Massachusetts Department of Transportation (MassDOT) The High Level P3 Project Suitability Assessment Report September 11, 2013
Contents Proposed Project Description Project Background and Status Commonwealth Considerations Transportation Need and Benefit Statement Assessment Criteria Potential Delivery Structures Key Findings Summary Considerations and Challenges Potential Next Steps Appendix: Market Precedents 1
Proposed Project Description The (SCR) will extend commuter rail service from the City of Boston to the South Coast of Massachusetts, including the cities of New Bedford and Fall River The service will run for 50 to 53 miles along an existing freight rail corridor running south from Taunton to Fall River and New Bedford The estimated cost of the project is $1.8 billion Key project elements include: Upgrades and improvements to track infrastructure Construction/reconstruction/widening of 45 bridges Construction/reconstruction of 46 at-grade crossings Ten new passenger stations Two overnight terminal layover facilities Rolling stock acquisition of six or seven train sets. Each train set may include one locomotive, five to eight coaches and one cab. The Draft Environmental Impact Report/Statement (DEIR/S) identified six alternatives for project delivery The preferred alternative selected from the DEIR/S provides new commuter rail service to South Station through Stoughton (Alternative 4) 2
Project Background and Status This report is part of the high-level screening process used to assess the suitability of delivering a project under a Public-Private Partnership: Project Background Project Name: Sponsoring Agency: Preliminary Schedule (SCR) Massachusetts Department of Transportation MEPA DEIR/S issued February 2011 MEPA DEIR/S approved June 2011 MEPA FEIR/S issuance Fall 2013 (anticipated) High level & detailed level P3 assessment Fall 2013 (anticipated) Provisional project permits (wetlands mitigation) Spring 2014 (anticipated) Record of Decision Spring 2014 (anticipated) Procurements for project conservator and final design Fall 2013 (anticipated) Construction period Estimated 4 5 years (anticipated) 3
Commonwealth s Considerations Project-specific considerations: To more fully meet the existing and future demand for public transportation between Fall River / New Bedford and Boston, MA and to enhance regional mobility To encourage economic development and job-creation by providing significantly improved transportation access to a historically underserved region with affordable housing and a growing population To promote smart and sustainable growth by encouraging residents to reduce their automobile-usage, particularly through transit-oriented development around new station locations To enhance tourism and preserve environmental resources for the culturally and historically rich South Coast area Indicative drivers for P3 delivery: Leverage revenue that could help offset project costs Use transit oriented development to provide additional funding Accelerate project delivery and construction schedule Transfer or share risk related to design/construction, financing, operations, maintenance, revenue and ridership Create economies of scale and introduce savings through whole life costing 4
Transportation Need and Benefit Statement Transportation Need and Benefit Statement To meet existing and future demand for public transportation between Fall River, New Bedford and Boston while encouraging economic development, job creation and tourism. Description of surrounding area: The South Coast region comprises 31 cities and towns with a combined population of approximately 740,000 By 2030 the regional population is predicted to grow to more than 900,000, making the South Coast one of the fastest growing regions of the State despite the recently declining populations in the cities of Fall River and New Bedford The current transportation system connecting Southeastern Massachusetts with Boston is primarily a highway system with few public transportation alternatives The South Coast communities of Fall River, New Bedford and Taunton are the only cities within 50 miles of Boston not served by commuter rail The selected preferred alternative SCR route follows existing freight lines from New Bedford and Fall River to Taunton and involves traversing through the Hockomock Swamp, wetlands and various sites of cultural value to Native American Tribes What is the existing transportation need? Population in the South Coast region of the State is projected to grow faster than any other region in Massachusetts There have been increased traffic volumes due to the lack of public transportation alternatives leading to traffic congestion and adverse effects on air quality, climate change and transportation safety Projected regional growth and the incentive of lower cost of living outside of Boston and the greater-boston region will exacerbate congestion How will the project address the existing transportation need? Restore commuter rail to the New Bedford/Fall River region, which was serviced prior to the 1950s Provide easier access between the metropolitan areas in and around Boston and the underserved populations in Fall River and New Bedford, in addition to other cities, spurring more regional connectivity and growth Ease traffic congestion along the highways and adjacent commuter rail lines Create opportunities for economic development and revitalization throughout the region 5
