Your Questions for Neil, Round 3, Part 3 – PMLR

In the third segment (of four) of our conversation with TriMet General Manager Neil McFarlane, we discuss the Portland-to-Milwaukie Light Rail project.

A transcript of the interview, prepared by Engineer Scotty, follows the jump.
CS: Let’s change topics a little bit… Portland-Milwaukie. We’re under construction now, you’re building a bridge in the middle of the river… some observers have noted that if you look at the cost of the project, on an inflation-adjusted basis, it’s about the same price tag as the Westside line, but the Westside line is something like twice as long. You came up through capital projects within TriMet… why is this project so expensive on a cost-per-mile basis?

NM: Well, there’s a couple of things that factor into that. One is that the cost of this project also includes the financing cost, so it’s an all-in cost including the interim financing associated with the project, sort of the construction period financing. That wasn’t the case with the Westside, partially that’s just an accounting difference that the federal government has instituted. I would say the other piece of is that the federal government also now carefully reviews all the estimates, and wants a very comfortable contingency on most of their projects, and I think there is a very comfortable contingency, and it’s much more comfortable contingency than I’m used to seeing when I was managing capital projects at TriMet. That might mean that there will be some opportunity for re-investment along the project toward the end, but that will be up to FTA because they control that dial right now.

CS: So if you come in with unspent contingencies, what are some of the things on the wish list that might go to?

NM: Well, there is, actually, a deferral list associated with the project, part of it is some of the pedestrian overcrossings over the UP line in the SE Portland area, additional capacity at park-and-ride, particularly at Tacoma station, and a few other accoutrements aligned for stations and other things along the line. I don’t have the full list in my brain, but those are the biggest ones. And there are other kinds of investments that we always like to make with our projects, including sustained transit oriented development to occur around our station sites, so that we actually begin to build the neighborhoods that we want to see around our stations, and begin to see that development in the right way. So there’s some hope, again, but very early in all of that. The other factor about this project, that I just wanted to note that’s different with some of the others, is that it really needs to carve its own right-of-way out of SE Portland, and so that meant a lot more property acquisition, more than any project we’ve had since the Westside.

CS: So that’s the upside, if we have some contingencies left over. Let’s talk about the downside. There’s some interesting ballot measure activity going on in Clackamas County right now… is the Portland-Milwaukie funding secure, and are there any conditions under which you might consider terminating at the MOS and dropping the Park Avenue station from the project?

NM: The funding is secure. We have signed contracts with all of the governments along the line, starting with Portland all the way down through Milwaukie and Clackamas County, and those agreements were agreed to by all the partners. The other thing I’d say is, the federal government when they approve and consider these projects, are considering the thing as a whole. So they’re considering a project that starts at Portland State University, at the transit mall, and ends in Oak Grove, and that’s the part they evaluated, and that’s the project they’ve agreed to fund at the level that they have, about $745 million of discretionary federal funds coming to Portland with this project. So, my view is that it secure, and we have the strong support of the federal government, the federal transit administration. They’re moving this project forward, and we’ve been very honest with them about these issues in Clackamas County and Milwaukie. Both those bodies have voted twice for the project, for the Locally Preferred Alternative as well as for the funding agreement.

CS: So if there were some circumstances in which you’d have to consider the minimum operable segment, you’d have to go negotiate with the FTA to be able to do that, is that what you are saying?

NM: If there were that circumstance ahead of us. I’m not anticipating that.

CS: Okay. We’ve talked about the potential of some contingency funds being available at the end of the project. One of the ways of funding Portland-Milwaukie is issuing bonds against future revenue, which is revenue which could be used for operations otherwise. Is there any consideration that if we do have contingencies left, we could reduce the level of bonding, or preserve future operating capacity?

NM: Probably not. The FTA does require that the scope of the project be defined in the Full Funding Grant, so the use of any funds, really, is contingent upon FTA approval, so they would have to look at that themselves. And so at the end of the day, we’d be petitioning to Portland, to the Federal Government to perhaps suggest an improvement of one or another in the project. But it would be specifically related to the project, and that’s the nature of those discretionary capital dollars from the FTA. Just to note on those funds. Up to now, we have not put any TriMet money into the Portland-Milwaukie project. The funds have been partnership funds from the State of Oregon, and some grant funds that were available to us from the MTIP funds that Metro allocates. So, if you look at the difficult time that we’ve gone through, from a budget standpoint, Portland-Milwaukie has not contributed to that at all, up to now.

CS: First payments on the bonds will hit what budget year?

NM: I think they will actually will hit in fiscal 13, the way we have it right now. And so, one of the other things I would just note about TriMet and capital bonding is that we have a very low debt ratio associated with the agency. The Board has adopted a debt policy that limits our overall debt to about 7 1/2% of our overall payroll tax. So if you think of that as a homeowner’s budget, you know that’s a pretty low debt ratio, and if you compare us to other transit districts around the US, you’ll find that that’s a pretty low ratio. Now that’s intended, because we, with all of our partners, recognize that’s incredibly important to preserve as much operating dollars, out of the TriMet payroll tax as possible, so it’s only a little bit of leverage from the capital side that we ask for from TriMet, and we look for patnership funds to do the balance, and that’s quite intentional. If you look at the history of projects that we’ve done, all the way from the Banfield through, you’ll find first of all that the Federal Government’s contributed about 60% historically, of those funds, as much as 83, or 82 on the Banfield, 80% on the Interstate, to 50% here, but then other partners have contributed the balance.

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