I-75 will be state's largest public-private transportation project

I-75 traffic

A plan to have the private sector pay for construction and maintenance of part of the busy I-75 corridor in Oakland County will be the largest public-private transportation project in state history.

LANSING — A plan to have the private sector pay for construction and maintenance of part of the busy I-75 corridor in Oakland County will be the largest public-private transportation project in state history, Michigan transportation administrators said.

The plan to hire a contractor or a group of contractors to design, build, finance and maintain a stretch of the freeway from Eight Mile Road to 13 Mile Road would top a 2015 private-sector partnership to update 15,000 freeway and tunnel lights, according to the Michigan Department of Transportation.

So-called "P3s," while still relatively new in Michigan, are being viewed more favorably by transportation administrators as a way to stretch taxpayer dollars for transportation and maximize efficiency of construction projects. Rather than having to borrow for the entire project cost up front or build one section of road at a time over years as money becomes available — a process that likely would cost more when factoring in rising prices for materials and labor — a private company could finance multiple sections at once and the state could repay the investment over 25 or 30 years.

Public-private partnerships also are expected to play a large role in President Donald Trump's proposal to infuse $1 trillion into rebuilding the nation's infrastructure systems by using some federal funding to leverage even more private capital.

"The message that we're beginning to see coming out of Washington relative to infrastructure (is) looking at P3 delivery and private financing," said Joe Pavona, a senior adviser for innovative contracting and P3s for MDOT. "The feeling is that it's going to be looked at favorably."

MDOT administrators decided to speed up its original construction schedule for I-75 — an estimated $1.3 billion project in nine segments, to be completed by 2034 — in part because of feedback about the amount of time the heavily traveled corridor would be under construction.

The first segment, a $91.8 million reconstruction of three miles of the freeway near the Square Lake Road exit, was mostly completed before Labor Day. The remaining work will be condensed into two segments.

The first of those will span from 13 Mile to Coolidge Highway, with the state contracting with a company to design and build the project. That contract is expected to be awarded next summer and construction should finish in 2020, according to MDOT. This portion will use existing state dollars and the state will be responsible for long-term road repairs.

The second leg to the south, however, will include a contract not just for design and construction, but also for long-term financing and preventive road maintenance, MDOT said. That contract should be awarded by the fall of 2018, with construction set to finish in 2022.

The state will continue to be responsible for routine maintenance, such as snow removal, Pavona said. The type of long-term maintenance that will be handled under the new contract is expected to include such work as building sound and retaining walls, and surface patching.

MDOT estimated construction costs for the two remaining stretches of freeway at $325 million to $350 million for the northern section, and up to $650 million for the privately financed section to the south.

Until a contract is negotiated, state transportation leaders said they have not decided how many years Michigan will reimburse the contractors, nor the amount of long-term savings by speeding up construction, Pavona said.

Companies bidding on a P3 contract could join a consortium, with a group of firms handling everything from design to construction to securing financing from a private lender, Pavona said. The private sector can benefit from having more control over multiple aspects of the project, giving them greater efficiency and economies of scale that could lead to lower materials costs for a large, bundled project.

In addition, private firms can trust the government is not going to default on its payment obligations, Pavona said, adding that their involvement could lead to higher-quality work because the contractors have assumed more of the risk and will be required to maintain their work for decades.

"It's all calculated risk," MDOT spokesman Jeff Cranson said.

Public-private partnerships netted about $61 billion in contracts from 1989 to 2013 — a sliver of the $4 trillion spent on highway projects during those years at all levels of government, according to the Congressional Budget Office in 2014. Yet roughly half of that $61 billion was contracted in the five years before the report was issued, the budget office said, reflecting growing interest in P3s.

There is some evidence that bundling more of the project could lead to faster, cheaper construction because a company will have more of a reason to rein in costs and meet deadlines, according to the budget office.

In 2015, MDOT joined a $123 million partnership with New York-based firms BlackRock Infrastructure and Freeway Lighting Partners LLC to update 15,000 lights on Detroit-area freeways and tunnels. The private companies are responsible for operating and maintaining the lights for 15 years, while the state provides repayment over the life of the contract; MDOT has said the annual cost should be less than what the department would have to pay for the updates.

So why not use the P3 approach from the start?

"It's like buying a house or buying a car. You know, what's the perfect balance for you in terms of how much you privately finance and how much you pay for yourself?" Pavona said, adding that it was important to the state to begin the project with available funding that already had been set aside. "We continued to analyze and see what are other options that could be used that could improve delivery of the project. This is a huge project, and sometimes the right combination doesn't always reveal itself immediately."

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Comments

Sean Tobin
Mon, 09/25/2017 - 8:49am

This has a few hints of the 21st Century Infrastructure report of about a year ago. I get a little apprehensive when spokespeople say things like it's a calculated risk, but then offer little detail on how that is the case... I'm excited but this new project framework should be scrutinized to ensure our goals are met. I have indeed studied and talked to stakeholders of successful P3 projects.

