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April 8, 2011
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Keeping Tabs on the Major Capital Projects in GO TO 2040

NOTE: This is the first in a three-part Policy Updates series on GO TO 2040 Major Capital Projects:

Keeping Tabs on the Major Capital Projects in GO TO 2040

Major Capital Project Series -- Central Lake County Corridor

CTA Red Line South Extension

When regional plans like GO TO 2040 are produced, one relatively small component typically attracts the most attention -- the identification of new major transportation projects. For projects to receive federal transportation funds or obtain federal approvals, they must be included in these plans. As the name implies, "major capital projects" add capacity, come with large price tags, and often promise to generate economic returns, reduce congestion, improve mobility, and, sometimes, even transform large parts of our region.

In one sense, development of GO TO 2040's capital element followed historical precedent -- CMAP's committees spent many hours deliberating over evaluation measures, financial projections, and project prioritization. However, while many potential projects demonstrate large benefits, only a handful can be included. This is because federal law requires plans like GO TO 2040 to establish a "fiscal constraint," a realistic financial envelope for future transportation resources. CMAP forecasts limited funding for new major capital improvements -- the region will have about $385 billion to spend on transportation investments over the next 30 years, with only $10 billion available for new major investments. As such, GO TO 2040 includes a quite shorter list of major investments than past plans. While a short list may not be as exciting as a long one, the benefit of this approach is that it pushes the region to prioritize. GO TO 2040 includes five new major projects or extensions, all of which have been moving forward in terms of their own individual planning processes.

Over the next several weeks, CMAP's Policy Updates blog will provide updates on how these projects are developing. This first piece will examine theElgin O'Hare Expressway and West O'Hare Bypass Improvements.

Funding Elgin O'Hare Expressway and West O'Hare Bypass Improvements

This Elgin O'Hare West Bypass (EOWB) project consists of several elements centered around O'Hare Airport, a major economic driver in the region. Together, these elements are expected to relieve congestion and improve accessibility throughout the corridor. The concept for this project, which first originated in the 1980s, has been analyzed in much greater detail over the past few years. A "Tier One" process, completed in June 2010, identified a "preferred alternative" that defined the proposed improvements and their locations. It also serves as the basis for right-of-way acquisition.

[Click thumbnail below for a larger image]

In late 2010, Governor Quinn's EOWB Advisory Council was formed and charged with making operating and financial structure recommendations for implementing the project. The Council consists of four working groups: project financing, economic impact, sustainability, and diversity. Their work culminated in a preliminary report (February 28, 2011). The draft report features a range of initial findings and recommendations, and the final report is expected later this spring.

Financing a project of this scale is certainly a major challenge. The EOWB project is currently estimated to cost $3.57 billion, in 2010 dollars. The cost includes new construction (and reconstruction of existing facilities) of 16 miles of highway, 17 interchanges, 12 miles of fixed route transit, and other improvements to adjacent roadways. The GO TO 2040 plan notes that toll revenues should be expected to cover a large portion of the project cost.

The EOWB Council's preliminary report focuses largely on potential funding sources that could be aligned to finance the project. A critical aspect addressed in the report is the "bonding capacity" of the project. The Illinois Tollway's primary source of revenue comes from tolls paid by users of the system. Under state law, the Tollway must first use this revenue to maintain the existing system and meet its obligations to providing debt service payments to its bondholders before adding capacity to its system. The preliminary report finds "measurable gaps" in the ability of the project to be fully bondable, assuming no changes to the current tolling structure or rates. "Bonding level to cost" ratios for different project options were used to determine feasibility (see chart below), with options ranging from tolling the entire corridor, to tolling only certain sections, or tolling none at all. Not surprisingly, the only financially feasible options included ones that toll at least some portion of this project. The option with the highest bonding capacity (64 percent), tolls the entire Elgin O'Hare corridor, but leaves the Western Bypass as a freeway. Thus, the main implication of this analysis is that tolling is a necessary, but not a sufficient, strategy for financing the project. The region will need to get creative in terms of filling the funding gap.

CMAP's GO TO 2040 plan suggests investigating a series of innovative financing methods for this purpose. One set of strategies, known as "value capture," holds promise in terms of generating revenues. Value capture refers to the practice of implementing a tax or fee on private property near a public improvement to take back, or "capture," some of the monetary benefit that the property owners gain as a result of the public investment. The revenue from these fees or taxes is then used to pay for part, or all, of the cost of the improvement. Value capture has been utilized in various forms in both the U.S. and internationally to pay for new infrastructure. In December 2010, CMAP released an initial report on value capture that analyzed the impacts of several strategies (a TIF-like mechanism, a special assessment district, and impact fees) in a hypothetical area in terms of revenue generation and development.

This value capture report influenced the work of the Governor's EOWB Advisory Council. Due in part to CMAP's recommendation, the final EOWB report will include a further examination of the impacts of implementing value capture mechanisms in the Elgin O'Hare project area. The initial hypothesis is that, when instituted carefully, value capture strategies will be an efficient and effective way to fill the financing gap for this project. Of course, implementing value capture strategies will require significant buy-in from local elected officials and the public. If value capture shows promise, the next phase of project development will require significant outreach to these communities. For some strategies, state legislative action may be required.

Moving forward, the region needs to rally around its priority projects like the Elgin O'Hare and continue to elucidate the far-reaching benefits of such an investment.

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