Investing in Michigan's Infrastructure: Building for Economic Growth - Leading Practices in Infrastructure Planning, Funding & Financing with Key ...

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Investing in Michigan's Infrastructure: Building for Economic Growth - Leading Practices in Infrastructure Planning, Funding & Financing with Key ...
Investing in Michigan’s
Infrastructure: Building
   for Economic Growth

 Leading Practices in Infrastructure Planning, Funding & Financing
                        with Key Findings for the State of Michigan
Investing in Michigan's Infrastructure: Building for Economic Growth - Leading Practices in Infrastructure Planning, Funding & Financing with Key ...
TABLE OF CONTENTS
 1   Executive Summary                                                             3

 2   Current State of Infrastructure Planning, Funding & Policy in Michigan        15

 3   Infrastructure Planning, Funding & Policy Leading Practices Research          26

 4   Key Findings                                                                  36

 5   Appendices                                                                    45
       Leading Practices Research Supporting Case Studies
       Summary of Potential 21st Century Infrastructure Technical Solutions
       Infrastructure Investment Index Prioritization Criteria & Scoring Results
       Project Work Plan
       Infrastructure Subject Matter Expert Interview List
       Report Endnotes

                                                                                        2
Investing in Michigan's Infrastructure: Building for Economic Growth - Leading Practices in Infrastructure Planning, Funding & Financing with Key ...
1   EXECUTIVE SUMMARY
Investing in Michigan's Infrastructure: Building for Economic Growth - Leading Practices in Infrastructure Planning, Funding & Financing with Key ...
PROJECT SCOPE & METHODOLOGY
The project scope included a review of Michigan infrastructure data, industry stakeholder
interviews, Infrastructure Commission workshops and a global review of leading practices.

                    Project Focus: Infrastructure Planning, Funding and Financing in the State of Michigan

             INFRASTRUCTURE IN SCOPE                     PROJECT APPROACH                      STUDY INPUTS

                                                     1    Michigan Infrastructure
                                                          Data Review                       30 Industry Experts Interviewed
     Transportation                 Water
                                                     2    Deloitte Infrastructure
        •    Roads             •   Drinking Water                                          15 U.S. Locations Researched
                                                          Expert Interviews
        •    Bridges           •   Dams
        •    Rail              •   Sewer
        •    Airports          •   Storm Water       3
                                                          Infrastructure Industry
                                                          Expert Interviews                15 Global Locations Researched

                                                     4    Global & U.S. Leading
             Energy            Communications             Practices Research               19 Leading Practices Identified
    •       Electricity        •   Fixed Broadband
                                                          BLM / Infrastructure
    •       Gas                •   Mobile Networks   5
                                                          Commission Workshops
                                                                                           28 Leading Practice Case Studies
    •       Alternative Energy •   Telephone

                                                                                    Executive Summary                         4
Investing in Michigan's Infrastructure: Building for Economic Growth - Leading Practices in Infrastructure Planning, Funding & Financing with Key ...
CURRENT STATE OF MICHIGAN INFRASTRUCTURE –
PHYSICAL LIMITATIONS
Michigan has a major need to rehabilitate deteriorating water, transportation and energy infrastructure.
Communication infrastructure is relatively new and well maintained by the private sector.
                                                                          Current State of Michigan Infrastructure Related
                  Michigan Infrastructure Condition Grades
                                                                                               Issues
                                                           U.S.    Public Health and Safety Risks
                                              Michigan
              Infrastructure Types                       Average
                                               (2009)              • Some critical infrastructure at risk of failure.
                                                          (2013)
              Roads                               D        D       • Significant under-investment in some basic essential services.

              Bridges                             D        C+      Future Economic Growth Risks
              Rail                                D+       C+      • Soo Locks upgrade required to increase logistics reliability.
              Aviation                            C        D       • Limited public transportation options in major cities.
              Navigation / Ports                  C–       C       • Detroit Airport expansion to leverage undeveloped land.
              Public Transport                    D+       D       • Waste water overflows into natural waterways.
              Drinking Water                      D        D       • Broadband speed and coverage expansion required to
                                                                     support economic growth.
              Waste Water                         C        D

              Storm Water                         D+       D–      Infrastructure Funding Risks

              Energy                              C–       D+      • Infrastructure funding gaps are growing rapidly, potentially
                                                                     creating a large burden on future generations.
              Communications                      N/A      N/A
                                                                   • Limited new sources of funding, increasing the role of private
              Overall                             D        D+        investment.
                       C = Mediocre, Requires Attention
                              D = Poor, At Risk
    Source: American Society of Civil Engineers

