Public-Private Partnership Policy Casebook/Ohio River Bridges

=Summary=

Purpose
The general goals of the Ohio River Bridges project are to increase mobility and safety while decreasing traffic congestion in a critical transportation corridor. The project is meant to encourage regional commerce and travel, and stimulate economic development for Indiana and Kentucky residents, and ease passage for out-of-state travelers. A 2014 Economic Impact study projected that in the Louisville region along this project would provide $15,556 jobs a year and $86.7 billion in economic output. In order to accomplish this, the bi-state Louisville and Southern Indiana Bridges Authority opened the Ohio River Bridges Project for bidding in 2012.

Background
Designated by Congress as one of 13 infrastructure projects of national importance, and at a projected 2012 cost of $2.6 billion, the Ohio River Bridges project is “one of the country’s largest transportation undertakings in the country” and the largest for Indiana and Kentucky. In 2015, the revised cost of the project was brought down to $2.3 billion and is scheduled for completion at the end of 2016. Broadly, this project is comprised of building two new bridges, rehabilitating existing 100+ bridges, boring a new tunnel, and re-configuring several approaches and highways including I-64, I-65, I-71, I-265 and SR-265. Due to the sheer scope of the undertaking and the bi-state authority of the project, the Ohio River Bridges is split into two concurrent projects scheduled to be completed.

Map of Location
This project is currently under construction on the Ohio River border between Indiana and Kentucky. When finished, the Downtown Crossing will connect downtown Louisville, KY and Clark County, IN (#2). Kennedy Interchange (aka Spaghetti Junction) is the downtown intersection of Louisville (#1), and #3) is the Indiana approach.The East End Crossing connects I-265 in Utica, IN (#6) and Prospect, KY approach (#4) and is 8 miles up-river from downtown Louisville (#5).

Each Project
The first project is called the Downtown Crossing, a Design-Build project costing $1.27 billion. It’s tasks are revamping of the existing Kennedy bridge for southbound I-65 access, building of the new bridge (Downtown Crossing) for northbound 1-65 access. Each bridge will have 6 lanes of traffic and a biking/pedestrian lane. Downtown Crossing bridge is cable-stayed with three sets of twin towers. Construction began in July 2013 and is scheduled for completion on the new bridge in January 2016, and on the Kennedy Bridge in December 2016.

The second project is the East End Crossing, a P3 project set to cost $1.1 billion. This new bridge is a twin tower cable-stayed bridge spanning 2,510 feet with 4 lanes (extendable to 6) of bidirectional traffic and a biking/pedestrian lane. It will connect Gene Snyder Freeway (I-265) with Lee Hamilton Highway (SR-265). Phase two is an 1,800 ft twin bore tunnel as the Kentucky-side approach to the bridge, and general upgrades to existing infrastructure of the approaches on both sides. In return, WVB is an availability payment project and has a lease of 35 years on the bridge and approaches. East End is set to open fully by October 31, 2016.

=Annotated List of Actors=

Overall Project

 * Federal Highway Administration- national agency responsible for approving plans, obtaining financing, and oversight of national infrastructure
 * Kentucky and Indiana Planning and Development Agency, Indiana Department of Transportation, Kentucky Transportation Cabinet - agencies responsible for the Major Investment Study of the Ohio River Bridges in 2003
 * Louisville and Southern Indiana Bridges Authority- an independent, bi-state government agency which coordinates the project under the mission “Two Bridges, One Project. Two States, One Team." They are responsible for financing, constructing, and overseeing both Ohio River Bridges.

East End Crossing
Indiana is in charge
 * Indiana Finance Authority- created in 2005 through the merger of 5 state agencies to issue and finance state infrastructure projects. They selected the winning bid for this project
 * WVB East End Partners- a consortium (SPV) of Walsh Investors, Vinci Concessions, and Bilfinger Project Investments which is the P3 lead for the Design, Build, Finance, Operate, and Maintain
 * Jacobs Engineering- lead design sub-contractor for bridge, tunnel, and highways
 * Milestone Contractors LP- tunnel construction sub-contractor
 * RW Armstrong- design sub-contractor under Jacobs
 * HDR, Inc
 * Greenman-Pedersen, Inc.
 * FIGG Bridge Inspection, Inc.
 * S&ME, Inc.