Assessment Criteria Addresses Commonwealth s Considerations Satisfies Public Transportation Need Addresses Priorities Identified in State, Regional and / or Local Transportation Plan High-Level Screening Criteria Commonwealth Considerations The project is addressing considerations such as: Enhance regional mobility and access to public transportation, jobs and affordable housing for residents between Boston and the underserved regions of Fall River and New Bedford Encourage smart growth, sustainable investment, economic development, job creation, land preservation and tourism Provides connectivity to a traditionally underserved region, reduction in regional congestion, safety improvements and economic development in the South Coast region Preliminary discussions between MassDOT and local municipalities and stakeholders indicate support for the project; however certain opponents believe that ridership projections are too low to justify the level of investment required. The project is not yet included in the state/local/regional transportation plan; however it does address the priorities identified in such plans. In June 2009 the South Coast Rail Economic Development and Land Use Corridor Plan (Plan) was developed to coordinate and encourage smart growth, sustainable investment, economic development, land protection and improved transportation access in municipalities along the SCR corridor In fall 2010 Governor Patrick issued Executive Order 525 calling for the implementation of the Plan through state agency actions and investments 6
Assessment Criteria (Continued) Opportunity for Private Sector Innovation Ability to Transfer Risk Accelerated Project Development High-Level Screening Criteria - Opportunity for Acceleration, Innovation and Efficiencies Opportunities for innovation may include: Cost efficiencies in greenfield construction, O&M, and whole-life costing Innovative rolling stock propulsion choice, procurement and financing strategies for fleet Marketing and sponsorship initiatives to generate additional revenues and ridership Station selection and trip schedule development Access to alternative financing sources Two limitations on potential innovation are the interface with other MBTA commuter rail lines in the system and environmental limitations imposed by Hockomock Swamp Risk transfer may include: revenue and ridership, design, construction, financing, operations and maintenance, and lifecycle risk. Some challenges to risk transfer may include: SCR not currently included within the scope of new 8 to 12-year contract for commuter rail operations and maintenance, which may impact the structure of a P3 transaction If maintenance risk were to transfer to the private sector, separate facilities or arrangement to use existing MBTA facilities may be required Revenue and ridership forecasts undertaken by MassDOT indicate that demand exists but does not achieve the levels associated with MBTA s busier lines MBTA s fare policy and market appetite will need to be considered with regards to transferring revenue/ridership risk P3 delivery could accelerate project development through the coordination of design and construction elements by a single entity and private sector incentives for completion Leveraging future receipts could provide additional funds for development 7
Assessment Criteria (Continued) Ability to Raise Capital Potential to Generate Revenue and Funding Requirement Market Precedent High-Level Screening Criteria Funding/Financing Similar projects have been financed in the market using public funds (milestone payments and availability payments). In limited cases transit projects were financed with revenue risk transfer. Financing will require reliable funding, which has not yet been identified. The size of recent transactions indicates that a project however the ability to fund the project is subject to market conditions and risk allocation According to MassDOT, the project received a $20 million TIGER grant to undertake improvements to three related railroad bridges; there is currently no state funding committed to the remainder of the $1.8 billion project The project could generate fare revenue to support at least a portion of the capital investment needed on this project. MassDOT has already completed a revenue ridership study, which projected moderate demand through 2035 Other sources of revenue may be explored, such as state and local contributions, freight user contributions, value capture, benefit assessment districts, and advertising, etc. Market precedent for P3 rail (commuter, LRT, tramway, HSR) projects includes: DBFOM/AP: Denver Fastracks Eagle P3 project (Colorado), HSL Zuid (Netherlands), Canada Line (British Columbia) DBFM/AP : Ottawa LRT (Quebec), Le Mans Rennes HSR (France), Nimes Montpellier HSR (France) DBFOM/Revenue risk: Gautrain Rapid Rail Link, UK rail franchises, Nottingham Express Transit LRT (UK), 8
