Financial Plan
Introduction
This plan’s financial analysis was developed in response to the requirements for a “fiscally constrained plan” that was first introduced in the Intermodal Surface Transportation Efficiency Act (ISTEA) and continued in subsequent federal transportation legislation including the FAST Act.
This plan considers capital, operation and maintenance costs associated with the preservation and continued operation of the existing transportation system, as well as the costs associated with the recommended improvements presented in this plan. It also projects revenues (funds) from all sources that will be available to pay for the improvements. The process includes revenue estimation, cost analysis and a revenue/cost comparison to arrive at a fiscally constrained plan. Revenues and costs are tracked separately for Ohio, Kentucky and Indiana, respectively. Comprehensive details are provided in the entire Financial Plan document (PDF).
Revenue (FUNDING) and Cost Expectations
The primary source of public funding will be from federal sources. Fixing America’s Surface Transportation Act (FAST) reauthorizes federal highway, transit, safety and rail programs for federal fiscal years 2016 through 2020. It provides modest increases over previous bills.
Estimated funding for transportation improvements for the OKI region is based on data from federal, state and local sources. Future funding levels expected for the planning period covering 2020 through 2050 are estimated based on past trends and through consultation with the Ohio Department of Transportation (ODOT), the Kentucky Transportation Cabinet (KYTC), the Indiana Department of Transportation (INDOT) and FHWA. First, the base annual revenue is derived (averaged) from actual expenditure data.
To estimate the total revenue amount available from all sources over the planning period, it is assumed that revenue grows at 2% per year. This figure is based on information received from state DOT’s. Finally, an adjustment is made to account for other federal programs such as BUILD and INFRA. The region has history of receiving discretionary INFRA funds ($120.7M in NKY). Conservative amounts of $200M Ohio, $100M Kentucky, $20M Indiana are added to total Plan revenue. Revenues from tolls is not included but this could change as conditions warrant.
The relative proportion for expenditures, such as the proportion of operations and maintenance (O&M) funds versus capital, are assumed to remain stable through the planning period. The total revenue for the planning period (2020 to 2050) is equivalent to the future value of a series of annual payments at the growth rate stated.
An estimated $18.89 billion (B) ($11.90B in Ohio, $6.59B in Kentucky, and $0.40B in Indiana) is expected to be available over the 30 year planning period of 2020 to 2050. These revenues are a mix of formula and non-formula funds. Formula based funds are those that OKI or other local governments receive on an ongoing, annual basis and are therefore, repetitive and predictable. It is assumed that the non-formula based expenditures will continue at approximately the same levels plus some growth for inflation.
Once the revenues were identified for each state, the dollars available for new projects were determined by subtracting the funds equal to four years of base annual revenues to approximate the level required for currently programmed TIP projects and O&M and subtracting the funds attributable to transit formula funds. Figures 1 and 2 present the funds that can reasonably be expected to be available. Figure 1 is the regional outlook and Figure 2 is broken down by state.
Assumptions on Revenue Forecasts
Revenues expected to be reasonably available for projects in the region are primarily based on federal and state sources. To formulate an estimated annual rate of growth, OKI relies on approaches from the collective states in which OKI operates and trends from federal transportation bills. The annualized estimated revenue growth is assumed to be 2 percent per year for all three states.
Federal funding has remained steady during the multiple extensions of MAP-21. FY12 and FY13 funding increased about 1% year over year and fiscal years 2014, 2015 and 2016 remained flat. The four year cycle for metropolitan plan updates will require these assumptions to be revisited on a consistent and regular basis. The FAST Act has an average annual growth rate of 2.9%.
Assumptions on Cost Estimation
Year of Expenditure Cost
- The FAST Act requires that this plan’s fiscal constraint demonstration include estimates of project costs in terms of dollars for the year of expenditure (YOE). In other words, a project that is built in a future year would include inflation in the cost estimate. For example, 2035 projects would have the cost in terms of 2035 dollars, 2050 projects would have the cost in terms of 2050 dollars. The YOE is assumed to be the mid-point of the construction period. Year of expenditure cost estimation requires a current or base year cost estimate, the implementation date (year) of the project and an inflation factor for the project to reflect the cost in terms of the implementation year.
Base Year Cost
- Base year project cost (BY) is developed in the documented planning process that generated the concept of the project. Some projects not originating in a documented study are estimated by staff as described below. Refer to Estimation of Individual Project Costs section.
Year of Expenditure
- The year in which the project is constructed is estimated by staff. Staff considered information from various corridor studies, perceived complexity of the construction process, environmental challenges, availability of right of way and revenue flow to assign projects into implementation time frames. The time frames are consistent with air quality conformity analysis years for the region of 2020, 2030, 2040 and 2050.
Inflation Factor
- The OKI Plan is required to account for the time value of money (inflation). Therefore, project costs are inflated using generalized figures derived from industry cost information (material, labor, etc.) and guidance from the states’ transportation agencies. This practice is known as developing estimated project costs in terms of their YOE. The YOE is estimated by OKI staff as the midpoint of the project’s year of construction. The year of expenditure cost is the product of the base year cost and an inflation factor. The factor is dependent on the inflation rate and the number of years between the BY and the YOE. OKI has estimated a yearly inflation rate based on information from several sources. For this plan update the inflation rate (i) is 2.5 percent per year.
- The formula for converting base year cost estimates to year of expenditure cost estimates is:
YOE Cost = BY Cost Estimate x Inflation Factor
YOE Cost = BY Cost Estimate x [1+ (i / 100)](YOE – BY)
(BY = base year)
Source: Federal Highway Administration, Office of Highway Policy Information, “National Highway Construction Cost Index (NHCCI)”
Estimation of Individual Project Costs
OKI will use the cost estimate from published planning studies or those provided by the agency that submitted the project. In the absence of a cost estimate from a primary source, an estimate is made using either a Kentucky Project Information Form (PIF) (if available for a Kentucky project) or the default value described below using secondary literature research. View the detailed Financial Plan for more information.
Recommended Plan Cost Distribution
The individual recommended projects have been identified elsewhere. A summary and the associated costs is provided below. These figures do not include the approximate two billion dollars programmed in the current OKI TIP.
Ohio
116 Projects
| Freight (2) | $35.93 M |
| Bike/Ped (15) | $158.02 M |
| TSMO (5) | $190.44 M |
| Highway (84) | $3171.77 M |
| Transit (10) | $724.67 M |
| Total | $4280.84 M |
Kentucky
71 Projects
| Bike/Ped (8) | $25.4 M |
| TSMO (4) | $49.1 M |
| Highway (56) | $3957.4 M |
| Transit (3) | $93.4 M |
| Total | $4125.3 M |
Indiana
18 Projects
| Bike/Ped (5) | $12.835 M |
| TSMO (2) | $1.105 M |
| Highway (10) | $83.441 M |
| Transit (1) | $.262 M |
| Total | $97.643 M |
Fiscal Constraint
Federal legislation requires the OKI 2050 Regional Transportation Plan to demonstrate that its recommendations are fiscally constrained, that is, financial resources can be reasonably expected to be available to cover the costs of the plan. As outlined above in the Funding Revenue and Cost Expectations section, approximately $18.89 billion is estimated to be available for all transportation expenditures in the OKI region over the life of the plan. The estimated cost of the recommendations of this plan is an estimated $18.13 billion. Because the total value or cost of recommended projects in this plan (Figure 8) is less than the discretionary resources reasonably expected to be available, this plan demonstrates financial constraint.