BRENT SPENCE BRIDGE REPLACEMENT/REHABILITATION PROJECT

INITIAL FINANCIAL PLAN

PROJECT IDENTIFIER(S): HAM-71/75-0.00/0.22, PID 75119
HAM-71-0.00, PID 89077 HAM-75-0.22, PID 89068 Kentucky Project Item No. 6-17

DECEMBER 31, 2013

Submitted to: Federal Highway Administration Submitted by: Ohio Department of Transportation Kentucky Transportation Cabinet

TABLE OF CONTENTS

TABLE OF CONTENTS
SUMMARY ............................................................................................................... iii
PROJECT OVERVIEW ............................................................................................................... iii PROJECT MANAGEMENT AND OVERSIGHT ............................................................................. iii PROJECT HISTORY ................................................................................................................... iii OVERVIEW OF THE INITIAL FINANCIAL PLAN .......................................................................... iv INITIAL FINANCIAL PLAN ORGANIZATION ............................................................................... iv

INTRODUCTION......................................................................................................... 1
PROJECT SPONSORS ............................................................................................................... 1 PROJECT DESCRIPTION ........................................................................................................... 1 PROJECT HISTORY ................................................................................................................... 3 PROJECT MANAGEMENT AND OVERSIGHT ............................................................................. 4

CHAPTER 1. PROJECT COST ESTIMATE ...................................................................... 5

1.1 1.2 1.3 1.4 1.5 1.6 CURRENT COST ESTIMATE ............................................................................................. 5 COST ESTIMATING METHODOLOGY............................................................................... 7 INFLATION ASSUMPTIONS ............................................................................................. 8 EXPENDITURES TO DATE AND COST TO COMPLETE ....................................................... 8 FINANCING AND INTEREST COSTS ................................................................................. 8 OPERATIONS AND MAINTENANCE COSTS ...................................................................... 9

CHAPTER 2. IMPLEMENTATION PLAN..................................................................... 11

2.1 2.2 2.3 PROJECT DELIVERY APPROACH .................................................................................... 11 PROJECT SCHEDULE ..................................................................................................... 11 CURRENT PROJECT STATUS.......................................................................................... 12

CHAPTER 3. PROJECT FUNDING ............................................................................. 13

3.1 3.2 FINANCIAL PLAN APPROACH ....................................................................................... 13 PROJECT FUNDING ...................................................................................................... 14

Initial Financial Plan

TABLE OF CONTENTS

CHAPTER 4. PROJECT CASH FLOW .......................................................................... 17

4.1 4.3 PROJECT EXPENDITURE DETAIL.................................................................................... 17 CASH MANAGEMENT TECHNIQUES ............................................................................. 19

CHAPTER 5. RISK IDENTIFICATION AND OTHER FACTORS ....................................... 20

5.1 5.2 5.3 5.4 5.5 5.6 5.7 REQUIRED LEGISLATIVE AND OTHER ACTIONS............................................................. 20 PROJECT COST RISKS AND MITIGATION STRATEGIES ................................................... 21 PROJECT SCHEDULE RISKS AND MITIGATION STRATEGIES ........................................... 22 FINANCING AND REVENUE RISKS AND MITIGATION STRATEGIES ................................ 24 PROCUREMENT RISKS AND MITIGATION STRATEGIES ................................................. 25 IMPACT ON STATEWIDE TRANSPORTATION PROGRAMS ............................................. 25 FUTURE UPDATES ........................................................................................................ 26

LIST OF TABLES AND FIGURES

Figure Intro-1. Brent Spence Bridge Study Area ................................................................................................ 2 Table 1-1. Brent Spence Bridge Project Cost Estimate (in year-of-expenditure dollars) ..................................... 5 Figure 1-1. Brent Spence Bridge Project Costs by Element (in year-of-expenditure dollars) .............................. 6 Table 1-2. Brent Spence Bridge Project Costs by Element (in year-of-expenditure dollars) ............................... 6 Table 1-3. Cost Estimating Methodology ........................................................................................................... 7 Table 1-4. Cost to Complete (Expenditures to Date and Projected Future Expenditures by State Fiscal Year) .. 8 Table 1-5. Brent Spence Bridge Operations and Maintenance Costs ($ in millions) ........................................... 9 Figure 2-1. Project Schedule ........................................................................................................................... 12 Table 2-1. Current Activities and Status........................................................................................................... 12 Table 3-1. Brent Spence Bridge Project Funding by Source and State Fiscal Year ......................................... 16 Figure 4-1. Illustrative Sources and Uses of Funds During Construction ......................................................... 17 Table 4-1. Project Outlays by Segment (in year-of-expenditure dollars) .......................................................... 18 Table 4-2. Project Outlays by State (in year-of-expenditure dollars) ................................................................ 18 Table 5-1. Required Legislative and Other Governmental Actions Risks and Mitigation Strategies............... 20 Table 5-2. Project Cost Risks and Mitigation Strategies ................................................................................ 21 Table 5-3. Project Schedule Risks and Mitigation Strategies ........................................................................ 22 Table 5-4. Financing and Revenue Risks and Mitigation Strategies.............................................................. 24 Table 5-5. Procurement Risks and Mitigation Strategies ............................................................................... 25

Initial Financial Plan

ii

SUMMARY

SUMMARY
This document presents the Initial Financial Plan (IFP or Financial Plan) for the Brent Spence Bridge Replacement/Rehabilitation Project (the Project). This Financial Plan includes the current schedule for delivering the Project, current cost estimates and expenditure data through State Fiscal Year (SFY) 2013, and the latest financial analyses developed for the Project, including consideration of the potential role for a publicprivate partnership (P3) approach.

PROJECT OVERVIEW
The Brent Spence Bridge Replacement/Rehabilitation Project includes improvements to a 7.8-mile corridor of Interstate 75 (I-75) within the State of Ohio and the Commonwealth of Kentucky that includes the existing Brent Spence Bridge over the Ohio River. The purpose of the Project is to improve the operational characteristics within the I-75 corridor for both local and through traffic. Specific objectives for the Project are to: Improve traffic flow and level of service; Improve safety; Correct geometric deficiencies; and Maintain connections to key regional and national transportation corridors.

PROJECT MANAGEMENT AND OVERSIGHT

The State of Ohio, acting through the Ohio Department of Transportation (ODOT), and the Commonwealth of Kentucky, acting through the Kentucky Transportation Cabinet (KYTC), are collectively the project sponsors for the Project, with ODOT serving as the designated lead agency. The states are operating under a bi-state agreement, the third supplement to which was entered into on December 12, 2012 which establishes the roles and responsibilities of each state and calls for the creation of a Bi-state Management Team (BSMT) to jointly oversee the Project.

PROJECT HISTORY
The Project has been under consideration and development since 2000, with recent milestones as highlighted below: 2011 Bridge Type Selection Report completed (March 2011)

Initial Financial Plan

iii

SUMMARY

Preferred Alternative Verification Report completed (May 2011) 2012 Environmental Assessment (EA) approved for public availability (March 2012) Finding of No Significant Impact (FONSI) received (August 2012) Options Analysis study recommendations reviewed and action plans finalized Right-of-way acquisition process initiated in Ohio

2013

The states anticipate the Project to be complete and open to traffic by SFY 2020.

