A Financial Analysis of the Columbia River Crossing Project

This report analyzes the forecast accuracy, financial costs, and financial risks associated with the proposed Columbia River Crossing Project. It reaches three principal conclusions:

1) the traffic forecasts on which project finances are based are inaccurate and unreliable;

2) the thirty-year cost of building and operating the CRC will be at least double the $4 billion estimated and could reach $10 billion or more;

3) the project will necessitate a huge increase in bonded public debt and poses substantial additional financial risks including mega-project cost overruns.

1. CRC traffic forecasts are inaccurate. CRC forecasts grossly over-estimate the traffic growth on the I-5 Columbia River Crossing. These forecasts are critical because they provide both the justification for the sizing of the project (number of lanes and size of interchanges), and because they underpin the financing of the project through toll backed bonds.
The CRC forecasts that traffic over I-5 will grow at an average of 1.3 percent per year from 2005 to 2030, from 135,000 vehicles per day in 2005 to 184,000 vehicles per day in 2030. But in fact, traffic on the I-5 bridges has declined every year after 2005.

Traffic levels in the nearly five years since CRC forecasts were completed have declined by about 7,000 vehicles per day, rather than increasing by about 7,000 vehicles per day as forecast by the CRC. In the five years prior to the CRC forecast (1999-2004) traffic increased on the bridges at only about 0.6 percent annually. The CRC forecasts assumed that traffic growth on the I-5 crossing would accelerate from 0.6 percent annually to 1.3 percent annually. But instead of growing at an accelerating rate, the volume of traffic crossing the bridges has declined every year after 2005, and the traffic growth rate has been decelerating systematically over the past 15 years.

The effects of this forecasting error are significant. In order to reach the 2030 predicted level of traffic in the no-build scenario, traffic growth rates would have to reverse their current decline and then accelerate to 1.8 percent per annum for the next 20 years.

CRC forecasts are flawed for a variety of reasons. Most importantly, they are outdated (based on 2005 estimates and a 1994 survey of travel behavior), they use estimates for the value of time that are inaccurate, thereby systematically underestimating likely diversion in the face of tolls. In addition, the estimates contain errors of arithmetic calculation, and were “post-processed”--a euphemism for CRC planners substituting their judgment about appropriate values in place of model outputs to produce higher levels of traffic on the I-5 crossing. The result of this one change was to raise forecast traffic (and associated toll revenues) 6 percent above those produced by unaltered Metro model results.

The inaccuracy of these traffic forecasts casts serious doubt on the findings contained in the environmental impact analysis, because these forecast traffic levels are used as the baseline for calculating the net environmental impacts of build alternatives. Inaccurate traffic forecasts also cast doubt on the financial analysis. If the bridge has less traffic than forecast, toll bonds will not produce the projected levels of revenue, and the project will experience significant revenue shortfalls that could produce bond defaults or require additional state subsidies. The overestimates also mean that both the DEIS traffic analysis and the URS traffic analysis (which uses the same forecast volumes) are leading to an oversized facility relative to likely demand.

2. Total 30-year CRC costs will total nearly $10 billion. The total 30-year cost of the Columbia River Crossing is likely to approach $10 billion (measured in year of expenditure dollars). In addition to the construction cost of the project, currently estimated at upwards of $3.9 billion, the project will necessitate additional expenditures over the next 30 years estimated as follows:

$3,875 million in construction costs, plus:

$2,700 million in interest payments,
$1,700 million in toll collection costs,
$1,300 million in supplemental project costs,
$ 275 million credit card, sales tax and bond issuance costs
$ 175 million incremental transit operating costs
$10,025 million total 30-year cost

Because the financing for the project requires borrowing in advance of the receipt of federal, state and toll revenues, the CRC will have to borrow money to pay interest while the project is being constructed, and will effectively have to pay interest on top of interest. The scale of the project imposes major opportunity costs on the region—the loss of benefits from other projects that could be financed with this stream of revenue. In addition, because the region’s commuters will be paying additional costs, through tolls and taxes to pay for the project, this will reduce consumer income available for spending in the local economy, resulting in a loss of jobs and tax revenues for state and local governments.

