Georgia shocks investor groups with late stage cancellation of procurement for toll lanes concession on GA/I-75&575
By Peter Samuel
Georgia generated shock waves in infrastructure investment circles with an announcement last night that it was canceling the managed or toll lanes procurement for GA/I-75 and I-575 to the northwest of Atlanta. The project had seemed to be well past the point of no return.
Three finalists for the toll concessions or PPP agreement were well into writing their detailed proposals, the RFP having been issued in September. Environmental permitting (FEIS) was being finalized.
The financing plan was clear, and a large TIFIA loan for nearly a third of the cost of the project had been granted by the USDOT. Rather than have the state DOT or the feds make the TIFIA announcement Governor Nathan Deal broke the news himself at a special full court news conference. He was a new Governor - sworn in January - but he seemed to be embracing the project and the PPP process.
The news of the killing of the project was given to the three short-listed builder/investor groups at a meeting with Georgia DOT (GDOT) Wednesday night. They were taken completely by surprise. They thought they were at a routine working meeting to discuss the FEIS and to clarify any issues that were arising in their preparation of proposals or bids.
The meeting broke up quickly after the lead GDOT official said the P3 procurement was canceled.
The governing body for transportation policy, the State Transportation Board (STB) had decided on cancellation and would pursue (unspecified) alternative ways of implementing the upgrade of the highway. He couldn't elaborate or discuss the reasons.
A terse statement issued late Thursday in the name of the State Transportation Board and Georgia DOT read:
"Statement Regarding Cancellation of West by Northwest P3 Procurement
"By Transportation P3 Committee Chairman Brandon Beach:
"The State of Georgia is cancelling (their spelling) the Public Private Partnership (P3) procurement of the West by Northwest Corridor contract to add managed lanes to portions of Interstate Highways 75 and 575 in Cobb and Cherokee counties.
"The Transportation Board is examining other available options for the delivery of this project."
It's pretty clear the cancellation was mostly the Governor's doing. A spokesman in his office emailed in answer to a TOLLROADSnews question whether the Governor asked the state transportation Board to cancel the project: "That was a DOT board decision. The governor had publicly expressed concerns about the structure of the P3 agreement. Now, we need to move forward and look at other ways to relieve congestion in that corridor."
Deal's "concerns" were casually mentioned in a couple of interviews but didn't seem big enough to stop the project at this late stage.
In September he reportedly asked whether the toll lanes P3 would prevent adding free capacity as the RFP was about to be issued. He was apparently satisfied and it was issued.
Then Nov 18 the Governor told a radio interviewer he was "a long way from being convinced" the project was worth a $300m state contribution that had been bandied about. (Whether the bidding groups would offer the state a fee or ask for a subsidy couldn't be known until the bids were in - editor.)
And the Governor said to the radio interviewer there weren't major time savings for motorists in the general purpose lanes from the I-75 project. (Toll lanes projects are primarily about speeding motorists who pay the toll - editor.)
Deal said the state was "a long way from actually finalizing the project: and he hadn't signed off on it. However he said it was "too late" to halt the procurement process.
The Governor apparently also soured on toll express lanes with the startup days of the I-85 toll Express Lanes October 1.
Toll rates were set too high for the first few days and the express lanes were very empty. The Governor intervened asking the State Road and Toll Authority (SRTA) to lower toll rates. They were doing that of their own accord, it turned out.
A better balance has been achieved on the I-85 in the weeks since and usage has grown toward capacity while being managed for reasonable free flow. But the negative first impression persists.
Being a single managed lane alongside at least five unmanaged lanes, and lacking direct connector ramps, the I-85 HOT lane is limited in the benefits it can confer even with the best management.
I-75/575 much different
The I-75/575 project was much more ambitious and promised much greater benefits. It was mostly two lanes reversible and largely separated from the unmanaged traffic. 29.7 miles, 47km long it extended from just inside the I-285 belt route northwest splitting into a 'Y' the right arm of which is I-575. It would be 16.8 miles on I-75 and 11.3 miles on I-575 and a shorter segment of ramps on I-285.
