LOS ANGELES — Nevada officials threw out plans to construct a $740 million highway widening project using a public-private partnership after discovering it would cost less for the state to manage the project itself and issue municipal bonds.
Transportation board officials said in a report that they "reanalyzed the delivery method due to federal funding uncertainty caused by the federal highway bill debate."
The bonding payments are eligible for up to 95% federal reimbursement, versus 64.9% with a P3, according to a power point presentation made by the Transportation Board outlining the decision.
Project Neon involves $500 million in improvements to the two-mile stretch of Interstate-15 that bisects Las Vegas and averages 270,000 cars a day. It would also connect the high-occupancy vehicle lane system and provide additional access points to and from 1-15 in addition to adding lanes. The additional anticipated cost would be interest payments and financing costs made over the life of the bonds.
"Bonding was always shown to be the more affordable option in our financial models," said Robert Nellis, assistant director of administration for NDOT.
Nevada did very well when it priced $100 million to purchase rights-of-way for the project on Feb. 26.
"We received 16 bids resulting in an all-in-total interest cost of 2.68% from the sale of our $100 million bond to acquire rights-of-way for the project," Nellis said. "Those bonds proved to be more affordable than our models predicted."
NDOT worked closely with the state treasurer's office on the sale of the bonds - and in making the decision to move away from using a P3 model.
Another significant factor in the decision for the state to manage the project itself "was that bond payments end after 2039 where availability payments would continue through 2053 with the P3," he said.
The state also received a bump-up in its ratings from Standard & Poor's on Feb. 12 just prior to the $100 million sale. S&P raised its rating on the state's outstanding $441.4 million in highway revenue bonds to Triple-A from AA-plus.
S&P cited the state's very strong coverage of maximum annual debt service, strong legally-protected pledged revenue, flexible financing plan and NDOT's ability to utilize a high share of federal transportation funds the state is eligible for. The rating service said the state's highway program is "well-run" and "leverages federal funding but is positioned to scale back should federal transportation funding become jeopardized in Congress."
The S&P report also said that the state's "highway revenue bond program weathered the Great Recession with minimal impact on its ability to retire its debt obligations."
Fitch Ratings and Moody's Investors Service rate the state's highway bonds AA-plus and Aa2, respectively.
Under the financing plan for Project Neon unveiled last week, the state still wouldn't exceed its historical annual debt service payments of $100 million that were cited in the S&P ratings upgrade, according to a Transportation Board power presentation. MADs payments would stay under $89 million per year.
The project also wouldn't draw funding away from other projects planned throughout the state, according to the presentation.
The timeline on the project remains unchanged. It is still slated to break ground in late 2015 or early 2016.
The first bond issuance probably will occur in summer 2015, Nellis said.
The all-in costs of the project jumped to $740 million from the $600 million estimated earlier in the year. Cole Mortenson, the project manager, attributed the increase to changes in the scope of the project.
Several bridges in the construction area that weren't included in initial costs, but will need to be replaced soon, were added, Cole said. The original estimates also did not include resurfacing of the express lanes and the implementation of an active traffic management system, he said.