OVERVIEW OF THE INITIAL FINANCIAL PLAN

The current total project cost estimate for the Project is $2.63 billion (in year-of-expenditure dollars). This estimate is exclusive of interest and financing costs and operations and maintenance (O&M) costs. With preliminary estimates of financing and interest costs, the estimated total upfront funding that will need to be raised for the Project is $3.57 billion. The Project is presently being considered for delivery using a design-build-finance-operate-maintain (DBFOM) approach via an availability payment (AP) form of a public-private partnership to construct, operate, and maintain the Project. Funding for the Project is expected to be derived primarily from Project tolling, with financial support for development activities provided by both states. Toll revenues are expected to be leveraged through a combination of capital market financing and, to the extent available, the Transportation Infrastructure Finance and Innovation Act (TIFIA) federal financing program.

INITIAL FINANCIAL PLAN ORGANIZATION

This document demonstrates the states commitment to completing the Project and to sound financial planning, as required by Section 106(h) of Title 23, as amended by Section 1904(a)(2) of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) and further amended by Section 1503(a)(4) of Moving Ahead for Progress in the 21st Century (MAP-21). This document addresses the following elements: Introduction provides an overview of the Project by section, describes the management plan, and provides a history of the Project to date, including a review of the status of all ongoing activities. Chapter 1. Project Cost Estimate provides a detailed estimate of Project costs, summarizes the costs incurred to date, and provides detail on key cost-related assumptions. Chapter 2. Implementation Plan offers information on the planned delivery method and schedule for completing the Project, including information regarding the assignment of responsibilities and a summary of the necessary permits and approvals. Chapter 3. Project Funding describes the Projects plan of finance, including the anticipated sources of funds and financing methods.

Initial Financial Plan

iv

SUMMARY

Chapter 4. Project Cash Flow provides an annual construction cash flow schedule and an overview of the planned sources and uses of funds as well as addressing the states plans for utilizing various cash management techniques. Chapter 5. Risk Identification and Other Factors identifies anticipated risks that could affect the Project, particularly the Financial Plan and reviews mitigation strategies to manage such risks; also addresses the anticipated financial impact of the Project on each states transportation program.

The effective date for expenditure information in this IFP is June 30, 2013. The effective date for future annual updates will be June 30 each year. Annual updates will be submitted to FHWA for approval within 90 days of the effective date, or by September 30 each year.

Initial Financial Plan

INTRODUCTION

INTRODUCTION
This document presents the Initial Financial Plan (IFP or Financial Plan) for the Brent Spence Bridge Replacement/Rehabilitation Project (the Project), including current cost estimates, expenditure data through State Fiscal Year (SFY) 2013, the current schedule for delivering the Project, and the financial analyses developed for the Project, including the potential role for a public-private partnership approach (P3). This IFP has been prepared generally in accordance with FHWAs Interim Major Project Financial Plan Guidance dated September 24, 2012 and in accordance with 23 USC 106(h)(3)(C), MAP-21 1503(a)(4)(B).

PROJECT SPONSORS
The State of Ohio, acting through the Ohio Department of Transportation (ODOT), and the Commonwealth of Kentucky, acting through the Kentucky Transportation Cabinet (KYTC), are collectively the project sponsors for the Brent Spence Bridge Replacement/Rehabilitation Project.

PROJECT DESCRIPTION
ODOT and KYTC plan to improve a 7.8-mile corridor of Interstate 75 (I-75) within the State of Ohio (state line mile 2.7) and the Commonwealth of Kentucky (state line mile 186.7). The southern limit of the Project is 5,000 feet south of the midpoint of the Dixie Highway Interchange on I-71/I-75 in Fort Wright, south of Covington, Kentucky. The northern limit of the Project is 1,500 feet north of the midpoint of the Western Hills Viaduct Interchange on I-75 in Cincinnati, Ohio. The eastern and western limits of the study area generally follow the existing alignment of I-75 (see Figure 1). Within the Greater Cincinnati/Northern Kentucky region, I-75 is a major thoroughfare for local and regional mobility. The I-75 corridor also is a major north-south transportation corridor, one of the busiest freight movement (trucking) routes, and an important link for the local, regional, and national economies. Locally, I-75 connects to I-71, I-74, and US Route 50. The Brent Spence Bridge provides an Interstate connection over the Ohio River and carries both I-71 and I-75 traffic. The bridge also facilitates local travel by providing access to downtown Cincinnati (Hamilton County), Ohio and Covington (Kenton County), Kentucky. Safety, congestion, and geometric problems exist on the current structure and its approaches. The Brent Spence Bridge, which opened to traffic in 1963, was designed to carry 80,000 vehicles per day. Currently, approximately 160,000 vehicles per day use the bridge and traffic volumes have been projected to increase to over 230,000 vehicles per day by 2035 based on a non-tolled scenario completed during the Projects Preliminary Engineering phase.

The purpose of the Project is to improve the operational characteristics within the I-75 corridor for both local and through traffic. Specific objectives are to:

Initial Financial Plan

INTRODUCTION

Improve traffic flow and level of service; Improve safety; Correct geometric deficiencies; and Maintain connections to key regional and national transportation corridors.
Figure Intro-1. Brent Spence Bridge Study Area

The Project consists of the following three project segments:

Initial Financial Plan

INTRODUCTION

Kentucky Approach

The Kentucky approach consists of the reconstruction of the Kyles Lane and Dixie Highway interchanges and the construction of a collector-distributor system to access the Covington local connections. In addition to the interchange reconstruction, additional capacity is being constructed on the interstate mainline. Project limits begin at the southern terminus of the Dixie Highway Interchange and extends to the Brent Spence Bridge for a total of length of approximately 4.2 miles.
Ohio Approach

The Ohio approach consists of reconstruction of the I-71/I-75/US-50 interchange as well as capacity improvements on I-75 from the Ohio/Kentucky state line through the Western Hills Viaduct interchange. The Western Hills Viaduct interchange reconstruction is also part of the Ohio approach segment.
River Bridges

The river bridges segment consists of construction of a new Ohio River crossing and the major rehabilitation to the existing Brent Spence Bridge. The new Ohio River Bridge and the rehabilitated Brent Spence Bridge will provide additional capacity in the corridor. The new parallel structure immediately adjacent to the existing Brent Spence Bridge will be a double deck configuration and will carry I-75 southbound (SB) and I-71 SB on the upper deck. The lower deck will carry I-75 northbound (NB) and local traffic SB via a CD segment. The existing Brent Spence Bridge will be rehabilitated and reconfigured to carry I-71 NB traffic on the upper deck and local traffic NB via a CD segment on the lower deck.

