ANNUAL INJECTION OF $350 MILLIONS TO DRIVE OUR ECONOMY..."Booster"PARA NUESTRA ECONOMIA...
FOR THE NEXT FIVE YEARS THE SECRETARY OF TRANSPORTATION & PUBLIC WORKS,PLANS TO INJECT $350 MILLION PER YEAR TOOUR ECONOMY...
$350 million yearly capital-works plan to drive the economy
Hernández aims to maximize funding to undertake strategic projects now
Transportation & Public Works Secretary Rubén Hernández Gregorat is driving a five-year capital-improvements program that will inject up to $350 million annually into the local economy.
The spending plan, which involves new highways, roadway maintenance and expansions and mass transportation systems, is about six times more than the average Transportation & Public Works Department (DTOP by its Spanish acronym) infrastructure spending over the past eight years.
As a result, while it is aimed at meeting the infrastructure needs for future residential and commercial development, the capital-investment plan will also help jolt the moribund island economy, creating some 11,200 jobs annually, according to Planning Board estimates.
The capital-improvements plan is expected to be financed through a mix of federal economic-stimulus funding, regular federal transportation funds, Commonwealth funds and private investment tapped through the creation of public-private partnerships (PPP).
The DTOP chief, his staff at the agency and the Highways & Transportation Authority, the public corporation under his umbrella that undertakes most of the infrastructure projects, has made maximizing available funding a top priority.
“I am telling my team we need to start looking at ordinary things in an extraordinary way,” Hernández said. “We have to get this economy moving.”
The Puerto Rico government can normally count on about $100 million annually in federal transportation funding. The funding can only be used for 80% of a project’s cost, with the remaining funds normally coming from Commonwealth or municipal sources.
However, the two previous administrations were only spending “50% or 60%” of that, essentially leaving $40 million to $50 million in federal funds not being used each year, Hernández said.
“There wasn’t a lot of effort in identifying capital-intensive projects. For them it wasn’t a priority,” he said. “For me, it is a priority. We are identifying projects and spending all the money we have assigned.
“My strategy has been: I am spending more and asking for more,” Hernández said. “Right now, it is hard to justify asking for more because we haven’t been spending it all.
“This is a credibility issue. We are trying to show the federal government we have the capacity. We have the local in-house people with the expertise, and we have the ability to bid out multiprogram projects,” he said.
While the long-term investments DTOP is making are now more important than ever because they are needed to boost the economy, Hernández said another reason for the government to undertake these projects now is that it can get a good deal given current market conditions.
“There is a lot of interest. That helps me get lower prices,” Hernández said, pointing to a southern paving bid, which attracted more than 30 proposals with the winning contract coming in $3 million below the government’s cost estimates. “The savings we can use for other projects.”
Tapping stimulus funding
Right now, the biggest funding opportunity is the American Recovery & Reinvestment Act (ARRA), which has provided some $180 million in total—$105 million for highway development and repairs with the bulk of the balance going for public transportation expenditures.
Hernández said he boosted the highway spending by applying $25 million from ordinary transportation funds to the $105 million available in ARRA funding, a concession granted by federal officials.
DTOP and the other entities under Hernández’s watch have also applied for an additional $25 million in ARRA competitive-funding grants, which could boost funding even more. The applications include a solar-energy project for the Urban Train system, for which electricity accounts for 60% of operational costs.
Other proposals include improving roadways inside U.S. National Park Service installations on the island, which include the two Old San Juan fortresses and El Yunque rainforest reserve, and several roadway and ports security grants. There are also bids for grants to build a small shipyard and purchase a new ferry.
About $50 million in ARRA funds is being spent on repaving and repairing roads, with much of the money already working its way through the economy, with projects getting underway this month and extending through September. Some 823 jobs are expected to be created.
“We have covered the whole island. It will solve a big part of the pothole problem,” said Hernández, noting the paving work is being done on the most problematic roads within different regions to ensure funding is spent across Puerto Rico.
Next month, a $34 million project funded largely through ARRA will get underway. It will connect PR2 to the Mayagüez area, a key project for the celebration of the 2010 Central American & Caribbean Games slated to take place in the west coast city and other towns in the region next summer, Hernández said. The project is expected to create 178 jobs.
Another $33 million project using a mix of ARRA and ordinary funds will expand PR2 into an expressway around Ponce. It is scheduled to get underway in September and create 266 jobs. ARRA funds will also fund work on bridges in Aguadilla, San Juan and Guaynabo, with the three projects expected to start by September and create 191 jobs.
Hernández also said there was about $11 million in ARRA funding available to revamp the ferry terminals in Fajardo, Vieques and Culebra, buy new ferries and improve other supporting infrastructure. Work is expected to get underway at the Fajardo terminal in October.
The agency also received $69 million to purchase new, fuel-efficient passenger buses.
