Finding ways to finance the reconstruction of America’s bridges
Photo 5995232 © Heysues23 |


Finding ways to finance the reconstruction of America’s bridges

The Mobile River Bridge in Alabama is just one of many major bridges that need to be replaced with modern facilities.

I was pleased to learn several months ago that public opinion in the Mobile, Alabama, area had somewhat turned in favor of constructing a tolled bridge to replace the current obsolescent bridge across the Mobile River.

Several years ago, the Alabama Department of Transportation (ALDOT) had come up with a $2.1 billion project to procure the ambitious project (which includes refurbishing a related causeway and other features) as a revenue-risk public-private partnership (P3) and had already been approved for a $125 million Infrastructure for Rebuilding America (INFRA) grant for the project. When elected officials and much of the public heard ALDOT’s estimate that the toll would be around $5 each way, public support cratered, and the metropolitan planning organizations on both sides of the Mobile River deleted the project from their five-year plans.

But the bridge really does need replacing; it’s too low for today’s ships to pass beneath at high tide, let alone to cope with sea-level rise. The Alabama Department of Transportation’s fallback plan was to do just the bridge replacement and to charge tolls only to trucks, which risked a major battle with the trucking industry. And local opinion really wanted the causeway modernization and other features. They weren’t opposed to tolls covering part of the cost, as long as non-tolled alternative river crossings were still available. This led both metropolitan planning organizations to approve a new plan to deliver all the original improvements, tolling only the replacement bridge, and limiting the toll each way to just $2.50, which ALDOT is likely to approve.

Does the current framework rule out procuring the bridge as a public-private partnership?

After I suggested “not necessarily,” a colleague who hails from Alabama wrote to say that he thinks the most likely way forward is for the Alabama Department of Transportation to procure the bridge as a design-build project, with the agency taking the toll risk (which would be considerable, given the non-tolled alternatives). After thinking this over, I disagree. The project would be a good candidate for a hybrid availability-payment public-private partnership.

While design-build is a better procurement method than design-bid-build, it pales in comparison with design-build-finance-operate-maintain (DBFOM), whether availability-pay or revenue-risk. With DBFOM, long-time stewardship of the facility is built-in. The special purpose vehicle that wins the project would also be its operator for a considerable portion of its useful life. That means it has an incentive to design and build the project to minimize its life-cycle cost, not its initial cost. The long-term concession agreement would also require a reserve account for the last five years of the concession term, to ensure there is no slacking off on maintenance during those final years.

There is also significant risk transfer, for things such as cost overruns and late completion. Recent problems with availability payment DBFOMs for the Maryland Purple Line and the Florida I-4 Ultimate projects notwithstanding, there have been notable availability payment project successes, such as the Port of Miami Tunnel (high risk, but delivered on time and nearly on budget) and the Florida I-595 reconstruction and modernization project. The port project was non-tolled on purpose since its goal was to shift heavy trucks and tour buses off downtown Miami streets and directly onto a limited-access highway. I-595 had toll revenue solely from the newly-added reversible express toll lanes, whose revenue could not begin to cover the reconstruction project’s $1.6 billion cost.

On the I-595 project, the Florida Department of Transportation (FDOT) sets the tolls and collects the revenue, aiming to use the revenue to help cover the agreed-upon availability payments. FDOT has a similar arrangement with the special purpose vehicle that has designed, built, financed, and will operate the new I-4 express toll lanes. As with the I-595 project, the I-4 tolls will likely not come close to covering the availability payments for this $2.6 billion project, but it will be operated and maintained by the special purpose vehicle that designed and built it.

A growing number of major bridges on the Interstate system need to be replaced, including the Lake Charles Bridge on I-10 in Louisiana (being procured as a P3), the Brent Spence Bridge on I-71/I-75 between Ohio and Kentucky, and the I-5 Bridge between Portland, OR, and Vancouver, WA. 

Tolls that would cover the full capital and operating costs of these multi-billion bridges are almost certainly politically untenable. That’s because these bridges were originally funded 90% by federal gas tax money, and that gas tax, as we all know, is far below what it would need to be to restore its original purchasing power. Beyond that, it is still far lower than what a financially responsible toll would be. For too long, we have pretended that major highways do not cost what they actually do, which is why there have been only dribs and drabs of reconstructing our 56-year-old Interstate highways.

Yet these major bridges need to be replaced with modern facilities, in some cases with more lanes, especially where the Interstate on either side has been widened to more lanes than the aging bridge has, making the bridge itself a bottleneck.

Toll revenue is essential to cover a significant portion of the cost of these bridge replacements. But rather than having a state transportation department that may have little or no experience with either toll financing or 21st-century tolling do the tolling, the alternative of a toll-supported DBFOM should be seriously considered. The special purpose vehicle (SPV) and the state transportation department would agree on the fraction of the project’s cost that can realistically be toll-financed, with the balance coming from state and federal sources.  The SPV would take not only design and construction risks for the overall project (with various environmental and litigation risks taken by the state DOT); it would also take the revenue risk for the bonds backed by the agreed-upon amount of tolling. And it would design and operate the all-electronic tolling system.

This new hybrid model would help get major bridge projects financed while availing state DOTs and their taxpayers of the risk-transfer and tolling expertise of companies with many decades of experience developing, financing, operating, and maintaining major toll roads, bridges, and tunnels.  

A version of this column first appeared in Public Works Financing.