Toll Road Asset Management and the Linkage to Finance Transportation Innovations, Inc. 10/22/2015 1

US Toll Roads Many were built years ago and portions are nearing the end of their productive lifecycle; as a result, capital and maintenance costs are accelerating. Many agencies are fiscally constrained and operating in a political environment that where no ribbons are cut for maintenance Lower VMT and lower returns on investments are reducing agency revenues. Some have inflexible labor agreements in place that may limit the ability to contract out services or cross-utilize staff. 2

Taking an Assessment Measures of comparability Strategic planning process Asset management practices Financial planning process Financial position Capital program development 3

Revenue Per Lane Mile 4

O&M Staff/Costs Comparisons # of Staff per Lane MileO&M Costs per Lane Mile 5

Snow and Ice Removal 6

Revenue / Maintenance Costs 7

Strategic Planning and Asset Management Governing Board needs to lead strategic planning The agency needs: – An integrated financial planning model – An asset management program that supports rehabilitation scope development to optimize investment decisions – A capital planning and maintenance program that is tied to the ability to finance – Management processes and integrated systems 8

Strategy, Asset Management and Measurement 9 Good strategic planning, performance measurement and asset management processes reinforce each other.

Recommended Framework 10 The Board Executive Team Division and Department Heads

Steps to an Integrated Approach The Governing Board should lead an effort to develop a strategic plan that establishes a vision and guiding principles Develop a implementation plan for the strategic initiatives – Asset management – Maintenance program – Capital program – Financial plan Establish performance measures 11

Financial Model 12 Capital Planning Model Interest Rates Bond Issuance Existing Debt Service Interest Rates Bond Issuance Existing Debt Service Projected O & M Expense Capital Cost Const. Schedules Projected O & M Expense Capital Cost Const. Schedules Bank Line / Commercial Paper Program Capital Budget Reports Sources and Uses of Funds Projected Toll Revenues Projected Toll Revenues Debt Service Reports General Assumptions Strategic Plans Capital Budget Requirements General Assumptions Strategic Plans Capital Budget Requirements Board/Staff Fin. Advisor Engineers Traffic Engr. Model Output Revenue / Debt Service Reports (Financial Capacity) Revenue / Debt Service Reports (Financial Capacity) Integrated Planning Model

Preserving the Asset and Financing Improvements Preserving the asset – Asset Condition – Maintenance program – Rehabilitation component of the capital program Determine the ability to fund operating programs and issue new debt Determine the need for toll increases in the future Develop the ability to test various scenarios on a long term basis 13

Financial Assessment 14

Best Practices Benefits of good Asset Management practices: – Builds objective case for additional funding – Empowers defensible & efficient decision-making – Improves financial stability (and bond ratings); – Increases sustainability and efficiency; Characteristics of good Asset Management: – Is customized; Allows evolution & incremental implementation; – Encompasses many business processes & specific assets; – Draws from economics as well as engineering; – Is strategic (Policy-driven / Performance-based) & long-range; – Provides complete & up-to-date information (for all audiences); – Is followed by solid project delivery & monitoring; 15

Considerations for Improving Asset Management Conduct Asset Management Business Improvement Study Conduct comprehensive valuation of unconstrained asset needs and strategy for communicating need to audiences Document the project prioritization process. Establish equipment utilization standards Implement decision support tools Communicate project prioritization & progress Review and monitor regular progress against established performance measures. 16

Best Practices 17 Best practices of nine forerunners in a 2007 AASHTO study of project delivery statistics from 20 DOTs Cost Performance Best Practices: Learn from past mistakes; Leadership must care about controlling project costs. Accurate estimates come from well coordinated construction and pre-construction processes. Measure cost performance monthly or quarterly against stated goals. Track causes of overruns and make sure that information gets shared. Use monthly progress meetings to keep staff accountable. Do not wait until a project is over to measure performance. Link performance to pay; create an incentive program for managers or departments that contain costs. Externally mandated performance targets always help. Employ Value Engineering in construction contracts. Maintain dialogue with the contractor community to build partnerships. Hold contractors accountable, especially when issues recur. Encourage team-based, multi-disciplinary project development processes. Schedule Performance Best Practices: Invite input from construction managers on construction schedule estimates. Recruit and retain skilled staff. Learn as much as you can about surface and subsurface conditions Set project schedules based on reality-checked unit production times Conduct overall constructability reviews Measure and acknowledge on-schedule performance Track causes of delays and make sure that information gets shared. Use monthly progress reports to keep staff accountable. Consider paying for utility relocation if it will reduce costly delays. Give contractors sliding windows for completing projects. Have mandatory pre-bid meeting for large projects to improve bid quality. Gather contractor input on new specs and/ or do pilot projects to see if they work before widespread deployment. Give contractor incentives for early completion. Hold contractors accountable, especially when issues recur. Take care of ROW, permits and utilities before construction begins.