ARRA-funded transportation projects will inject more than $5 million a month into the local economy by this fall, a figure that will increase to $6.5 million by January 2010 and reach $8 million by next summer, which will be the height of stimulus-funded transportation spending, according to government estimates.
From public funding to private partnerships
The two-year ARRA program, however, will begin winding down in 2011, with monthly transportation investment in the program dropping to $4 million by January 2011 and below $1 million by March 2011.
“We want to maintain that investment momentum through public-private partnerships,” Hernández said, referring to a recently passed law promoting and regulating the establishment of PPPs in the government.
The law creates the Public-Private Partnership Authority (PPPA), a Government Development Bank (GDB) entity, which is the sole government power to authorize and oversee PPPs. Its board consists of the GDB president, Treasury secretary, Planning Board president and two citizens recommended by the Senate president and House speaker and nominated by the governor. The measure is a cornerstone of Gov. Luis Fortuño’s fiscal and economic recovery plan. The governor has said PPPs are vital to undertake costly infrastructure works that the cash-strapped central government simply can’t afford.
The Fortuño administration has identified 28 strategic infrastructure projects, worth up to an estimated $7 billion investment, which it will attempt to complete through PPPs over the next three to five years that will create an estimated 23,000 direct jobs.
While the PPPA Board has yet to be constituted, Hernández has already submitted a list of eight priority projects, worth an estimated $2 billion investment. He said the roadways to be built under the PPP concept would be toll roads, as this would allow private developers to recoup their investment.
“I have already submitted eight projects; all are priorities. They are part of the administration’s public policy and DTOP’s capital-investment program,” Hernández said.
“These are strategic projects that will cover our main highway needs and develop mass transportation, not only in the [San Juan] metro area, but also in surrounding municipalities as well.”
Hernández is looking at PPPs for large highway projects, including the $600 million extension of De Diego Expressway (PR22) between Hatillo and Aguadilla and the $200 million completion of Roberto Sánchez Vilella Expressway (PR66) between Canóvanas and Río Grande. The PR22 project would create 19,200 jobs, while the PR66 project would create 640 jobs.
“Route 66 is going to be the first PPP project because it already is so far advanced in the design stage,” Hernández said. “It is a model that has less risk. We should start awarding requests for proposals by the end of this year and begin construction by the first quarter of next year.”
Other roadway projects Hernández is considering for PPPs include the $500 million project to extend the Maunabo tunnels and the PR53 expressway, an $80 million plan to extend PR5 in Bayamón to PR22 and a $150 million plan to extend Las Cumbres Avenue between Guaynabo and Bayamón.
“These are projects that have been programmed in the past, but because of a lack funds for designs, studies and construction, they haven’t been given priority,” Hernández said.
“Now that we have a new law that ensures there is transparency in the evaluation process, it is going to be more attractive in terms of risk management. The proponents are saying the law makes it more attractive.”
Hernández also said he was looking toward PPPs to develop and improve Puerto Rico’s public transportation system. He said the aim was to integrate new alternatives into the Urban Train system, creating a more robust public transportation system that will improve all its components.
“We have also submitted collective transportation projects for new trains, bus rapid transit systems (BRT), and others that will interact with the Urban Train,” he explained.
The largest project is the San Juan light-rail system, which would be a loop system connecting the Santurce Urban Train station with Old San Juan at an estimated cost of $350 million.
Meanwhile, Hernández is looking to establish three BRTs that would connect San Juan’s Urban Train system to Caguas, Carolina and Hatillo. While the mayors of Caguas and Carolina have planned for a railway to make the connections, Hernández said the BRT approach is more cost-effective and justifiable, given potential ridership.
The BRT system costs about 25% of what it would take to build a light-rail system, while its operational costs are about one-third that of the rail system, Hernández said.
The idea is to use existing highway infrastructure to construct dedicated bus lanes for the express bus service, with an eye to ensuring the BRT routes could be developed into light-rail lines in the future, if ridership grows to the point where the investment is justified.
The Trans Millennium system in Bogotá, Colombia is a model that local officials are studying.
“The government purchased the hybrid vehicles, and then the infrastructure was constructed by the private sector and they are operating the system,” Hernández said. “This is a win-win situation. We invest in vehicles; they invest in the construction and operation.”
Operators could also take over the administration of “feeder routes” involving regular bus lines and ferry routes to make the PPPs more feasible, he added.
Hernández also hopes to foster private-sector interest to develop residential and commercial areas surrounding Urban Train stations, which would entail an estimated $900 million investment. He said the development also would have the added benefit of increasing Urban Train ridership. Much of the land surrounding the train is owned by the Highways & Transportation Authority, and government planners have always sought to use the land for housing, commercial real estate, government offices and other buildings.
