The Port Authority of New York and New Jersey is pioneering a unique type of public-private partnership to replace the aging Goethals Bridge.
Under the proposed structure unveiled yesterday, a private firm would raise money to build a bridge using both borrowing and direct investments. The company would then lend that money to the bi-state agency, which would repay the money to the company with interest as the bridge is completed and maintained.
This approach differs significantly from the traditional public-private transportation partnership, in which a government body typically sells or leases a highway or bridge to a private company, which then gains the right to collect all or a portion of the tolls. Under this proposal, the Port Authority will retain the right to operate the bridge and collect its $8 toll.
The impetus for the structure arises from the Port Authority’s belief that its capacity to tap the bond market and maintain its bond ratings has shrunk. Standard & Poor’s and Fitch Ratings rate the agency’s bonds AA-minus, while Moody’s Investors Service rates them Aa2.
At the end of last year, the Port Authority had $12.28 billion in outstanding bonds.
Officials estimate the authority has the capacity for $24.5 billion in outstanding bonds while maintaining its ratings. Anything more than that could push its financial ratios out of sync with its ratings and potentially trigger a downgrade.
In 2007, the agency estimated it would cost $755 million to build a new Goethals Bridge, but that figure excluded such costs as engineering, administration, wetlands restoration, and utility relocations.
Last year, the authority spent $2.7 billion on capital projects. This year it plans to spend $3.1 billion, with the rebuilding at the World Trade Center site representing the most costly project.
The bridge’s proposed privatized structure is a way for the agency to finance a project with debt without increasing its outstanding bonds.
Repayment of the loan from the private company would be subordinate to the authority’s bonds. Because it would be repaid only after interest and principal on the bonds are repaid, it would not disturb the financial ratios that form the basis of the authority’s bond ratings.
“We believe that this is a signature project for the port, but also will hopefully set the tone for other potential projects around the country,” Chris Ward, executive director at the Port Authority, said in a conference call.
The Goethals Bridge connects Elizabeth, N.J., to Staten Island, N.Y.
The bridge is old and dangerous. Opened to traffic in June 1928, its lanes are only 10 feet wide with no shoulders. Over an eight-year period, the bridge was the scene of more than 2,400 accidents — more than the other two bridges connecting New Jersey and Staten Island combined.
The Port Authority proposed building a bridge with lanes that are 12 feet wide, plus a 12-foot-wide shoulder on the outer side of the bridge in each direction and a five-foot shoulder on the inside. The bridge would also have a 10-foot-wide bike lane and the ability to accommodate a mass transit corridor.
The authority yesterday published a “request for information” from contractors able to build a bridge within those specifications. To be eligible, contractors must have worked on bridges of comparable size, as well as the proven ability to raise equity financing.
The winning bidder would build the bridge and maintain it for 30 to 40 years. Its profit would be derived from the interest payments the authority pays on the loan.
The new bridge is scheduled to be completed in 2016, and the existing bridge is expected to be demolished in 2017.
Ward described investor interest in the financing structure as “keen.”
“We think we’re going to be hitting a very strong and robust market,” he said.
The Goethals Bridge produced $120 million in revenue last year, from 14.2 million tolled trips.
The authority generated $3.55 billion in revenue last year, mainly from tolls, rent payments, and airport fees. After paying operating expenses, it had $2.15 billion available for debt service. It spent $574.8 million paying off interest and principal on its bonds.
