Thursday, March 8th, 2012
I’ve been pounding the Indiana Department of Transportation lately, rightly so I think. But fairly I should also highlight things they do well that are also of relevance to the country.
One of them is an announcement yesterday of a plan to accelerate construction of a major project on US 31 in Carmel and Westfield, northern suburbs of Indianapolis. The project is an upgrade of 12 miles of that route to a full freeway. Work had finally started – after about 20 years of study – and was projected to dribble out over the course of nearly a decade, being completed in 2018.
With this announcement, the project will be accelerated and completed by 2015. All remaining work will be bundled into a single $475 million contract. This will be funded with some type of financing mechanism – the details aren’t yet clear as to whether this is GARVEE bonds, vendor financing, bank loans, etc – then repaid over a decade with allocations from the state’s regular highway funding.
Spending future money now can sometimes be a bad thing. Some states are in trouble because they’ve bonded out too much of their future highway funds. But in this case it seems like a good move. The state projects it will save $50 million in construction costs by doing it this way – not a small amount. One benefit of pulling forward projects right now is to take advantage of the weak economy to get better pricing. Prior to the recession, construction cost inflation was running at 11%, well above any reasonable financing costs for borrowing money by a state. So doing projects sooner avoids that future inflation as well.
But the state is only part of the equation. Motorists will save significantly both by having to endure fewer construction seasons, and by pulling forward the benefits. Given the congestion in the area, this should be significant.
But financing and contract bundling aren’t the only things pulling the project forward. The state is also looking at temporarily closing the road to get things done faster. This technique is known as a “hyperfix” locally after the name of the original project where it was done. This approach has been pushed by Carmel Mayor Jim Brainard, who upgraded Keystone Ave as an alternate route and built collector/distributor roads parallel to US 31 to provide access even if the highway were closed. Brainard wants to do the segment through his city in just one construction season. The Indianapolis region has a been a leader in using the hyperfix technique, which saves money and reduces the amount of time motorists experience the pain of construction.
Beyond the savings, this also greatly reduces the risk around the project just not getting done. This project barely survived getting axed due to budget problems a couple previous times, despite its huge benefit/cost ratio. As the Toll Road lease money runs out and federal funding seems sure to decline, Indiana faces the prospect of a plunge in its funds available for construction in the not too distant future. This announcement brings much greater certainty to the project.
Some don’t like highway projects, but this is clearly needed. The Major Moves upgrades on US 31 segments will cut travel times between Indianapolis and South Bend by 30 minutes in addition to serving key growth areas in the region. The suburbs in the region are in parallel pursuing new urbanist policies around densification and walkability, and mayors like Jim Brainard are strong supporters of building out a regional transit system.
This should only be considered a preliminary analysis since full details aren’t available yet. But it’s an example of how states can use techniques like shorter term financing and hyperfixes to save money and get projects done sooner. This is definitely something we need to see more of in America.
I should also note that Gov. Daniels decided to do this despite what I believe is the probability of considerable opposition from the state’s powerful highway lobby. Indiana’s contractors are often smallish and not able to handle large projects like this. Traditionally they’ve opposed large design/builds and such for this reason. That’s why Indiana usually breaks up its major projects into a seemingly endless parade of one to two mile segments. This combined bidding is much better for Hoosier taxpayers and motorists, however. Kudos to the governor for looking out for them first.