State of the District of Columbias Infrastructure Presentation to - PowerPoint PPT Presentation

District of Columbia State of the District of Columbia’s Infrastructure Presentation to The Canadian Network of Asset Managers Calgary, Alberta May 17, 2017 Darryl Street David Clark Senior Financial Policy Advisor Director, Capital Improvements Program Office of the Chief Financial Officer Washington, D.C.

History of the District of Columbia District of Columbia  1801 Created  1846 Alexandria County portion returned to Virginia  1878 Congress establishes three member Board of Commissioners  1961 23 rd Amendment “Right to Vote for President”  1967 President appoints first Mayor  1973 Congress passes Home Rule Act; popularly elected Mayor, 13-member Council  Mid-1990s Control Board instituted; Independent CFO created  Mid-2001 Control Board activities Functions as a City, County, State suspended and School District 2

Infrastructure Challenges District of Columbia  Since 1988 the American Society of Civil Engineers (ASCE) infrastructure report card has scored the nation’s infrastructure a “D” on a scale of “A to F.”  Arlington Memorial Bridge that connects D.C. and Virginia is 5 years away from only allowing foot traffic if it’s not replaced.  The District has spent billions on schools reconstruction due to long-term lack of adequate maintenance.  METRO!!! 3

District’s Current Financial Status District of Columbia  District has to finance and provide the infrastructure needs of a state, county, city and school district  The District enjoys a growing population, economy and tax base  Fully-funded pension and OPEB trusts  Strong bond ratings (AA to AAA category) and strong level of reserves  Results in low overall costs of borrowing  Relatively low current paygo levels 4

Current Capital Planning Process District of Columbia  6-year capital improvement program  4-year balanced financial plan, which incorporates the six- year capital plan  Street condition assessments performed by DDOT to set priorities  Capital needs beyond the 6-year CIP, or unfunded current needs, are not addressed 5

Long ‐ Range Capital Financial Planning District of Columbia  Long-range capital financial plan was developed as part of the OCFO Strategic Plan and Council legislation  Incorporates the current 6-year CIP and all other infrastructure needs, unconstrained by funding  Reflects maintenance needs for all current assets  Reflects bond capacity limits and existing pay-as-you-go resources  Identified funding gaps and determines optimal funding solutions 6

Approach to Develop Long-Range District of Columbia Capital Financial Plan (LRCFP)  Obtained software to inventory all capital assets, including condition assessments  Developed new capital projects, unconstrained by funding, as well as costs for maintenance of all assets  Developed criteria to score, rank and prioritize all projects  New projects and maintenance of existing assets  Determined funding capacity by year under current fiscal constraints  Debt capacity, local funds, federal funds, etc.  Identified Public-Private Partnerships (P3s) where private sector funding could assist 7

Asset Tree Approach District of Columbia 8

The DC ‘Waterfall’ Analysis District of Columbia 9

Reinvestment Rate Comparison District of Columbia (Amounts in USD millions) Washington, D.C. Canada Current Asset Average Annual Current Reinvestment Rate Avg. Reinvestment Value 1 Investment 2 (National Average) 3 Asset Type Rate Horizontal Infrastructure (i.e. roads, sidewalks, bridges, etc.) $3,523.1 $159.4 4.5% 0.8% ‐ 1.1% Vertical Infrastructure (i.e. facilities, buildings, etc.) $6,425.1 $56.2 0.9% 1.7% Equipment ‐ IT ‐ Fleet $315.3 $112.3 35.6% N/A Notes: 1. Based on District of Columbia FY 2016 Comprehensive Annual Financial Report (CAFR). 2. Based on District of Columbia FY 2017 ‐ FY 2022 Capital Improvement Plan (CIP). 3. Based on 2016 Canadian Infrastructure Report Card. 10

Unfunded Capital Needs District of Columbia  Total capital needs identified (FY2017–FY2022) as $10.5B  Less the District’s share of WMATA’s future capital needs  Less projects to be potentially funded as P3s (approx. $1B to $1.5B)  District’s current CIP is approx. $6.3 Billion  Fund the highest priority capital needs  Still leaves approx. $4.2 Billion of unfunded capital needs  These unfunded capital needs can be reasonably financed over a 10-15 year period 11

