Denver RTD pursues funding options for FasTracks

by Angela Cotey, Associate Editor

Officials at the Regional Transportation District of Denver (RTD) had it all planned out in the early 2000s. Develop a regional transit program: Check. Create a program schedule to expedite the projects in the fastest way possible: Check. Obtain voter approval on a sales tax measure to pay for said program: Check.

And for a few years, everything went according to plan. After Denver-area residents approved a four-tenths-cent sales tax measure in November 2004, RTD dove right into its FasTracks program, which calls for adding 119 miles of light- and commuter-rail lines to the agency's current 33-mile light-rail network. The agency began plowing through environmental studies and other pre-construction work to launch construction on the various lines as soon as possible. RTD officials told voters it would bring rail service to the entire metropolitan region by 2017, making FasTracks one of the largest, most ambitious transit construction projects in the United States.

But in 2007, the agency hit its first FasTracks speed bump. Commodity prices for steel, copper and concrete began to rise. By 2008, material costs had soared to astronomical levels. Then the recession hit. The sales tax revenue RTD was counting on to fund its $4.7 billion program plummeted. Agency officials quickly realized they wouldn't be able to deliver the program within the promised timeframe.

Today, RTD's FasTracks program is estimated to cost $6.7 billion, leaving the agency with a $2 billion funding gap. If RTD can't secure another revenue source, the agency won't finish all the FasTracks projects until 2042.

But it's not all doom and gloom in the Mile High City. While agency execs work to resolve the massive program shortfall — likely by asking voters to approve another sales tax hike — RTD project managers have completed environmental work on almost all of the rail corridors and launched construction on several lines. They've also secured a large share of federal dollars, issued a contract securing the largest transit public-private partnership (PPP) in the country and managed to maintain public and business community support for FasTracks despite the budget issues. Denver-area residents understand the importance of FasTracks — that's why they voted in favor of it seven years ago — and don't hold RTD accountable for the economic factors that caused the budget to soar and revenue to plummet. Recent polls suggest residents are even willing to pay more for the transit expansion, so long as it means they'll have access to rail sooner. With that in mind, RTD officials are exploring options to complete FasTracks as soon as possible.

"We've been very honest and very transparent with regard to what our challenges were and are," says RTD General Manager Phillip Washington. "Now, we need to show folks how we're going to move forward."

Under Construction

Step one: Use the money RTD does have available to advance as many FasTracks components as possible.

"Our team mantra is to build as much as we can, as fast as we can, until it's all done," says Bill Van Meter, RTD's assistant general manager of planning.

They've already made some headway. In mid-2007, RTD launched construction on the first of six new FasTracks rail lines: the West Corridor between downtown Denver and Golden, Colo. The agency has received a $308 million Full Funding Grant Agreement (FFGA) from the Federal Transit Administration (FTA) for the 12.1-mile light-rail line. The corridor was 70 percent complete as of mid-February and on schedule to open in 2013.

RTD officials also pursued a PPP to construct the East and Gold lines. The thinking? Bring in some private financing to enable the agency to spread out large, upfront capital costs over 30 years. In turn, RTD would make payments to the private-sector team.

In June 2010, RTD selected Denver Transit Partners (DTP) — a consortium including Fluor Enterprises, Uberior Investments and Laing Investments — to design, build, operate, maintain and finance the East and Gold lines, as well as the first segment of the Northwest Corridor and a commuter-rail maintenance facility. The team also includes Ames Construction, Balfour Beatty Rail, Hyundai-Rotem USA, Alternative Concepts Inc., Fluor/HDR Global Design Consultants, PBS&J Corp., Parsons Brinckerhoff, Interfleet Technology, Systra and Wabtec Corp.

DTP's bid came in more than $300 million below estimates, freeing up funds for RTD to use on other FasTracks projects. Called the Eagle P3, the PPP — which RTD officials say is the largest in the transit industry — takes some of the weight of executing/maintaining the FasTracks program off agency leaders.

"It was an opportunity to help us reduce costs and also help us come up with a way to deliver more early on by bringing in private investment," says Rick Clarke, RTD's assistant general manager of capital programs. "The private sector has a turnkey responsibility for operating and maintaining what they build, and I think that provides some built-in quality to our system."

In May, the FTA is expected to award a $1.03 billion FFGA for the East and Gold corridors.

"We have a very well-defined program and we have carefully selected the projects to advance through the federal funding process that are most competitive in the nationwide program," says Van Meter.

Van Meter also oversaw environmental work for each of the corridors. Studies have been completed for all but the North Metro Corridor, and that one is expected to be approved by the FTA in the coming weeks, he says.

In addition, RTD has broken ground on the East Corridor and launched construction on the Denver Union Station redevelopment project, which calls for overhauling the station to accommodate all FasTracks rail lines and redeveloping the area surrounding the facility. The project was about 30 percent complete as of mid-February.

