Funding US Infrastructure

Funding US Infrastructure Funding US Infrastructure

NW Financial Group, LLC

Infrastructure is not freeInfrastructure is not free

““You can pay me nowYou can pay me now

or pay me later”or pay me later”

Fram Oil Filter ManFram Oil Filter Man


Transportation Transportation Wheel of FortuneWheel of Fortune


Gas TaxToll Old Roads

Monetization

Toll New Roads

PPP GPS

Congestion Tax

Motor Vehicle Fees

Highway ConstituencyHighway Constituency

The The average driveraverage driver in the US: in the US:

travels 13,600 miles per yeartravels 13,600 miles per year

average gas mileage of 19.6 mpgaverage gas mileage of 19.6 mpg

purchases 706 gallons of gas/year purchases 706 gallons of gas/year

cost of 1 penny on gas tax =cost of 1 penny on gas tax =

$7.06 PER ANNUM$7.06 PER ANNUM


Cost to DriveCost to Drive IRS Cost Study allows 58.5 cents per mile in 2008 or a total of IRS Cost Study allows 58.5 cents per mile in 2008 or a total of

$7,605 per annum$7,605 per annum for an average driver for an average driver

An average driver, at 13,000 miles per year, pays less than $400 An average driver, at 13,000 miles per year, pays less than $400 per year for the right to expect paved and well maintained roads per year for the right to expect paved and well maintained roads statewide (Ohio example)statewide (Ohio example)

Per AnnumPer Annum Per MilePer MileState Gas TaxState Gas Tax $182.00$182.00 1.4 cents1.4 centsFederal Gas TaxFederal Gas Tax $130.00$130.00 1.0 cents1.0 centsDrivers LicenseDrivers License $ 24.00$ 24.00 0.18 cents0.18 centsVehicle RegistrationVehicle Registration $ 34.50$ 34.50 0.27cents0.27cents

TotalTotal $370.50$370.50 2.85 cents2.85 cents



Drivers readily spend thousands of dollars a year Drivers readily spend thousands of dollars a year on their cars, maintenance and insurance but balk on their cars, maintenance and insurance but balk at use based gas taxes to rebuild the roads they at use based gas taxes to rebuild the roads they are ridingare riding

Cost to average driver of 10 cent increase in gas Cost to average driver of 10 cent increase in gas tax would be $70 per yeartax would be $70 per year

10 cent gas tax increase would fund 10 cent gas tax increase would fund $6 Billion$6 Billion in in capital investment in a state like Ohiocapital investment in a state like Ohio

Tolls or Taxes?Tolls or Taxes?

Gas Tax vs. TollsGas Tax vs. Tolls

Assuming a car gets 20 MPG and the gas tax is 26 Assuming a car gets 20 MPG and the gas tax is 26 cents the cost is 1.4 cents cents the cost is 1.4 cents per mileper mile

The cheapest toll roads in the country cost more The cheapest toll roads in the country cost more than 5 cents per milethan 5 cents per mile

In Texas new toll roads are being priced at 14 In Texas new toll roads are being priced at 14 cents plus per mile cents plus per mile


Indiana Toll Road RevisitedIndiana Toll Road Revisited

Leveraging the Gas Tax

Annual Cost of $3.8 Billion in Leverage $195 Million

Gas Purchased by Average Driver 706 gallons/year

Indiana Drivers 6,000,000 Licensed

Value of 1 cent in Gas Tax 42$ Million

Gas Tax Increase Needed 0.046$

Cost to Average Driver 32.50$ PER ANNUM


Indiana Toll Road PPPIndiana Toll Road PPP

Gave up 75 years of revenue for 10 years of Gave up 75 years of revenue for 10 years of capital fundingcapital funding

Provided non-compete for 75 yearsProvided non-compete for 75 years

Car toll will rise from $4.65 to over $145 over the Car toll will rise from $4.65 to over $145 over the full 75 years and perhaps as much as $400full 75 years and perhaps as much as $400

