
May 9, 2008Page 31
AgingInfrastructure
P3 Deal Analysis -Capital Beltway
• 14 mile high-occupancy toll lanes addedto I-495 beltway in VA
• Funded with a blend of federal, state andprivate funds
• Fluor guarantees max. price onconstruction contract, building over 50bridges and adding 14 new lane miles in5 years, without shutting down road formore than 30 minutes/day
• Transurban/Fluor guarantees free-flow of45 miles and takes dividend repaymentrisk
Example: I - 495 Beltway
May 9, 2008Page 32
AgingInfrastructure
P3 Deal Analysis- Chicago Skyway
City of Chicago’s Skyway:• 7.8 mile toll road built in 1959• City held ‘auction’ in 2004• Private equity paid $1.83B
– 99 year operating lease– Responsible for O&M costs,
but retain all revenues– 25% increase in tolls, but
future increases subject toagreed formula
May 9, 2008Page 33
AgingInfrastructure
P3 Deal Analysis- Chicago Parking
• City of Chicago concession agreement for 4 parking garagesbeneath Grant and Millennium Parks
• Private equity bid $563M for a 99 year concession
• Concession payment equates to $61K per space for each of the9,178 spaces
$122M Chicago park improvements
$120Mplaced in reserve to generate income to replace~$5M per yr fees from parking
$278M pay off debt on garages$35M rebuild garages$8M banking and legal fees
Use of Proceeds of Transaction
May 9, 2008Page 34
AgingInfrastructure
Seven Recommendations :
1. Retain public control over big-picture planning and managementdecisions
2. Ensure fair market value return by valuing future income streams3. Keep deals under 30 years, as future conditions uncertain and risk of
bad deal grows exponentially4. Establish ‘state of the art’ maintenance and safety standards, not
minimum standards5. Demand complete transparency to ensure proper process6. Require legislative approval of final deal, not just approval to negotiate
deal7. Insist on long-term budgetary sense -resist lure of short term cash influx
Source: 2007 CALPIRG Education Fund Report – Road Privatization: Explaining the Trend, Assessing the Facts, Protecting the Public
P3s- Protecting the Public Interest
May 9, 2008Page 35
AgingInfrastructure
• American Society of Civil Engineers– www.asce.org– Infrastructure Report Card
• US DOT – National Strategy to Reduce Congestion– www.fightgridlocknow.gov– Includes sample legislation authorizing P3s
• US EPA – Sustainable Infrastructure for Water and Wastewater– www.epa.gov/waterinfrastructure/index.html– Advocates Full Cost Pricing
• National Council for Public Private Partnerships– www.ncppp.org– Articles, papers and other resources promoting P3s
Additional Information?
May 9, 2008Page 36
AgingInfrastructure
Questions and Answers
Mark HallemanInfrastructure Management Group, [email protected]
Laura Swisher, Esq.Washington Suburban Sanitary [email protected]