CDOT’s I-70 deal with private partner will cost an estimated $2.2 billion over 30-plus years, documents show
Financial terms released Tuesday for the controversial Interstate 70 expansion through northeast Denver show that a partnership agreement will cost the Colorado Department of Transportation an estimated $2.2 billion over the course of more than 30 years.
For the first time, state transportation officials are detailing the figures that resulted from recently wrapped negotiations with Kiewit Meridiam Partners for a complex public-private partnership contract on the Central 70 project. CDOT selected the team in August from among four consortiums that bid to finance, design and build the $1.2 billion construction project, and then operate and maintain the widened 10-mile stretch for three decades.
The freeway project’s construction tab hasn’t changed much ahead of a groundbreaking that’s expected in early to mid-2018, though financing costs will push the total to nearly $1.3 billion.
But in addition to shouldering just over half of that upfront project cost — $687 million — CDOT will be responsible over the long term for sizable annual payments to Kiewit Meridiam Partners (shorthanded as KMP). Those annual checks mostly will repay KMP for its significant equity and borrowing, but they also will compensate KMP for operation and upkeep of the highway — costs that CDOT notes it would pay for normally, through its annual budget, after a more traditional project was built.
An arm of CDOT will oversee tolling on new express lanes in each direction and pocket the money, though those tolls will help fund the annual payments to KMP.
KMP, for its part, is contributing $610 million to the project upfront, including $65 million of its own equity. And KMP will receive some portions of CDOT’s project contribution only when it meets five projects milestones.
CDOT officials say projections show KMP will earn a 9.5 percent return on that $65 million investment over the life of the deal.
“This (partnership) maximizes the value for the public in part because we’re putting up a smaller upfront capital cost,” said David Spector, director of CDOT’s High Performance Transportation Enterprise.
He detailed the terms to The Denver Post with project director Tony DeVito and other CDOT officials.
CDOT’s High Performance Transportation Enterprise and Colorado Bridge Enterprise boards are expected to approve the contract terms Wednesday, marking the “commercial close” of the deal. KMP’s team then will finalize financing agreements by the end of January.
The Post analyzed figures released by CDOT to come up with the total cost to the state, since CDOT says it typically does not include financing or operating costs in its project estimates.
But The Post’s calculation is comparable to another recent large public-private partnership deal — Denver International Airport’s 34-year contract for its terminal. That deal, which combines a terminal renovation with 30 years of private management of new concession spaces, is projected to cost DIA $1.8 billion.
As CDOT seeks ways to take on large highway expansions despite tight funding, officials have pursued partnership deals to widen and add express toll lanes on U.S. 36 as well as a similar project on C-470 that’s underway.
But the I-70 project is the largest to incorporate such heavy private-sector involvement.
KMP, in its winning bid, projected that it could deliver the project for $71 million less in construction costs than CDOT’s original estimate. It also estimates it will build the project in four years — at least six months faster than CDOT had expected, given the delicate operation needed and CDOT’s edict that no lanes will be closed during peak traffic hours.
CDOT is about two-thirds done acquiring properties in Elyria-Swansea, mostly on the north side of an aging 1.8-mile viaduct that the project will remove.
Construction could begin by late spring, officials say. The project calls for rebuilding a portion of the six-lane freeway and widening it between Brighton Boulevard in Denver and Chambers Road in Aurora to add a managed toll lane in each direction; a future phase could add a second toll lane. Between Brighton and Colorado boulevards, the viaduct will be replaced by a lowered highway.
KMP will build a 4-acre parkland cap over part of that section next to Swansea Elementary, the largest of several community concessions that is being provided by CDOT.
Still, the project remains controversial. A handful of lawsuits are targeting the project on environmental and neighborhood-harm grounds, threatening to delay or scuttle the project. But so far, opponents have lost court rulings that could hinder the project.
How the I-70 costs break down for CDOT
CDOT’s costs are staggered over the life of the contract:
- Construction: CDOT is putting up $687 million, or just over half of the $1.3 billion project cost, though KMP will pay $25 million to offset some of the preliminary work CDOT already has performed. But $319 million of CDOT’s contribution will be split into milestone payments that KMP receives upon finishing four segments and then substantially completing the project.
- Equity payments: Once the project is done — expected in 2022 — CDOT will pay KMP $28.4 million a year in today’s dollars as capital performance payments, to repay KMP’s borrowing and investment. In 2022, the estimated value will be $31.4 million, and it’s set to increase 2 percent each year — totaling $1.26 billion over 30 years.
- Operating payments: Similarly, CDOT will pay KMP $7.1 million a year in today’s dollars as operations, maintenance and rehabilitation payments. When this payment begins in 2022, it’s estimated at $7.9 million, and it will be adjusted with inflation — totaling $317 million over 30 years.
For its upfront costs, CDOT will tap $457 million from the Colorado Bridge Enterprise, funded by annual vehicle registration fees; $180 million from a CDOT capital fund; and $50 million in federal dollars provided through the Denver Regional Council of Governments.
CDOT’s annual payments later in the contract will come from a mix of toll revenue, CDOT money, the Bridge Enterprise — consuming about a quarter of its annual revenue — and the city of Denver’s $37 million project contribution, officials said.
KMP’s $610 million upfront contribution will come from $404 million in borrowing through the federal Transportation Infrastructure Finance and Innovation Act loan program, which provides low-interest financing for certain public projects; $141 million in bonds; and its $65 million equity investment.
Critics of public-private partnerships say they provide less transparency, and in this case, KMP considers the financial modeling it used during negotiations to be proprietary, CDOT officials say.
But according to CDOT’s new project materials, KMP has estimated it will spend more than $150 million to operate and maintain I-70 during the term of the contract and more than $100 million to replace pavement and keep the highway up to CDOT’s standards.
Before turning the highway’s operation back over to CDOT in 2052, KMP’s team faces “handback” terms requiring it to fix I-70 up to an agreed-upon condition. It also must set aside money in a reserve fund equal to the value of those improvements, as a backup.
“The fact that (KMP is) putting in and borrowing up front helps us,” Spector said of the contract’s terms. “Had we borrowed, we’d be obligated to repay the debt service no matter what — if construction’s late or something happens. Here, we only pay them if they’re doing a good job. They have to pay their lenders no matter what. We feel like, on this project, which has some engineering challenges, that that was a good risk transfer.”
Here is a summary of the financial terms of the I-70 project:
CDOT provided this summary of the project agreement: