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HomeMy WebLinkAboutAgenda - 04-04-2017 - 6-b - Davenport & Company Independent Financial Review of Go Triangle Durham-Orange Light Rail Transit Financial Plan 1 ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: April 4, 2017 Action Agenda Item No. 6-b SUBJECT: Davenport & Company Independent Financial Review of GoTriangle Durham- Orange Light Rail Transit Financial Plan DEPARTMENT: County Manager's Office ATTACHMENT(S): INFORMATION CONTACT: Davenport Financial Model Review Travis Myren, 919-245-2300 Gary Donaldson, 919-245-2453 Ted Cole, Davenport, Senior VP Mitch Brigulio, Davenport, VP Chazzo Habliston, Davenport, Associate VP PURPOSE: To receive a presentation by Davenport & Company regarding the GoTriangle Durham-Orange Light Rail Transit (D-O LRT) Financial Plan. The presentation will clarify the total costs of the project, the financing mechanisms used to fund the project, and the financial risks associated with the project including credit, cash flow, and any potential budget implications. The cost share and transit tax assumptions used in the presentation are presented for modeling purposes only. They have not been adopted for use in the final Transit Plan. This information is intended to inform the Board's deliberations on the Orange County Transit Plan (formerly the Bus and Rail Investment Plan) scheduled for consideration on April 27, 2017. BACKGROUND: On December 5, 2016, the Board of County Commissioners directed the County Manager to engage a consultant to conduct an independent financial review of the D-O LRT Project and the financial plan used to demonstrate project's financial viability in the context of the Orange County Transit Plan. The County executed an agreement with its financial advisor, Davenport & Company, to review the financial model. Since the initial request to independently review the financial plan, GoTriangle created a new financial model that delineates revenue, expenditure, debt service coverage and cash flow by county. The model also allows the counties to evaluate different cost share scenarios between Durham and Orange County for the D-O LRT project. The cost share that was adopted as part of the 2012 Bus and Rail Investment Plan allocated 77.05% of the capital cost of the project to Durham County and 22.95% of the capital cost to Orange County. Operating costs were allocated on a 76.05% share for Durham County and a 23.95% share for Orange County. The Davenport analysis (attached) uses different cost share assumptions for capital and operating costs in an effort to model the financial implications of using different cost allocations. Cost share discussions between the two counties are ongoing and could produce a different scenario than the one modeled in this analysis. 2 The presentation will clarify the total costs of the project, the financing mechanisms used to fund the project, and the financial risks associated with the project including credit, cash flow, and any potential budget implications. FINANCIAL IMPACT: There is no financial impact associated with receiving this information. The information is intended to inform the Board's consideration of the Orange County Transit Plan which governs the use of transit taxes and fees generated in Orange County. SOCIAL JUSTICE IMPACT: The following Orange County Social Justice Goal is applicable to this item: • GOAL: ENABLE FULL CIVIC PARTICIPATION Ensure that Orange County residents are able to engage government through voting and volunteering by eliminating disparities in participation and barriers to participation Providing financial information to residents results in increased civic engagement. RECOMMENDATION(S): The Manager recommends that the Board accept the Davenport independent financial review as information. 