DRAFT REPORT The Urban Ring Citizens Advisory Committee Report of the Finance Subcommittee
to the Executive Office of Transportation and Public Works
Jay Ash, Doug McGarrah, Co­chairs
The Urban Ring Citizens Advisory Committee’s Subcommittee on Finance has met on six occasions with a variety of transportation finance experts and leaders in the transportation community, over a nine­month­long period. We have attempted to develop a framework for a financial plan for the Urban Ring Project in what must be acknowledged as a historic and comprehensively uncertain environment for transportation finance. At the federal level, the reauthorization of the SAFETEA­LU will be considered by Congress in 2009. The Highway Trust Fund will be in deficit in the next fiscal year. At the state level, a special Transportation Finance Commission has identified $16­19 billion in transportation maintenance backlog, which report has been under consideration by the Governor and the Legislature. Because the Massachusetts Turnpike Authority and the MBTA are under substantial financial pressure due to their heavy capital debt load largely attributable to the Central Artery Tunnel Project’s commitments, the Commonwealth of Massachusetts has recently acted to begin to address the backlog in transportation investment: • $4.929B authorized in two bond bills this year (one in April, the second in August) for road, rail/transit: o
In the April, 2008 bond bill, of the $3.509B authorized, $734m was directed to rail/transit; o
In the August, 2008 bond bill, of the $1,420B authorized, $331.5m is directed to rail/transit; • $2.984 B for the Accelerated Bridge bond financing legislation, also signed in August. In sum, a total of $7.913B in state transportation borrowing was authorized in 2008. This sum will leverage additional federal funds, making a sizeable dent in the backlog. The Subcommittee recognizes the critical importance of the Urban Ring project to the Boston Metropolitan area and the strategic value in moving forward with the plans for the project at this time of uncertainty in transportation financing in order to address a critical gap in the transit system in the region. Despite the uncertainty in the overall funding climate for transportation at the State and Federal levels, the Subcommittee has concluded that there are compelling reasons to move ahead with this project now. B3567877.1 Nov08 Specific approaches to funding the Urban Ring The Subcommittee has carefully considered and discussed in­depth the following topics relating to Urban Ring finances: (a) The Purpose and Need of the Project: The Subcommittee believes that the purpose and need of the project is overwhelmingly regional. The future economic growth in the region requires an improvement in mobility. Relieving the significant overcrowding on the Green and Red Lines, and allowing the system to capture some of the latent demand now inhibited by overcrowding is indeed a regional benefit. There may be opportunities to advance elements of the project as mitigation for reduced roadway capacity which will occur as state agencies begin the disruptive process of rebuilding the bridges across the Charles River, the Storrow Drive tunnel, and Turnpike viaducts in Allston. This will allow early action items on the project and provide regional transportation benefit. Finally, enabling the life science industry and related technology employers to continue to grow is an important regional benefit to the entire New England economy. (b) The Opportunity for Phased­In Development: The Urban Ring includes a significant amount of improvement available at modest capital cost associated with signal and lane priority and increased service frequency with standard buses, much of it on rights of way being upgraded by municipalities or institutions like MIT or Harvard in Cambridge or Allston, which have no adverse impact on the environment, could proceed quickly into implementation, and whose operating cost can possibly be funded as mitigation for the reconstruction of the Charles River bridges. These “early actions” should be identified in the DEIS and defined as part of the Urban Ring Project (with no adverse environmental impact), while ensuring these actions can be implemented without removing ridership benefits from segment costs. These early actions are useful in and of themselves and should be advanced directly into implementation, while other more complex aspects of the project (such as the tunnel under Longwood, or the long range river crossing strategy) would continue into preliminary engineering and a full FEIS. These “dual tracks” are completely complementary, while also advancing project elements with independent utility. (c) Multiple Funding Source Opportunities: There are significant opportunities to combine projects and financing opportunities in the Urban Ring corridor. Adaptive reuse of the Grand Junction rail bridge, TSM improvements to the BU Bridge, and parts of the short tunnel section under the BU bridge, are examples that could all possibly be funded as part of the staging necessary to address issues surrounding the Turnpike viaduct and deck reconstruction and integrated with the state’s bridge program. TSM improvements