P3 and the Northeast Corridor

The Infrastructure Investment and Jobs Act could result in a new push for transportation-focused P3s, with in the Northeast Corridor at the forefront, reports Gordon Feller

A little-noticed but important provision in this Act requires a value-for-money (VfM) analysis. This has often been a key part of the P3 development process. VfM is now required if a project is to receive federal funds for transportation projects above $750m financed through TIFIA (the Transportation Infrastructure Finance and Innovation Act) and Railroad Rehabilitation and Improvement and Financing Act (RRIFA).

VfM analyses involve a decision-making tree that maximizes the delivery of infrastructure within the limitations of any US state’s budget. This is taking into account revenue and expenses and indebtedness over the short-term, medium-term and long-term. The result should assure, in terms of cost and service, the greatest public benefit for the resources expended in light of all the available alternatives. 

Overall, the VfM process should reflect a lifecycle planning and infrastructure investment process that makes the most of federal, state and local investment capacity; takes advantage of user fees where applicable; and assures that the most cost-effective method of investment is utilized. A rigorous VfM analysis produces an appraisal of a project’s financing sources prior to an investment. It allows for an alternative investment route to be chosen, if it offers better value for money than traditional (public) investment methods.

For decades many US states, including New York and New Jersey, have faced infrastructure financing deficits. This has happened as federal and state support has declined and counties have become more dependent on local voter-approved sales tax for critical investments. Aggravating this situation, traditional public procurement processes have in many cases led to problematic liabilities for public entities and long delays in project launch and project completion, escalating total costs. This has occurred as large-scale overruns on major projects have escalated, due largely to procurement processes used that premise project awards using the historically preferred Design Bid Build (DBB) method of procurement. Using this method, the focus is on low bids (lowest cost). That would be fine, except that DBB contractually opens the door to renegotiations. DBB fails to account for a project’s total lifecycle costs - which, in the real world, means both operation and maintenance.

Inside the governments of the states of New York and New Jersey - and the City of NY - experts have found one answer to this problem. It’s one that’s long been available, but it has remained underutilized: tying the Design-Bid-Build (DBB) procurement method to a P3 model. 

The UK and Canada have pioneered this procurement method and it is common throughout the world. California law currently authorizes P3 projects by local or regional agencies in specific areas. The state has successfully developed a number of large construction projects using variations on the P3 formula. 

Examples include the Long Beach Courthouse, the Neuroscience Building at UCSF, and the campus buildout at UC Merced. There have only been a handful of transportation projects, the most recent in the Bay Area being the Presidio Parkway that links the Golden Gate Bridge with Lombard Street in San Francisco. In Southern California the Los Angeles Metropolitan Transportation Agency (MTA) has made extensive use of the model. The fact that transportation projects are not more common stems from their relative complexity but also from opposition by the union representing the State of California’s public employee engineers, which has resisted innovation in transportation finance and management.

Gateway to success

In the New York metropolitan region, the need to upgrade infrastructure investment is enormous. As the city and region continue to recover from Covid, they will need to expand, modernize and upgrade subway and bus service and redesign streets to accommodate e-commerce and increased biking. Two projects in particular have the potential to embrace P3 logic, and to transform New York for the coming century: the Gateway Project and congestion pricing.

On July 4, the Governors of the US states of New York and New Jersey announced an important agreement: to share costs for the construction of a new (and very expensive) Hudson River tunnel. This bi-state alignment marks an historic milestone in the saga of a large and controversial infrastructure project.

To understand Gateway, it’s important to first appreciate some of the realities surrounding the Northeast Corridor (NEC). This is an electrified railroad line in the Northeast megalopolis. Owned primarily by Amtrak, it runs from Boston through Providence, New Haven, New York City, Philadelphia, Wilmington, and Baltimore to Washington, DC. The NEC closely parallels Interstate 95 for most of its length, and is the busiest passenger rail line in the United States both by ridership and by service frequency as of 2013. The NEC carries more than 2,200 trains daily. Several companies continue to run smaller local freights over some select few sections of the NEC including CSX, Norfolk Southern, Conrail Shared Assets Operations (CSAO), Providence and Worcester, New York and Atlantic and Canadian Pacific. 