Assessment Criteria (Continued) Consistent with Federal Requirements Readiness Can Be Structured as a P3 High-Level Screening Criteria - Readiness NEPA clearance is required The preferred route will cross through the Hockomock Swamp and will require permitting approval from the Army Corps of Engineers Yes No TBD The MEPA and NEPA processes for SCR are being run concurrently Based on MassDOT estimates, the FEIR/S will be issued in the Fall of 2013 MassDOT anticipates that the Record of Decision will not be issued until the provisional project permits for wetlands mitigation are obtained The SCR project is dependent upon completion of the South Station Expansion Project to accommodate the expected increase in daily capacity MassDOT estimates that they are already in possession of the required Right of Way Market precedent indicates that the project may be structured as a P3 Different payment mechanism can be used for the funding of the project, including availability payments, milestone payments, completion payments and transfer of limited ridership risk. Although some revenue risk deals have taken place in the past, market appetite will have to be tested. 9
Potential Delivery Structures Potential Delivery Model Option 1: DBFOM - Availability Payment Features Risk transfer: A developer will be responsible for the delivery of the project under a fixed price date certain design build contract and will be responsible for O&M, including rolling stock, and life-cycle costs during the term of the contract (approximately 35 years). Ridership and revenue risk, fare policy and fare collection are retained by the Commonwealth. Payment mechanism: Commonwealth collects the fare revenue and makes an annual payment to developer based on performance and availability. All or a portion of the availability payment may be fixed and/or indexed for inflation. The Commonwealth may fund payments though state or federal funds and fare revenue. Under an amended case, a portion of the payment to the developer may be linked to milestones during construction, construction completion or even ridership. Private investment: Typically, under this delivery model, projects are funded with a combination of debt and equity at a ratio between 85/15% to 90/10%. Option 2: DBFM Availability payment Similar to the previous option, but daily operation (conductors, engineers, etc.) of the line is retained by MBTA or transferred to MBTA s existing private sector commuter rail operator *Please note that these are illustrative examples. Other options or variations on these themes may exist. 10
Key Findings Summary High Level P3 Suitability Assessment Addresses Considerations: Yes. This project meets the needs of the existing and future demand for public transportation between Fall River, New Bedford and Boston while encouraging smart growth, economic development, job creation, sustainable development, and tourism. Opportunity for Acceleration, Innovation and Efficiencies Funding/Financing: Yes. This project has the potential for acceleration, innovation and efficiencies by transferring construction, operations and maintenance and long term capital maintenance to the private sector. Coordination will be required if the private sector partner were to be different from the MBTA then existing commuter rail system operator. TBD. Funding for the project is still under evaluation as it is not clear how much public funding will be available. Funding contributions could be made by the state, local governments and municipalities along the route, federal funding programs, advertising, naming rights and from other financial techniques such as value capture etc. Readiness: TBD. The project has an approved DEIR/S and is projected to issue the FEIR/S in the Fall of 2013. However, the project is contingent on the completion of the South Station Expansion project. In addition MassDOT must receive permits and approval from the Army Corps of Engineers due to the nature of the proposed project. Can the project be structure as a P3? Move to the next phase for further analysis? Yes [TBD by the Commission] 11