Downtown Crossing
Kentucky is in charge
 * Kentucky Transportation Cabinet- executive branch agency responsible for selecting the winning bid, and financing, designing, and constructing this project
 * Kentucky Public Transportation Infrastructure Authority- project borrower and sponsor with the FHWA, sold bonds to finance this project
 * Walsh Construction Company- company selected to complete the design and building of this project
 * Jacobs Engineering- lead design contractor
 * Guthrie/Mayes Public Relations- PR firm responsible for public involvement and image
 * Buckland & Taylor Ltd- structural design sub-contractor
 * Milestone Contractors LP- construction sub-contractor

=Narrative of the Case=

Across the Ohio River between Indiana (Clarksville and Jeffersonville counties) and Kentucky (Jefferson County), which is the Louisville Metropolitan area, there are five bridge crossings. Two crossings are freight rail bridges and three bridges provide access for vehicular traffic, including the Sherman Minton Bridge, George Rogers Clark Bridge and John F. Kennedy Bridge. The Kentuckiana Regional Planning and Development Agency (KIPDA), in its review of the area’s population and employment, found that the current bridges will be over capacity by 2025 and no longer adequately serve the region.

But improving mobility across the river is not a new concept for the region. Since the late 1960s, long-range transportation planning for the Louisville Metropolitan Area (LMA) has incorporated ideas for improving Ohio River crossing mobility. However, it wasn’t until 1991, when both the KTC and INDOT sponsored the Metropolitan Louisville Ohio River Bridge Study, that there was an actual investigation into the need for a new river crossing. In fact, this study looked into additional river crossings in four key corridors in the metropolitan area: the Western, Central, Near Eastern and Far Eastern. This study ruled out the Western corridor based on lack of traffic need but urged further study into the other corridors.

As a result, KIPDA, the region’s federally mandated Metropolitan Planning Organization (MPO) and charged with overseeing transportation planning for the Louisville/Jefferson County KY-IN urbanized area, launched the Ohio River Major Investment Study (ORMIS) in 1995. In 1996 the ORMIS recommended, among a number of transportation solutions, a “two-bridge solution,” constructing of a new Downtown Crossing and a new East End Crossing (the Far Eastern corridor from the 1991 study). KIPDA Transportation Policy Committee endorsed the recommendation for the new river crossings. (Final EIS) and based on the committee’s recommendation both INDOT and the KYTC decided to pursue this project.

In 1998, INDOT and KYTC, working with FHWA, launched its Environmental Impact Study and in the draft EIS, which was published in 2001, they analyzed nine specific bridge locations. Five years later, in 2003, the Final EIS identified the project’s preferred alternative and confirming the selection of a “two-bridge solution” with one crossing downtown and the other in the Far Eastern corridor. In the Final EIS, the estimated of cost construction was $1.936 billion in 2003 dollars ($1.3b from KY, $623m from IN) with total project costs at $2.5billion over a 2004-2020 design and construction period, assuming a 4% inflation rate.

Once the Ohio River Bridge Crossings project's purpose and need were established and the environmental review completed, the Commonwealth of Kentucky and the state of Indiana, over the next five years, began exploring the financing for the project’s construction.

In 2008, FHWA approved the Initial Financial Plan submitted by KTC and INDOT, a plan which did not include a public-private partnership (P3). Two years later, both tolling and Public-Private Partnerships were on the table when the Louisville and Southern Indiana Bridges Authority was given permission to explore option to help fund the project. And in 2012, the financial plan for bridge project was finalized; the Downtown Crossing would be design-build contracting while the East End Crossing would be a P3.

=Timeline of Events= Downtown Crossing
 * Jan 30, 2012 Notice of Intent for Downtown Crossing by KYTC
 * March 1, 2012 Pre-bid Meeting for DC
 * April 2, 2012 RFQ submission due
 * April 23, 2012 three finalists selected
 * November 15, 2012 Walsh Construction Co selected
 * July 2013 Construction begins
 * January 2016 Downtown Crossing bridge open for traffic
 * December 10, 2016 projected completion date of entire project

East End Crossing
 * Jan 2012, feasibility study conducted for P3 model (PSC, VFM)
 * March 2, 2012 Pre-bid Meeting
 * March 12, 2012 RFQ submission due
 * April 23, 2012 four finalists selected
 * November 16, 2012 WVB East End Partners selected
 * July 2013 Construction begins
 * October 31, 2016 projected completion date

=Project Costs/Financing=

Downtown Crossing
Total cost: $1,452 million (YOE, including financing and interest)