PROJECT HISTORY
The Project has been under consideration and development since 2000, with key milestones as highlighted below: 2000 Ohio-Kentucky-Indiana Regional Council of Governments (OKI) and the Miami Valley Regional Planning Commission (MVRPC) via a partnership with ODOT and KYTC undertook a Major Investment Study (MIS) of the I-75 corridor, North-South Transportation Initiative (completed February 2004) KYTC initiated an engineering feasibility study to investigate bridge replacement options, Feasibility and Constructability Study of the Replacement/Rehabilitation of the Brent Spence Bridge (completed May 2005) Preliminary Engineering / NEPA activities started (June 2005) Planning Study completed (September 2006) Conceptual Alternatives Study completed (April 2009) Bridge Type Selection Report completed (March 2011) Preferred Alternative Verification Report completed (May 2011) Environmental Assessment (EA) approved for public availability (March 2012) Finding of No Significant Impact (FONSI) received (August 2012)

2003

2005 2006 2009 2011 2012

Initial Financial Plan

INTRODUCTION

Options Analysis study initiated (December 2012) 2013 Options Analysis study recommendations reviewed and action plans finalized Right-of-way acquisition process initiated in Ohio

PROJECT MANAGEMENT AND OVERSIGHT

The Project will be overseen jointly by ODOT and KYTC, with ODOT as the designated lead agency. The states are operating under a bi-state agreement, the third supplement to which was entered into on December 12, 2012 which establishes the roles and responsibilities of each state and calls for the creation of a Bi-state Management Team (BSMT) to jointly oversee the Project. This agreement will be updated periodically as the Project progresses through the development phases and project delivery and financing plans are more fully established and mutual agreement is reached regarding the responsibilities of each state.

Initial Financial Plan

CHAPTER 1.

PROJECT COST ESTIMATE

CHAPTER 1. PROJECT COST ESTIMATE

This chapter provides a detailed description of Project cost elements and current cost estimates in year-ofexpenditure dollars for each element. This chapter also summarizes the costs incurred to date and cost to complete for the Project and provides detail on key cost-related assumptions.

1.1

CURRENT COST ESTIMATE

The current total project cost estimate for the Brent Spence Bridge Replacement/Rehabilitation Project is $2.63 billion (in year-of-expenditure dollars), as shown in Table 1-1. This estimate is exclusive of interest and financing costs and operations and maintenance (O&M) costs, which are addressed separately (see discussion below). With preliminary estimates of financing and interest costs, the estimated total upfront funding that will need to be raised for the Project is $3.57 billion, as discussed further below (also see Chapters 3 and 4 for additional information on the preliminary plan of finance).
Table 1-1. Brent Spence Bridge Project Cost Estimate (in year-of-expenditure dollars)

Project Segment Kentucky Approach River Bridges Ohio Approach Other Costs Preliminary Engineering/ Design/ Construction Engineering Inspection Toll System Oversight Total Costs (2)
(1) (2) Project costs do not include financing and interest costs. Total may not sum due to rounding.

Total Cost (1) 630.5 707.6 1,007.4

270.6
13.5 2.3

2,631.9

The current cost estimate differs from the cost estimate resulting from the Cost Estimate Review (CER) conducted by the Federal Highway Administration (FHWA) and the two states in March 2012. The cost estimate resulting from the CER was forecasted to be between $2.471 billion and $2.884 billion. The CER also identified a forecasted cost of $2.765 billion as the 70 percent confidence level cost (in year-of-expenditure dollars). The primary causes for differences between that cost estimate and the current estimate are changes in the project configuration, which are the result of a Practical Design and Value Engineering Workshop conducted with representatives from ODOT, KYTC, and FHWA in October 2012. The primary objective of the workshop was to produce alternative technical concepts to the preferred Alternative I. The result was development of an alternative approach, referred to as Alternative Ia, with the following primary changes: Reduction in main span pier spacing from 1,000 feet to 870 feet (approval received from the Coast Guard in January 2013);

Initial Financial Plan

CHAPTER 1.

PROJECT COST ESTIMATE

Use of network (instead of inclined) tied arch bridges for navigation span only; and Reduced shoulders, from 14 feet to 8 feet.

There also have been changes to inflation assumptions and other cost factors since the CER, which are reviewed further below. Table 1-2 and Figure 1-1 provide a breakdown of Project costs by element, in year-of-expenditure dollars.
Table 1-2. Brent Spence Bridge Project Costs by Element (in year-of-expenditure dollars)

Cost Element Preliminary Engineering/ Design / Construction Engineering Inspection Right of Way Utilities Construction Contingency Toll System Oversight TOTAL

Cost 270.6 76.0 158.0 1,821.1 290.4 13.5 2.3 2,631.9

Figure 1-1. Brent Spence Bridge Project Costs by Element (in year-of-expenditure dollars)

PE/Design/CEI Right of Way Utilities Construction Contingency Toll System Oversight TOTAL 13.6 2.3 290.4 270.6 76.0 158.0

1,000

2,000

3,000

1,821.1

2,631.9

Initial Financial Plan

CHAPTER 1.

PROJECT COST ESTIMATE

1.2

COST ESTIMATING METHODOLOGY

Table 1-3. Cost Estimating Methodology

Table 1-3 provides a summary of the cost estimating methodology for each of the primary project elements.

Cost Element Preliminary Engineering/ Design/ Construction Engineering Inspection

Cost Estimate Inputs/Methodology Project development costs to be borne by both states. Costs include costs to conduct preliminary engineering and design activities prior to the P3 procurement as well as construction engineering inspection during the course of construction. Final engineering will be part of the alternative delivery contracts for the Brent Spence Bridge and both approaches. All public and private project-related utility relocation and new utility construction. Costs include those related to telephone, electric, gas, fiber optics, water, and sewer, and are based on the most up-to-date cost information available. Appraisals, administration, management, and acquisition of required right of way. Costs include completed and anticipated right of way acquisition and are based on the most upto-date market information available. Estimated cost of construction. Current estimated costs to construct new bridge across Ohio River, rehabilitate existing bridge, and redesign approaches in both Ohio and Kentucky, based on 2012 FHWA Cost Estimate Review and subsequent project development changes. Contingency to cover additional costs associated with the current level of design and to address unforeseen circumstances that could result in additional cost. Current contingency is 17% of the estimated construction and utility costs (on a net present value basis), consistent with ODOT Division of Estimating practices for a project of approximately 30% design completion. Contingency factors have been reviewed and adjusted based on the 2012 FHWA Cost Estimate Review that assessed the likelihood and potential cost of various major project risk items using a monte-carlo simulation to evaluate the overall potential cost impact. Toll collection and enforcement capital costs. Capital costs for the toll system include the cost for equipment and necessary infrastructure located on the roadside, in the pavement, or over the roadway to detect vehicles and electronically gather information for payment collection. Other capital costs included the cost of all associated systems, software and offsite components to process the tolls collected. Oversight costs borne by the states. Includes technical, legal, and financial contractual services, and internal labor.

Utilities

Right of Way Acquisition

Construction

Contingency

Toll System Costs

Oversight

Initial Financial Plan

CHAPTER 1.

