http://www.dispatch.com/content/stories/local/2015/05/25/states-share-rises-to-1-2b-over-35-years.html
By Rick Rouan, May 25, 2015
Ohio’s largest road project and first public-private partnership will cost taxpayers nearly
three times its announced price tag of $429 million.
The state will pay about $1.2 billion over the life of a 35-year agreement to build and maintain
the Southern Ohio Veterans Memorial Highway, a 16-mile link between Rts. 23 and 52 that will help
drivers skirt the Ohio River city of Portsmouth, financial documents show.
The highway, also known as the Portsmouth Bypass, is Ohio’s test case for public-private
partnerships, which have been used across the country to build major transportation projects but,
until recently, weren’t allowed in Ohio.
Private contractors are using their own money and taking on debt to pay for construction of the
bypass and will be responsible for maintaining the road through 2053. In turn, the state has agreed
to make payments that will cover principal and interest on the loans as well as maintenance
costs.
The state’s 35 annual payments, along with several “milestone” payments it will make during
construction, total $1.2 billion.
Previously, state officials said the project, 90 miles south of Columbus, would cost $429
million, but that figure represents only construction costs. Left out are interest,
financial-transaction costs and other charges developers incur and that the state ultimately
pays.
The number also doesn’t include highway maintenance over 35 years, which the $1.2 billion will
cover. ODOT routinely refers only to construction costs when it talks about the amount of money
spent on a project, said Matt Bruning, an ODOT spokesman.
ODOT officials say that paying for the project over time rather than waiting for enough money to
become available is smart because the road will spur economic development in beleaguered southern
Ohio.
But experts say that this project — and future roads built using debt — could hamper the state’s
ability to maintain its construction program.
ODOT rarely uses debt to pay for projects, Bruning said. It occasionally uses bonds to fill
small gaps on major projects. “I equate it to a mortgage on your house,” he said. “We’re able to
build it today instead of waiting 30 years. We’re able to get some economic benefit.”
Construction starts this year and should take about four years to complete. If the state had
used traditional methods, construction would have taken about 13 years to complete, and funding
wasn’t guaranteed.
The contract with the Portsmouth Gateway Group also includes 35 years of maintenance and
operations in addition to construction. A state financial analysis concluded that the
public-private partnership was a better deal, and some economic-development benefits are expected
in Scioto County.
“There’s cost with doing this a different way, but we think there’s a benefit,” Bruning said. “
This is an area of the state that needs those investments.”
Companies in Europe and South America already are contacting economic-development officials in
Scioto County about developing areas near the bypass, said Jason Kester, executive director of the
Southern Ohio Port Authority. Interest has grown at both the north and south ends of the bypass, he
said.
But using long-term debt to pay for road projects could hurt the state’s ability to fund new
construction in the future, said Robert Poole, transportation director at the Reason Foundation, a
libertarian research group.
Most public-private partnerships have a dedicated revenue stream, such as tolls, that will pay
for them. Increasingly, states are dedicating gas-tax money to pay for projects over time. If too
much debt accumulates on their books, that could slow construction on other projects.
“There’s only so much that you can use existing gas-tax money for,” Poole said.
In 2013, the Ohio Turnpike Commission borrowed $1 billion against future revenue on the toll
road to pay for northern Ohio road projects. That debt could end up costing about $3.7 billion. A
second round of bonds totaling about $500 million is expected as well.
Poole said roads built through public-private partnerships tend to last longer. Contractors have
an incentive to build a road that doesn’t require much maintenance because they must patch potholes
and resurface lanes.
In some cases, though, traffic on such roads doesn’t really justify the cost of a project, so
the state uses debt to spread out the cost, said David Hartgen, a North Carolina-based
transportation-planning consultant and emeritus professor.
“What (the state is) really saying is, the road is not important enough to be built with its
current money pile,” said Hartgen, who also is a fellow at the Reason Foundation.
Purpose
