The Port Authority of New York and New Jersey is considering a two-part financing structure with a private developer that would design, build, finance, and maintain a new Goethals Bridge, according to the request for qualifications for the project.
Qualifications for the new bridge project are due Nov. 30. The current Goethals Bridge connects Staten Island to Elizabeth, N.J. The bridge opened to traffic in 1928.
While a design, build, finance, and maintain agreement with a private developer is a new concept for the Port Authority, officials may use municipal bonds to help fund the project. Constructing the new bridge and dismantling the old span could cost more than $1 billion, according to the documents released this month.
Under a private placement financing agreement, the developer is responsible for funding through the design and construction phases. Regardless of where the funding comes from, the Port Authority would begin repaying the developer after the new bridge is operating.
Potential funding sources include private-activity bonds that the Port Authority would issue as a conduit issuer on behalf of the developer, and-or funds from the federal Transportation Infrastructure Finance and Innovation Act.
On Sept. 15, the Federal Highway Administration said the Port Authority could proceed with its TIFIA application for the new Goethals Bridge.
The developer would then loan its funds to the authority. That loan would be a special obligation of the authority, according to the RFQ. The authority would then use the loan proceeds from the developer to repay the developer for design and construction costs.
In the second piece of the financing puzzle, the authority could tap into its revenues to pay down the loan it owes to the developer, or it could issue consolidated bonds to help meet that obligation.
“Payments under the private placement financing agreement shall be payable from … consolidated bonds issued in whole or in part for such purposes, or from net revenues deposited to the consolidated bond reserve fund, and in the event such proceeds or net revenues are insufficient therefore, from other moneys of the port authority legally available for such payments when due,” the RFQ reads.
Port Authority spokesman Steve Coleman said the authority does not anticipate using bonds to pay down the developer’s loan, but retains the right to do so.
While the Port Authority could capture low interest rates by issuing traditional tax-exempt debt instead of using a private placement financing agreement, Coleman said the proposed financing plan offers other benefits for the project, including the developer taking on construction and maintenance risk.
“The current low rates associated with the TIFIA program, as well as potential for private-activity bonds, and the ability to have long tenures on both programs make the cost of financing competitive with a [traditional] Port Authority financing,” Coleman wrote in an e-mail. “Additionally, even though rates may be higher, the Port Authority will see cost savings through more efficient risk transfer through this type of procurement.”
Responses to the RFQ must include a surety letter showing that the developer is able to obtain a performance bond of at least $250 million. The letter must also acknowledge that total design and construction liabilities for the developer may exceed $1 billion. The authority’s estimate for the project is $755 million in 2007 dollars and does not include certain environmental costs and other expenses.
The developer would maintain the new bridge for 30 to 40 years, with the authority making monthly payments for those services. The bridge collected $120 million of toll revenue in 2009 for 14.2 million east-bound trips.
Officials expect to issue a draft request for proposals in the first quarter of 2011, and select a winning bidder in the first quarter of 2012. The new bridge would open in 2016.