PROJECT COST ESTIMATE

1.3

INFLATION ASSUMPTIONS

For the purposes of this IFP, the project sponsors have applied an inflation rate of 2.70 percent, which represents the 10-year moving average of the Consumer Price Index (CPI) for the region. This rate is lower than that applied in the FHWA CER process, reflecting the anticipated impact of market conditions and the competitive environment for projects of the scale of the Brent Spence Bridge Replacement/Rehabilitation Project, as evidenced by recent experience on other major river crossings in the area. Inflation assumptions will continue to be reviewed and adjusted as the Project proceeds through the development phases.

1.4

EXPENDITURES TO DATE AND COST TO COMPLETE

ODOT and KYTC have incurred approximately $89 million of costs to date (expended and encumbered funds). This consists of approximately $39.3 million for preliminary engineering and design and $49.6 million for right of way and utilities. This leaves a cost to complete estimate of approximately $2.54 billion (see Table 1.4 for each states expenditures to date and anticipated costs to complete the Project, exclusive of financing and interest costs). Future costs for the River Bridges segment are allocated between the states based on lane miles within each state (roughly 80 percent Kentucky, 20 percent Ohio). In addition, each state is anticipated to be directly responsible for the costs for each of the two approach segments.
Table 1-4. Cost to Complete (Expenditures to Date and Projected Future Expenditures by State Fiscal Year)

SFY Thru 2013 Total Cost to Date 2014 2015 2016 2017 2018 2019 2020 Total Cost to Complete Grand Total Project Costs

KY 20.9 20.9 28.8 20.2 115.2 277.6 317.6 291.0 284.9 1,335.2 1,356.1

OH 68.1 68.1 47.6 34.9 149.8 235.4 246.3 246.6 247.1 1,207.7 1,275.8

Total 89.0 89.0 76.4 55.1 265.0 513.0 563.9 537.6 531.9 2,542.9 2,631.9

1.5

FINANCING AND INTEREST COSTS

At this time, financing and interest costs are under development and refinement as part of the development of the overall financing strategy for the Project. Current estimates of the financing and interest costs during the construction period (i.e., before toll revenues are available) equal $937 million. This estimate includes interest costs during the construction period, issuance costs, and funding of necessary reserve funds to facilitate the plan of finance. The estimate is based on the currently anticipated financing structure for the Project, feedback from industry participants, prevailing market rates, and recent comparable market activity. Future annual

Initial Financial Plan

CHAPTER 1.

PROJECT COST ESTIMATE

updates to this IFP will include further refinement of financing and interest cost estimates (see Chapter 3 for a discussion of the financing approaches under consideration).

1.6

OPERATIONS AND MAINTENANCE COSTS

At this point in time, ODOT and KYTC have developed preliminary estimates of operations and maintenance (O&M) costs, including routine roadway O&M costs related to the bridge and roadways as well as related to anticipated tolling operations. These costs are preliminary in nature and will be further updated as project delivery plans become more certain. Further, given the competitive procurement process that is anticipated for the Project, and to protect the bid process, only high-level information is provided. The estimates provided in Table 1-6 reflect those developed in the Options Analysis. Routine O&M costs were established based on historical expenses within the project corridor applied to the proposed project configuration. O&M cost estimates are based on historic O&M costs for the interstate routes in the project area and the existing Brent Spence Bridge, as provided by ODOT. These costs were distributed into costs per highway lane mile, and then summarized for both approaches and the river bridges. The tolling O&M component was derived using standard industry assumptions for similar facilities. Toll collection assumes the customer will either use a registered transponder to pay the toll or a photo of the vehicles license plate will be captured for processing and enforcement. Maintenance costs include the annual routine maintenance of the toll system and recurring life cycle replacement costs. Operations costs include the costs to collect the tolls through offsite account management operations. The states have not yet established a toll policy. Therefore, this analysis includes certain assumptions, which are based on industry precedent. Such assumptions will be refined based on inputs from the states as legislation and policies are formulated.
Table 1-5. Brent Spence Bridge Operations and Maintenance Costs ($ in millions)

ROADWAY AND BRIDGES O&M COSTS

O&M Cost #1 - KY Approach O&M Cost #2 - OH Approach O&M Cost #3 River Bridges O&M Cost #4 - Customer Service Center O&M Cost #5 - Video Processing Center O&M Cost #6 - Routine Maintenance Total Operations & Maintenance (1) Lifecycle Cost #1 KY Approach

FIRST YEAR COSTS (YOE)

0.2 0.3 0.1 0.6 11.7 3.0 16.1

TOTAL COSTS (YOE)

20.0 28.2 6.3 917.8 1,298.2 37.8 2,308.3 485.2

TOTAL COSTS (PV) (2)

4.6 6.4 1.4 176.8 271.9 8.6 469.8 63.1

Initial Financial Plan

CHAPTER 1.

PROJECT COST ESTIMATE

ROADWAY AND BRIDGES O&M COSTS

Lifecycle Cost #2 OH Approach Lifecycle Cost #3 River Bridges Lifecycle Cost #4 - Equipment Replacement Total Lifecycle Costs (1) Total (1)
(1) (2)

FIRST YEAR COSTS (YOE)

16.1

TOTAL COSTS (YOE)

602.9 718.3 168.2 1,974.7 4,282.9

TOTAL COSTS (PV) (2)

85.3 60.4 31.6 240.4 710.3

Totals may not sum due to rounding. A discount rate of 5% is used as a proxy for the states long term cost of capital.

Initial Financial Plan

10

CHAPTER 2.

IMPLEMENTATION PLAN

CHAPTER 2. IMPLEMENTATION PLAN

This chapter provides information on the planned delivery approach and implementation schedule for the Project. It also provides a summary of the environmental review process and necessary permits and approvals.

2.1

PROJECT DELIVERY APPROACH

The Brent Spence Bridge Replacement/Rehabilitation Project is presently being considered for delivery using a design-build-finance-operate-maintain (DBFOM) approach via an availability payment (AP) form of a publicprivate partnership to construct, operate, and maintain the Project. This approach involves a private sector partner assuming responsibility for design, construction, financing, operation, and maintenance of the Project over a specified period of time (e.g.; 35 years). In this delivery model, the public sector will compensate the private partner using a series of availability payments (and, likely, upfront milestone payments), on the condition that the facility is available and meets agreed-upon performance standards. The states currently anticipate that certain sections of the Project may be maintained by KYTC outside of the DBFOM concession in order to facilitate governmental purpose tax-exempt financing. The financial aspects of the planned approach are discussed further in Chapter 3. In September 2013, ODOT and KYTC completed an Options Analysis to assess the quantitative and qualitative merits of various alternative project delivery approaches. Through that effort, the states explored whether alternative delivery options are appropriate for the Project, while still obtaining the overall project goals of 1) improving traffic flow and the level of service, 2) improving safety, 3) correcting geometric deficiencies, and 4) maintaining connections to key regional and national transportation corridors. The consideration of alternative approaches is necessitated at least in part by the limited availability of federal funding currently and anticipated in the future. At existing funding levels, constructing the Project would absorb both states entire major new funding capacity for several years. Therefore, alternative delivery and funding options, including tolling, are necessary to ensure the Project is built in the foreseeable future. The Options Analysis initially considered four primary delivery alternatives: 1) design-bid-build; 2) design-build; 3) availability payment concession; and 4) toll revenue concession. For both qualitative and quantitative reasons, ODOT and KYTC chose to eliminate the design-bid-build alternative in favor of the cost and schedule benefits proven to be available through either a design-build or DBFOM delivery model. Similarly, following a market sounding exercise suggesting little market appetite as well as a high level quantitative analysis suggesting that toll revenues would not generate sufficient equity return to make a toll concession attractive to industry without a significant public subsidy, the full toll revenue concession alternative was eliminated. Thereafter, much of the focus has been on the DBFOM/availability payment concession as the potential delivery approach.

