Rail Transit Projects Bolstered by Public-Private Partnerships

Posted on May 1, 2001 by Benjamin D. Redd Jr., senior vice president at Washington Infrastructure Programs

Rail transit projects are booming throughout the United States as the country comes to grips with the need to revitalize its transportation systems to support economic growth, relieve highway congestion and improve air quality. Increased federal funding and the potential for streamlined federal procedures will help make transportation projects possible, along with state, regional and local funding. As needs outstrip such traditional sources of public funding, however, public-private partnerships are becoming the hottest trend in transportation system development. Public-private partnerships between state, regional and local government organizations and private enterprises vary in detail from one to another, but all are designed to streamline development of large, complex projects, cut costs and shorten implementation schedules. Public-private partnerships provide innovative financing techniques, including private-sector financing and in-kind investment. Typically, public-private partnership projects seek concurrent regulatory and environmental approvals to save development time and money. Often, they also incorporate advanced technology into new transportation systems. Shared risk is another feature of public-private partnerships. When project risk is allocated to the partner best able to control and manage it, the project and all parties benefit. The local transit agency bears the burden of revenue and ridership projections, political delays, environmental permitting delays, property availability and performance specifications. The private partner carries responsibility for cost and schedule, design integration, construction coordination, system performance and community outreach. The traditional rail transit project, when led by a regional transportation authority using standard permitting and financing procedures, can easily take 10 to 15 years or more to develop and build, especially when funding is constrained. A public-private partnership can reduce development and execution time dramatically, especially when project delivery is executed on a design-build or a design-build-operate-maintain basis. Federal aid is still critical The U.S. Department of Transportation (DOT) provides major funding through the Transportation Equity Act for the 21st Century (TEA 21) as well as innovative financing through the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA). Funding takes the form of grants, or in the case of TIFIA, direct loans, lines of credit and loan guarantees to public and private sponsors of eligible surface transportation projects—rail, light rail, buses, ferries, highways and bridges. TIFIA provides commercial loans or loan guarantees at below-market interest rates and with favorable repayment terms. One rail project that applied for TIFIA direct loan support is the Reno Transportation Rail Access Corridor (ReTRAC), a below-grade, 2.25-mile corridor for rail freight. The project is intended to improve safety and reduce noise, pollution and traffic congestion. It is sponsored by the city of Reno with cooperation from Union Pacific. The $242 million project is scheduled for completion by the end of 2005. Additional tax-free funding can come from State Infrastructure Banks, a program underwritten by the federal government, and from the Federal Transit Administration (FTA) “new start” program. State, regional and local authorities provide additional resources via bonds and loans. In the private sector, funding sources include investment bankers, commercial paper and direct funding or in-kind investment by partnership members. In fact, overlapping and complementary funding resources at the federal, state and local levels and in the commercial lending marketplace are so numerous and complex that it takes financing experts to develop the best approach for each public-private partnership project. Model in New Jersey The Union County Light Rail Project in New Jersey brings government and private industry together to promote faster design and construction than might be possible by state or regional government alone. The 5.8-mile light rail line will provide an intermodal connection between the city of Elizabeth and Newark International Airport. Also known as the Elizabeth Segment of the Newark-Elizabeth Rail Link (NERL), this $300 million project is one of a handful of transportation project partnerships awarded through the New Jersey Public-Private Partnership Act. The Newark-Elizabeth Rail Link is authorized under the provisions of the Intermodal Surface Transportation Efficiency Act (ISTEA) and its successor, TEA 21. It is part of the urban core designated projects outlined in the legislation. In addition, the Union County project applied for a TIFIA loan. The public-private partnership developing the Union County Light Rail System involves Union County, the state of New Jersey and Washington Group International. Vital political support for the project has also come from The Port Authority of New York and New Jersey, the operator of Newark Airport. “The Union County rapid transit line will be among the first true public-private partnerships in this country, since it will involve federal funding, regional government support and private investment,” says Michael Della Rocca, executive