Case Study: Elgin-O'Hare Extension/O'Hare Bypass as a Public Private Partnership

Given the relative consensus among political leaders and the great amount of study the project has received from the Ill. Dept. of Transportation (IDOT), Illinois Toll Highway Authority, and others, detailed engineering and construction of the expressway could move forward quickly after the state secures full funding. IDOT has secured most of the land right-of-way for the Elgin-O'Hare Extension. At this point, the major impediment to breaking ground is the lack of adequate funding for this $1.345 billion project.

The lack of adequate funding has become especially problematic in the last few months as plans for the expansion of O'Hare Airport have moved rapidly forward, albeit with a noticeable lack of clarity around western access. Transportation infrastructure west of O'Hare is a key part of modernizing the airport. It is expected that once the modernization program begins in earnest, even more businesses that depend upon access and proximity to the airport will locate to the west. The development of a transportation link will provide the backbone for significant economic growth that will occur around O'Hare and benefit all of northeastern Illinois.

Business Leaders for Transportation compiled and analyzed several critical variables to assess the feasibility of attracting private sector debt and equity to fund the Elgin-O'Hare Extension/O'Hare Bypass: construction cost of the project, status of environmental approvals, expected duration of the construction, commercial and passenger vehicle traffic expected to use the new highway, and potential revenue generated from tolls. Using these data, the study team developed a range of private capital that could be attracted based on similar projects.

Business Leaders researched and updated the projected construction cost of the various expressway options (Table 1). In addition, the coalition retained the firm of Vollmer Associates LLP to project traffic counts and associated revenues assuming several toll options (Table 2). This analysis, assumes the mid range toll rate of $.80 I-PASS and $1.60 cash, lower than the Chicago Skyway. (Though these toll rates are higher than current adjacent toll road rates, by 2011 - when the roads would first open - these rates are expected to be consistent with rates on the rest of the Illinois' toll roads.) Finally, industry benchmarks were used to determine the amount of private debt and equity a Partnership would command on the market (Table 3).

* Other segments assumed donated; valued at $3,000,000

Source: O'Hare Bypass with Elgin-O'Hare Extension Systems Planning Study, 1z/1997

Key assumptions in the Business Leaders study included the following:

1. Construction Cost: $1.345 billion - Traffic planners have well-documented cost estimates for the expressway in numerous reports associated with the O'Hare Modernization Project, IDOT, and the Illinois Tollway Highway Authority. Assuming tolls will be a necessary component, the cost for toll plazas was added to these estimates. All but $56 million of the right-of-way bulk of which is publicly owned, is assumed donated. The total estimated project cost in 2006 dollars is $1.345 billion.

2. Toll Revenue Projection: $148 million per year by 2030 - Once the expressway opens to drivers, assuming five years of construction, daily traffic volumes would top 65,800 cars. This traffic estimate means that, with a toll of $.80 I-PASS and $1.60 cash per car, the expressway would generate over $33 million in its first year.

(Again, these toll estimates are higher than current toll road rates, but are expected to be in line with Illinois toll road rates in 2011, when the roads would open.) Revenue will steadily climb as traffic volumes increase along with regional population and economic development growth, and as toll rates increase based on the Consumer Price Index (see Table 2 for toll estimates and Appendix I for traffic assumptions). In five years, the traffic volume is expected to increase to more than 132,000 cars per day, generating $71.05 million in revenue; by 2030, traffic volume is expected to increase to over 194,000 cars per day, yielding $148 million.

Source: Vollmer Associates LLP

3. Estimate of Potential Private Capital: $905 million - In late 2004, the Chicago Skyway transaction attracted $1.8 billion from the private debt and equity markets. Several months ago, the new owners of the Skyway refinanced and raised $1.1 billion from global debt markets. While these figures may be higher than what could be attracted given the additional construction risks of the "greenfield" Elgin-O'Hare Extension/O'Hare Bypass, they do serve as a reliable benchmark given the remarkably similar revenue-generating capability of the Skyway and the expressway. Using other recent Public-Private Partnership transactions of similar roadways in the U.S. and Canada, Business Leaders conservatively estimates the Elgin-O'Hare Extension/O'Hare Bypass has the potential to generate an estimated $905 million in private equity. Factoring in $140 million from the federal transportation bill and $139 million from the Toll Highway Authority, and excluding potential revenue from ancillary sources (concessions, marketing, etc.), this analysis concludes that a $161 million gap might exist to be filled by other public funds (Table 3). Funding for interchanges, including the York Road and Touhy Avenue interchanges, would also come from other public and private sources.

(See appendix II.)

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³ See Appendix I for a complete list of assumptions for traffic nd revenue model.