Toll Road Asset Management and the Linkage to Finance

Transportation Innovations, Inc.

04/22/231

US Toll Roads• Many were built 30-50 years ago and portions are nearing

the end of their productive lifecycle; as a result, capital and maintenance costs are accelerating.

• Many agencies are fiscally constrained and operating in a political environment that where no ribbons are cut for maintenance

• Lower VMT and lower returns on investments are reducing agency revenues.

• Some have inflexible labor agreements in place that may limit the ability to contract out services or cross-utilize staff.

2

Taking an AssessmentTaking an Assessment

• Measures of comparability• Strategic planning process• Asset management practices• Financial planning process• Financial position• Capital program development

3

Revenue Per Lane MileRevenue Per Lane Mile

4

Revenue per Lane Mile (Thousand $)

$416

$407

$342

$242

$227

$180

$159

$- $100 $200 $300 $400 $500

Illinois Tollway

New Jersey Turnpike

Florida’s Turnpike

Mass. Turnpike

Penn. Turnpike

New York Thruway

Ohio Turnpike

O&M Staff/Costs ComparisonsO&M Staff/Costs Comparisons# of Staff per Lane Mile O&M Costs per Lane Mile

5

Snow and Ice RemovalSnow and Ice Removal

6

$-$1,000

$2,000 $3,000

$4,000 $5,000

$6,000 $7,000

New Jersey Turnpike

Ohio Turnpike

New York State Thruway

Mass Turnpike

Penn. Turnpike

$6,042

$5,409

$5,374

$4,149

$3,071

Snow and Ice Removal per Lane Mile

Revenue / Maintenance CostsRevenue / Maintenance Costs

7

Gross Revenue/Operations & Maintenance Expenses (per lane mile)

3.90

2.40

1.95

1.79

1.68

1.64

1.50

0.00 1.00 2.00 3.00 4.00 5.00

Florida's Turnpike

Illinois Tollway

Ohio Turnpike

New Jersey Turnpike

New York Thuway

Penn. Turnpike

Mass.Turnpike

Strategic Planning and Asset Strategic Planning and Asset Management Management

• Governing Board needs to lead strategic planning• The agency needs:

– An integrated financial planning model– An asset management program that supports

rehabilitation scope development to optimize investment decisions

– A capital planning and maintenance program that is tied to the ability to finance

– Management processes and integrated systems8

Strategy, Asset ManagementStrategy, Asset Managementand Measurementand Measurement

Asset Management

Performance Measurement

Strategic Planning

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Good strategic planning, performance measurement and asset management processes reinforce each other.

Recommended FrameworkRecommended Framework

Performance Reports and Reviews

Develop Business Plans andAnnual Contracts ProgramSet Performance Targets

Establish Executive Action Plan

Strategic Plan

5-10 years

4-5 years

1-2 years

Qrtrly

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The Board

Executive Team

Division and Department Heads

Steps to an Integrated Steps to an Integrated ApproachApproach

• The Governing Board should lead an effort to develop a strategic plan that establishes a vision and guiding principles

• Develop a implementation plan for the strategic initiatives– Asset management– Maintenance program– Capital program– Financial plan

• Establish performance measures

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Financial Financial ModelModel

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CapitalPlanningModel

Interest Rates

Bond Issuance

Existing Debt Service

Projected O & M Expense

Capital Cost

Const. Schedules

Bank Line / CommercialPaper Program

Capital Budget Reports

Sources and Uses

of Funds

Projected Toll

Revenues

Debt Service Reports

General Assumptions

Strategic Plans

Capital BudgetRequirements

Board/Staff

Fin. Advisor

Engineers

Traffic Engr.

Model Output

Revenue /

Debt Service Reports

(Financial Capacity)Integrated Planning

Model

Preserving the Asset and Financing Preserving the Asset and Financing ImprovementsImprovements

• Preserving the asset– Asset Condition– Maintenance program– Rehabilitation component of the capital program

• Determine the ability to fund operating programs and issue new debt

• Determine the need for toll increases in the future• Develop the ability to test various scenarios on a long term

basis

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Financial AssessmentFinancial Assessment10-Year Financial Capacity Projection

$-

$100.0

$200.0

$300.0

$400.0

$500.0

$600.0

$700.0

$800.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Fiscal Year

Mill

ions

of D

olla

rs

0.00

0.50

1.00

1.50

2.00

2.50

Cove

rage

Rati

o

NewPlannedDebt

ExistingDebtService

NetRevenue

CoverageCovenant

DebtServiceCoverageRatio

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Best PracticesBest Practices• Benefits of good Asset Management practices:

– Builds objective case for additional funding– Empowers defensible & efficient decision-making– Improves financial stability (and bond ratings);– Increases sustainability and efficiency;

• Characteristics of good Asset Management:– Is customized; Allows evolution & incremental implementation;– Encompasses many business processes & specific assets;– Draws from economics as well as engineering;– Is strategic (Policy-driven / Performance-based) & long-range;– Provides complete & up-to-date information (for all audiences);– Is followed by solid project delivery & monitoring;

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Considerations for ImprovingConsiderations for ImprovingAsset ManagementAsset Management

• Conduct Asset Management Business Improvement Study • Conduct comprehensive valuation of unconstrained asset

needs and strategy for communicating need to audiences• Document the project prioritization process.• Establish equipment utilization standards• Implement decision support tools• Communicate project prioritization & progress• Review and monitor regular progress against established

performance measures.

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Best PracticesBest Practices

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Best practices of nine forerunners in a 2007 AASHTO study of project delivery statistics from 20 DOTs

Cost Performance Best Practices:• Learn from past mistakes; • Leadership must care about controlling project costs.• Accurate estimates come from well coordinated construction

and pre-construction processes.• Measure cost performance monthly or quarterly against stated

goals.• Track causes of overruns and make sure that information gets

shared.• Use monthly progress meetings to keep staff accountable.• Do not wait until a project is over to measure performance.• Link performance to pay; create an incentive program for

managers or departments that contain costs.• Externally mandated performance targets always help.• Employ Value Engineering in construction contracts.• Maintain dialogue with the contractor community to build

partnerships.• Hold contractors accountable, especially when issues recur.• Encourage team-based, multi-disciplinary project development

processes.

Schedule Performance Best Practices:• Invite input from construction managers on construction schedule

estimates. • Recruit and retain skilled staff.• Learn as much as you can about surface and subsurface conditions• Set project schedules based on reality-checked unit production times• Conduct overall constructability reviews • Measure and acknowledge on-schedule performance• Track causes of delays and make sure that information gets shared.• Use monthly progress reports to keep staff accountable.• Consider paying for utility relocation if it will reduce costly delays. • Give contractors sliding windows for completing projects.• Have mandatory pre-bid meeting for large projects to improve bid quality.• Gather contractor input on new specs and/ or do pilot projects to see if they

work before widespread deployment.• Give contractor incentives for early completion.• Hold contractors accountable, especially when issues recur.• Take care of ROW, permits and utilities before construction begins.