Build Today, Pay Tomorrow

I-285_at_SR_400_Interchange_Reconstruction_Artistic_RenderingWhen Governor Deal and GDOT announced their plan to fast track the reconstruction of the I-285/GA 400 interchange, the project was heralded as “the state’s top transportation priority and one of the worst bottlenecks in the nation.”  Plans to improve this interchange (actually two separate projects) were already on the books and slated for construction in the 2020s. But the project is now set to start construction in 2016 and open to the public in 2019.

Advancing this project required not only a change in priorities but also a change in funding. The new proposal will use a Design-Build-Finance (DBF) public private partnership to advance funding for the project now, rather than wait until those dollars became available later. According to GDOT’s fact sheet:

As currently envisioned, Georgia DOT would make payments to the private firm on a fixed payment schedule, to be finalized as part of contract negotiations. During the project’s active construction time period, the contractor would receive pai1ial payment for work completed; the remainder of the payments would be deferred until after the construction is completed, when GDOT would continue to make payments to the contractor on a fixed, negotiated schedule until all expenses have been paid.

The appeal of this arrangement is that the project will be delivered sooner; the downside is that the private partner’s profit increases the cost of the project.  A recent ARC presentation quantifies exactly how this new arrangement will change the amount and structure of the project’s cost.

TIP_Amendment 285 400

(This cost increase likely reflects other factors in addition to financing costs, such as updated engineering and right of way estimates.)  

GDOT has considered various repayment curves for how and when the project would be paid off.  The two curves below (one for the collector-distributor portion of the project and one for the interchange redesign portion) show that the DBF arrangement would not only increase the project’s total cost but also distribute repayment over a longer period of time.

285 400 Spend Curve CD

285 400 Spend Curve Interchange

If GDOT adopts this repayment schedule, the 400/285 project would be completed in 2019 but not paid off until 2027.  And those last payments in 2027, totalling $62 million, are over 20% of the state’s current $270 million capital budget.

Given the project’s perceived importance and likely popularity with the electorate, GDOT and the Governor may believe that the additional cost is money well spent. But deferring payment puts long term constraints on our transportation options. Georgia already has more of its transportation budget tied up in debt service than neighboring states. And this proposal suggests that we remain intent on building projects today but paying for them tomorrow.