                                                                                             Executive Summary                        5
Investing in Michigan's Infrastructure: Building for Economic Growth - Leading Practices in Infrastructure Planning, Funding & Financing with Key ...
PEER INFRASTRUCTURE SPENDING COMPARISON
There appears to be under-investment in Michigan when compared to similar states and
the U.S. average and this has led to significant current state infrastructure funding gaps.
          State and Local Capital Spend (% of Total Expenditure)                                                   State and Local Functional Spend per Capita
                       Annual Average 2010 – 2014                                                                          Annual Average 2010 - 2014
                                                                                                             U.S. Average                            $795
       U.S. Average                                                             10.6%                           Michigan                   $470

                                                                                           Transportation
                                                                                                               Wisconsin                          $649
                                                                                                                       Ohio                    $553
          Michigan                                     6.4%                                                  Pennsylvania                                $935
                                                                                                                    Illinois                              $978
                                                                                                                   Indiana                 $481
         Wisconsin                                               8.5%                                           New York                                                       $1,651
                                                                                                             U.S. Average                   $536
                                                                                                                Michigan                  $446
              Ohio                                                   9.2%                                      Wisconsin                $395
                                                                                                                       Ohio              $421

                                                                                           Water
                                                                                                             Pennsylvania                 $450
   Pennsylvania                                                         9.4%                                        Illinois             $424
                                                                                                                   Indiana             $358
                                                                                                                New York                     $563
            Illinois                                                     9.8%                                U.S. Average            $274
                                                                                                                Michigan        $107
                                                                                                               Wisconsin           $189

                                                                                           Energy
           Indiana                                                        9.9%                                         Ohio     $92
                                                                                                             Pennsylvania      $72
                                                                                                                    Illinois    $100
         New York                                                                  11.3%                           Indiana           $278
                                                                                                                New York                $341

   Source: U.S. Census Bureau                                                              Note: Chart shows functional spend (Capital Expenditure + Operational Expenditure)
                                                                                           Source: U.S. Census Bureau
   Observations
                                                                                           Observations
   •    Michigan had the lowest % capital spend compared to similar states at 6.4%
                                                                                           •                Transportation: $325 per capita less than the U.S. average (Ranking: 51st)
   •    Michigan spent 4.2% less than the U.S. Average and would need to
        increase (2014) annual capital spending by $4 billion to align                     •                Water: $90 per capita less than the U.S. average (Ranking: 18th)
   •    Michigan spent 2.4% less than the Great Lakes Average and would need to            •                Energy: $167 per capita less than the U.S. average (Ranking: 40th)
        increase (2014) annual capital spending by $2.5 billion to align                   •                Communications spending data not publicly available

                                                                                                                                        Executive Summary                                6
Investing in Michigan's Infrastructure: Building for Economic Growth - Leading Practices in Infrastructure Planning, Funding & Financing with Key ...
LEADING PRACTICE EXAMPLES –
INFRASTRUCTURE PLANNING & COORDINATION
Innovative infrastructure planning and coordination practices are deployed to increase
accountability, transparency and collaboration in major asset investment decision-making.

            Coordinated Infrastructure Planning        Coordinated Infrastructure Procurement

            Infrastructure Victoria has been         Infrastructure Ontario is an independent
         established to publicly release a 30-year   infrastructure procurement body set up to
          Infrastructure Strategy detailing short,     support the government’s initiatives to
           medium and long-term infrastructure         modernize and maximize the value of
                   needs and priorities.                   public infrastructure and realty.

                Asset Management Practices                   Incentives for Coordination

           Ontario’s Rural Asset Management               The State of Connecticut’s
          Program was launched to help eligible         Regional Performance Incentive
          municipalities and local services boards        Program helps municipalities
          improve and increase their capacity to            reduce costs through the
            manage their infrastructure assets.            regionalization of services.

                                                                     Executive Summary           7
LEADING PRACTICE EXAMPLES –
INFRASTRUCTURE FUNDING SOURCES
Infrastructure funding sources are government cash flows that can be used to support the
construction and operation of infrastructure via. the repayment of infrastructure financing.

                 Direct / Indirect Taxation                        User Fees

           Oregon has implemented the first              Washington DC Water has
          voluntary pilot program for Vehicle           implemented a Water System
         Miles Travelled (VMT) Tax in America.        Replacement Fee to recover costs
          This program taxes on miles driven        associated with renewing and replacing
         rather than gallons of gas purchased.               water service lines.