3. The CRC poses major financial risks The Columbia River Crossing poses a major financial risk to transportation finance in the Portland metropolitan area, and to the state. For this type of project, there is a very high likelihood of cost overruns. The multi-billion dollar scale of the CRC qualifies it as a “mega-project.” Given the history of similar scale projects, both nationally and internationally, the likelihood of cost overruns is on the order of 90 percent. Cost escalation for the two most recent large scale projects undertaken by ODOT exceed 200 percent from the DEIS stage (the current stage of the CRC) to current estimated completion cost. While responsibility for cost overruns has not been established, it is likely that these costs would have to be borne by Oregon and Washington, and could be on the order of additional hundreds of millions to billions of dollars. Once construction is commenced, there would be few ways to mitigate or reduce these risks.

The Independent Review Panel criticized cost estimates for the project, observing that the estimates were based on a now discarded design and that they don’t address key risks.

The panel labeled the cost estimates “problematic” and warned that unless corrected, they would have a “dramatic effect” on the ability of the project to obtain funding.

There is also a considerable risk associated with traffic and toll projections, which have regularly proved to be over-optimistic in practice. The CRC assumes that even with tolling, traffic on I-5 will increase dramatically faster than it has for the past decade. The project’s debt service payments are “back-loaded” meaning that the project pays a higher and higher payment each year. As a result, the ability to pay for the project is highly dependent on a sustained high level of traffic growth and regular toll increases. If traffic growth is only half as fast as forecast—for example, 0.8 percent per year during the 2020s, compared to the 1.75 percent increase forecast by the CRC—the project would experience a $1 billion shortfall in net revenues available to pay debt service. There are interest rate risks as well; although current borrowing rates are relatively low, they may increase substantially when bonds are actually issued, three to five years from now.

There are major risks to accomplishing the Columbia River Crossing project according to the schedule proposed by project sponsors. Delay is significant because it is likely to increase the total cost of the project, both due to inflation in the cost of materials and labor, but also due to the interest cost associated with a longer construction period.

Special factors—like the need to time in-water construction to avoid salmon migration— can have the effect of magnifying the impact of even minor schedule delays.

The Columbia River Crossing runs the real risk of a financial collapse because it relies on over-optimistic traffic and revenue projections, and downplays the real risks of cost overruns, revenue shortfalls and project delays. There is a significant likelihood of concurrent problems resulting in a situation in which project costs exceed the amounts now estimated, federal and state contributions are less than hoped, and traffic volumes are dramatically less than forecast. Because such a significant portion of the cost of the bridge must be borrowed, these fiscal shortfalls would lead to a cascade of events: the project would deplete borrowed project reserves and would be forced to further increase tolls, which is likely to have the effect of driving traffic levels lower. When reserves are exhausted bond covenants would likely require that the two states make good on any toll revenue shortfalls, either by diverting money from other projects or raising taxes.

This report was prepared by Impresa, Inc., based on documents obtained from the Columbia River Crossing, and other pertinent information identified in the reference section of this document. Analyzing the financial status of the project is complicated because the CRC is behind schedule in completing important financial planning tasks, and because it has provided some key documents only in response to formal public records requests. We have relied on several documents obtained through a public records request filed by the Pacific Environmental Advocacy Center. Among other things, these documents identify the dollar amount of total interest costs, toll collection costs and pay by plate surcharges that are revealed nowhere in the public presentations of project costs by the CRC. While the project’s official schedule (dated November 30, 2009) called for several key financial documents, including a Financial Plan, Financial Risk Analysis and State Funding Documents to be completed in January and February of 2010, we were told by project officials in July that copies of these documents could not be produced because they had not been completed. The fact that significant portions of project costs have been largely unavailable for public review, and key financial planning documents remain incomplete underscores the concerns raised in this report about the level of risk and uncertainty surrounding this project.

For Reference:

http://www.columbiarivercrossing.org/

This is dated from October, but only recently became available online.

A few notable points on background...

** The Columbia Crossing Project is looking to spend your tax dollars too.

** The Columbia River Crossing Project currently spends about $1 Million Dollars a month.

** To date, the Columbia River Crossing Project has spent $109 Million Dollars studying the project.

** The Federal Government will not fund any portion of this project unless it includes light rail into Vancouver, WA.

** Current plans call for variable tolling, which automatically adjusts the tolls higher during peak traffic periods, in order to force people to cross at a different time.

