DALLAS — Dallas Area Rapid Transit is looking for solutions for a recently uncovered $1 billion funding gap in its light-rail development program. Among the ideas being floated are more borrowing, diversion of funds from other projects, and possibly a public-private partnership of some kind.
“We would have to take a different approach than other private-public partnerships such as toll roads, as transit is subsidized whereas toll roads generate their own revenue,” said Gary Thomas, DART’s president and executive director.
The agency now projects costs to expand its light-rail service west to Dallas-Fort Worth International Airport and east to suburban Rowlett will be roughly double what was first expected. Following a planned update last month of the projects at the 10% completion mark, DART announced the extensions of its Orange Line through the northern parts of Irving to the nation’s third-busiest airport and the Blue Line to Rowlett northeast of Dallas will cost about $1.9 billion. Previous projections had costs pegged at around $988 million, but recent spikes in prices of concrete, cooper, and steel have resulted in the increase.
A cost estimator that has worked with DART said it’s hard to pinpoint exactly what costs of materials have risen to the point where the project will now cost twice as much.
“One example could be that some crossings at grade now need to be elevated crossings,” he said. “But the reality is it’s not only material costs, it’s labor, fuel, insurance — everything has been on the upward swing.”
Ken Simonson, chief economist for the Associated General Contractors of America, recently said for 2008 he projects construction material costs to rise between 6% and 8% with labor costs up 5% to 6%.
Last week, Thomas presented the DART board with five options to bridge the funding shortfall that he believes can be used singularly or in combination with each other.
One option would be the P3, possibly involving a design-build arrangement. The others include using more of $2.9 billion of voter-approved debt for the projects, hedging rates on future bond sales to save a few basis points, increasing equity partnerships, or possibly forming a public facilities corporation to sell additional debt. DART also may ask the Texas Legislature to change the agency’s enabling legislation so officials can issue debt to finance projects without first gaining voter approval.
The transit authority has the ability to issue up to $2.9 billion of sales tax revenue bonds, and expects to do so over the next 10 years to complete projects that will double the track mileage of the light-rail system to more than 90 miles. The light rail accounts for about two-thirds of the agency’s 20-year, $5.3 billion capital program.
DART has sold about $900 million of voter-authorized debt already and anticipates selling more this spring. At Sept. 30, 2006, the agency had $1.3 billion of debt outstanding. The long-term debt is secured by revenue from a 1% sales tax in the 13 member cities of DART. About $385 million is expected in collected revenue for fiscal 2007 while this year’s revenue is estimated at $403 million.
While Thomas said he’s excited about a possible P3 it may be tough to get something in place in time to open the extensions to the Orange and Blue lines as scheduled for December 2011.
“We’ve had numerous conversations about P3s … gained a better understanding of the process and we may be better off using other forms of financing for the completions of these lines,” he said. “One of the big advantages of a P3 is that you don’t start availability payments until the project is complete and the availability payments may vary. Over a longer period of time after giving more time to fully vet the process, it may be something we use for other projects included in our 2030 plan.”
Thomas has said the 20-year financial plan includes a somewhat conservative 4% increase in annual construction costs. While that’s served DART well historically, officials now plan “to go back to the drawing board … to trim up to $900 million” in costs.
Last week, the Dallas City Council sent DART board members a letter encouraging them to seek alternatives that will not postpone or otherwise reallocate funding from the downtown and Oak Cliff light-rail expansion projects.
One possibility DART is looking at includes diverting about $350 million intended for those projects to the extension for the Orange and Blue lines.
“While we do not propose a solution at the expense of our partner cities,” the City Council said. “Neither can we support a solution to the detriment of the city of Dallas and our future.”
The council’s transportation committee met with DART officials yesterday afternoon to further discussion of the projects and the escalating costs.
The Orange Line eventually will provide millions of Texans with rail access to the airport and was initially expected to be completed by 2013. There are currently no options for exiting DFW airport that don’t involve a car or bus.
The opening of the first phase of the 14-mile line — a roughly five-mile stretch from just north of Dallas’ Love Field west to the Las Colinas area of Irving — was pushed back a year to 2012 due to the funding shortfall. But DART still expects to complete the second and final phase on time.
DART’s call for a possible P3 to fund the gap comes as transportation officials in Washington debate the merits of such arrangements to fund various projects. A report that’s expected to be released today by a federally mandated commission will call for an increase in the gas tax as a possible solution to funding needs of the country’s surface transportation system.
Transportation Secretary Nancy Peters, who is also chair of the National Surface Transportation Policy and Revenue Study Commission, doesn’t agree with the findings of the report and advocates the use of public-private partnerships and tolling.
“You really need some sort of dedicated and very secure government pledge to do a P3 with a transit project,” said Art Guzzetti, vice president of policy for the American Public Transit Association.
“Too often it seems a transit operator identifies a funding gap and considers a P3 to bridge that, but I think that’s the wrong way of doing it,” he said. “You can certainly look at the private sector as a partner in the development, but maybe not in the P3 sense that’s been becoming more popular the past few years. A private sector firm may able to bring some project-management expertise or the like to a specific project, but without that dedicated pledge it’s tough to make a reality.”
While P3s may still be a ways off for transit-oriented projects, they’re taking a larger role in other infrastructure development.
Last week, a consortium led by Goldman Sachs & Co. and foreign toll road operators formed a nonprofit coalition to stump for more public-private partnerships in transportation infrastructure needs.
America Moving Forward, as the group is called, “believes in investing in safe, practical solutions to our nation’s infrastructure crisis.”