                   Land Value Capture                        Infrastructure Leasing

        Toronto’s Metrolinx Project administered      The State of New South Wales in
            a fee to property owners, including      Australia leased part of its electricity
         developers and home buyers, to capture          network to raise money for an
        the increase in property value due to the   infrastructure development fund and
             new transportation infrastructure.         then “recycled” the investments.

                                                                    Executive Summary           8
LEADING PRACTICE EXAMPLES –
INFRASTRUCTURE FINANCING STRATEGIES
Infrastructure financing strategies are the debt and equity investments that can be made to pay for
projects now, but are then repaid with a minimum return using cash flows over the life of the asset.

                    Infrastructure Bonds                        State Infrastructure Banks

                                                         The Commonwealth of Pennsylvania
          In 2014, Washington DC Water issued
                                                        has established separate transportation
           $350 million in taxable, green century
                                                         and water infrastructure investment
           bonds to finance a portion of the $2.6
                                                         authorities to leverage Federal & State
          billion DC Clean Rivers project to reduce
                                                          funds and make low-interest loans for
             waste water overflows to waterways.
                                                                 improvement projects.

                 Public-Private Partnerships                 Other Sources of Private Capital

          Virginia and Florida are two U.S. states       The State of Alaska initiated a public-
                that have led the way with the            private research effort to find more
              implementation of large scale and         affordable ways to deliver drinking water
            innovative Toll Road Public-Private           and sewage disposal services in rural
           Partnerships to improve infrastructure       areas, including the potential invention of
                 condition and boost capacity.          innovative decentralized water systems.

                                                                        Executive Summary              9
MICHIGAN INFRASTRUCTURE MATURITY / GAP ASSESSMENT
Michigan’s infrastructure planning, funding and financing practices are at diverse levels of
maturity across its different infrastructure platforms, when compared to leading practices.
                                 “Average”                                         “Good”                            “Leading Practice”
                                        W       C                                                E                                 T
          Asset
       Management       Limited asset data                            Statewide Asset Management                Integrated asset data inventory
        Practices       collection and analytics                       Framework and Guidelines                and risk-based decision-making

                                                                               T     W       E       C
        Coordinated
       Infrastructure   Limited cross-sector collaboration          Committee to determine statewide           Independent planning body and
          Planning      in infrastructure planning                      infrastructure priorities                  state infrastructure strategy

                                    T       W       C                                            E
        Reviews &
        Approvals       Major capital investments                     Robust business cases, funding    Capital investment guidelines and
                        reviewed on case by case basis              allocated to high value investments     funding allocation framework

                                T       W       E       C
        Coordinated
       Infrastructure   Limited cross-sector collaboration in         State department dedicated to            Independent procurement body
        Procurement     the procurement of major projects             procurement of major projects            and facilitate private investment

                                            W                                            T                                     E       C
        Financing
        Strategies      Traditional forms of financing like               Alternative infrastructure          Private financing is introduced
                        loans, grants and municipal bonds              financing models are piloted      through public-private partnerships

                                        T       W                                                                              E       C
        Funding
       Mechanisms       Traditional forms of taxation and            Funding sources diversified with     Funding leverages full asset value
                        user fees utilized as funding source         deployment of new mechanisms          and integrates true cost to serve

                        T Transportation Infrastructure     W Water Infrastructure   E Energy Infrastructure    C Communications Infrastructure

                                                                                                                Executive Summary                  10
MICHIGAN INFRASTRUCTURE PLANNING &
PROCUREMENT FINDINGS
States are increasingly addressing infrastructure needs more holistically, with greater
emphasis on coordinated planning, asset management and funding high value projects.
    Asset Management Framework, Systems & Processes                                  Coordinated Infrastructure Planning
    • Design and implement a statewide                                               • Analyze the statewide
      Asset Management Framework and                                                   infrastructure priorities to reduce
      Guidelines.                                                                      risk and fuel economic growth.
    • Support utilities and local government                                         • Develop a long-term statewide
      with implementation of asset                                                     infrastructure strategy.
      management practices.
                                                                                     • Make infrastructure investment
                                                    Operations &
    • Build and maintain a statewide Asset          Maintenance                        recommendations to the
      Database with analytics.                                          Strategy &     Governor and legislature.
                                                                         Planning
                                                            Capital
                                                                                     • Measure improvements in
                                                          Investment                   performance.
                                                           Lifecycle
                                               Construction