- GARVEE bonds - $335 million

- Project revenue (anticipated tolls) bonds - $272 million

- TIFIA loan (secured entirely by toll revenue) - $452 million

- Bond Anticipation Notes (premium) - $41 million

- Federal aid funds - $276 million

- State road funds - $76 million

East End Crossing
Total cost: $1,318.8 million (YOE, including financing costs)

Indiana

- State and federal funding (milestone payments) - $392 million (includes $162 million TIFIA loan)

- Other state and federal funding - $201.7 million

- Milestone Private Activity Bonds (Series A) - $488.9 million

- Long-term Private Activity Bonds (Series B) - $18.9 million

Kentucky

- State and federal funding - $94.2 million

- Equity contribution - $78.1 million

- Relief Events Reserve Account - $45 million

>>>Costs/financing details gathered from FHWA Project Profiles

=Policy Issues=

Bi-State Authority and Development Agreement
One of the lynchpins to delivering a sound financial plan for the Ohio River Bridges Crossing was the need for a political body to negotiate and shepherd a financial agreement between Kentucky and Indiana. As a result, Kentucky adopted legislation (HB3 in 2009) while Indiana’s governor, Mitch Daniels, signed an executive order to initiate the Louisville and Southern Indiana Bridges Authority.

The Bi-State Authority was formed in February 2010 as an independent agency but its members were politically appointees (seven members appointed by Indiana’s governor, three member by Kentucky’s governor, and the remaining four appointed by Louisville’s mayor). The Authority’s four strategic objectives included: become an effective, long-term project sponsor; execute a fair, sound, and doable financial plan; manage risk to realize long-term project benefits; and deliver on all the expected project benefits.

The Authority was instrumental in securing the much-needed Memorandum of Understanding between Kentucky and Indiana, signed on March 5, 2012. This agreement included the project’s term sheet, which outlines the roles and responsibilities for financing and building the new bridges. While the term sheet outlined the procurement strategies, tolling policy, roles of advisers, etc., there was a more significant provision titled “Delayed Completion.” This provision outlined a scenario for any delay or inaction on procurement, making Kentucky responsible for Indiana’s delay or inaction and vice-versa.

Once the state’s signed off on the term sheet, the Authority negotiated and approved the Bi-State Development Agreement, a more detailed pact governing the construction, financing and long-term management. This agreement resulted in the formation of the Bi-State Management Team, which was composed of representatives from each state’s departments of transportation and finance agencies, the FHWA, consultants and community partners. In addition, a Joint Board was formed to provide long-term oversight, management responsibility and served as an appeal board.

While bi-state agreements/agencies/authorities are not unique (Washington-Oregon have set up an interstate transportation committee; Missouri-Illinois have a development agency; New York-New Jersey have the Port Authority of NY/NJ, and the Washington Metropolitan region has WMATA), this authority’s significance lies in its political influence and ability to act. Within two years of its formation, the authority not only secured an agreement that eluded the states for more than 40 years, but it helped quicken the pace of the project’s completion, ensuring that the project opens ahead of schedule and under budget.

Design-Build vs. P3
This case study represents a unique opportunity to observe different delivery methods of large-scale transportation projects and their results. Though not empirically identical, there are several critical commonalities which allow for comparison between the East End Public-Private Partnership and Downtown Crossing Design-Build models. Despite differences in project scope and direct agency oversight, these projects share similar political, legal, and ecological environments, guiding missions, homogeneous customer bases, and even the same lead contractor. Due to these shared characteristics, the Ohio River Bridges project brings us perhaps the best recent DB vs. P3 comparison available.

Table A (Total Project Costs in Year of Expenditure Dollars - In Millions)

Of great importance in this test is the question of "who did the job better?" In the case of Ohio River Bridges, however, there is no clear answer. In terms of budgeting, both projects have come under their proposed IFPs, and those IFPS in turn were well below the projected project costs by the Louisville and Southern Indiana Bridges Authority. Nevertheless, as evidenced by the above Table A, East End decrease their costs by $218.50 million, or 23%, and Downtown Crossing by $41.8 million since the 2013 IFP. Conclusively, it could be argued that the P3 was the more cost-effective option, or perhaps simply the worst budget projector. However, because both companies consistently over-estimated overall budgets and project-specific line expenses, the former conclusion that the P3 was more cost-effective has traction.