2.2

PROJECT SCHEDULE

Resulting from the FHWA CER process and associated adjustments to the project schedule, the Project is now anticipated to be complete by SFY 2020 (see Figure 2-1).

Initial Financial Plan

11

CHAPTER 2.

IMPLEMENTATION PLAN

Figure 2-1. Project Schedule

State Fiscal Year

Environmental Preliminary Engineering/Design Right-of-Way Acquisition Utilities Construction

2013

2014

2015

2016

2017

2018

2019

2020

2.3

CURRENT PROJECT STATUS

Table 2-1. Current Activities and Status

Table 2-1 provides the current status of key activities for the Project. Project Section
Overall Project Kentucky Approach

Current Activities
Environmental Preliminary Engineering ROW Acquisition Utilities Preliminary Engineering ROW Acquisition Utilities Preliminary Engineering

Approximate Status
100% (update anticipated) 30% 0% 0% 30% 40% 10% 30%

Ohio Approach

Bridge Structures

NEPA Status The Project received a Finding of No Significant Impact (FONSI) on August 9, 2012. The NEPA document, however, must be updated due to changes resulting from the selection of the preferred alternative, including the introduction of tolling. The Project is currently in an initial period of environmental due diligence focused on toll traffic diversion and operations, environmental justice outreach, public information meetings and agency coordination to understand the appropriate analysis methodologies and level of ultimate environmental clearances required. These early efforts will be used to establish the detailed environmental analyses which will commence in June-July of 2014. Anticipated Permits Provided below is a list of environmental permits that the project sponsors anticipate obtaining: Water Quality Certification through Ohio Environmental Protection Agency and Kentucky Division of Water United States Army Corp of Engineers Section 404 Permit United States Coast Guard Section 9 Permit Kentucky and Ohio National Pollutant Discharge Elimination System Construction Stormwater Permits

There are no significant permitting issues or concerns at this time.

Initial Financial Plan

12

Internal Review Draft, December 27, 2013

CHAPTER 3. PROJECT FUNDING

CHAPTER 3. PROJECT FUNDING

This chapter discusses the financial plan for the Project. Specifically, it presents the funding required to complete the Project, including state transportation and federal-aid formula funds, federal discretionary funds, and Project revenues (i.e., tolling).

3.1

FINANCIAL PLAN APPROACH

The Brent Spence Bridge Replacement/Rehabilitation Project is presently being considered for delivery using a design-build-finance-operate-maintain (DBFOM) approach via an availability payment (AP) form of a publicprivate partnership (P3), as discussed in Chapter 2. In addition to compensating the private partner with a series of availability payments, the project sponsors also likely will make a series of milestone payments to the private partner. These milestone payments would be made during construction, and paid to the private partner upon completion of a significant milestone within the Project. Examples of such milestones might be completing the river bridges pier foundations, main span towers, main span superstructure, and/or reaching substantial completion. Under this approach, the Projects financing would most likely include 1) a series of milestone payments, currently anticipated to be funded by the sale of non-recourse toll revenue bonds and/or a loan to the states from the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, 2) debt financing raised on behalf of the P3 concession to advance funding to be provided by the availability payments, and 3) private equity invested by a P3 developer to cover capital construction costs not covered by the milestone payments. Upon construction completion, toll revenue collected on the Project would be utilized to pay back the nonrecourse toll revenue bonds and/or TIFIA loan while an availability payment to the P3 developer would cover the concessions debt service and equity returns. The AP also covers the developers obligation to perform certain operations and maintenance functions. In this approach, if toll revenues fall short of the AP, both Ohio and Kentucky would be responsible for subsidizing toll revenues to cover the gap of the contractual obligation with the developer. The states currently anticipate that certain sections of the Project may be maintained by KYTC outside of the DBFOM concession in order to facilitate governmental purpose tax-exempt financing. With this P3 approach, Kentucky also would need to enact P3 legislation sufficient to accommodate and enable the Brent Spence Bridge Project. It is presently being assumed that the Project will be able to obtain TIFIA credit assistance in a manner comparable to recent precedent transactions, such as for the Kentucky Downtown Crossing Project ($452 million), Goethals Bridge ($474 million) and Tappan Zee Bridge ($1.6 billion). To the extent that TIFIA is not available to the Project, alternative capital market options will be considered. The sources of funds for direct state expenditures and for each states share of the anticipated availability and milestone payments as well as debt repayment on the anticipated toll revenue bond/TIFIA financing are expected to be secured through a combination of federal formula and discretionary funding, state funds, and toll revenues derived from the Project.

Initial Financial Plan

13

Internal Review Draft, December 27, 2013

CHAPTER 3. PROJECT FUNDING

3.2

PROJECT FUNDING

CONVENTIONAL STATE TRANSPORTATION AND FEDERAL-AID FUNDING

State and federal funding will be used primarily for upfront development costs incurred prior to selection of a developer for the Project, including such items as preliminary engineering and design, right of way acquisition, and utilities.

Kentucky
The Kentucky State Transportation Improvement Program (STIP) for FY2013-FY2016, dated August 2012, includes the Project as a Major Project. The STIP includes the following funds for the Project in SFY 2013: $22,260,437 in High Priority Project (HPP) funds for bridge replacement transportation improvements $6,520,000 in State Bonds 2010 (SB2) funds for relocation

Through SFY 2013, Kentucky has expended or encumbered approximately $20.9 million for the Project. KYTCs recommended Highway Plan for the period 2014-2020 includes $60 million in federal and state funding for the Project in the first two years, which will represent committed funds for the Project once enacted. The recommended Highway Plan also includes designation of Innovative Financing/Toll Revenue Bonds to enable the planned financing approach for the Project (see summary of Kentucky funding sources in Table 31). In order to implement the current planned approach, Kentucky will need to enact modifications or new pieces of legislation, including the ability to toll a project between the Commonwealth of Kentucky and the State of Ohio and the enactment of P3 legislation sufficient to accommodate and enable the Project.