                                                                   Procurement
                                                                                      Infrastructure Plan Approval
    Coordinated Infrastructure Procurement
                                                                                     • Design and implement major
    • Leverage Federal & State Funds.
                                                                                       capital investment guidelines.
    • Identify and implement long-term
                                                                                     • Release standard business
      innovative funding strategies.
                                                                                       case analysis template.
    • Support financing of major projects.
                                                                                     • Agree on a capital
    • Facilitate private investment and the                                            prioritization framework to
      set up of public-private                                                         allocate funding across
      partnerships.                                                                    statewide needs.
                                                                                      Executive Summary                      11
MICHIGAN INVESTMENT FINDINGS
It is recommended that Michigan raise current annual infrastructure spending levels by
an additional $4B per year to close the investment gap with the U.S. average.

                                                         Transportation                    Water                                   Energy                            Communications

 Michigan Infrastructure                •       Approximately $2.7B per       •    Approximately $0.5B per            •       N/A – largely private      •   N/A – largely Federal and
 Forecast Investment Gaps(1)                            year                               year                                  utility funding                  private funding

                                                •       Raise the gas tax         • Water Rate Increase
                                                                                                                     •        Energy Rate Increase               •    Federal Funding
 Likely Sources of Funding                          •    Pilot VMT tax            • Water Infrastructure
                                                                                                                          •    Private Ownership             •       Private Ownership
                                                        • User Fees                  Replacement Fee

 Michigan vs Great Lakes              • Annual Average Capital Spending as a % of Total Spending between 2010-2014 was 2.4% less than the Great Lakes average.
 Annual Investment Gap(2)                  • Michigan would need to increase 2014 annual capital investment levels by $2.5B to match the Great Lakes average.

 Michigan vs U.S Average                    • Annual Average Capital Spending as a % of Total Spending between 2010-2014 was 4.2% less than the U.S. average.
 Annual Investment Gap(2)                        • Michigan would need to increase 2014 annual capital investment levels by $4B to match the U.S. average.

                                                                   • Michigan to close the annual investment gap with the U.S. average over 5 years.
 Michigan Investment
                                            •       Our research concludes that the minimum Michigan should increase annual infrastructure spending is $4B to close the
 Recommendations
                                                                                         Michigan Infrastructure Investment Gap.
Sources:
(1) Investment Needs & Funding Gaps Defined by Michigan Infrastructure Commission (December, 2016)
(2) Annual Investment Gaps, Michigan vs Great Lakes and U.S. Average, based on Capital Spending data between 2010 – 2014 from the U.S. Census Bureau (see Page 19 of this report for details)

                                                                                                                                    Executive Summary                                      12
RECOMMENDED INFRASTRUCTURE INVESTMENT
PRIORITIZATION CRITERIA
Based on our experience with implementing capital investment frameworks in public sector
organizations, we recommend the criteria below to assist with the prioritization of funding needs.
                                  Expected Value                                           Investment Risk

                        Compliance / Basic Essential Service /                    Current and Estimated Future Funding
                        Public Safety and Well Being at Risk                      Gap

                        Alignment with Michigan’s Economic                        High Capital Cost and Long-term
                        Goals                                                     Implementation Schedule
      Building a New
        Michigan
                                                                                  Availability of Potential Funding Sources
                        Rehabilitation of Aging Infrastructure                    to Address Funding Gap

                        Public Demand and Unmet Needs                             Level of Complexity

                        Other Anticipated Benefits including
                                                                                  Reputational Risk, Public and
                        Public Visibility, Environmental and
                                                                                  Stakeholder Support
                        Social Views

          Raw
          Score        1         2          3          4             5           1         2            3         4          5
          Scales   Low Value                                     High Value                                              High Risk
                                                                              Low Risk