Similarly, both delivery methods are scheduled to open to the public ahead of schedule. Compared to the original bid, the Downtown Crossing project planned to finish construction more than 1.5 years early. The East End undertaking is scheduled to conclude over 8 months before the previously accepted end date. While the Downtown Crossing is the financially larger project with a more impressive revised end date, the deadlines are relative to scope so it is difficult to conclusively say if the DB or P3 is more efficient. Furthermore, if the original time estimates were simply off, and more-so in the case of Downtown Crossing, then we cannot decisively determine the outcome.

To further complicate this assessment, it is difficult to conclude which delivery method is preferable in terms of quality because we only have a current snapshot of the construction. Over time, it will be possible to analyze the quality of the completed work based on how well the infrastructure lasts relative to its use. P3s are often thought to have the incentive to invest in quality work and maintain their projects for the long term since they may lease the asset and be responsible for maintaining a high level of performance. As the East End project is financed through an availability payment structure, they are contractually obligated to perform to the government’s satisfaction. Conversely, DB model proponents emphasize that the public interest is the highest priority in government projects and not profit. This could play out to Design-Build’s advantage in terms of life-cycle quality.

Regardless, there is no way to definitively state that one delivery method in the Ohio River Bridges case is more economically efficient or faster with the current available data. Both the East End P3 and the Downtown Crossing D-B have unique advantages and are successful projects for Indiana and Kentucky, the respective proponents of each method.

Tolling
Tolling, as indicated previously, was not among the initial concepts used to finance the project. But since the formation of the Bi-State Authority in 2010, the pursuit of tolling as a funding option was included in the mix of options. In 2012, Kentucky and Indiana submitted a proposal to FHWA requesting permission for tolling. FHWA subsequently accepted the proposal, which included all-electronic tolling (no toll plaza which would require booths with personnel and/or coin buckets and delays) for both bridges.

The Kentucky-Indiana Tolling Body, created by the Bi-State Authority, was given oversight of the tolling rates (see table B) and tasked with establishing tolling policy, including the distribution of tolling revenue (each state is supposed to received 50 percent. The Tolling Body also chose the E-Z Pass Group to operate the electronic tolling (Indiana already used E-Z Pass while Kentucky had to join).

Table B

In terms of tolling policy, according to the bi-state agreement, the states equally divided the toll revenue. For the Downtown Crossing, Kentucky secured the TIFIA loan with revenue from the tolls. In Indiana, the IFA, which collected the toll revenue for the project, also was responsible for making the availability payment (AP) and included this payment as part of its biennial budget submission to INDOT, resulting in IFA receiving a portion of INDOT’s biennial budget. If a shortfall in tolling revenue occurred, IFA would use the biennial appropriation from INDOT to supplement the revenue shortfalls to cover the AP. Any excess revenue from tolls (exceeding the availability payment) were to be returned to INDOT.

Of all the discussion surrounding the Ohio River Bridge Crossing project’s construction and financing, none was more controversial than the subject of tolling. The states seemed to be aware of the effect tolling would have on low-income and minority populations. As a result, they committed to invest in enhanced bus service, providing the Transit Authority of River City (TARC) with $20 million to buy more buses and vans, create more park-and-ride lots and bus shelters, and increase awareness of transit options for commuters.

Tolling of the Ohio River Bridge Crossings faced significant opposition in the region. Louisville's Metro Council, the city council of Louisville, adopted a no-tolling resolution and in Indiana six government entities passed resolutions opposing the tolling of the bridges. Two advocacy groups, No 2 Bridge Tolls (Indiana-based) and Say No to Bridge Tolls (Louisville-based), were formed for the sole purpose of opposing all tolls associated with the bridge project. But both groups moderated their initial opposition to the toll, saying that they opposed tolling on existing facilities.

Environmental Issues: Obstacles or Opportunities?
Large transportation projects are inherently complex, and chief among the challenges they face are environmental concerns arising from building new and improving existing infrastructure in vulnerable ecosystems. Numerous inspections and permits for every aspect of the project from many different local, state, and federal environmental protection agencies, are a necessity to move projects forward, which can cost the company significant time and resources. Environmental issues also have the power to stop projects in their tracks when competing political interests become entangled in construction. In this particular case, Walsh Construction and company overcame several obstacles including a history of extreme flooding, several costly engineering alternatives, and a multi-party approval process to successfully complete the Indiana approach to the Downtown River Crossing and Kennedy bridges.

