Missouri DOT Maintenance Plan Moves Ahead, 'Best Value' Bidder Chosen

CHICAGO — The Missouri Department of Transportation’s innovative plan to issue tax-exempt private activity bonds to finance the repair and maintenance of 802 bridges under a federal pilot program advanced last week with the selection of a contractor, although officials cautioned that a final deal is still being negotiated. At a special meeting last week, the state’s Highways and Transportation Commission selected the Missouri Bridge Partners over Team United as the “best-value” bidder. The two were the sole competitors for the contract under the design-build-finance-maintain model being used in the state’s Safe & Sound Bridge Improvement Program. The selection is not a done deal, however, as the commission voted to engage in negotiations with the company to resolve the final terms of the contract involving finances, risk and responsibilities. “We are not there yet, we have some affordability issues to work out, but we are optimistic,” said Jay Moore, special projects coordinator in the transportation department. Officials said they hoped to resolve the differences by mid-January. Details of the company’s bid and potential terms of the contract remain confidential until a final pact is reached. If negotiations are successful, bonds could be issued early next year with work beginning in the spring. If not, the department could be forced to look at other methods for financing the program. Officials, however, hope to stick with their current model and have federal approval for an allocation of $700 million of tax-exempt private activity bonds to help cover the initial costs of upgrading and rebuilding the bridges. The bonds would be issued under a federal pilot program established in 2005 that allows private companies to benefit from the issuance of up to $15 billion of tax-exempt, private-activity debt to finance the construction of transportation projects and rail-to-truck freight facilities. The bonds are not subject to private-activity state volume caps. The model has several benefits for the state. In addition to getting the work done faster, the state will save money on the projects because the private contract includes design, construction, and maintenance for all 802 bridges. The program calls for 802 bridges, with at least one in every county, to be replaced or repaired within the next five years. The company would then maintain the bridges for a 25-year period. A federal report issued in 2006 found nearly 20% of the state’s 24,000 bridges to be structurally deficient. The major participants in Missouri Bridge Partners include Zachry American Infrastructure, Parsons Transportation Group, Fred Weber Inc., Clarkson Construction, HNTB, and Infrastructure Corporation of America, according to a department statement. Transportation officials had hoped to award the contract earlier this year, but the decision faced several delays. First, one of the two teams raised concerns, interpreting state law as requiring it to secure a performance bond for the total cost and length of the project. The proposed contract is unique in that it extends 25 years beyond the five-year construction phase to include maintenance. With two bidders required to participate in order for a contract to be awarded, state lawmakers this past August approved legislation clarifying the language so that both firms could vie for the contract. Officials then had hoped to decide between the two in November, but delayed the decision because of the large volume of documents submitted. Under the proposal, the Missouri Development Finance Board would issue the bonds on behalf of the chosen contractor, and those funds along with a roughly 10% equity contribution from the contractor would finance the repairs and reconstruction. The bonds would be repaid with so-called availability payments the state would make to the company over the life of the contract. Those availability payments would be pledged to bond repayment, Moore said. The funds would come from the state’s share of federal bridge funds. The U.S. Department of Transportation said recently it expects to allocate about $12 billion of the $15 billion of tax-exempt private-activity bonds it will dole out to road and freight-transfer facility projects. The program was established by the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users, in 2005. SAFETEA-LU changed the tax law by adding surface transportation and freight-transfer projects to the list of exempt facilities that may be financed with PABs. To date, the DOT has allocated a total of $1.6 billion of private-activity bonds to two projects, the Missouri program and $900 million for the $1.2 billion Port of Miami Tunnel project, which involves boring underwater tunnels to create a bypass for cruise ship-bound buses and freight traffic. Missouri’s initial application was for $600 million, but it sought an additional $100 million. As of last month, another six projects had applied for a total of $4 billion of PABs. Two of the six projects — the Capital Beltway high occupancy toll lanes project in Virginia, and the Knik Arm River Crossing in Alaska — were expected to be approved by the end of the year. Three Illinois freight transfer projects have applied for an allocation totaling $1.1 billion. There are another 10 projects or so that are expected to seek between $6 billion and $7 billion of PABs, although officials have not named them. Authorization for the program expires with SAFETEA-LU at the end of fiscal 2009. In order to influence the debate ahead of the expiration of the law, the DOT intends to submit a reauthorization proposal to Congress next spring. One thing the proposal may recommend is removing the cap on the PAB program.