3 D-0 Light Rail Discussion Materials — Draft Based Upon Scenario 3 vg C Orange County, North Carolina ORANGE COUNTY NORTH CAROLINA April 4, 2017 DAVENPORT & COMPANY Member NYSE I FIN RAI SIPC �b 4 Topics for Discussion ORANGE COUNTY NORTH CAROLINA • DO LRT Near Term Schedule of Required Actions • DO LRT Long Term Project Schedule • New Starts Financial Plan - What's Included / Excluded • DO LRT Project Cost/ Funding Sources & Plan of Finance • GoTriangle Financial Model: Major Revenue/ Expenditure Assumptions • Projected Results (Scenario 3 v9 C) • Financial Model Observations, Key Drivers, and Risk Factors • Potential Orange County Credit & Cash Flow / Budget Implications DAVENPORT&COMPANY April 4,2017 Orange County, NC 1 5 DO LRT Near Term Schedule of Required Actions ORANGE COUNTY NORTH CAROLINA Date Task Ongoing Cost Share Agreement negotiations March 27th and 29th Briefing to Orange County Board on DO LRT project, related models, and schedule March 29th Briefing to Durham-Chapel Hill-Carrboro MPO on Draft Plans March 29th - April 3rd Public Comment Period for Draft Plans April 3rd Presentation on Draft Durham County Transit Plan, updates on agreements April 3rd - 12th Briefings to Chapel Hill, Carrboro, Durham, and Hillsborough on Draft County Plans April 4th Orange County Board Meeting ■ Financial Plan Analysis presented to Orange County Board April 11th Potential public hearing on Draft Durham County Transit Plan April 12th Presentation to Durham-Chapel Hill-Carrboro MPO on Draft Plan, and project cost-sharing agreement and Public Hearing April 18th Orange County Board Meeting • Presentation on Draft Orange County Transit Plan and update on project cost-sharing agreement • Potential public hearing on Draft Orange County Transit Plan April 24th Action on Final Durham County Transit Plan, and project cost-sharing agreement April 26th GoTriangle Action on Final County Transit Plans April 27th Orange County Board Meeting ■ Action on Final Orange County Transit Plan, and project cost-sharing agreement April 28th Durham-Chapel Hill-Carrboro MPO Action on Final County Transit Plans (Special Meeting) DAVENPORT&COMPANY Source: GoTriangle April 4,2017 Orange County, INC 6 DO LRT Long Term Project Schedule ORANGE COUNTY NORTH CAROLINA Date Task April 2017 Update of D-0 Transit Plans and execution of full General Engineering Consultant (GEC) and Program Management Consultant (PMC) contracts TBD Engineering Complete June 2018 Request to be in President's budget - requires 50% of non-New Starts funds to be committed December 2018 Inclusion in Draft STIP - State share defined, but not committed June 2019 Inclusion in State Transportation Improvement Program (STIP) - State participation committed October 2019 Submit request for FFGA with FTA - requires 100% of funding to be committed January 2020 FFGA Funding Approved FY 2020 FFGA Funding Begins Early 2020 Project Construction Bidding Begins (project will be bid in phases) Mid to Late 2020 TIFIA Funding Approved 2020 Construction Begins 2028 Construction Complete FY 2029 Operations Commence DAVENPORT&COMPANY Source: GoTriangle April 4,2017 Orange County, INC 7 New Starts Financial Plan — What's Included / Excluded ORANGE COUNTY NORTH CAROLINA • GoTriangle has included the following services and projects in the New Starts Financial Plan: — GoTriangle's existing and expansion bus services and capital investments — Local share of transit providers' expansion bus services and capital investments: — GoTriangle — GoDurham — Durham County — Chapel Hill Transit — Orange Public Transportation — North-South Corridor Bus Rapid Transit (N-S BRT) Project, managed by Chapel Hill Transit (partial funding) — D-0 LRT Project, managed by GoTriangle — The implementation period began in 2014 and is expected to conclude in 2028 with construction beginning in 2020. — Hillsborough Train Station • GoTriangle has not included the following services and projects in the New Starts Financial Plan: — GoTriangle's existing, non-Tax District revenues and expenditures — Other transit providers' existing services — Revenues received by other transit providers — Durham-Wake Commuter Rail Transit (D-W CRT) Project — Wake County Transit Plan revenues and expenditures — Full Funding of North-South Corridor Bus Rapid Transit (N-S BRT) Project DAVENPORT&COMPANY Source: GoTriangle New Starts Financial Plan - 1/5/17/ GoTriangle Staff April 4,2017 Orange County, NC 4 �b 8 DO LRT Project Cost / Funding Sources ORANGE COUNTY NORTH CAROLINA • The DO LRT project engineering, construction, and equipment cost is estimated to be $2,388,568,428 in year of expenditure dollars. — The project cost will be funded through a combination of: — FTA New Starts Grant: $1,194,284,2141 — State Funding Contribution: $238,856,843 — TIFIA Debt Funding: $430,000,000 — In Kind Contributions: $19,376,433 — Transit District Revenues: $506,053,938 — The total cost of the DO LRT construction, including financing cost and interest payments is estimated to be $3,302,320,4432. • Scenario 3 v9 C implements the following cost share assumptions: — Operating Cost Share: 80% Durham 1 20% Orange — State of Good Repair Cost Share: 80% Durham 1 20% Orange — Capital Cost Share: 82% Durham 1 18% Orange — Financing Cost Share: 82% Durham 118% Orange • Inclusive of the FY 2017 Budgeted Expenditures, a total of $62,966,003 is expected to be spent through FY 2017. — $51,632,123 is funded through Durham County revenues and $11,333,881 is funded through Orange County revenues. • Through FY 2018, it is estimated that $100,282,782 will be spent on the DO LRT project. — $82,231,881 is funded through Durham County revenues and $18,050,901 is funded through Orange County revenues. • Through FY 2020, it is estimated that $206,227,131 will be spent on the DO LRT project. — $169,106,248 is funded through Durham County revenues and $37,120,884 is funded through Orange County revenues. 1 Does not include estimated reimbursement for eligible financing costs of$44,880,013. 2 Does not include capital,financing,and interest cost associated with State of Good Repair projects. Source: GoTriangle Scenario 3 v9 C DAVENPORT&COMPANY April 4,2017 Orange County, NC 5 9 DO LRT Project Plan of Finance ORANGE COUNTY NORTH CAROLINA • Due to the timing of the receipt of Federal, State, and Local revenues, the Plan of Finance includes the following potential / planned short term borrowings for DO LRT construction costs: — Limited Obligation Bonds ("LOBs") - In Anticipation of Local Revenues: — 2024 LOBs: $30,000,000 — 2024 LOBs: $90,000,000 — 2026 LOBs: $60,000,000 — 2026 LOBs: $29,000,000 — 2027 LOBs: $10,000,000 — Total: $219,000,000 — Grant Anticipation Notes ("GANs") - In Anticipation of Federal and State Funding: — 2025 GANs: $275,000,000 — 2027 GANs: $60,000,000 — Total: $335,000,000 — The total financing cost and interest associated with the LOBs and GANs is estimated to be $642,960,026. • In addition to the short term borrowings, a $430,000,000 Transportation Infrastructure Finance and Innovation Act ("TIFIA") is under consideration. It is expected that the TIFIA loan will be approved in FY 2020 with an initial draw in FY 2023. — The total financing cost and interest associated with the TIFIA loan is estimated to be $1,253,991,989. • The current model identifies the need for future funding for ongoing capital repair and maintenance costs (State of Good Repair) which are funded in part through future LOBs currently scheduled for 2040, 2048, 2053, and 2058. — In the aggregate, future State of Good Repair borrowings have a par amount of $44,000,000 and a total financing cost of $47,916,026. — In the current Scenario 3 v9 C, all of these borrowings would be associated with Orange County expenditures. DAVENPORT&COMPANY Source: GoTriangle Scenario 3 v9 C April 4,2017 Orange County, INC �^ 0 GoTriangle Financial Model ORANGE COUNTY NORTH CAROLINA Major Revenue / Expenditure Assumptions Major Revenue and Expenditure Assumptions Article 43 Sales Tax Assumptions (Orange County) ■ The following major revenue and expenditure assumptions have ■ There are