“There are a lot of people interested in undertaking housing and commercial developments around the train,” Hernández said. “We want to welcome them aboard.”
Visions of the future
Hernández indicated his team is willing to consider bold new projects proposed by the private sector through PPPs because developers will be putting their own investment dollars on the line.
“There are other concepts that have never been seen in DTOP before, and these are conceptual projects we have seen an interest from the private sector in developing,” Hernández said.
“In the Golden Triangle area, there is a proposed bridge to connect Cataño to San Juan. Right now, we are depending on the ferry system,” Hernández said.
The $600 million “skyway” project would loom over the San Juan harbor, helping improve transportation into and out of San Juan, and also providing a central route for a BRT or rail mass-transit system, as well as lanes for cars.
Hernández said other future concepts include incorporating multiuse office buildings and train/bus terminals into existing highway infrastructure and land. Plans call for such structures at the entrance to the Luis Muñoz Marín Airport, the intersection of PR22 with the Muñoz Rivera Expressway and the section of Kennedy Avenue fronting Metro Office Park.
“Since there is limited land available for development, the private sector has expressed interest in developing multiuse buildings that use existing DTOP infrastructure and land,” Hernández said. “The federal Highway Authority accepts these types of projects, as some states have already done such projects. So, we are looking to do things that haven’t been done before.”
Even a toll bridge from Ceiba to Vieques is under consideration, Hernández said.
The Vieques population seems divided on the issue, and the Legislature is holding hearings on the proposal, but a cost-benefit analysis indicates the $600 million project is a viable option, he said.
“We are doing our research and the private sector is expressing some interest in constructing it,” Hernández said. “We are evaluating that option. If we see an opportunity, that is a project we may be submitting.”
DTOP chief puts umbrella agency’s finances in order
Slashes operational debt to $80 million from $320 million in cost cutting aimed in part at steering agency back to the bond market
Transportation & Public Works Secretary Rubén Hernández Gregorat has managed to slash his umbrella agency’s debt to $80 million from $320 million in just seven months on the job.
When Hernández Gregorat took the helm in January, he described the state of the umbrella agency (DTOP by its Spanish initials) as critical. Besides a huge debt, DTOP’s borrowing capacity was maxed out.
A transition report from the previous administration hinted at the financial turmoil within DTOP but the reality turned out to be far worse.
After looking under the rugs, through the cracks and opening the doors, the DTOP chief found himself facing a budget shortfall of some $320 million for fiscal 2009, which ended June 30.
The agency had fallen far behind in payments including its power bills and employee-withholding contributions and had exhausted its borrowing capacity.
Adding insult to injury, Standard & Poor’s downgraded the bond rating for DTOP’s vital Highways & Transportation Authority to BBB-, just one grade above junk status.
Not one to let adversity stand in the way of his mission and vision for the agency, Hernández Gregorat quickly got to work. His immediate focus was to create financial stability and balance the books of DTOP and its agencies.
Hernández Gregorat needed to cut costs and increase revenue. To carry the agency through in the interim, he successfully went after an $80 million bridge loan from the Government Development Bank (GDB).
He began to steer DTOP back on course by embarking on an “organizational restructuring” that included a 10% across-the-board cut in costs, paring employee trust positions by 30% as ordered by Gov. Luis Fortuño and eliminating nonessential professional and legal contracts.
“Since my arrival, I have done what I call adequate practices in managing a corporation and a destaffing plan,” Hernández Gregorat said. “In the past six months, after all the cost-cutting adjustments, the bank [GDB] has allowed me to request loans again, and I recently received a bridge loan for $80 million from the GDB.”
He said two-and-a-half years have passed since the agency went to the bond market. To return to the bond market, which is very important for the agency over the long term, the DTOP chief explained he needs to boost the agency’s overall financial position through reduction of operational costs (which he has already begun) and increasing revenue.
The agency will get a $180 million funding boost over the next two years through the American Recovery & Reinvestment Act, nearly doubling its annual allotment of federal transportation funds, which are about $100 million. It is looking toward public-private partnerships (PPPs) to complete some strategic projects. Still, a return to the bond market is essential for the agency to carry out its capital-investment program further down the road.
One big plan to shore up the finances is to look to a PPP to expand the automated pay-toll system to all tollbooths. By dramatically expanding the AutoExpreso system, Hernández Gregorat said he would be able to capture $20 million to $30 million in annual tollbooth-cost leakage.
While raising tolls is an option, Hernández Gregorat is not yet looking at it. Fortuño has vowed not to increase costs for middle-class taxpayers, who were hit hard by fee and tax hikes under the previous administration.
The DTOP chief expects to zero out his operational deficit sometime in 2010, and then get ready to return to the bond market.
“Looking toward the future, I am predicting we will be able to go back to the bond market in 18 months,” Hernández Gregorat concluded