                                                                                                     Executive Summary               13
MICHIGAN’S INFRASTRUCTURE INVESTMENT INDEX
Results show that water infrastructure may provide the greatest expected value on
average, however this infrastructure platform also contains the highest level of
investment risk. Roads and bridges are the highest ranked infrastructure sub-categories.
                                Michigan’s Infrastructure Investment Index                                               Scoring Results Summary
    Highest                                                                                                      Infrastructure      Infrastructure Expected Invest.
    Value      Starting Point                                                    Roads       Plan[Limiter]
                                                                                                   Now /           Platforms        Sub-Categories   Value    Risk
                                                 Bridges
               ‘Quick-Wins’                                                                 Mitigate Risks                                   Roads       5.0         3.4
         5                                  Electricity                        Drinking Water                                            Bridges         5.0         3.2
                                                                                                                                              Rail       3.6         4.0
                                 Storm Water                               Sewer                                  Transportation
                                                                                                                                         Airports        3.0         3.6
         4                       Mobility                                                       Dams                                         Ports       2.8         3.4
                                                                                                                                         Mobility        3.6         2.4
                        Broadband
Expected                                                    Gas                     Rail                                             Drinking Water      4.6         3.4
         3
 Value                                                                     Airports                                   Water
                                                                                                                                             Sewer       4.2         3.4
                          Mobile                                                                                                      Storm Water        4.0         2.6
                         Networks      Alternative
                                                                                                                                             Dams        4.0         4.4
         2                               Energy
                                                                   Ports                                                                Electricity      4.2         3.0
                                                                                                                     Energy                  Gas         4.0         2.8
                                                   Telephone
                                                                                                                                   Alternative Energy    3.2         2.2
         1
             Consider                                                                            Reassess                              Broadband         3.4         1.8

     Lowest   Funding                                                                           Investment       Communications Mobile Networks          3.0         1.8

     Value  Alternatives                                                                           Needs                                Telephone        2.2         3.0

              Lowest      1                 2                  3           4                    5      Highest       Transportation Infrastructure      Water Infrastructure
              Risk                                        Investment                                   Risk
                                                              Risk                                                   Energy Infrastructure              Communications
                                                                                                                                                        Infrastructure

                                                                                                                         Note: Size of bubble = relative scale of
                                                                                                                             estimated annual funding gap.

                                                                                                                    Executive Summary                                          14
2   Current State of Infrastructure
    Planning, Funding & Policy in the
    State of Michigan
PROJECT BACKGROUND – THE CASE FOR CHANGE
The Infrastructure Funding and Policy Strategy is intended to address Michigan’s current
and future infrastructure needs and will also provide the guideposts for political and
business leadership in Michigan to assist the state prepare for future economic growth.

                                                                      2015     2016

    Road and Bridge Funding Package               Michigan Water Crisis
    The State of Michigan, like many states     Drinking water supply and
    across the country, is currently facing     infrastructure issues in Flint
    significant infrastructure challenges. In   culminated in a lead contamination
    2015, Michigan Governor Rick Snyder         emergency in 2015 and early 2016.
    signed into law a broad road and bridge     This issue is still currently being
    funding package, however many               addressed.
    acknowledge that a more holistic                                                                        Michigan Infrastructure
    solution is required to address the            21st Century Infrastructure Commission                   Funding and Policy Strategy
    State’s infrastructure needs.                  In response to these high profile infrastructure          BLM launches a complementary
                                                   issues, Governor Snyder created the 21st                  initiative in March 2016 designed to
                                                   Century Infrastructure Commission in March                identify actions that can be taken to
                                                   2016 as a means of studying the State’s                   jump-start infrastructure
                                                   infrastructure needs and identifying “strategic           improvements, by identifying leading
                                                   best practices to modernize” transportation,              practices other states or nations have
                                                   water and sewer, energy and communications                taken to address their infrastructure
                                                   infrastructure in the state so Michigan’s                 needs and making recommendations
                                                   infrastructure remains safe and efficient now             for policy and business leaders
                                                   and into the future.                                      (including finance, policy and
                                                                                                             administrative actions).

                                                                                              Current State Assessment                                16
CURRENT STATE OF MICHIGAN INFRASTRUCTURE –
PHYSICAL LIMITATIONS
Michigan has a major need to rehabilitate deteriorating water, transportation and energy infrastructure.
Communication infrastructure is relatively new and well maintained by the private sector.
                  Michigan Infrastructure Condition Grades              Current State Michigan Infrastructure Related Issues

                                                           U.S.    Public Health and Safety Risks
                                              Michigan
              Infrastructure Types                       Average
                                               (2009)
                                                          (2013)   • Some critical infrastructure at risk of failure.
              Roads                               D        D       • Significant under-investment in some basic essential services.
              Bridges                             D        C+
                                                                   Future Economic Growth Risks
              Rail                                D+       C+
                                                                   • Soo Locks upgrade required to increase logistics reliability.
              Aviation                            C        D       • Limited public transportation options in major cities.
              Navigation / Ports                  C–       C       • Detroit Airport expansion to leverage undeveloped land.
              Public Transport                    D+       D       • Waste water overflows into natural waterways.
              Drinking Water                      D        D       • Broadband speed and coverage expansion required to
              Waste Water                         C        D
                                                                     support economic growth.

              Storm Water                         D+       D–      Infrastructure Funding Risks
              Energy                              C–       D+      • Infrastructure funding gaps are growing rapidly, potentially
                                                                     creating a large burden on future generations.
              Communications                      N/A      N/A
                                                                   • Limited new sources of funding, increasing the role of private
              Overall                             D        D+        investment.
                       C = Mediocre, Requires Attention
                              D = Poor, At Risk
    Source: American Society of Civil Engineers

                                                                                       Current State Assessment                       17
THE NEED TO INVEST IN NEW INFRASTRUCTURE TO
SUPPORT ECONOMIC GROWTH
Business Leaders for Michigan has identified six key assets and opportunities to accelerate the
economy and each infrastructure platform plays a role in driving economic growth.
                   Six Assets and Opportunities to Accelerate Michigan’s Job, Personal Income and Economic Growth
    Six                                                                  Higher Education             Health & Medical
   Assets
                Engineering Talent       Geographic Location                                                                    Automotive Industry            Natural Resources
                                                                             System                      Expertise

                Global Engineering                                        Higher Education                                                                     Natural Resources
Opportunities                            Gateway to the Midwest                                       Life Sciences Hub        Global Center of Mobility
                     Village                                                Marketplace                                                                            Economy
                                                                                                                                                               Invest in infrastructure
                                                                                                                               Lead in sustainable mobility
                                                                           Strengthen quality,                                                                  that promotes natural
                                                                                                                                   &multi-modal systems
                                                                        affordability, productivity                                                              resources industries
                                                                                                                                              ●
                                                                           & economic impact          Create a Hub for bio-                                                ●
                Brand the engineering    Consolidate logistics base                                                                   Lead in vehicle/
                                                                                     ●                 pharmaceutical R&D                                     Expand & promote MI’s
                        sector                  into Michigan                                                                    infrastructure technology
  Potential                                                                  Grow university                    ●                                                tourism and outdoor
                          ●                            ●                                                                                      ●
  ways to                                                                      enrollment             Become the center for                                    recreation amenities &
                  Grow engineering           Scale Aerotropolis                                                                  Ensure MI remains a top
leverage the                                                                         ●                  research, testing &                                            services
                  education capacity                   ●                                                                       three region for global R&D
   assets                                                              Grow industry & university          medical labs                                                    ●
                          ●               Invest in strategic trade-                                                            spending and employment
                                                                              funded R&D                        ●                                             Focus public and private
                Grow engineering firms      related infrastructure                                                                            ●
                                                                                     ●                Grow medical tourism                                         R&D activities on
                                                                                                                               Catalyze growth in advance
                                                                        Grow commercialization                                                                   sustain-able natural
                                                                                                                                   and interactive, smart,
                                                                                 of R&D                                                                       resources products and
                                                                                                                                 connected transportation
                                                                                                                                                                      processes
Source: BLM Building a New Michigan Framework
                                                        Infrastructure Impacting the Ability to Grow the Economy

    Six                                                                 Higher Education              Health & Medical
   Assets
                Engineering Talent       Geographic Location                                                                    Automotive Industry           Natural Resources
                                                                            System                       Expertise

 Transport           High Impact                 High Impact                 High Impact                  High Impact                  High Impact                  High Impact

   Water             Low Impact                 Medium Impact                Low Impact                 Medium Impact                Medium Impact                  High Impact

  Energy             Low Impact                 Medium Impact                Low Impact                 Medium Impact                Medium Impact                  High Impact

Communic-
  ations
                     High Impact                Medium Impact                High Impact                  High Impact                  High Impact                Medium Impact

                                                                                                                        Current State Assessment                                          18
PEER INFRASTRUCTURE SPENDING COMPARISON
There appears to be under-investment in Michigan when compared to similar states and
the U.S. average and this has led to significant current state infrastructure funding gaps.
          State and Local Capital Spend (% of Total Expenditure)                                                   State and Local Functional Spend per Capita
                       Annual Average 2010 – 2014                                                                          Annual Average 2010 - 2014
                                                                                                             U.S. Average                            $795
       U.S. Average                                                             10.6%                           Michigan                   $470

                                                                                           Transportation
                                                                                                               Wisconsin                          $649
                                                                                                                       Ohio                    $553
          Michigan                                     6.4%                                                  Pennsylvania                                $935
                                                                                                                    Illinois                              $978
                                                                                                                   Indiana                 $481
         Wisconsin                                               8.5%                                           New York                                                       $1,651
                                                                                                             U.S. Average                   $536
                                                                                                                Michigan                  $446
              Ohio                                                   9.2%                                      Wisconsin                $395
                                                                                                                       Ohio              $421