vice president of Washington Infrastructure Programs and chairman and CEO of Washington Infrastructure Services Inc. Linking the economic dynamics of Newark Airport with major local redevelopment projects will have a positive impact on the economy of the entire region, in addition to the obvious environmental and mobility benefits of a transit project. The partnership estimates a two-year development phase and a three-year design-build engineering and construction phase for the Union County line. Already underway, environmental impact statement (EIS) permitting activities are expected to culminate in a record of decision by September. Virginia’s partnerships State legislation enabling public-private partnerships is critical for project development. In Virginia, Governor Jim Gilmore recently announced that the state’s Public Private Transportation Act Advisory Panel approved a plan for a private extension of the Metro Rail system from West Falls Church to the Dulles Airport area. In March, Virginia’s Department of Rail and Public Transportation (VDRPT) started negotiating with a partnership of construction and private development companies chosen to participate in the project for the development of a financial strategy and preliminary engineering to support the project. The partnership, Dulles Transit Partners LLC, is a joint venture of Washington Group International, Bechtel Infrastructure and the WEST*GROUP. “Bringing rail to the Dulles corridor is one of my top priority transportation projects. It will relieve congestion on the Dulles Toll Road and provide easy access to the airport and Tysons [Corner] areas from inside the Beltway,” Gilmore says. The Washington Metro completed a major investment study of the 24-mile Dulles corridor and concluded that a rail extension from its orange line in Falls Church to Dulles Airport and into rapidly growing Loudon County was feasible and desired. A supplemental study determined that bus rapid transit was feasible for the corridor with a phased conversion to Metrorail. The next major study to be completed will be the EIS for the Dulles Corridor project. The EIS is being prepared by the FTA, the VDRPT and the Washington Metro. A decision is expected by summer of 2002. Promoting growth Transit and rail projects across the United States promote local and regional economic growth. METRO's November/December 2000 issue described the development of 15 million square feet of commercial space and 10,000 new residential units under construction in Jersey City, N.J., all resulting from the first 9.5-mile segment of New Jersey Transit’s (NJT) Hudson-Bergen Light Rail Transit line. The design-build-operate-maintain project by a Washington Group-led consortium will eventually stretch to a total of 20.5 miles. The Hudson-Bergen line gives commuters crossing the Hudson River to Manhattan easy access to several options, including the New York Waterways ferries and the subways operated by the Port Authority Trans Hudson system. The Hudson-Bergen system helped alleviate bus and automobile congestion in Hudson County and will substantially improve access to Bergen County. NJT expects 80,000 riders per day once the line is completed. A rail transit project can promote growth simply by solving transportation problems. A federally supported project in Cincinnati several years ago eliminated rail congestion and improved air quality by adding a third track to relieve congestion where four railroads tried to cross the Ohio River using two tracks. Trains were backed up for as much as 60 miles and delays were frequent. According to testimony by Mortimer Downey, former deputy secretary of the U.S. DOT, before a House of Representatives subcommittee in 1996, the innovative project used $5.1 million of Congestion and Air Quality funds to leverage $9.9 million in private rail funds. Tips for success Organizational muddle and unresolved conflicts—perceived or real—can cripple a public-private transit project very quickly. “Clearly defined roles and strong communications are critical,” says Della Rocca. “From the start, the team must set common goals and learn to function as a team that will succeed or fail together.” Responsibilities, Della Rocca says, must be allocated to the partner best able to accomplish them. Similarly, risks must be allocated to the partner best able to manage them. All parties need to think and operate in somewhat nontraditional roles. Here are some tips for public-private partnership success: • Schedule regular partnering meetings that all partners and major contractors must attend. • Share information freely among partners. Expect open communication. • Clearly define roles, responsibilities and interfaces between the partners and the contractors. Make every effort to streamline the interfaces. • Take advantage of the partnership model to overcome business-as-usual attitudes. Tips for project success include: • Establish an effective community relations program at the start of the project. • Define the project carefully. Perform value engineering as part of the bid process. • Resist subsequent changes to the defined scope, procedures, specifications and equipment. • If using a design-build contractor, allow the contractor to change the preliminary design while still meeting performance specifications to simplify construction methods, reduce schedule or improve operations.

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