Ohio
The Ohio 2014-2017 STIP Project listing as of November 1, 2013 includes funding for the Project consistent with funding designated through the States Transportation Review Advisory Council (TRAC) process. Through SFY 2013, Ohio has expended or encumbered $68.1 million for the Project (excluding funds provided by Kentucky to Ohio for certain project elements). The State also has committed an additional $82.5 million in federal and state funding in the 2014-2015 timeframe. The State also has designated toll-financed Project funds to facilitate the planned project financing approach (see Table 3-1). The Ohio-Kentucky-Indiana Regional Council of Governments (OKI COG) TIP for FY2014-17 also includes line items for the Project.

PROJECT REVENUES/FINANCING
The project sponsors intend to employ a toll-revenue backed financing strategy for the Project, currently anticipated to utilize a combination of governmental-issued toll revenue bonds, TIFIA financing, and private activity bonds and equity provided by the selected private sector developer.

Initial Financial Plan

14

Internal Review Draft, December 27, 2013

CHAPTER 3. PROJECT FUNDING

Both states have successful histories of using alternative funding sources, including tolling, for the development of their road infrastructure. For tolling to be used on the Brent Spence Bridge Replacement/Rehabilitation Project, legislative action will be required in Kentucky, as indicated above. Ohio has the requisite authority to toll the Project under O.R.C. 5531.11 5531.99 (Toll facilities) and O.R.C. 5501.70 5501.73 (P3Facility). It will, however, require a legislative amendment to allow video enforcement. Initial traffic forecasting has been conducted in support of the Project feasibility analyses. The principal tool used in developing the forecast was the Ohio-Kentucky-Indiana Regional Council of Governments/Miami Valley Regional Planning Commission Travel Demand Model (OKI-TDM). The OKI-TDM also was supplemented with an Econometric Model of the corridor as well as a Toll Diversion Model which focuses on the choice of users between a tolled facility and un-tolled alternatives, and incorporates estimates of value of time. Based on these analyses, the project sponsors believe that sufficient toll revenues can be raised to support the financing of the Project. Further traffic and revenue forecasting and related financial model efforts are underway.

FUNDING SUMMARY
Table 3-1 provides a summary of the various funding sources anticipated to support the Project, by state fiscal year. As the project delivery and financing approach is refined, adjustments will be made in subsequent updates to this financial plan to reflect updated funding needs and timing.

Initial Financial Plan

15

CHAPTER 3.

PROJECT FUNDING

Table 3-1. Brent Spence Bridge Replacement/Rehabilitation Project Funding by Source and State Fiscal Year

Detailed Budget ($YOE) Thru 2013 Kentucky - Conventional Funding State State Bond Funds State Matching Funds 240,000 Subtotal - Kentucky - State 240,000 Kentucky - Conventional Funding Federal (1) Interstate Maintenance National Highway Performance Program High Priority Discretionary 20,650,000 Subtotal - Kentucky - Federal 20,650,000 Total - Kentucky 20,890,000 Ohio - Conventional Funding - State (2) District Preservation 19,991 Major/New Construction 29,120,799 Subtotal - Ohio - State 29,140,790 Ohio - Conventional Funding Federal Interstate Maintenance 29,360,677 National Highway Performance Program High Priority 9,607,928 Discretionary Subtotal - Ohio - Federal 38,968,605 Total - Ohio 68,109,395 Project Financing Toll-backed Project Financing (3) Subtotal - Project Financing Grand Total - Project Funding 88,999,395

2014 6,500,000 6,500,000 22,300,000 22,300,000 28,800,000 51,525 12,644,589 12,696,114 34,119,132 189,873 606,042 34,915,047 47,611,161

2015 12,500,000 18,700,000 31,200,000 31,200,000 6,982,000 6,982,000 27,928,000 27,928,000 34,910,000

2016 1,208,519,827 1,208,519,827 1,208,519,827

2017 507,196,720 507,196,720 507,196,720

2018 556,390,909 556,390,909 556,390,909

2019 538,335,288 538,335,288 538,335,288

2020 532,655,405 532,655,405 532,655,405

Total 6,500,000 240,000 6,740,000 12,500,000 18,700,000 22,300,000 20,650,000 74,150,000 80,890,000 71,516 48,747,388 48,818,904 29,360,677 62,047,132 9,797,801 606,042 101,811,652 150,630,556 3,343,098,149 3,343,098,149 3,574,618,705

76,411,161

66,110,000

(1) $7.71 million of project funds have yet to be expended out of current project authorizations. (2) Excludes payments from KYTC. (3) Currently anticipated to include combination of governmental issued toll revenue bonds, TIFIA loan, private debt, and equity.

Initial Financial Plan

16

CHAPTER 4.

PROJECT CASH FLOW

CHAPTER 4. PROJECT CASH FLOW

This chapter provides an illustrative sources and uses of funds for the Project as well as a preliminary annual cash expenditure schedule. Given the preliminary status of developing the detailed financing plan for the Project, more detailed sources and uses of funds and cash flow schedules will be provided in subsequent updates to the financial plan.

4.1 SOURCES AND USES OF FUNDS

The Brent Spence Bridge Replacement/Rehabilitation Project is currently anticipated to be funded primarily through Project revenues (i.e., from tolling), with upfront project development costs and ongoing oversight costs funded through a combination of state funding, and federal-aid formula and discretionary funding. As described more fully in Chapter 3, Figure 4-1 presents a preliminary illustrative sources and uses of funds through the construction period for the Project.
Figure 4.1. Illustrative Sources and Uses of Funds During Construction (1) Sources of Funds During Construction ($ millions) Sources Nominal $ Federal Funding State Funding Project Financing Total Sources 176.0 55.6 3,343.1 3,574.6 Uses of Funds During Construction ($ millions) Uses Right of Way Utilities Construction Contingency Other Costs Interest, Financing, and Reserve Costs During Construction Total Uses Nominal $ 76.0 158.0 1,821.1 290.4 286.4 931.7 3,563.6

(1) Difference between Sources and Uses represents mismatch with respect to states designation of funding for certain costs in current plans; to be adjusted in future Financial Plan updates.

4.2 PROJECT EXPENDITURE DETAIL

Tables 4-1 and 4-2 present the currently estimated expenditure detail for the Project, by project segment and by state, respectively. These schedules do not reflect the cash flow timing impact of the planned AP concession structure. Nor do they include costs during the Projects operations, including O&M costs and interest costs. The operational costs (discussed in Chapter 1) will be further specified in the subsequent update to this financial plan, following further refinement of the project delivery plan and associated costs. As described earlier, it is currently anticipated that a portion of the O&M costs will be funded directly by Kentucky outside of the AP concession structure.

Initial Financial Plan

17

CHAPTER 4.

