Tolling will bring the Columbia River Crossing project up to $598 million less than originally thought, according to a report released Wednesday by the Oregon State Treasurer.
Charging cars and trucks to use a new Interstate 5 bridge was expected to provide about one-third of total project costs, or about $1.3 billion. But the report, based on analysis by independent experts, challenges assumptions in the CRC’s plans for steadily increasing traffic and toll rates.
Commissioned in April by the governors of Washington and Oregon, the report says that a more conservative estimate on revenues puts the tolling finance plan anywhere from $468 million to $598 million below projections made by the CRC in 2008. It also says the $3-billion-plus project has been leaning on outdated and overinflated traffic models.
To fill the gap, the report suggests that the crossing make $200 million by pre-tolling the span starting in 2014, and cover the difference by going after competitive federal loans.
In the wake of the report, Oregon Gov. John Kitzhaber said he is directing the Oregon Department of Transportation and CRC staff to prepare a sequencing plan that breaks construction into phases that accommodates anticipated cash flow.
“I believe that if we are going to get the CRC done, it is time to start planning for a project that adapts to the available resources and fits into today’s economic reality,” Kitzhaber said in a statement. “This work will be part of a conversation with Governor (Chris) Gregoire and our respective interim legislative committees.”
The tolls — which could be somewhere in the market of $2.69 each way during peak driving hours in 2018 — are expected to be combined with state and federal funding to cover the cost of the five-mile Interstate 5 project that includes up to seven interchange improvements, a new bridge and light rail from Portland into Vancouver.
Two independent consultants hired by Oregon’s treasurer for $95,000 said Metro traffic models used by the CRC overestimate job growth, and therefore overestimate traffic demand and toll revenue for the Interstate 5 corridor. Expectations for revenue should be cut by 15 to 25 percent, or $240 million to $407 million, they found.
While the consultants said the models have been “adequate” for the initial planning of the project, they cautioned that before construction starts (the governors have set late 2013 as a goal), adjustments and further study are necessary.
Oregon Treasurer Ted Wheeler said that Wednesday’s report did not come as a surprise to either state’s governor or to the Columbia River Crossing staff. He said he doesn’t anticipate the report to create any delays in the project, which is running about $1 million a month.
“I want to make one thing very clear, because this could be construed as a criticism of prior financial analysis,” Wheeler said. “The economy obviously took a significant hit, and that had an impact on employment numbers, and that has in turn driven lower financial assumptions.”
Faulty models?
However, one consultant, Robert Bain of London-based RB Consult LTD, a former Standard & Poor’s ratings analyst who has published widely on problems with the traffic and toll forecasting process, said traffic volumes have been flattening off over the past 15 to 20 years, before the recession.
Bain said that Metro failed to look at historical trends and instead ran with ever-increasing job and traffic increases, leaving key questions unanswered.
“Is the flattening-off on I-5 … a general trend that could continue into the future; or is it simply that the bridge is operating for much of the day at or near capacity (in which case capacity enhancements could result in an uplift of future demand)?” Bain wrote. “This issue should be addressed going forward.”
The report also took Metro’s job growth model to task: The regional government has said that the number of jobs in the region will increase by 64 percent in 2030, while Moody’s and Global Insight put growth at 28 percent and 31 percent, respectively.
New requirements from Washington State Treasurer James McIntyre forbidding annual toll increases from being included in tolling assumptions represent a $318 million hit to toll bond proceeds. Combined with the consultants’ recommended 15 to 25 percent cut in projected toll revenues, the total shortfall would be $468 million to $598 million.
The CRC was banking on an annual 2.5 percent increase in tolls; other Washington tolling models have also included annual increases. But revenues on projects such as the Tacoma Narrows Bridge have fallen below projections, partly because the Washington Transportation Commission has not increased tolls as expected.
“That is a policy we’ve taken on toll financing that is not directed at this particular project,” McIntyre said Wednesday. “It’s recognizing that we’re going to need to rely on tolls to finance most major transportation projects moving forward. We need to be careful and reasonably cautious about how we do (tolling) to make sure that we build the confidence of the taxpayers and toll payers.”
States also need to build the confidence of investors, who will be expected to buy tolling-backed bonds to finance construction.
Phasing more likely
Phasing the construction of the seven highway interchanges has long been part of the conversation. But the Oregon treasurer’s report makes piecing the project together over time nearly certain.
CRC Director Nancy Boyd said Wednesday evening that the draft Final Environmental Impact Statement released in May already includes phasing scenarios.
“It comes down to: How do you build this thing with the revenue that’s coming in?” she said.
First on the chopping block: The state Highway 500 and Port of Portland flyover ramp interchanges. With those changes, Wheeler said the project will cost $2.63 to $3.49 billion, with a 60 percent probability that costs will be $3.13 billion or less. Under a full-build scenario that includes those interchanges, the CRC will run between $2.82 to $3.75 billion, with a 60 percent probability that costs will be $3.37 billion or less (however, the draft FEIS says a full build could run as much as $3.76 billion).
Boyd said her office is still reviewing the treasurer’s report but said it was “good input.”
“It’s making our plan more realistic in the face of changing economic times,” she said.
However, the economy has been down for several years, and reports about faulty traffic models surfaced as early as 2009. Boyd, who wasn’t a part of the project then, said it possibly “just wasn’t the time to have that update.”
She said that with the FEIS set to be finished this fall, the treasurer’s recommendations can still be folded in to the financial chapter that will be approved by the federal government. It wasn’t clear Wednesday what the project’s plans for updating its traffic models will be.
Tolls in 2014
One-third of the $600 million gap can be made up with pre-completion tolling, Wheeler’s office suggested.
Tolling had been expected to start in 2019, but the state is suggesting tolls start as soon as 2014, to generate $200 million for construction, said Laura Lockwood McCall, the Oregon Debt Management Division Director.
One hitch: The Washington legislature must approve such a toll and then it must be set by the governor-appointed Washington Transportation Commission.
Initiative activist Tim Eyman’s latest offering — Initiative 1125, which is likely to appear on this November’s ballot — could also throw a wrench in that plan. If approved by voters, the initiative would eliminate variable tolling rates and also put the role of setting the toll prices in the hands of elected legislators, both of which could send planners scrambling to regroup.
Oregon is also pushing the CRC to go after federal Transportation Infrastructure Finance and Innovation Act loans, which are given directly to surface transportation projects of national and regional significance. The loans allow for no interest payments during construction and give up to 35 years for repayment upon project completion. A TIFIA loan of $704 million to $833 million, repaid from I-5 toll revenues, would substantially reduce the need for state-backed general obligation bonds and limit the exposure of each state’s general fund to the project, while restoring project funding by $194 million to $238 million, Wheeler said.
However, Wheeler’s report also noted that competition for such loans is ramping up and that the CRC must apply for that money when it asks for other federal funding.
The report also cites potential complications for the scope, timeline and financing if the Columbia River Crossing fails to secure the $1.25 billion in federal money it wants or if Washington and Oregon fail to find the $450 million each state is expected to chip in. While conversations have begun on those funding mechanisms, none of that money is secured.
Andrea Damewood: 360-735-4542; www.facebook.com/reporterdamewood; www.twitter.com/col_cityhall; andrea.damewood@columbian.com.
