CHICAGO — The governors of Kentucky and Indiana Monday released the first comprehensive financing plan for a massive $2.6 billion bridges project that will rely heavily on tolls.

A bi-state bridge agency oversees the Ohio River Bridges project, but the two states are pursuing separate financing and construction agreements to cover their $1.3 billion price tags because they have different views about contracting methods.

Indiana is crafting a public-private partnership that will be based on a so-called availability payment model, where the private partner covers costs and the state makes annual fixed payments to the partner regardless of revenue generated by the project. Kentucky will use a more traditional financing method that calls for a mix of toll-backed revenue bonds and state and federal dollars. As part of the new agreement, the states will split the toll revenue evenly despite their different financing structures.

“This is really unique — I’m not aware of any project that has split financings using a P3 and a traditional model all wrapped up in one,” said Tom Howard, executive director of Kentucky’s office of financial management, finance and administration. “This is pretty interesting stuff.”

Indiana has assembled an advisory team that includes KPMG as financial advisor, Ice Miller LLP and Nossman LLP as co-counsel, and Parsons Corp. as techical advisors. The state on Friday will issue a request for qualifications for private-sector construction firms interested in the project and said they would whittle it down to a short list by mid-April.

Kentucky issued its own draft construction RFQ last week and will finalize the document this week and tap three finalists, also by mid-April.

The $2.6 billion Ohio River Briges project is one of the largest transportation undertakings in the country. It calls for three new bridges, two of which will span the Ohio River between northern Kentucky and southern Indiana. The Federal Highway Administration still needs to sign off on the plan. The Louisville and Southern Indiana Bridges Authority is overseeing the project’s financing, construction and operation. It was at the authority’s Monday meeting in downtown Louisville that Indiana Gov. Mitch Daniels and Kentucky Gov. Steve Beshear signed a memorandum of understanding outlining each state’s $1.3 billion financing and construction responsiblities.

Kentucky has pledged $536 million in traditional funding, including $300 million from the state’s federal highway budget and $236 million of grant anticipation revenue vehicle notes that have been authorized but not issued. The state also aims to issue around $730 million of toll-backed revenue bonds in 2016 through the Kentucky Public Transportation Infrastructure Authority, according to Howard.

The authority signed off on the finance plan yesterday and the General Assembly will now begin considering it. Tolls would range from $1 to $10, depending on vehicle size and frequency of crossing, according to the plan. Tolling would not begin until the first span opens, expected in 2018.

“Tolling is not our preferred financing option,” Beshear was quoted n the local press as saying at the press conference. “It’s the only way — I’ll emphasize that — the only way this project will get built.” Indiana does not expect to issue any bonds for its side of the project.

The states are also applying for loans provided by the federal Transportation Infrastructure Finance and Innovation Act, officials said.

“Though decreased federal support for major transportation projects have forced states across the country to rely more heavily on tolls or to shelve needed interstate improvements, the governors said they will continue to pursue the limited federal funding opportunities that could potentially lower toll rates and ease the burden on the two states’ citizens and motorists,” Indiana officials said in a press release.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.