** Current plans call for automatic tolling with sensors in vehicles to record crossings and times, and automatically deduct tolls from the client account.

** One manual toll booth will be available, but the cost of the toll will be double.

** The current Interstate Bridges were built respectively in 1909 and 1969, and feature the last active vertical lift spans on an Interstate Highway in the United States.

** The 1909 span sits on wooden pilings driven into the riverbed. Numerous other serious seismic deficiencies exist on both spans.

** In order to operate and maintain the light rail system, a local bond measure would have to pass raising the local sales tax, (and pay it in addition to the tolls).

** The City of Vancouver already faces a $2-$4 Million Dollar annual deficit in large part because of people who shop in Oregon where there is no sales tax.

No. The “takings” as they are known locally are not finalized, because the design and route are not finalized.

We do know that once built it will be equivalent to putting the flight deck of a Nimitz Class carrier right over a good portion of the immediate riverbank of Vancouver, which does concern the local Police who will be responsible for keeping the deadbeats and peepers out of there.

This will be the biggest disaster Southwest Washington ever saw if it goes through.

I take it that the mantra of “If you build it, they will come” would be rubbing salt into the wound. The problem is, as always, that government has to be seen as being active and responsive. However, given that the politicians who agree to these ‘solutions’ are long gone from their positions when the problems surface, they see no need for concern, it isn’t their money after all.

This is nuts.

A bridge should be built between Woodland, Washington, and St. Helens, Oregon. Enough traffic would travel the 4-lane U.S.30 route into Beaverton or west Portland, bypassing the bridge crossing from downtown Vancouver into Oregon’s Jantzen Beach, to substantially reduce traffic congestion between Vancouver and Portland.

To Hell with light rail.

As a Vancouver resident this new proposed bridge has to be the biggest waste I have ever seen. I would be much more amenable to a $1 or so toll if they left off the light (loot) rail portion of the bridge for a total cost savings of 3 billion or so. Yeah, the estimates I have seen show the bridge is about 900 million to build but you add the the tiny train and it shoots to almost 4 billion bucks. Such a deal for folks who really don’t want a train that takes bu-ku dollars to maintain and of course expand in the future.

A bridge could have been built by now, just a nice, modern 10 lane bridge over the river. Nothing fancy, no toll needed, the Glenn-Jackson bridge didn’t have a toll when it opened. We pay taxes already for infrastructure such as this.

Vancouver even elected a new Mayor based on his stance against tolls on the new CRC bridge. It didn’t take but a few months for him to ease off that stance; I am wondering who “took him aside” and let him know that he better get with the sheep shearing program? Politicians on both side of the river cannot seem to start taxing us for this bridge fast enough. Heck, the mayor of portland (the boy molester) wants the highest tolls possible to keep the Vancouver riff raff out of his city.

I have communicated to the Mayor of Vancouver, my local reps and the CRC people themselves letting them know how I stand on the issue, but I am ignored, given platitudes about how the project is already going to be built, it’s an inevitability and all.

Why do politicians not actually represent the people who pay the taxes and elect them? They really seem to be that arrogant.

I would not be opposed to a modest toll that lasted for a couple of years to pay off the cost of a new bridge. But that is not what is being proposed.

Tolling would last “into perpetuity” as the CRCP likes to phrase it, and future tolling receipts would be used by both Oregon and Washington to float unending years of bond payments to expand Loot Rail even more. But it is so expensive to own and operate it cannot exist without heavy subsidies from all corners, funded by the taxpayers.

Trimet in Portland has had a tax system in place for so long most people have no idea how much money it raises. Trimet has been able to squander millions on questionable projects for decades, and they largely get away with it because light rail is a very Blue issue and Portland is packed with liberal democrats. The employers in Multmonah, Washington and Clackamas Counties pay taxes through the nose to Trimet and have done so since the Seventies.

Clark County has no such money machine and there is no way we can ever hope to keep up with Trimet unless we agree to the madness in the tolling scheme the CRCP is peddling. This will be the biggest financial disaster to ever hit Clark County, and it will extract tens of millions in tolls from those who have been fortunate enough to keep a job, but can ill afford to pay it.

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