throughout the corridor could also be supported with CMAQ funds. These opportunities can be developed during preliminary engineering of the Urban Ring, the River crossings and the Turnpike viaduct reconstruction, in a coordinated, interactive and collaborative way. Reservations of Rights of Way through private parcels can be secured early and the value might be counted toward the local share. In addition, some construction projects, for example in the Fenway or Longwood Medical and Academic Area (LMA), could be encouraged to build elements of the tunnel alignment, such as slurry walls and reservation of structural foundations. The priority in the Urban Ring corridor needs to be B3567877.1 Nov08 ­ 2 ­ defined in order to achieve enough specificity on long term infrastructure improvements to ensure that private or non profit investments at least do not preclude, and hopefully can be synergistic with, the needed tunnel under the Fenway/LMA. These decisions are best made after preliminary engineering and full exploration of all funding possibilities have been considered, as part of the FEIS. The dynamic nature of this transportation corridor necessitates this approach to the Urban Ring Project. (d) State and Local Host Community Contribution: The Subcommittee identified a variety of innovative local funding options, including private funding alternatives. CAC subcommittee participants Susane Rasmussen and Jeff Rosenblum of the Cambridge Community Development Department completed a helpful summary of both State and local funding alternatives nearly all of which were discussed and considered by the Subcommittee. Many of these alternatives were examined in detail by the Transportation Finance Commission and should be considered in conjunction with major transportation reorganization plans that are in preparation by the Governor and EOT. These plans are expected to be considered by the legislature in the coming months. The Subcommittee also concluded that placing the Project in competition with municipal tax bases and PILOT payments may undermine important support for the Project. It makes much more sense to first develop strategies to maximize Federal sources of funding in the next Federal Reauthorization law, and more broad­based statewide fees and taxes. Other sources may help to deal with the most critical gap in financing challenges to the Project and thereby might not be available (or may be only partially available) for specific project financing. However, additional consideration of these options should be explored by the State as the project moves forward in the review process to the Final EIS/EIR. Operations Cost We know with certainty that a key factor in the review of a proposal for a full funding grant agreement is that the proponent of the project must demonstrate the capacity to pay for the operation and maintenance of the entire current system, plus all the system expansions currently being proposed. Since there has been very visible news coverage that the MBTA is struggling to maintain the current service and fares, it is clear that some of the debt of the MBTA must be lifted, or a subsidy to bolster revenue streams, adequate to provide current levels of service, make reasonable improvement in service frequency to relieve overcrowding, and provide adequate operating funds to support all the system expansions, must be introduced. This is clearly a major state responsibility which requires a comprehensive solution and cannot be solved one project at a time. The constituencies interested in the various expansion proposals will help support a comprehensive solution. But at this time, the uncertainties surrounding the MBTA’s capacity to assume an expansion in the operational system should not delay the Project from moving into the EIS/EIR. These issues should be addressed before completion of the environmental review process. B3567877.1 Nov08 We hope this is a useful contribution. ­ 3 ­ Urban Ring Financing Options ­­ DRAFT Prepared by Susanne Rasmussen, Jeff Rosenblum Community Development Department, City of Cambridge August 7, 2008 (updated Nov25 to reflect LPA $2.4B capital cost est. 2007 dollars) Current Cost Estimate: $2.4 billion in capital costs FEDERAL 1. New Starts funding program 2. CMAQ funding 3. Highway earmarks (e.g. Melnea Cass, Sullivan Square, E. Boston Haul Road) STATE 1. General Obligation Bonds 2. Gas taxes a. Indexing to inflation or prices b. Recapture purchasing power by catching up for inflation c. Sales tax (%) or excise tax (per gallon) for fuel 3. Vehicle taxes a. Registration & license fees b. Vehicle sales tax c. Vehicle excise tax d. Inspection fees e. Emissions excise tax 4. Usage fees a. Road tolling, value (variable) pricing b. Congestion fees c. High Occupancy Tolls (HOT) lanes d. Vehicle Miles Traveled (VMT) fees 5. General taxes/fees a. Portion of general state sales tax b. Segregate state taxes within designated impact/benefit area c. Parking fee (per space assessed to owner) d. Rental car fee e. Mortgage recording fee f. Casino, lottery, cigarette tax 6. General fund appropriations a. EOT pays for purchase of CSX right­of­way b. Use of Economic Stimulus funding for Yawkey Station ($12M) Page | 1 Urban Ring Financing Options, City of Cambridge, DRAFT c. Existing projects (e.g. Malden River bridge reconstruction) d. Biotech funding bill 7. CO2 allowance revenues (a share of proceeds from credits auctioned by power plants) 8. MBTA a. Station sponsorship b. Advertising c. Joint development d. Property transfer (MBTA ROW traded for needed Urban Ring ROW) e. Right­of­way access (leasing) 9. Assessment of agencies a. Assessment of MassPort for ground transportation benefits 10. Modified “I Cubed” legislation based on contributions to state sales tax and income tax revenues (I Cubed is short for “Infrastructure Investment Incentive”)1 LOCAL/PRIVATE
1. Beneficiary charges / value capture a. Betterment fees (one­time per square foot) b. Transit impact fees c. Tax increment financing d. Improvement district taxes e. Development impact fees 2. Local option sales taxes 3. Payment in lieu of taxes (PILOT) 4. Linkage payments 5. Increase MBTA assessment PRIVATE 1. Donation of rights of way (e.g. Harvard’s donation of Stadium way in Allston) 2. Private joint development (e.g. Children’s Hospital, MTA Parcel 7) 3. Public/Private Partnerships (PPP) 4. Contribution from shuttle operators 1
I­Cubed, enacted in 2006, permits the Commonwealth to invest in infrastructure projects by issuing up to $200 million in bonds to fund up to five major infrastructure projects. The bonds will be repaid by special real estate tax assessments on development parcels that will benefit from the infrastructure improvements. The special tax assessments will be paid by the developers until the newly constructed buildings are occupied. The expectation is that the bonds will then be repaid by the new state taxes generated by the new development. In exchange for receiving the bond funding, the city or town must commit to making the bond payments if the developer defaults in paying the special tax assessments or if the newly­generated taxes are insufficient to cover the debt service. Page | 2 Urban Ring Financing Options, City of Cambridge, DRAFT MECHANISMS
1. Debt Payable from Federal Grants. Bonding against future Federal aid can be a cost effective way to finance large projects or capital programs if the interest cost and other expenses associated with issuing the debt are less than the potential costs associated with completing construction on a pay­as­
you­go basis. Grant Anticipation Revenue Vehicle (GARVEE), also Federal highway reimbursements (Construction Reimbursement Vehicles or RVees) are sometimes referred to as “indirect” GARVEEs because the Federal funds used to pay all or a portion of the debt service are not necessarily linked to the projects being financed. But for transit use Grant Anticipation Notes (GAN). 2. Section 129 Loans. One of the key advantages to Section 129 loans is the opportunity for states to get more mileage out of their annual apportionments. States benefit because every loaned dollar is repaid and recycled into further investment in the transportation system. From a project sponsor’s perspective, loans are useful in offsetting up­front capital requirements that might otherwise have to be borrowed in the open market at higher rates. Further, Section 129 loans can serve a credit enhancement function when repayment is subordinated to other borrowing. 3. State Infrastructure Banks (SIB). These revolving funds, which are usually referred to as SIBs, provide an opportunity to leverage Federal and state resources by lending rather than granting Federal­aid funds, and they can be used to attract non­Federal public and private investment. Among the advantages to borrowers are that funds may be loaned on a low interest basis, and SIB loans can be secured by a subordinate lien on pledged revenues. SIBs also are authorized to provide credit enhancement through loan guarantees, reserve funds, and other means. 4. Pass­Through Financing, Availability Payments, or Shadow Tolls. Some states are encouraging local communities and private entities to finance and manage certain transportation improvements by agreeing to reimburse those entities over time for a significant portion of the cost. 5. Long­Term Leases of Existing Assets. Public transportation authorities have leveraged various property assets to generate incremental cash or in­kind goods and services for many years. 6. Transportation Infrastructure Finance and Innovation Act (TIFIA) Program. The TIFIA program, which was enacted in 1998 as part of TEA­21 and expanded in SAFETEA­LU, provides Federal credit assistance to major transportation investments in the form of direct loans, loan guarantees, and lines of credit. The program is designed to fill market gaps and leverage substantial private co­investment by providing supplemental and subordinate capital and credit rather than grants. A review of TIFIA undertaken for a 2002 Report to Congress found that the program also was useful in helping project sponsors consolidate political and financial support for certain projects. TIFIA loan could be a good deal, but must be paid back so those payments must be part of the finance plan. These loans can only be 1/3 of the project cost, and must be repaid NOT from federal monies. Page | 3 Urban Ring Financing Options, City of Cambridge, DRAFT