PROJECT CASH FLOW

Table 4-1. Project Outlays by Segment (in year-of-expenditure dollars, inclusive of financing/interest costs during construction)
Detailed Budget ($YOE) Kentucky Approach River Bridges Ohio Approach Other Costs (1) Total Thru 2013 49,645,552 39,353,843 88,999,395 2014 36,566,000 39,845,161 76,411,161 2015 20,204,000 34,910,000 55,114,000 2016 64,607,585 14,022,990 112,102,256 759,160,080 949,892,911 2017 131,172,489 157,657,567 185,828,961 95,088,837 569,747,854 2018 131,879,464 212,449,541 189,897,676 86,391,990 620,618,671 2019 138,351,429 166,286,008 195,999,194 102,528,568 603,165,199 2020 144,237,672 157,228,259 202,477,593 95,729,969 599,673,493 Total 630,452,639 707,644,365 1,007,427,232 1,218,098,447 3,563,622,683

(1) Other Costs line item includes preliminary engineering, construction engineering inspection, and oversight costs; also includes financing, interest, and reserve costs during the construction period. Table 4-2. Project Outlays by State (in year-of-expenditure dollars, inclusive of financing/interest costs during construction)
Detailed Budget ($YOE) Kentucky Ohio Total Thru 2013 20,890,000 68,109,395 88,999,395 2014 28,800,000 47,611,161 76,411,161 2015 20,204,000 34,910,000 55,114,000 2016 478,180,819 471,712,092 949,892,911 2017 307,695,627 262,052,228 569,747,854 2018 347,626,851 272,991,819 620,618,671 2019 325,720,376 277,444,823 603,165,199 2020 320,757,163 278,916,330 599,673,493 Total 1,849,874,836 1,713,747,847 3,563,622,683

Initial Financial Plan

18

CHAPTER 4.

PROJECT CASH FLOW

4.3

CASH MANAGEMENT TECHNIQUES

For Project funding expected to be contributed from state and federal sources, the states intend to utilize available cash management techniques, including but not limited to Advance Construction (AC), to manage the timing of cash needs against the availability of federal and state funds. The Secretary of KYTC has the authority to concurrently advance projects in the Biennial Highway Construction Plan by employing management techniques that maximize the Cabinets ability to contract for and effectively administer the project work. All state revenues flowing through Kentuckys Road Fund are subject to the cash management principles outlined in KYTCs Cash Management Spending Plan dated September 29, 2003. The Spending Plan also established a legislatively-mandated safeguard directing that KYTC not draw Road Fund cash balances below $100 million without the approval of the State Finance and Administration Cabinet. KYTC also has the ability to borrow funds from with the Road Fund to meet short-term cash flow anomalies. ODOT also utilizes AC for the management of fund appropriations and obligation limitation provided by FHWA. ODOT places most of its projects in AC at the time of authorization. There are some exceptions based on the expiration of funds and legislative requirements. The AC is placed into two groups. The first group is identified as short term. This group is used for projects in which the funding will be converted as project expenditures take place and are exhausted by the completion of the federally eligible activities. The second group is identified as long term. This group is used primarily for GARVEE bonds and MPO or CEAO State Infrastructure Bank loans that are utilized and managed by ODOT. For any funding that is provided from bond proceeds, appropriate oversight mechanisms will be put in place through the requirements of the legal documents. These will include controls over disbursement of proceeds for construction and annual reporting requirements.

Initial Financial Plan

19

CHAPTER 5.

RISK IDENTIFICATION & OTHER FACTORS

CHAPTER 5. RISK IDENTIFICATION AND OTHER FACTORS

This chapter addresses a number of important factors that could affect the Project and, in particular, the financial plan for the Project. These risks fall under one or more of the following categories: Require Legislative and Other Actions, Project Cost, Project Schedule, Financing and Revenue, and Long-term Operations and Maintenance. Significant consideration has been given to identifying risks and potential mitigation measures, and this chapter outlines these factors. Additionally, this chapter addresses the impact of each states financial contribution to the Project on their respective statewide transportation programs.

5.1

REQUIRED LEGISLATIVE AND OTHER ACTIONS

The following factors have been identified as those that may affect the Projects progression due to delays in obtaining required legislative and other governmental approvals.
Table 5-1. Required Legislative and Other Governmental Actions Risks and Mitigation Strategies

Risk Tolling The risk that authorization is not provided by the Kentucky General Assembly to toll the Project The risk that authorization for video enforcement in Ohio is not secured The risk that the environmental process by which the environmental documents are reopened to include tolling is not successful or delayed Public-Private Partnerships The risk that the Kentucky General Assembly does not provide the necessary P3 authority

Approach/Mitigation Strategy

KYTC is working to ensure that tolling authorization is secured to include projects between Kentucky and Ohio. It is anticipated that this will be addressed in the upcoming legislative session. ODOT is working to ensure that video enforcement authorization is secured. Alternative tolling structures will be considered as necessary.

The states are proactively pursuing the necessary steps to achieve this important milestone, including working with FHWA as appropriate.

KYTC is working to ensure that P3 authorization is secured. It is anticipated that this will be addressed in the upcoming legislative session. Alternative approaches continue to be considered as necessary.

Initial Financial Plan

20

CHAPTER 5.

RISK IDENTIFICATION & OTHER FACTORS

5.2

PROJECT COST RISKS AND MITIGATION STRATEGIES

Table 5-2. Project Cost Risks and Mitigation Strategies

The following factors have been identified as possible reasons for cost overruns.

Risk Original Cost Estimates

Approach/Mitigation Strategy

The risk that actual bids are higher than current cost estimates

Recent experience indicates that competition may result in aggressive bids below the state sponsors estimates. Should that prove not to be the case, however, the states will revise the project financial plan accordingly, including the possible inclusion of additional state and federal funding and/or adjusted toll revenues.

Inflation Reasonable inflationary assumptions based on recent and historical trends in construction inflation have been included in current cost estimates. These estimates take into account current low commodity prices and relatively high unemployment rates which are expected to result in favorable contract pricing. An availability payment concession structure, as currently contemplated by the states, helps transfer much of this risk from the public to the private sector partner.

Highway construction inflation has been very volatile over the past several years and could significantly increase the cost of the Project

Contingency Contingency estimates are consistent with ODOTs standard estimating practices, which have proven to be successful in the past. Further, the contingency amounts have been reviewed through the FHWA Cost Estimate Review process and deemed to be sufficient. An availability payment concession structure, as currently contemplated, helps transfer much of this risk from the public to the private sector partner.

The amount of contingency factored into Project cost estimates may be insufficient to cover unexpected costs or cost increases

Contract Modifications Design specifications could be too prescriptive or contract specifications could be modified by the design team, construction team, or owner to address design and construction or O&M issues An availability payment concession structure, as currently contemplated for a portion of the Project, helps transfer some of this risk from the public to the private sector partner. Any design changes will be carefully vetted for financial impact by the states as part of the procurement process.

Initial Financial Plan

21

CHAPTER 5.

RISK IDENTIFICATION & OTHER FACTORS

Risk Cost Overruns During Construction Cost overruns after the start of construction could result in insufficient funds to complete the Project Accidents Major accidents may occur during the construction period, requiring extensive work and/or cleanup efforts

Approach/Mitigation Strategy

An availability payment concession structure (with guaranteed maximum price contracts) transfers this risk from the public to the private sector partner.