Key Considerations and Challenges Relatively low projected levels of ridership Market appetite for revenue and/or ridership risk Up-front public funding might be required to reduce financing costs Maintaining political and community support for a large investment of MassDOT resources Funding sources not yet identified for 99% of project cost (all costs except for $20 million in improvements to three related railroad bridges) Potential for use of federal funding programs, including New Starts and Congestion Mitigation Air Quality Grants Environmental concerns surrounding preserving the wildlife in the Hockomock Swamp; technical challenges associated with construction of trestles Expansion of South Station in Boston needed to accommodate South Coast Rail trains Determination of fare box policy in relation to the broader commuter rail system System integration and interfacing with the new MBTA O&M contractor Procurement of rolling stock Use of transit oriented developments to generate more revenue Assurance that proper studies for sensitive tribal sites have been conducted in the construction area 12
Potential Next Steps Update revenue and ridership study Refine estimates of capital, operating and maintenance costs Perform high-level financial feasibility analysis Assess different delivery models and payment mechanisms Analyze affordability and impact to MassDOT finances Identify and assess potential federal, state, and local funding and financing sources Continue outreach efforts to the surrounding cities, political members, as well as the Tribal communities to maintain support for the project Facilitate market sounding inquiries and market development Consider project-specific objectives and priorities 13
List of References Specific information in this report came from the following sources: South Coast Rail Economic Development and Land Use Corridor Plan, http://southcoastrail.com/downloads/1%20- %20Corridor%20Plan%20Executive%20Summary.pdf, June 2009 Interview with Charles Planck, Senior Director Strategic Initiatives and Performance on August 6, 2013 14
Denver FasTracks Eagle P3 Project Characteristic Project Type Sector Description Public sponsor Advisor Private sector partner Status Term Project size Delivery model Payment mechanism Project Detail Greenfield Transportation Light Rail The project entails construction of two commuter rail lines and an associated maintenance facility, provision of rolling stock, operations of commuter rail service, and maintenance of track and equipment The project will include 36 miles of new commuter rail, 37 major bridge structures, 14 new stations plus Denver Union Station hub & Maintenance Facility, 50 cars in married pair configuration, and 29 atgrade crossings shared with Class 1 Railroads Denver Regional Transportation District JP Morgan/Goldman Sachs John Laing-led Denver Transit Partners (Operator is Denver Transit Operators, comprising ACI, BBRI and Fluor) Financial Close August 2010; under construction 35 years $2.1 billion DBFOM Combined fixed and indexed availability payments Availability payment during Phase 1 construction - $38m Payment reductions are based on failure to achieve availability of rolling stock, performance and timeliness of trains, and station cleanliness RTD may terminate agreement if performance deductions exceed 3% of monthly payments in 6 out of 8 consecutive months RTD Sales Tax Revenue 6% Other Federal Grants 3% TIFIA 14% Funding Details: $2.1 billion $1.03 billion FTA New Starts Grant $396 million PABs Proceeds $280 million TIFIA Loan $128 million RTD Sales Tax Revenue $57 million Revenue Bond Proceeds $57 million Other Federal Grants $54 million Equity $40 million Public Grants Revenue Bond Proceeds 3% PABs 19% Public Grants 2% Equity 3% FTA New Starts Grant 50% 15
Denver FasTracks Eagle P3 Project Procurement Schedule Denver FasTracks Eagle P3 Project Map August 2008 October 2008 November 2008 October 2009 May 2010 June 2010 August 2010 RFQ Issued SOQ Due Date Shortlisted Proponents RFP Issued Final Proposals Received RTD Board Selected P3 Team Phase I Notice to Proceed Issued Note: The RFP was originally due to be released in June of 2009, but was delayed to October of 2009 to allow more time to resolve issues raised by shortlisted teams during the one-on-one sessions. Source: rtd-fastracks.com P3 suitability Major U.S. rail P3 set precedent for future projects A persistent political/policy champion is key to success Greenfield rail may be well-suited for a P3 approach Lessons Learned Funding / Financing Well structured AP deals may achieve attractive ratings (e.g. BBB versus BBBratings for most non-recourse new toll facilities) High leverage (90/10) available in AP structures can result in very attractive Weighted Average Capital Costs Other Initial P3 project should maintain a clearly identified timeline to build credibility and maximize private sector interest 16