                                                                                           Water
                                                                                                             Pennsylvania                 $450
   Pennsylvania                                                         9.4%                                        Illinois             $424
                                                                                                                   Indiana             $358
                                                                                                                New York                     $563
            Illinois                                                     9.8%                                U.S. Average            $274
                                                                                                                Michigan        $107
                                                                                                               Wisconsin           $189

                                                                                           Energy
           Indiana                                                        9.9%                                         Ohio     $92
                                                                                                             Pennsylvania      $72
                                                                                                                    Illinois    $100
         New York                                                                  11.3%                           Indiana           $278
                                                                                                                New York                $341

   Source: U.S. Census Bureau                                                              Note: Chart shows functional spend (Capital Expenditure + Operational Expenditure)
                                                                                           Source: U.S. Census Bureau
   Observations
                                                                                           Observations
   •    Michigan had the lowest % capital spend compared to similar states at 6.4%
                                                                                           •                Transportation: $325 per capita less than the U.S. average (Ranking: 51st)
   •    Michigan spent 4.2% less than the U.S. Average and would need to
        increase (2014) annual capital spending by $4 billion to align                     •                Water: $90 per capita less than the U.S. average (Ranking: 18th)
   •    Michigan spent 2.4% less than the Great Lakes Average and would need to            •                Energy: $167 per capita less than the U.S. average (Ranking: 40th)
        increase (2014) annual capital spending by $2.5 billion to align                   •                Communications spending data not publicly available

                                                                                                                                 Current State Assessment                                19
RECENT MAJOR INFRASTRUCTURE PROJECTS IN MICHIGAN
 Select state agency major capital improvement plans and projects greater than $100M
 implemented over the last five years between 2011 – 2016.
                                                                    I-96 Improvements                                         US-23 Improvements
                                                                                                                I-94
                                                                    $285M for reconstruction        Improvements              $123M for reconstruction and modernization
                                                                        and new interchange              $218M for                M-1 Rail (Qline)
                                                                                                 reconstruction and               $131M reconstruction of M1 to
                                                                                                     modernization                include rail line
                                                      Upper Peninsula Region                                                       Southfield Freeway
                                                                                                                                   $124M for reconstruction and
Electronic Transmission Infrastructure Power Growth
                                                                                                                                   new alignment in 2015
$2.6B investment to improve grid performance
and reliability and connect new generations                                                                                        Ambassador Bridge Gateway

      M-231; US-31 NB / I-96 / M-104 Improvements                                                                                  $254M for new alignment in 2012
      $151M for new construction (M-231) and reconstruction                                         Northeast
                                                                                                                                    Freeway Lighting
                                                                                                     Region
                                                                                Northwest                                           Freeway Lighting as a public-private
            Combined Sewer Overflow (CSO)                                        Region
                                                                                                                                    partnership in a $123M investment for
             $250M investment in CSO in Grand Rapids
                                                                                                                                    LED lighting
         Grand Rapids Stormwater Management System                                                East                                   Blue Water Bridge Toll Plaza
        $37M to upgrade the stormwater management system                                         Central
                                                                                                 Region                                  $588M to build a new toll plaza
                                                                                                                      East
                       Passenger Rail Corridor                                   West
                                                                                Region
                                                                                                                     Region         Detroit Energy Overhaul
                      $430M to acquire and upgrade passenger rail                                                                   $200M replace and renovate portions
                      between Kalamazoo and Dearborn                                           South                                of Detroit’s energy
                                                                                               Central              Detroit
                Ann Arbor Wastewater Treatment Plant                                           Region               Metro
                                                                                                                                    Detroit Wastewater Treatment Plant
                                                                                                                    Region
                $110M for wastewater treatment plant process upgrades                                                               $150M for wastewater treatment
                                                                               Southwest             Southeast                      plant process upgrades
                                    Ann Arbor Solar Farm                        Region                Region
                                                                                                                              I-75 (Rouge) Monroe County
                                    $2B total investment in solar
                                                                                                                              $235M for modernization and
                                    farm completed in 2015
                                                                                                                              reconstruction of road and bridges
                                                                                                                 Current State Assessment                              20
FORECAST MAJOR INFRASTRUCTURE PROJECTS IN MICHIGAN
Select state agency major capital improvement plans and projects greater than $100M
forecasted between 2016 – 2020.
                                                                                                Soo Locks
                                                                                                 $1B+ for construction of the new lock
                                                                                                 could generate as many as 15,000
                                                                                                 construction jobs in the eastern
                                                                                                 Upper Peninsula