The ecological issue in question is the Cane Run watershed, which naturally discharges into the Ohio River near the Indiana approach to both bridges, but is very prone to flooding. In 2011, heavy rains caused road closures for days, and the Great Flood of 1937 decimated the entire town of Clarksville, hindering development in the area for years after. Environmentally, an additional complication is that the watershed is also a sewer watershed, which without proper drainage area and run-off paths made flooding an even more hazardous concern.There are several lessons to be learned from this ultimately positive experience. Though this history made the Cane Run watershed a predictable problem, that did not stop it from causing trouble for Walsh Construction Company. Perhaps more environmental analysis in the pre-construction phase could have minimized this issue through better preparation.

Eventually, the solution was a partial relocation of the watershed that was a significant improvement from the natural drainage system used by the local government in the past. Walsh used innovative “hydrodynamic wave routing” to alter the drainage area of the watershed, an investment which the government had been seemingly unable to make. This by-passed several other extremely expensive and time-intensive alternatives, such as changing the building location or a full relocation of the drainage area. Nevertheless, money was spent researching and forecasting these options and implementing the solution. Though an obstacle for the bridge construction, this environmental situation provided a great opportunity for Indiana residents for less flooding and a safe means of transportation.

Secondly, in order to alleviate this situation, the Design-Build partners spent a considerable amount of time with environmental engineers, and local officials to find the most suitable ecological, economic, and political solution possible. The involvement of so many parties from the contractor, sub-contractors, experts, grassroots activists, and the multiple layers of government officials, complicated the resolution process. Negotiating through many layers of regulations and politically-acceptable propositions for the watershed nearly derailed the timeline of the entire Downtown Crossing project. Furthermore, balancing the various interests of local officials to come to a consensus is a tough task in itself. However, Walsh Construction was able to do so and their project obtained pre-approval from parties and a positive public perception to boot.

In the end, Walsh resolved this environmental obstacle and made it an opportunity for Indiana. Not only did the project stay on schedule, but due to the cost-savings of using innovative technology, the construction costs actually decreased from the original Cane Run watershed budget. A politically-pleasing solution was reached and permits secured due to the newly minimized environmental impact zone.

=Conclusion=

The Commonwealth of Kentucky and the state of Indiana clearly have high expectations for the success of the Ohio River Bridge Crossing project. First, the project has taken more than 40 years to become viable. But its viability is tied to the creation of a new bi-state authority with the political muscle to expedite a historic agreement between the two states and coordinate a complex project funding arrangement, including Design-Build for the Downtown Crossing and a P3 for the East End Crossing, as well as a controversial tolling provision for each.

To help fund the project, Kentucky and Indiana will rely on revenue from toll collection. Indiana, however, is the position of making availability payments to its private sector partner, WVB East End Partners, financed in part by the toll revenue. That begs the questions, are the traffic and revenue studies accurate and can the bridges generate enough toll revenue to justify the $2.8 billion construction costs of the project.

In addition to addressing the problems of aging infrastructure and severe traffic congestion, this project is expected to provide economic benefits to the tune of 15,556 jobs a year and $86.7 billion in economic output. With the bridges set to open in the fall/winter 2016 (ahead of the original schedule and under budget) it remains to be determined whether the project can truly live up to its high expectation.

=Discussion Questions=


 * 1) Do major infrastructure projects that cross state boundaries always need governmental authority to ensure success? Why or why not? And was the Bi-State Authority key to the Ohio River Bridge Crossing’s success?
 * 2) With both projects projected to be completed ahead of schedule and under budget, can we say that the Ohio River Bridge Crossing project was a success? Why or why not?
 * 3) Will tolling ever be acceptable to the public and under what circumstances?
 * 4) Did you find that the Cane Run Watershed issue represents a norm or an oddity for mitigating environmental risks in a construction project?
 * 5) Do you believe that large transportation construction projects are a preferred tool the government should use to spur job creation and economic growth? Why or why not?

=Additional Readings=

The Ohio River Bridges (4 December 2014). “Financial Plan 2014 Annual Update). Executive Summary & Chapters 1-3. Retrieved from http://kyinbridges.com/wp-content/uploads/Financial-Plan-Update-Sept-2014.pdf

Louisville - Southern Indiana Ohio Rivers Bridges Project – Environmental Impact Statement (2003) Chapter 1 & 2. Retrieve from ftp://content.kyinbridges.com/Environmental-Impact-Statement/

FHWA Project Profiles: Downtown Crossing - Retrieve from http://www.fhwa.dot.gov/ipd/project_profiles/ky_downtowncrossing.aspx & East End Crossing - Retrieve from http://www.fhwa.dot.gov/ipd/project_profiles/ky_eastendcrossing.aspx

=References=