currently three projection scenarios for the Orange been included in the financial model. Items listed in the County Article 43 Sales Tax under consideration: Moody's baseline parentheticals represent potential vulnerabilities that may arise: scenario, Moody's pessimistic scenario, and Dr. Walden 2014 - Major Revenue Assumptions projections. - FTA New Starts Federal Funding (approval, timing, and - Scenario 3 v9 C incorporates Moody's baseline projections. amount) - State Funding - 10% of Capital & Operating Costs (approval, A B c D E F G Fiscal Year Moody's Baseline Moody's Pessimistic Dr.Walden 2014 timing, and amount) Growth Rate Sales Tax Growth Rate Sales Tax Growth Rate Sales Tax 2017 $6,687,816 $6,642,300 $6,534,140 - TIFIA Funding (approval, timing, and amount) 2018 4.70% 7,001,929 3.96% 6,905,222 5.60% 6,900,052 2019 5.69% 7,400,189 4.95% 7,246,998 5.00% 7,245,055 - LOBs/ GANs - DO LRT Funding (approval, timing, and 2020 4.78% 7,753,837 4.04% 7,539,819 4.90% 7,600,063 amount) 2021 3.18% 8,000,493 2.44% 7,723,996 4.70% 7,957,266 2022 3.24% 8,259,373 2.50% 7,916,893 4.70% 8,331,258 - LOBs - State of Good Report (approval timing and amount) 2023 4.07% 8,595,236 3.33% 8,180,371 4. 8,714,496 > > 2024 3.87% 8,927,860 3.13% 8,436,540 4.550%0% 9,106,648 2025 3.34% 9,225,637 2.60% 8,655,637 4.40% 9,507,341 - Transit District Revenues (realization of projected growth) 2026 3.03% 9,505,611 2.30% 8,854,402 5.00% 9,982,708 2027 3.07% 9,797,641 2.33% 9,061,045 5.00% 10,481,843 - DO LRT Fare Revenues (realization of projected growth) 2028 3.26% 10,117,042 2.52% 9,289,527 5.00% 11,005,935 2029 3.53% 10,473,796 2.79% 9,548,508 5.00% 11,556,232 - Major Expenditure Assumptions 2030 3.59% 10,850,293 2.86% 9,821,239 5.00% 12,134,044 2031 3.73% 11,255,018 2.99% 10,115,060 5.00% 12,740,746 - DO LRT Capital Cost 2032 3.71% 11,672,887 2.97% 10,415,919 5.00% 13,377,783 2033 3.48% 12,079,677 2.75% 10,701,995 5.00% 14,046,672 - DO LRT Operating Cost 2034 3.50% 12,502,484 2.76% 10,997,559 5.00% 14,749,006 2035 3.43% 12,931,545 2.69% 11,293,769 5.00% 15,486,456 - Existing and Expansion Bus Costs 2036 3.83% 13,427,146 3.09% 11,643,208 5.00% 16,260,779 2037 4.05% 13,970,844 3.31% 12,028,700 5.00% 17,073,818 - Bus Rapid Transit 2038 3.92% 14,518,867 3.18% 12,411,722 5.00% 17,927,509 2039 3.89% 15,083,325 3.15% 12,802,614 5.00% 18,823,884 - Ongoing DO LRT Capital / Maintenance Costs (State of Good 2040 3.89% 15,669,423 3.15% 13,205,556 5.00% 19,765,079 2041 4.10% 16,311,515 3.36% 13,649,177 5.00% 20,753,332 Repair) 2042 4.01% 16,965,941 3.27% 14,096,006 5.00% 21,790,999 2043 4.01% 17,646,412 3.27% 14,557,286 5.00% 22,880,549 2044 4.09% 18,368,854 3.36% 15,045,771 5.00% 24,024,576 2045 4.14% 19,129,984 3.41% 15,558,109 5.00% 25,225,805 2046&Beyond 4.33% 19,958,152 3.59% 16,116,767 5.00% 26,487,096 DAVENPORT&COMPANY Source: GoTriangle Scenario 3 v9 C April 4,2017 Orange County, INC 1 Pro j ected Results (Scenario 3 v9 Q ORANGE COUNTY NORTH CAROLINA nITerall Results Cumulative Cash Balance County Cash Balances Cash Balances-Total Cash Balances-Durham „$1,400 $1,400 0 0 $1,200 $1,200 $1,000 $1,000 $800 $800 $600 $600 $400 $400 $200 I I I I I I � I � I I I � � I I I I I $200 $0 $0 i; �sss� sss �so � o° ossssssssssi; � Key Statistics: Cash Balances-Orange ■ „$60 0 — Minimum Cash Balance: $50 — Durham: $34,986,247 (2027)1 — Orange: $210,725 (2045)1 $400 — Total: $39,570,863 (2018) $30 — Minimum Debt Service Coverage: $20 — All Debt: 1.17x $10 � I1 . IIIIIII � IIIIIII . II1 . _ _ II _ . IIIIII II 1 Does not include Operating Reserve balances. DAVENPORT&COMPANY Note: Cash Balances shown do not include GoTriangle level Cash Balances. April 4,2017 Orange County, NC 8 2 Financial Model Observations, Key Drivers, and Risk Factors ORANGE COUNTY NORTH CAROLINA • In order to implement this Plan of Finance and access long term capital funding, GoTriangle will need to receive two investment grade credit ratings. In order to receive investment grade credit