"The main thing was to get as much into construction as possible with the money we do have," says Clarke. "The public has a lot more confidence that we'll deliver the program when they see real construction going on and, most importantly, we have to give the public confidence that we know how to manage these programs by keeping the projects we do have under way on time and within the schedule we committed to."

Public approval and confidence will be essential as RTD officials seek ways to complete the FasTracks build-out despite the $2 billion budget gap. For starters, agency managers have proposed using the majority of $305 million in remaining funds to jump-start construction on the I-225 and North Metro rail corridors, and U.S. 36 bus rapid transit corridor.

But to continue making significant progress, the agency will need an influx of new revenue. A big influx. And they're hoping Denver-area residents will provide it. In November 2010, agency officials presented options to the board to raise the local sales tax by 0.4 percent, 0.3 percent, 0.2 percent or 0.1 percent. The options would enable RTD to complete the program by 2019, 2022, 2027 and 2035, respectively. As of press time, the RTD board was scheduled to make a decision on whether to place a sales tax measure on the November 2011 ballot and, if so, how large of a hike to ask for.

Back to the Ballot Box

In January, RTD managers made their recommendation to the board: Seek a 0.2 percent sales tax increase.

But shortly after, the Denver Metro Chamber of Commerce released results from a poll it conducted in mid- December. The chamber asked 500 likely voters in the nine-county Denver metropolitan region their thoughts about the FasTracks program and RTD's various sales tax proposals.

Seventy-seven percent of the respondents said they believed passing the referendum in 2004 was a good idea. That's well above the less than 60 percent of people who initially voted in favor of the FasTracks sales tax, leading chamber officials to believe that "people who maybe voted against it have come to believe it was a good idea," says Tom Clark, executive vice president of the chamber and EVP of the Metro Denver Economic Development Corp., a regional economic development group that serves as an affiliate of the chamber.

The chamber's polling results match up with an RTD poll conducted in September as part of its annual FasTracks survey.

"People do not have buyer's remorse," says Washington. "People still think the FasTracks project is the way to transform this region."

In addition, 49 percent of those polled by the chamber said it is "very important" that FasTracks is completed as it was promised to voters. And, the majority of respondents said that time is equally, if not more, important than cost.

"With no tax increase, the program finishes in 2042," says Clark. "People want to be able to ride the whole thing without having to spend their whole life paying for it."

As a result, the Denver Metro Chamber is suggesting the board pursue a 0.3 percent or 0.4 percent sales tax increase in November.

So is the Metro Mayors Caucus, a group of 40 Denver-area mayors that meet monthly to discuss and help resolve regional issues. The caucus has a FasTracks Task Force, which comprises eight mayors who are charged with helping RTD address FasTracks problems.

"The level of support is directly proportionate to the tax increase," says Lakewood Mayor Bob Murphy, who chairs the task force. "In other words, one-tenth receives virtually no support and four-tenths is the highest by far."

RTD officials support the recommendation from the chamber and caucus, saying their proposal was issued before the additional polling data was released.

"We took a conservative approach, but we made it clear that it's a flexible recommendation," says RTD spokesperson Scott Reed. "People are saying they want this sooner rather than later and that they're willing to pay more, which seems contrary to the conventional wisdom, especially with today's economic realities, but it goes back to how strongly people feel about the importance of FasTracks."

Making a Conservative Case

However, the Denver Post has a different take on the possible sales tax measure. In a Feb. 22 editorial, the newspaper acknowledged the tough task RTD board members are facing in deciding which sales tax proposal voters would be most likely to support. The editorial offered some advice: Don't overreach on the FasTracks tax.

"While we've said repeatedly that completion of the FasTracks system is important and may require a higher sales tax, we don't think the original timetable for build-out must be adhered to at all costs," the editorial stated. "That's why we were pleasantly surprised when the district's own staff decided to recommend the board seek a sales tax hike of 0.2 percentage points — on top of the current 0.4 percent tax — instead of the 0.4 percentage-point hike required to finish FasTracks by the end of this decade. It is hard to imagine how a campaign proposing to double a tax would have an easier time than one asking for half that amount."

Meanwhile, the Coalition for Smart Transit, which was created in 2009 to help rally support for FasTracks, has told RTD board members they recommend holding off on seeking a tax hike in 2011, according to a March 2 article in the Denver Post.

The coalition's reasoning? In recent weeks, the public has become more aware of the federal government's and state of Colorado's financial distress, and is more focused on the economy and taxes, according to coalition leader John Huggins. In addition, FasTracks proponents likely couldn't raise the millions of dollars needed to develop a successful campaign.

There's a lot riding on the RTD board's March 8 decision to determine how large of a tax increase it should ask voters for, and when they should ask for it. RTD only has one more shot to get the project back on track.

"We're playing high-stakes poker right now," says Denver Metro Chamber's Clark.

Either way, RTD will need to pursue an additional sales tax within the next two years in order to at least partly salvage the FasTracks timeline.

"After you get past 2013, the economics of all this collapse on you," says Clark.