Mark
Mon, 09/25/2017 - 10:01am

"LANSING — A plan to have the private sector pay for construction and maintenance ..."

Huh? This statement makes little sense; ultimately the public will pay for the construction and maintenance of any public work. These co-called "public-private partnerships" are simply another funding mechanism, but allows private entities to write-off the cost as a "business" expense and lower its taxes. A taxpayer funded subsidy to private industry, lowering the amount of tax dollars available overall for public projects.

The avarice of "conservative" politics apparently knows little bounds. Time to stop this nonsense.

Cathy Mueller
Mon, 09/25/2017 - 10:15am

This plan should be statewide. The trucking industry should be building their own roads as they have made it unsafe for autos to drive the highways and local roads. Their trucks are extremely oversized for any road, without even really discussing their weights. Now trucks aren't even using the tarps to cover loads. The legislature has been bought and paid for to do nothing that helps the every day citizen in Michigan.

Annama
Mon, 09/25/2017 - 10:31am

"Rather than having to borrow ..."
If private parties provide the money up front, and government has to pay it back, then government IS BORROWING the entire project cost up front and will pay it back with interest, same as issuing bonds to the general public. The only difference here is that the state will pay this interest only to selected private parties. More favoritism.

Floyd Kopietz
Mon, 09/25/2017 - 11:13am

Every time public services are privatized, the public ends up paying more. I am not sure how this would be any different. Borrowing money in the form of bonds today with low interest rates as the previous comment suggested seems like it will be a better bargain in the long run. I don't think this Republican plan will go well.

Gene Markel
Mon, 09/25/2017 - 11:31am

First you have to tax before you spend. If you spend before you tax, there are deficits. (You have maxed out your credit card.) Second you have to know how much you are going to spend and what you are going to tax to cover the expenditures. It is called a zero based budget or no deficit spending. Third you have to know who can pay the taxes. You cannot get blood out of a turnip or you make a lot you get taxed a lot. There is no money where there is no money. (Yogi Berra) It is time to realize there is no free lunch.

Paul Jordan
Mon, 09/25/2017 - 12:19pm

So, how it sounds like the difference between "public private partnership" in road construction and the usual process of issuing bonds is that the debt is held by the construction companies.

How is this any improvement? The state still owes the money! The only difference seems to be that the companies will sell the debt to investors as opposed to the state doing so more directly.

Much ado about nothing, it seems to me.

Barbara Jeanne
Mon, 09/25/2017 - 2:00pm

Will these companies then funnel money into the campaign coffers of politicians like what has happened with charter school companies? (Asking for a friend...)

Matt
Mon, 09/25/2017 - 2:06pm

Perfect time and place to go with an "Easy Pass" type system! Seem to work well everywhere they use them - they are all over Europe along with Illinois everywhere expect Michigan. Good way to put fees on those who use the infrastructure and can be adjusted to reflect the vehicle type/impact.

Karl Biasi
Wed, 09/27/2017 - 11:11pm

I have and use I-Pass and it works beautifully even on E-Pass system. Get with it Michigan. Our roads are a enbarasment.

John Saari
Mon, 09/25/2017 - 2:17pm

Government should not go into debt, especially for local roads. We must tax/fee/license the users of the interstates.

Thomas
Mon, 09/25/2017 - 4:50pm

There is no free lunch. If the government (i.e. us taxpayers) cannot come up with the money either to pre fund via bonds or pay as you go via an operating expense, then how can fund a private company to do it for us? Sounds like another privatization Wolf in Sheep's clothing.

Suze
Tue, 09/26/2017 - 12:03am

For sure higher taxes and toll roads are in the near future. As in the last sentence this may be the "right combination"

James Jacob
Tue, 09/26/2017 - 12:10am

Excuse me... Your article states that the private sector is "paying for the construction" is simply naive. The public is paying for the construction and financing over 25 years to a private firm. Is this the best use of our limited public funds? People get upset about the growth of our national debt this is no different.

karla
Tue, 09/26/2017 - 12:38am

Here we go again. Privatize profit, publicize costs. Thanks all of you conservative voters, you're ruining our state and country with your stupid, uninformed votes.

duane
Wed, 09/27/2017 - 12:36am

Why not sell that part of I-75 to a private company, having them responsible for maintenance, snow removal, etc. and let them turn it into a toll road? Isn't Illinois doing that with the highways in and around Chicago?

Nathan DuPhene
Mon, 10/16/2017 - 9:28pm

The fact that the possibility of State Bank financing instead of public bonds or private contracts shows the bias of the writer and/or editor of this article. The baseline assumption made by officials, (that the private sector has some magic financing options that could somehow be cheaper than public bonds or State Bank financing) isn't even questioned. It's time for political reporters to get informed and start demanding answers rather than taking notes and writing puff pieces.