Rhode Island Deploys GARVEE and State Bonding Program

Rhode Island Deploys GARVEE and State Bonding Program


by Innovative Finance Quarterly, Winter 2004, Brian P. Peterson

Like many states, Rhode Island is facing the significant costs of reconstructing 45-year-old Interstate System segments, replacing critical bridges, and developing new transportation

projects to accommodate economic growth. At the same time, the Rhode Island Department of Transportation (RIDOT) has largely “reserved,” or programmed, its future annual construction program in order to complete the vital construction projects contained on its State Transportation Improvement Program.

In order to address these seemingly competing needs, Rhode Island has developed a multi-year bonding strategy that couples GARVEE bonds to fund the Federal-aid eligible portion of certain project costs with Motor Fuel Tax Revenue bonds to finance the state share of such project costs. Rhode Island

plans to issue a maximum of $710 million in GARVEE bonds and a maximum of $125 million in Motor Fuel bonds. This bond package will be used to partially finance five transportation projects, critical to the continued economic vitality of Rhode Island. According to Brian P. Peterson, RIDOT’s Chief Financial Officer, the bonds allow the state “to continue the rest of the (construction) program while completing the five critical transportation projects on an accelerated basis.” These five projects are described below.

Interstate 195 Relocation Project

This $418 million project involves the relocation of a 45-year-old 1.6-mile stretch of Interstate 195 (I-195) and an adjacent 0.8-mile portion of Interstate 95 (I-95) through Providence. The freeway will be relocated 2,000 feet to the south of its current alignment and outside the barrier which protects the 350-year-old city from hurricane flooding. The project includes 14 new bridges with a 1,200-foot mainline bridge over the Providence River, 25 lane-miles of new interstate, a new interchange with I-95, five miles of new city streets, and 4,100 feet of new pedestrian river walks. In addition, removal of the existing interstate will free up 20 acres of prime downtown real estate. The project will complement the recently completed river relocation, Waterplace Park, and Memorial Boulevard Extension projects that have revitalized downtown Providence.

Route 403 Project

The $129 million Route 403 project involves construction of a new freeway that will connect the existing Route 4 freeway in East Greenwich with the Quonset Davisville Port and Commerce Park in North Kingstown (the Quonset Industrial Park), improving access to the park. This 4.5-mile, four-lane, controlled-access facility will contain three interchanges, a total of 14.8 miles of roadways (including the main freeway and the ramps), 14 new bridges, two bridge rehabilitations, an extensive storm drainage and water quality treatment system, and environmental mitigation improvements. With funding provided by the bonding package, the freeway will be constructed in six contracts and opened to traffic at the end of 2007, five years ahead of the initial construction schedule.

Freight Rail Improvement Project

The $196 million Freight Rail Improvement Project (FRIP) is a 22-mile project located within Amtrak’s

Northeast Corridor. This project entails constructing a freight dedicated track along Amtrak’s mainline tracks, linking Quonset/Davisville to the Boston Switch at Central Falls and out to western markets. The FRIP is to be administered by Amtrak Force Account – work performed by Amtrak forces – as well as RIDOT construction contracts. RIDOT construction contracts consist of nine individual sitework and structure projects containing elements of work necessary for preparing the alignment and trackbed for the construction of the third track. Funding for the project is a mix of state and Federal funds, including a combined $51 million in planned GARVEE and Motor Fuel bonds.

New Washington Bridge

The existing Washington Bridge carries multiple eastbound lanes of I-195 and U.S. Routes 6 and 44 over

the Seekonk River between the cities of Providence and East Providence. The bridge also passes over several local streets as well as the Providence and Worchester Railroad. It was built in 1928, and is immediately south of the Washington Bridge North built in 1970. Based on the recommendations of a value engineering study, the $85 million New Washington Bridge will be realigned within a vacant area between the 1928 and 1970 structures, using a portion of existing foundations to construct the new facility. The new bridge will consist of five, 12-foot travel lanes and two, four-foot shoulders.

New Sakonnet Bridge

The $151 million New Sakonnet Bridge project will replace the existing bridge on a new alignment

immediately south of the existing structure. Replacement of this bridge is required due to seismic

susceptibility, structural inadequacy, and substandard safety features. The crossing carries Rhode Island State Route 24 over the Sakonnet River, a tidal passage separating the Town of Portsmouth on Aquidneck Island to the west and the Town of Tiverton on the mainland to the east. It is a key link in the transportation systems connecting Massachusetts to Rhode Island and the Aquidneck Island communities.

Rhode Island currently contemplates issuing bonds in three installments over a five-year period, in November 2003, 2006, and 2008. The GARVEE bonds are “stand-alone,” that is, neither state revenues nor the state’s full faith and credit are offered as a secondary, or back-up, pledge for the payment of debt service. Rather, the sole revenue source to make debt service payments is anticipated future FHWA Federal-aid apportionments. The November 2003 bond package includes $217 million in GARVEE bonds and $53 million in Rhode Island Motor Fuel bonds. Both the GARVEE bonds and the Motor Fuel bonds have been assigned high ratings by the three nationally recognized bond rating agencies. The GARVEE bonds are rated Aa3/A+/AA- by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, respectively. The Motor Fuel bonds received ratings of A2/A+/A from the same agencies.

The Rhode Island Economic Development Corporation, the issuer of these bonds, successfully priced both the GARVEE and Motor Fuel bonds on November 13, 2003. The all-in true interest cost on the GARVEE bonds was 3.52 percent, while the interest rate on the Motor Fuel bonds was 4.04 percent. The principal portion of the annual debt service for the November 2003 GARVEE bonds ranges from a high of $32.3 million in 2006 to a low of $13.7 million in 2007. These payments represent from 17.9 percent to 7.6 percent, respectively, of the estimated future Federal-aid annual apportionments of $180 million. Generally, dedicating less than 20 percent of anticipated Federal-aid apportionments to debt service payments is considered to be a conservative leveraging strategy.

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