The FEIS document suggests large travel times savings for the toll managed lanes (see tables nearby) and hence good potential for toll revenues and management of traffic - a much different project than the limited I-85 Express Lanes (a simple conversion of single HOV lanes.)
Other available options?
It is unclear what "other available options" there are.
There was talk that Gena Evans of SRTA had been saying the state toller could do more express lanes, but she wasn't involved in the decision to can the I-75/575 P3. We're told SRTA officials were just as surprised by the STB/GDOT announcement as everyone else.
There's no tax money for adding general purpose lanes, either at the state or federal level. Gov Deal and the state assembly are both unlikely to propose raising gas taxes. Also in the environmental permitting process (toll) managed lanes were found to be superior to adding unmanaged free lanes. The state can't very well restart a five year permitting process on the basis that the inferior alternative of the previous EIS has somehow become the preferred one.
Followers of these projects we contacted were unanimous that the cancellation of the I-75/575 P3 was a terrible mistake and that there are no viable alternatives or other options.
They also say the sheer capriciousness will kill the opportunity for Georgia to get serious investor proposals for many years to come.
The state has spent over $50m on the project in planning and procurement and the three teams asked to submit P3 proposals have each spent several million each. All that is wasted.
Worse Georgia now has the reputation for flakiness and unreliability, a highly risky place to try to do business in infrastructure.
Bob Poole of Reason and longtime proponent of toll lanes says it's "a very big setback" for Georgia and "very unfortunate for congestion relief in Atlanta."
"They had three world-class well qualified teams that were willing to do a lot of work to come up with financeable proposals. It's hard to see that happening easily again after this. This stamps Georgia as a place with high political risk."
Brian Chase a P3 consultant in Washington DC said: "This is the third time GDOT has fallen down on implementing their P3 program. I think they have now destroyed what little credibility they had left with potential private investors."
Rick Geddes, a Cornell University transportation policy told us the Georgia decision was regrettable because it imposed serious costs on bidders who see no return on their time and money, adding: "It increases uncertainty surrounding future private investment in U.S. infrastructure at a time when America needs every dime of investment it can get."
Why not a freeze for an expert review panel?
Another said that if the Governor was concerned about the project then the sensible thing to do was to follow New Jersey Gov Chris Christie's approach to the Hudson River rail tunnel ARC and call a three or six month 'freeze' on the procurement while he got an expert report on options. Then depending on the report of his experts he could cancel or carry on with the project.
"To just can the project at this late stage in a procurement without any expert advice and without any notion of what the alternatives are is pathetic in its incompetence," another told us. "Who wants to waste time with a flaky government like that."
It is the second GA/I-75 P3 to collapse. A 2005 project adding truck lanes as well as toll lanes was ridiculously over-ambitious and expensive at $3b to $4b and couldn't attract viable proposals. By contrast this latest proposal was costed at around $1b and considered viable by the three bidders.
BACKGROUND: GDOT issued an RFQ for the project in February 2010 for the toll concession on nearly 30 miles of managed lanes along I-75 and I-575 in Cobb and Cherokee counties, but the project also called for a pre-development agreement for an additional 27 mile of toll-managed lanes along I-285 West and I-20 West.
Three teams were shortlisted in June 2010:
- Georgia Mobility Partners: Cintra (equity), Meridiam Infrastructure (equity), Soares da Costa, Ferrovial, Prince Contracting and AECOM
- Northwest Atlanta Development Group: ACS Infrastructure Development (equity), Dragados USA, CW Matthews Contracting and Atkins
- Northwest Development Partners: Vinci (equity), OHL (equity), Archer Western Contractors, Hubbard Construction Company, OHL USA and Parsons Transportation Group
RFPs were issued in September for submission by January.
Odd setup of GDOT
Georgia DOT is an odd departure from the normal American division between executive and legislative arms of government. GDOT is officially "governed" by the 13-member State Transportation Board (STB) which according to law "exercises general control and supervision of the department." One member from each of 13 congressional districts is elected by the majority General Assembly caucus for a 5 year term at the STB.
The leading executive of GDOT, titled Commissioner is Keith Golden, a low profile engineer, not a policy type. The Commissioner of GDOT serves at the pleasure not of the Governor but of the politically appointed State Transportation Board (STB.)