The global financial crisis has thrown RTD’s FasTracks planning for a loop, creating more uncertainty for the already shaky program but also offering a hope that falling commodity prices might reverse the project’s trend toward ever-rising costs.
The Regional Transportation District’s estimate of a nearly $2 billion FasTracks cost increase was prepared in midsummer, when prices for commodities such as oil, copper and steel were soaring.
Yet, over the past several months, prices of some materials have plummeted, causing turmoil in world markets.
“The outlook for materials prices is more uncertain than I’ve ever seen in my 35 years as an economist,” said Ken Simonson, chief economist for Associated General Contractors of America. Simonson has been advising RTD on materials pricing.
In August, the transit agency pegged the cost of fully building FasTracks by 2017 at $7.9 billion, far above last year’s $6.1 billion estimate. The agency attributed about $1.5 billion of the increase to higher materials costs projected over the nine-year construction period.
Because of the higher price tag for FasTracks, RTD said the length of three of six new light-rail lines might have to be shortened for a 2017 delivery date, unless more money can be found.
Lines that run north from Union Station to Boulder/Longmont and Thornton/Northglenn, and through Aurora’s Interstate 225 corridor, along with planned light-rail extensions to Lone Tree and Highlands Ranch, are taking the biggest hits because of the budget shortfall.
Questioning the estimate
The recent drop-off in commodity prices has prompted officials from those corridors to question RTD’s $7.9 billion FasTracks estimate.
“In the new environment, what kind of adjustments have been made?” Lone Tree Mayor Jim Gunning asked RTD officials at a mayors’ financial review meeting last week.
RTD has not yet revised the cost estimate, said FasTracks consultant Julie Skeen, but next month it will begin another complete financial review of the program. That analysis should take several months, Skeen said.
“Until a few months ago, inflation was much higher,” RTD financial adviser Tim Romer told the mayors. “Obviously the last month has changed the world.”
“The good news is that construction costs should be coming down,” added Romer, a Goldman Sachs investment banker and son of former Gov. Roy Romer.
“The bad news is that no one knows where the (sales-tax) revenue is going to go.”
Sales taxes take a hit
RTD is relying on sales taxes it collects in metro Denver to pay for a sizable portion of the FasTracks construction cost and operation, as well as system maintenance after new trains start running in 2013.
The faltering local economy means tax receipts are coming in well below expectations.
In RTD’s most recent analysis, the agency said it expects total sales-tax revenues to be down nearly $3 billion through 2035, compared with the estimate four years ago.
RTD’s earlier financial models had forecast about 6 percent annual sales-tax growth. Through the first nine months of 2008, the agency’s tax proceeds are up a scant 1.3 percent from the same period last year.
With the cost of key construction commodities falling in recent weeks, some local government officials have been asking if RTD might buy and stockpile materials at lower prices to bring down the construction cost for their corridors. “There is the opportunity to get projects done a lot cheaper than just a few months ago,” RBC Capital Markets Corp. managing director Daniel Heimowitz said at a conference on transportation finance last week in Broomfield.
Pointing to the volatility of some commodity prices, Heimowitz presented a chart showing the price of steel (using an index cost of 100 for January 2001 as the base) bouncing from 252 last year to a high of 507 in June before tumbling to 384 in September, 257 in October and 144 on Nov. 14.
“People were completely apoplectic about the price of steel four months ago,” Heimowitz said, “and here we are, it’s a whole other world.”
Agency planners are preparing a “white paper” for RTD general manager Cal Marsella that weighs the pros and cons of the early procurement of some construction materials.
Still, FasTracks senior cost manager Kevin Hartmann said RTD has a limited opportunity to get savings from stockpiling construction materials.
Steel bridge girders can’t be acquired until the structures are designed, he said, and the price of steel rail has held firm recently and not come down.
FasTracks project controls manager Sean VonFeldt said pre-purchasing materials has potential pitfalls, including the expense of warehousing and safeguarding commodities such as copper, which can be a target for thieves.
Jeffrey Leib: 303-954-1645 or jleib@denverpost.com