An availability payment concession structure can be structured to transfer much of this risk from the public to the private sector partner

5.3

PROJECT SCHEDULE RISKS AND MITIGATION STRATEGIES

The following risks have been identified as those that may affect Project schedule and, therefore, the ability of the project sponsors to deliver the Project on a timely basis.
Table 5-3. Project Schedule Risks and Mitigation Strategies

Risk NEPA Litigation Lawsuits filed within the statutory protest period may result in delays to the start of construction and expose the Project to additional inflationary costs Permits and Approvals Delays in the receipt of permits and approvals may delay the start of construction ROW Acquisition The risk that ROW parcels are not acquired at the time and cost forecast, which may affect both Project cost and schedule

Approach/Mitigation Strategy

To mitigate the potential impacts of future litigation that could cause schedule delays and cost escalation, risk and mitigation measures were addressed in the Environmental Assessment.

The states have initiated activities necessary to secure all permits. Subsequent responsibility will be transferred to the private sector partner and will be addressed directly in the relevant contract documents. The states have a track record of success in acquiring similar permits for river crossings.

Both states have identified the potential properties to be acquired and Ohio has commenced acquisitions. Based on activities to date, the project sponsors believe that the current budget and schedule for the remaining ROW acquisition is reasonable.

Initial Financial Plan

22

CHAPTER 5.

RISK IDENTIFICATION & OTHER FACTORS

Risk Utilities Conflicts and Management The risk that the private partner may encounter utilities conflicts during delivery

Approach/Mitigation Strategy

The states plan to perform additional subsurface utility engineering at critical locations to ensure that utility locations are better known. Further, contractual arrangements can be structured to help mitigate utility risks.

Unanticipated Site Conditions As materials are exposed, unanticipated geotechnical concerns for the construction could be identified that may delay the schedule or increase costs. Additional rehabilitation also may be required for the existing bridge structure. Schedule Coordination Due to the size and complexity of the Project, poor project scheduling and coordination could delay the project schedule. Specifications Not Delivered The risk that suppliers, contractors, or governmental agencies fail to perform adequate QA/QC, resulting in latent defects during operations The states are working closely together to develop robust scheduling. An availability payment concession structure helps transfer much of this risk from the public to the private sector partner. Extensive analysis was undertaken as part of the Environmental Assessment process. Additionally, geotechnical investigations are ongoing on several sections of the Project, and preliminary results do not indicate any significant problems.

An availability payment concession structure helps transfer a significant portion of this risk from the public to the private sector partner.

Initial Financial Plan

23

CHAPTER 5.

RISK IDENTIFICATION & OTHER FACTORS

5.4

FINANCING AND REVENUE RISKS AND MITIGATION STRATEGIES

The following risks may negatively affect the project sponsors ability to finance the Project cost-effectively and operate and maintain the Project over time. For each risk, this table provides a summary of potential mitigation strategies.
Table 5-4. Financing and Revenue Risks and Mitigation Strategies

Risk Availability of State and Federal Funding

Approach/Mitigation Strategy

The states have identified and committed various levels of conventional state and federal funding to the Project within the timeframe of their budget planning cycles. Funding beyond this period is subject to appropriation risk

The planned funding approach for the Project, primarily through toll revenues, limits the extent of future year state and federal funding required to complete the Project. Within procedural limitations, the states have demonstrated their commitment to ensuring that the Project is delivered. Kentucky has included the Project in its 2014-2016 Biennial Highway Construction Plan request and2016-2020 Highway Preconstruction Program Plan request. Ohio has designated the Project for potential construction funding through the States TRAC process. In addition, funding amounts are reflected in Ohios fiscally-constrained Statewide Transportation Improvement Program (STIP) and the Transportation Improvement Program (TIP) for the metropolitan region.

Toll Revenue Risk Toll revenues could be less than projected, which could jeopardize the ability for Project debt to be repaid and for sufficient funds to be available for long-term operations and maintenance Toll Collection Risk Toll revenues could be less than forecasted if toll collection mechanisms are inadequate or electronic toll collection equipment deficiencies result in the inability to identify users of the Project A toll system developer and operator will be procured to ensure that the most reliable electronic tolling equipment is utilized and all steps are taken to minimize toll evasion. The toll revenue forecasts include an estimate of leakage, i.e. an amount of revenues lost due to transactions for which the license plates cannot be read or the toll proves otherwise uncollectible. While uncertainty inherently exists surrounding traffic and revenue forecasts, the rigor of future investment-grade traffic and revenue studies and the sensitivity testing that has been performed to date will help ensure financing is based on the most realistic and reasonable toll revenue estimates. Anticipated rate covenants for the planned financing as well as availability payment obligation covenants will further ensure adequate toll revenues are generated.

Initial Financial Plan

24

CHAPTER 5.

RISK IDENTIFICATION & OTHER FACTORS

Risk Availability of Federal Financing Tools Uncertainty surrounding the availability of federal financing via the TIFIA program will have an impact on the risk level of the finance plan for the Project

Approach/Mitigation Strategy

While extremely valuable to the Project and to minimizing the impact on other projects in the states programs as well as toll rates, the current finance plan is not fully dependent on a TIFIA loan. If unsuccessful, the states would pursue alternative capital market financing at a higher cost. The states do not anticipate this being a significant risk at the present time. Failure to secure PAB financing, however, would have a significant impact on the Projects overall costs.

Uncertainty surrounding access to private activity bond allocation for the Project

5.5

PROCUREMENT RISKS AND MITIGATION STRATEGIES

The following risks may affect the project sponsors ability to implement the Project due to risks associated with the procurement under a P3 availability payment approach.
Table 5-5. Procurement Risks and Mitigation Strategies

Risk Delay in Procurement If the Project suffers a delay in the procurement schedule, costs would increase due to inflation and revenues would be delayed The risk that the states do not receive affordable bids or are not able to reach commercial or financial close

Approach/Mitigation Strategy

The states are working diligently toward achieving the anticipated procurement schedule for the Project and will benefit from their recent experience on other similar projects.

The state have already conducted outreach with potential bidders and determined a strong appetite for the Project to exist.

5.6

IMPACT ON STATEWIDE TRANSPORTATION PROGRAMS

Based on expectations of federal funding availability, as well as expectations regarding the availability of corresponding state transportation funds, the project sponsors have developed a preliminary financial plan that minimizes the demand on these funding resources by utilizing revenues derived from the Project (i.e., tolls) for the majority of funding. Given the limited direct financial requirement being placed on the states budgets, the states believe that the federal and state transportation funds identified in this IFP are reasonably expected to be available, and without adverse impacts on either states overall transportation programs or other funding commitments.

Initial Financial Plan

25

CHAPTER 5.

RISK IDENTIFICATION & OTHER FACTORS

5.7

FUTURE UPDATES

The effective date for financial data included in this IFP is June 30, 2013. The effective date for future annual updates to the IFP will be June 30. Future annual updates will be submitted to FHWA for approval within 90 days of the effective date, or by September 30 each year.

Initial Financial Plan

26