ratings, GoTriangle will need to be able to demonstrate: — Ability to maintain positive cash flows. — Ability to demonstrate minimum Debt Service Coverage levels. — Ability to manage the project. — Some minimum level of operating/ capital reserves. • As GoTriangle, Durham County, and Orange County continue to evaluate the project and Plan of Finance, the following key drivers/ risk factors may be considered: — Potential changes (positive or negative) in the DO LRT Capital Cost. — Approval, timing, and amount of FTA New Starts Federal Funding, State Funding, and TIFIA Funding. — Realization of assumed Tax District Revenues and DO LRT Fare Revenues. — Actual / revised estimates for DO LRT Operating Costs and ongoing DO LRT capital / maintenance costs. — Ability to fund existing and expansion bus service and Bus Rapid Transit. DAVENPORT&COMPANY April 4,2017 Orange County, NC 9 3 Potential Orange County Credit & Cash Flow / Budget Implications ORANGE COUNTY NORTH CAROLINA • Credit Implications. — All financings will be secured by Light Rail assets and will be subject to annual appropriations from GoTriangle. — Beyond the revenues identified on the prior pages, there are no additional GoTriangle revenues available to fund this project. — Between the TIFIA loan and market based financing, no other credit details have been developed or disseminated to the working group. — In their review, the Rating Agencies may view Orange County as having a contingent liability to the GoTriangle financial plan, regardless of whether or not there is an explicit guarantee provided by Orange County. — Davenport would anticipate that the rating agencies will review Orange County's credit with and without a liability for GoTriangle. — The soundness of the business plan at the time of the review will help the Rating Agencies determine the level, if any, of the potential contingent liability. • Cash Flow/ Budget Implications. — As discussed previously, there are a number of key assumptions included in the GoTriangle financial plan. — Changes, positive or negative, to these assumptions will impact Orange County's cash flow requirements under this plan. — If there is a significant shortfall, Orange County may be required or decide to contribute additional revenue in order to maintain the viability of the project, regardless of whether there is a contractual requirement to do so. • As the Plan of Finance continues to develop and key decision points are reached, more information about the potential credit and financial impacts will be available. DAVENPORT&COMPANY April 4,2017 Orange County, NC 10 14 ,,INS,7-: 441 11\��\•:iii:••rr .i o 1 1�� Charlotte Office Ted Cole Independence Center Senior Vice President 101 N. Tryon Street 804-697-2907 Suite 1220 Charlotte, NC 28246 tcole @investdavenport.com Richmond Office Mitch Brigulio One James Center First Vice President 901 East Cary Street 704-644-5414 11th Floor mbrigulio @investdavenport.com Richmond, VA 23219 Chazzo Habliston Raleigh Office Associate Vice President Glenwood Plaza 36905 Glenwood Ave. 704-644-5413 Suite 390 chabliston @investdavenport.com Raleigh, NC 27612 DAVENPORT&COMPANY April 4,2017 Orange County, NC 11 �^ 5 Municipal Advisor Disclosure ORANGE COUNTY NORTH CAROLINA The U.S.Securities and Exchange Commission(the"SEC")has clarified that a broker,dealer or municipal securities dealer engaging in municipal advisory activities outside the scope of underwriting a particular issuance of municipal securities should be subject to municipal advisor registration. 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Certain assumptions may have been made for modeling purposes or to simplify the presentation and/or calculation of any projections or estimates, and Davenport does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material may not be sold or redistributed without the prior written consent of Davenport. Version 1.13.14 CH I MB I TC DAVENPORT&COMPANY April 4,2017 Orange County, NC 12