Annual Funding Shortfall District of Columbia  Capital maintenance projects shortfall of $1.97 billion  Average annual shortfall of approx. $325 million  Roughly matches total annual depreciation of District assets  New capital projects shortfall of $2.22 billion  Average annual shortfall of approx. $370 million (in $ millions) Fiscal Year 2017 2018 2019 2020 2021 2022 6 Year Total Unfunded Capital Maintenance Projects 309.5 324.8 345.5 270.2 345.2 371.7 $1,967.0 Unfunded New Capital Projects 439.3 366.2 447.5 494.3 224.4 252.6 $2,224.2 Total Unfunded Capital Needs $748.7 $691.0 $793.0 $764.5 $569.6 $624.4 $4,191.2 12

Current 6-Year CIP (FY2017-2022) District of Columbia  CARSS identifies unfunded capital needs not financed in 6-year CIP 13

Approach to Developing Funding Solutions District of Columbia  Utilized CARSS to identify funding gaps by year for capital needs  Developed a long-range capital financial plan optimization model to determine the lowest cost solution to finance the capital funding gap 14

Funding Solutions District of Columbia  Strong annual revenue growth provides future borrowing capacity  Aggressive program of monitoring existing debt for refinancing opportunities and debt retirement provides additional future borrowing capacity  Optimal funding solution is to borrow up to the 12% statutory debt limit (Debt Cap) and fund remaining shortfall with paygo 15

A Discussion of Return on Investment (ROI) District of Columbia  Calculated the value, by asset type, and computed an ROI for each  Change in the value  Value of the increased life of the asset  Change in future expected O&M expenses  The overall weighted ROI for investment in “capital maintenance” projects is just over 5% annually 16

Example of an ROI Calculation for Fleet District of Columbia Value Measurement Asset Type: Fleet Cost of the Investment $3,000 % Increase in Value 65.0% In this example we Change to Market Value of Asset Old Asset Value $5,000 assume there is a New Asset Value $6,950 Change in Value $1,950 need to replace an engine in a vehicle at Extended Life ‐ Years 3 a cost of $3,000. The Cost to replace Asset $30,000 vehicle has a current Value of the Increased life of the Asset % of Interest on Cost Avoidance 4.0% value of $5,000, and Annual Interest Avoidance $1,200 replacing the engine Total Cost Avoidance over extended life $3,600 will add 3 years to the Average Annual Operating Expense $600 life of the vehicle. Change in Future Operating Expense % Change to operating Expense 60.0% Costs Annual Operating Savings $360 Total Savings $1,080 Investment $3,000 Gain or Loss on Investment $6,630 Total Years of Return 3 Annual Net Gain from Investment $1,210 Annual ROI 40.3% 17

What do we get for the money? ROI District of Columbia Assumptions Using FY 2017 Data, if we fully funded the gap:  We'll retain 65% of the value of our fleet investments - which includes depreciation.  The investment cost avoidance calculation is based on 75% of our investment being new vehicles. The remaining 25% of costs are for capital expenses (chassis, engines, transmissions etc.) and thus avoid the purchase of new vehicles, which would have a market value of 5 times the current value of the major vehicle parts we're investing in.  The operating impacts are calculated based on the use of an average annual fleet maintenance cost of 10% of the original market value during it's final 3 years of useful life.  The cost savings is based on the fact that we would have replaced the vehicles and/or major systems on time, and thus maintenance would drop back to 'normal' levels. 18

District of Columbia What about Metro? 19

Operating Revenue & Maintenance Funding Gap District of Columbia (in $millions) Total is approx. $21 Billion 20

Capital Budget Revenue & Funding Gap District of Columbia (in $millions) Total is approx. $15.6 Billion 21

10-Year Funding Gap Summary District of Columbia ($ Millions) CIP Funding Gap $ 6,157.05 Maintenance Budget Gap $ 1,300.29 Total $ 7,457.34 Annual Average (10 Years ‐ FY 2017 ‐ FY 2026) $ 745.73 See the full Pro Forma for greater details 22

Reinvestment in Mass Transit District of Columbia  Why do we need $15.6 Billion of capital investment over the next 10 years to reach a state of good repair?  How did we get almost $7 Billion behind? The less than satisfactory reinvestment rate! Mass Transit ‐ Metro ($ millions) Current Asset Average Annual Asset Type Value Investment % Reinvestment Target Public Transit ‐ WMATA $ 39,640 $ 792 2.0% 3.9% 23