The Orange County Transportation Authority has saved $509 million through a series of innovative financing strategies for the I-405 Improvement Project, which is scheduled to be completed this year.
The strategies include securing and later refinancing a $629 million federal loan through the Transportation Infrastructure Finance and Innovation Act (TIFIA) and taking advantage of volatile interest rates over the past couple of years to generate additional savings.
“I’m pleased to see OCTA continuing to take an innovative financing approach to maximize available funding for the I-405 Improvement Project,” said OCTA Chairman Gene Hernandez, also the Mayor of Yorba Linda. “Thank you to our partners at the U.S. Department of Transportation for working with us throughout this process and to everyone involved in helping us achieve these immense savings.”
$509 Million Savings
In 2017, OCTA secured its initial TIFIA loan for the I-405 Improvement Project with a 2.91% interest rate. The TIFIA loan was estimated to save approximately $300 million on a net present value basis over the life of the loan compared to traditional bond financing.
In 2021, OCTA took advantage of historically low interest rates, becoming the first agency to ever reset a partially drawn TIFIA loan. The new interest rate of 1.95% realized savings of $158 million on a net present value basis.
Also in 2021, OCTA issued Bond Anticipation Notes, a short-term financing tool used during the construction of projects, to allow OCTA to take advantage of lower short-term interest rates over the next three years instead of drawing on its TIFIA loan. These notes resulted in net present value savings of $24 million.
More recently, to generate an additional $27 million in savings, OCTA took advantage of rising short-term interest rates by drawing its entire TIFIA loan and using the proceeds to pay off the Bond Anticipation Notes. The remaining funds are invested in U.S. treasuries yielding 4.38%.
“Our OCTA finance team has remained flexible throughout the project, always ready to act and find creative ways to take advantage of fluctuating interest rates to save taxpayer dollars,” said OCTA CEO Darrell E. Johnson. “I look forward to the public experiencing the full benefits of the I-405 Improvement Project when it’s completed later this year.”
The TIFIA loan will be repaid solely using the revenue collected from drivers who choose to use the 405 Express Lanes being built as part of the I-405 Improvement Project.
Toll revenue collected beyond what it costs to repay the loan will fund transportation improvements for everyone who travels throughout the 405 corridor – whether or not they use the Express Lanes. The realized savings will allow more money to be available sooner to make those additional improvements along I-405.
In addition, OCTA’s project financing will allow the 405 Express Lanes to remain free to two-person carpools during non-peak hours for the first 3 ½ years after the Express Lanes open, a commitment made by OCTA to the community prior to construction.
I-405 Improvement Project
The $2.1 billion I-405 Improvement Project, now more than 90% complete, is an essential part of fulfilling the promises made to voters through Measure M – Orange County’s half-cent sales tax for transportation improvements, also known as OC Go.
The project will add one regular lane in each direction of I-405 between Euclid Street and I-605, and a second lane in each direction in the center of the freeway between SR-73 and I-605 that will combine with the existing carpool lanes to form the 405 Express Lanes.
This 16-mile segment of I-405 is one of the most heavily traveled stretches of highway in the nation, and drivers routinely face severe congestion in both the regular lanes and carpool lanes. The project, anticipated to be completed in late 2023, is critical to accommodate expected employment, population and housing growth throughout the region.
For more information about the project, visit octa.net/405improvement.
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