[Note: After the print edition went to press, the RTD board voted (on March 8) to pass this year's FasTracks financial plan. The board also made a decision on how to proceed with a future sales tax to fund a $2 billion gap in the FasTracks budget — sort of.]

Regardless of whether RTD's board decides to pursue a sales tax increase in 2011, or hold off until 2012 or later, RTD and FasTracks supporters will have their work cut out for them when it comes to convincing voters to pay more for the expansion program. Just because the business community and many local elected officials back the project — and a second tax — doesn't mean the general public will.

"From the mayors' standpoint, it's pretty hard, particularly if you campaigned for FasTracks the first time, to go out and tell constituents to vote for another sales tax," says Murphy. "Work is being done and progress has been made, but there are no trains running."

That's because, as any transit exec knows, it takes years to complete the planning, environmental and design process for any New Start project. RTD has spent the past six years working through that process for each of the FasTracks corridors.

"You have a big block of voters saying, ‘Well, wait, we started taxing in 2004 and didn't see anything happening,' even though we were doing preliminary design and engineering work," says Washington. "Then we started construction on the first corridor — the West Corridor — and it's not being built down the middle of I-25, it's on the west side of town."

Now, RTD is "literally ready to put out packages and start digging," says Washington.

To show Denver-area residents the progress RTD is making on FasTracks, the agency recently launched a new public education campaign — called FasTracks at Work — that focuses on current and upcoming construction. The campaign also reiterates the benefits of FasTracks and the major destinations the rail lines will serve.

A More Tempered Outlook

Another obstacle RTD will face: convincing the public their new projections are accurate. The agency is respected in the region and isn't held accountable for the FasTracks budget shortfall, says the chamber's Clark. However, Clark also says — and RTD officials admit — the initial sales tax revenue projections were overly optimistic.

"We were using 6.06 percent on sales tax growth over 25 years," says Washington. "We based it on the best information we had at the time, but when you're a Monday morning quarterback, people can look at that now and say it was way too optimistic."

Today, RTD estimates sales tax revenue will total about half of its initial projections, at best. The agency's new FasTracks financial plan is much more conservative, with revenue projections outlined on the low, middle and high side. Agency officials have run project cost estimates against each of the revenue projections to ensure they can complete the project under each of the various scenarios, says Washington. RTD also is assuming a 5 percent inflation rate for commodity prices, rather than the industry standard of 3 percent, he adds.

"That's what we're looking at now, instead of having one percentage number of growth and saying that's how it's going to be for the next 25 years," says Washington. "We're showing our stakeholders that we're being very conservative and that they can believe in what we're presenting. That doesn't mean everyone has been won over. We're still working on that."

Regaining and retaining public support will continue to be a work in progress for RTD as it prepares to pursue another ballot measure. Provided the board approves pursuing the measure this year, the agency will have some FasTracks momentum to help advance the cause, Washington believes.

Building Momentum

Once the board approves the new FasTracks financial plan on March 8, RTD will be ready to award construction contracts for several unfunded corridors using the remaining $305 million left in the FasTracks pot, enabling the agency to break ground this year on the I-225 and North Metro rail corridors, as well as the U.S. 36 bus rapid transit corridor. In May, RTD is expected to receive a $1.03 billion FFGA from the FTA. The agency also plans to break ground in 2011 on the Gold Line and North West Rail electrified segment.

"We cannot replicate the momentum we are going to have this year," says Washington.

And hopefully that momentum will help prompt voters to favor a new FasTracks tax, be it this year or later.

"You never know what a voter's going to do. But I'm confident in our assumptions, I'm confident in our financial plan, I'm confident in our ability to build within the timeframe we're promising," says Washington. "I would hope that the voters will be confident, as well."

If voters don't approve a tax increase, RTD will gradually advance its expansion program, allocating funds as they become available to various corridors and completing smaller segments piece by piece. The approach would not only devalue the meaning of "fast track," but could potentially cause a regional fallout, Denver Metro Chamber of Commerce's Clark says.

"In the last 25 years, we have become this metroplex that thinks and acts regionally. We've built incredible infrastructure that everyone in the region puts money into — theaters, stadiums, the airport, the convention center," he says. "This way of thinking has resulted in a much more efficient economy and much more efficient use of public tax money."

But if some communities have to wait years — or decades — longer than originally anticipated for their rail service, they'll be at an economic disadvantage compared with their neighbors that already have rail service. And that won't sit well with the non-rail-served communities, says Clark.

"We've built a regional vision of what we want to be and if FasTracks doesn't get to all parts of the region, we're fearful the region will collapse and we'll devolve to where we were in the 1980s, into cities fighting over everything," he says.

On the other hand, if the RTD board signs off on pursuing a ballot measure in the coming year or two, and Denver-area voters give the tax-increase go-ahead, FasTracks could help boost the Denver economy and provide options in a region where transit will be a necessity sooner rather than later.

"We're not going to be able to build enough roads to accommodate everybody, so transit will be a ‘got to have' in a few years," says Washington. "It's going to position the entire Denver region to be competitive and attractive for the next century."