As has been pointed out by Tom Wright, President of the Regional Plan Association, the first two are considered to have part-ownership over those routes:

- CSX Corp. is an US holding company focused on rail transportation and real estate in North America, among other industries. The company was established in 1980 when two companies merged: the Chessie System, and Seaboard Coast Line Industries. The various railroads of the former Chessie System and Seaboard Coast Line Industries that are now owned by CSX were eventually merged into a single line in 1986, at which point it became known as CSX Transportation. CSX Corporation currently has a number of subsidiaries beyond CSX Transportation. 

- CSAO is the commonly used name for modern-day Conrail, a US-based railroad company. It operates three networks - the North Jersey, South Jersey/Philadelphia, and Detroit Shared Assets Areas - and it serves as a contract local carrier and switching company for its two owners, CSX Transportation Corp. and the Norfolk Southern Railway Corp.

- The Norfolk Southern Railway is a Class I US-based freight railroad. It was formed in 1982 by the merger of two companies: the Norfolk and Western Railway Corp, and the Southern Railway Corp. With headquarters in Atlanta (Georgia), the company operates 19,420 route miles (31,250 km) in 22 eastern US states, plus the District of Columbia. It has rights in Canada over the Albany to Montréal route of the Canadian Pacific Railway Corp., and previously on The Canadian National Railway Company’s line from Buffalo to St. Thomas.

- The New York and Atlantic Railway (NY&A) is a short line railroad formed in 1997 to provide freight service over the tracks of the Long Island Rail Road, a public commuter rail agency which had decided to privatize its freight operations. An affiliate of the Anacostia and Pacific Company, NY&A operates exclusively on Long Island (New York State), and is connected to the mainland via CSX's line over the Hell Gate Bridge, which is owned and maintained by Amtrak, a state-owned enterprise. Amtrak is a for-profit company, but the US federal government owns all its preferred stock. Amtrak made $2.4 billion in 2020. Amtrak provides rail service to over 500 destinations in 46 US states and three Canadian provinces.

Most experts have concluded that there is perhaps no single infrastructure project that would impact a greater proportion of the nation’s economy than the Gateway project, which is an integral part of the NEC’s future. The NEC tunnels under the Hudson River - connecting New York to New Jersey and the mid-Atlantic - were built over 110 years ago, and Penn Station is currently managing over three times the passenger volumes it was designed to safely handle. When the tunnels flooded during 2012’s Superstorm Sandy, salt water damaged the interior of the tubes, which will require Amtrak to eventually close them for major repairs estimated to take several years. 

The goal of Gateway is to build two new tracks under the Hudson River before the existing tunnels fail. Then, once the old tunnels have been taken out of service and renovated, the capacity under the river will double to four tracks, improving service across the entire Northeast Corridor from Washington to Boston, which represents 20% of the nation’s GDP. The Regional Plan Association examined what would happen if the current tunnels fail before Gateway is built, and concluded it would generate a $16bn hit to the national economy and would worsen the commutes for half a million people. 

Gateway also includes repairs to bridges in New Jersey and the renovation and expansion of Penn Station, which is the most heavily used transit hub in North America, and will soon see direct service for commuters from the Bronx, Westchester and Connecticut. The renovation and expansion of Penn Station offers the possibility of repairing one of the great tragedies in New York City - the demolition of the historic Pennsylvania Station - and creating capacity for another century of growth and prosperity. 

At the same time, New York is making plans to become the first city in the nation to institute a policy of congestion pricing, whereby all drivers into the central business district will pay a toll. New York’s current tolling system is a patchwork of legacy agencies - some crossings to Manhattan are free, others are tolled in one direction, and others in two directions - that create perverse incentives for commuters and delivery vehicles to drive out of their way to avoid paying tolls.

Congestion pricing has been successfully implemented in London, Stockholm and Singapore. It offers the possibility of eliminating “toll shopping” and allowing traffic to flow freely across the region. The funds generated - estimated at around $1bn annually - will help maintain and expand mass transit. Just as importantly, by levying a modest toll on drivers, the city expects to reduce traffic congestion, making the city more manageable and efficient for everyone.

These two major initiatives - a capital investment of over $30bn and a new approach to tolling and traffic congestion - both rely on partnership with the federal government for funding and approval. Together, they point the way to a city and region that manages traffic congestion and creates new capacity for transit mobility. 

Never before has the city worked so closely with federal agencies and Congressional leaders to deliver such important investments for the city’s infrastructure, and had so much at stake in that relationship.