The Orange County Transportation Authority (OCTA) announced on Feb. 13 that it has saved taxpayers $509 million on financing a construction project on what officials say is the nation’s busiest stretch of highway.
Through a series of strategies during the COVID-19 pandemic, the agency saved on borrowed money for the $2.1 billion I-405 Improvement Project. The project aims to alleviate traffic congestion on 16 miles of highway between SR 73 in Costa Mesa and I-605 in Seal Beach by adding one extra lane in each direction and transforming the carpool lane and a regular lane into dual express lanes by spring.
“I’m pleased to see OCTA continuing to take an innovative financing approach to maximize available funding for the I-405 Improvement Project,” OCTA Chairman Gene Hernandez, also the mayor of Yorba Linda, California, said in a statement. “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.”
OCTA Chief Financial Officer Andrew Oftelie outlined the methods of savings during a Feb. 13 board meeting.
The largest was on what’s called a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan, a federal loan on transportation projects.
The agency borrowed about $629 million with a 2.9 percent interest rate in 2017, which is uncommon, according to Oftelie, as transportation agencies normally borrow through what are called toll revenue bonds, which are repaid using toll revenues.
By issuing that, the OCTA saved an estimated $300 million, according to Oftelie.
Another strategy was refinancing the TIFIA loan in 2021—to 1.95 percent from 2.91 percent in interest rates—when rates plummeted during the COVID-19 pandemic, which saved $158 million, he said.
In the same year, the OCTA issued Bond Anticipation Notes, a short-term financing tool used during the construction of projects, to take advantage of lower short-term interest rates over the next three years.
With this additional funding, the agency thus didn’t need to draw on its TIFIA loan and saved $24 million, according to Oftelie.
The OCTA then invested the entirety of the TIFIA loan in U.S. treasuries, generating a 4.38 percent return. The agency used those funds to repay the Bond Anticipation Notes and saved taxpayers another $27 million, he said.
“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,” OCTA CEO Darrell Johnson said in a statement. “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 use the I-405 express lanes. Excess toll revenue will go toward future projects, according to officials.
The OCTA also plans to make the express lanes free to carpools during “non-peak hours” for 3 1/2 years after they open, according to officials.
The project is now more than 90 percent complete and is funded, in part, through Measure M, a county-wide half-cent sales tax for transportation improvements.