Excess revenues go to corporate profits not the Excess revenues go to corporate profits not the transportation networktransportation network



Protect overall transportation systemProtect overall transportation system• Minimize siphoning for private Minimize siphoning for private

profitsprofits• Maximize recycling of positive Maximize recycling of positive

cash flowscash flows Assure reasonable user costsAssure reasonable user costs

• Oversight of toll escalation Oversight of toll escalation factorsfactors

• Protect against congestion on Protect against congestion on free road alternativesfree road alternatives

TransparencyTransparency• No rushed dealsNo rushed deals• Open and public processOpen and public process• Full disclosure of costs to Full disclosure of costs to

usersusers

So what So what isis the “Public Interest”? the “Public Interest”?


ActualActual• Accelerated DeliveryAccelerated Delivery• Risk TransferRisk Transfer• Potential Operating BenefitPotential Operating Benefit

PoliticalPolitical• Upfront DollarsUpfront Dollars• Offloading of responsibilities for operations Offloading of responsibilities for operations

and toll increasesand toll increases

Advantages of PPPAdvantages of PPP


Cost of Capital produces less valueCost of Capital produces less value

Control of public roadways is surrenderedControl of public roadways is surrendered

Control of future economic development is Control of future economic development is impactedimpacted

Loss of dollars for transportation systemLoss of dollars for transportation system• Texas SH121- $2 billion, captured the Texas SH121- $2 billion, captured the

Public Ownership DividendPublic Ownership Dividend

Disadvantages of PPPDisadvantages of PPP


Really means it is an unfeasible project based on Really means it is an unfeasible project based on tolling modeltolling model

No more than a performance management No more than a performance management contract for an asset that rarely underperforms contract for an asset that rarely underperforms when publically runwhen publically run

States are really entering into a long term annual States are really entering into a long term annual payment no different than bonding for the road payment no different than bonding for the road and owning it themselvesand owning it themselves

Concept is based on electric utility production, in Concept is based on electric utility production, in reality roads are rarely “off-line”reality roads are rarely “off-line”

Availability PaymentsAvailability Payments


Public monetization's produce more dollars than Public monetization's produce more dollars than private monetization's and keep all dollars in the private monetization's and keep all dollars in the public transportation network – public transportation network – Texas SH121Texas SH121

Overreaching in terms of leverage leads to Overreaching in terms of leverage leads to failure – failure – New JerseyNew Jersey

Public is now focused on cost to user of Public is now focused on cost to user of monetization rather than just upfront benefit – monetization rather than just upfront benefit – Chicago ParkingChicago Parking

Monetization is really a corridor tax on toll users Monetization is really a corridor tax on toll users to pay for other non toll roadsto pay for other non toll roads

The Future Environment for PPPThe Future Environment for PPP


Public capital availability is not an Public capital availability is not an issueissue

Investors accept and respect US Investors accept and respect US public enterprise toll roadspublic enterprise toll roads

Public Toll roads Public Toll roads willwill aggressively aggressively raise tollsraise tolls

Build America Bonds proves Build America Bonds proves corporate marketcorporate market

Tax exempt market still deepTax exempt market still deep

PUBLIC OWNERSHIP DIVIDENDPUBLIC OWNERSHIP DIVIDEND

PPP Lessons since 2006PPP Lessons since 2006


Very viable for project acceleration Very viable for project acceleration through a design/build approachthrough a design/build approach

Very viable for risk transfer for Very viable for risk transfer for difficult or troubled projects – difficult or troubled projects – Miami Port Tunnel, Colorado NW Miami Port Tunnel, Colorado NW Pkwy.Pkwy.

Not desirable for financing or Not desirable for financing or concession approach due to high concession approach due to high cost of equity capital cost of equity capital

And And nownow lack of high leverage low lack of high leverage low cost debt to blend down capital cost debt to blend down capital costscosts

What is the Future of PPP?What is the Future of PPP?

Funding US Infrastructure

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