I-30 project allows for 'gap financing'

Under new state law, road panel OKs contractor’s money bridging shortfall

Arkansas Highway Department Director Scott Bennett speaks at a news conference at the Arkansas state Capitol in Little Rock, Ark., Tuesday, Jan. 6, 2015.
Arkansas Highway Department Director Scott Bennett speaks at a news conference at the Arkansas state Capitol in Little Rock, Ark., Tuesday, Jan. 6, 2015.

The contractor eventually selected for the project to improve the Interstate 30 corridor through downtown Little Rock and North Little Rock also would bankroll part of the work under an option approved by state highway officials Wednesday.

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Arkansas Democrat-Gazette

A map showing the Interstate 30 corridor project.

The department has said it has up to $450 million set aside for the project, but it could cost more. The five-member Arkansas Highway Commission unanimously approved an order Wednesday to allow the contractor to put up the balance of the project's cost the state cannot cover with the understanding the contractor would be paid back the money over several years after the work is completed.

A new state law -- Act 704 of 2015, sponsored by state Rep. Mathew Pitsch, R-Fort Smith -- allowed the Arkansas Highway and Transportation Department to explore the possibility using what other states already are using and is often referred to as "gap financing."

Scott Bennett, the department's director, said all that people associated with the project know now is that a gap likely exists between what money will be available and the project's cost, something project engineers and consultants will be figuring out over the next several months.

"We don't have a good strong design [cost] estimate now, so we need to see what the gap is and whether we can fit the gap into our program over the next few years," he said.

The order the commission approved Wednesday allows Bennett to request and evaluate proposals and to recommend either a design-build contract or a design-build-finance team.

The I-30 job also would be the first project on which the department has employed a design-build concept for construction.

Under design-build, the contractor eventually selected for the project would be handed an unfinished project design and complete it during construction as a way to speed the work.

The traditional method of highway construction is to have one firm design the project and another firm to construct it using the design.

The project is now in the phase focusing on an environmental review and developing the schematic design that the contractor will use.

In April, engineers working on the project to redesign the corridor said a preliminary recommendation found that the highway should be widened to 10 lanes from six now, with two of the new lanes in each direction serving as collector-distributor lanes in the immediate vicinity of both downtowns.

The distributor lanes would be separated from the main travel lanes to allow for slower and safer speeds to leave and enter the interstate.

The project to reduce congestion on the 6.7-mile corridor between Interstate 530 in Little Rock and Interstate 40 in North Little Rock and a small stretch of I-40 between I-30 and U.S. 67/167, also in North Little Rock, includes replacing the bridge over the Arkansas River. Construction is to begin in late 2017 or early 2018.

The I-30 bridge carries about 125,000 vehicles daily. The corridor and bridge were built 50 years ago.

Before Act 704 broadened the commission's authority, the department was focusing on designing and building the project to a budget, Bennett said, "because our budget for the improvements is not unlimited."

In short, contractors have been given a set amount of money and asked what they could build with it within the parameters the department sets. Whichever contractor could build the most within the budget would get the contract.

Act 704 gives the department more flexibility because, Bennett said, "it would be beneficial to have those improvements done at the same time instead of waiting several years until you get the money available and you have another contract to do additional improvements, another work zone or an extended length of a work zone."

And if, for instance, the contractor would have to borrow $100 million to complete all the work within the project, he said, then if the agency waited "until you have the extra $100 million in hand seven years down the road, that may cost you $150 million" because of inflation.

Depending on the firm that is chosen, the design-build-finance team could self-finance the money it would front for the project or it could borrow from lending institutions, according to federal guidelines. Under the guidelines, the money isn't considered a debt but rather a deferred payment.

The payback period would fall within five to seven years and the money would come from the department's future construction budgets, Bennett said.

"I think there's going to be a gap," he said. "When you look at the recommended improvements for the corridor, some of them are longer term. The improvements down at the [I-40/I-30] interchange, widening Interstate 30 and things like that that are longer term that will make the corridor flow the way it needs to flow.

"We need to know if the gap is something we'll be able to meet by paying it off in a five- to seven-year period."

Also Wednesday, the commission approved a $360.8 million budget for the fiscal year beginning July 1. It is $1.27 million, or 0.4 percent, smaller than the budget for the current fiscal year.

It includes a 1 percent cost-of-living raise for all employees, a 5 percent increase in district maintenance budgets and an inclement-weather reserve fund that was increased to $5 million from $3 million this year. All other operating budgets were cut 1 percent.

A Section on 06/11/2015

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