In 1999, the Oregon legislature directed the Oregon Department of Transportation (ODOT) to examine tolling as a way to help finance highway construction.74 As part of its analysis of the potential benefits of tolling and alternative funding mechanisms, ODOT established the Innovative Partnerships Program under its Office of Innovative Partnerships and Alternative
Funding.75 As part of this initiative, ODOT entered into an agreement in early 2006 with a private consortium headed by Macquarie to provide predevelopment work on three potential projects-the Newberg-Dundee Bypass, the Sunrise Project, and the I-205 South Corridor improvements project. The three projects were selected because they were unlikely to be constructed in the foreseeable future using solely public funds.
Under the predevelopment agreements, the Macquarie team agreed to conduct financial, technical, and other predevelopment feasibility studies in order to advise ODOT on whether any of the projects should proceed to the implementation phase. If any of the projects are deemed technically and financially viable, ODOT will seek Oregon Transportation Commission approval to enter into negotiations with the Macquarie consortium for implementation. Macquarie also agreed to provide the financing needed to build any projects deemed viable and approved by the state. This was a critical part of the arrangement because of the lack of federal or state funds to build any of the three projects.
The Macquarie consortium also agreed to bear the cost of all predevelopment work up front, subject to possible reimbursement from ODOT of up to $20 million for the cost of conducting those studies should ODOT or the Macquarie team decided not to proceed with any project. None of the predevelopment costs would be reimbursed to the extent a project moved successfully into implementation. ODOT's possible cost reimbursement obligation was capped at $20 million even though the estimated budget for the predevelopment work was over $26.5 million. Macquarie agreed to bear the overage at its own risk.
This innovative arrangement enables ODOT to combine its planning and oversight, environmental processing, and right-of-way experience with the private consortium's financial resources, experience, and technical expertise. The private consortium agreed to provide up-front financing for all of the predevelopment costs and to bear the risk of any overage from the reimbursement cap in exchange for the opportunity to be the developer of any project that was approved for implementation.
One of the projects that the Macquarie consortium analyzed under this arrangement was the Newberg- Dundee Bypass Project, which is designed to provide an alternative 11-mi bypass to heavy congestion on Oregon Highway 99W. The Macquarie team explored the financial viability of the project and presented a final mile-stone report to the Oregon Transportation Commission in December 2006 that outlined a variety of options but no clear solution to a large gap in funding construction. In effect, Macquarie concluded that the travel time savings from using the bypass would not encourage enough drivers to pay the toll rates on the Bypass necessary to fund the capital and operating costs of the Bypass project. ODOT and Macquarie agreed to terminate their predevelopment agreement with respect to the New-berg-Dundee Bypass (which would have been the first toll facility in the state). It is anticipated that Macquarie will be entitled to reimbursement of its predevelopment costs on this project, as provided in the contract with ODOT.
As of January 2007, Oregon had decided not to pursue the Sunrise Corridor project because it determined that projected toll revenue was not enough to cover the cost of operation or construction. Rather, Oregon plans to seek traditional funding sources.76
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74 Oregon PPP enabling legislation may be found at Or.Rev. Stat. §§ 367.800-367.826 and Or. Rev. Stat. §§383.001-383.019.
75 See program description available at http://www.oregon.gov/ODOT/HWY/OIPP/index.shtml.
76 See Gov't Accountability Office Report to Congressional Requesters, Highway Public-Private Partnerships, More Rigorous Up-Front Analysis Could Better Secure Potential Benefits and Protect the Public Interest, 63-64 (2008).