                                       Upper Peninsula Region                                                 Flint Water Infrastructure
                                                                                                              $195M budgeted for water
                                                                                                              infrastructure including replacing
                                                                                                              lead pipes

                                                                                                               I-75 Oakland and Wayne Counties
                                                                                  Northeast                    Work commences on $1.3B of
                                                                                   Region
                                                                 Northwest                                     modernization and reconstruction
                                                                  Region                                       improvements to I-75

                                                                                                                   Detroit Intermodal Freight Terminal
     New Holland Natural Gas Plant
                                                                                East                               $1B for consolidation of freight
     $144M to create a new 114-megawatt energy                                 Central                             facilities and rail improvements
     plant in Holland, MI                                                      Region
                                                                                                 East
                                                                  West
                                                                 Region
                                                                                                Region            Gordie Howe International Bridge
                                                                                                                  $2B bridge to connect Canada
                                                                             South
                                                                                               Detroit
                                                                                                                  and Detroit. U.S. and Canadian
                                                                             Central
                                                                             Region            Metro              Governments are sharing costs in
                                                                                               Region
                                                                                                                  a public-private partnership
              Ann Arbor Capital Improvements Plan
                                                                Southwest          Southeast
              $901M for 349 projects in 6 years                  Region             Region                        I-94 Wayne County
              ranging from water systems to                                                                       Work commences on $2.9B of
              parking facilities                                                                                  modernization improvements to I-94

                                                                                                         Current State Assessment                        21
TRANSPORTATION INFRASTRUCTURE –
        CHALLENGES & OPPORTUNITIES
       Michigan recently raised its gas tax, however the expected future revenues will not be
       sufficient to pay for the projected costs to build new and upgrade old transportation assets.
                                    Transportation Infrastructure Challenges in Michigan                                                                Transportation Infrastructure Opportunities in Michigan

                    •          Road funding allocations still determined using old and outdated formulas.                             •            MDOT is a leader in asset management, a risk management approach that
                    •          Public transport is heavily subsidized, particularly in the Detroit area.                                           can also help negotiate political funding for critical infrastructure projects.
                    •          Bridges that require funding either structurally deficient or functionally obsolete.                   •            Michigan's rail forms a gateway to the mid-west from Ontario, Canada.
                    •          There are 696 structurally deficient bridges in Michigan, all on local roads.                          •            The Michigan Ports Strategy was recently released in June 2016.
                    •          Soo Locks are very old and critical to Michigan's logistics industry.                                  •            Detroit Lighting was innovative P3, lower energy costs and better service.
                    •          Estimate about $86.5B necessary over 25 years, doubles current funding level.                          •            Michigan Governor is applying pressure to move Soo Locks Upgrade forward.

                                                                               Transportation Infrastructure Spending & Funding Indicators

                                                Highway Spending - Capital Outlay                                                                              State Gas Taxes & Fees (cents per gallon)
                                                         (2010 – 2013)                                                                                                      (2012 – 2016)
                               $3,000,000,000                                                                                                      60
Highway Capital Outlay ($)

                               $2,500,000,000

                                                                                                                      Gas Tax (Cents per gallon)
                                                                                                                                                   50
                               $2,000,000,000
                               $1,500,000,000                                                                                                      40
                               $1,000,000,000
                                                                                                                                                   30
                                $500,000,000
                                                               Michigan Highway Spending Ranking (2013): 25th
                                                               ‫‏‬                                                                                                                                 Michigan Gas Tax Ranking (2016): 18th
                                                                                                                                                                                                 ‫‏‬

                                           $-                                                                                                      20
                                                       2010             2011             2012              2013                                              2012              2013             2014             2015             2016
                                                                                                                                                                Illinois            Indiana              Michigan             New York
                                                    Michigan          Great Lakes Average            U.S. Average                                               Ohio                Pennsylvania         Wisconsin            U.S. Average

                             Source: U.S. Census Bureau                                                                                                  Note: Rates do not include the 18.40 cent/gallon federal excise tax on gas
                                                                                                                                                         Source: Taxfoundation.org

                                                                                                                                                                           Current State Assessment                                          22
WATER INFRASTRUCTURE – CHALLENGES & OPPORTUNITIES
There is limited data available on Michigan’s aging underground water infrastructure
network and investment levels appear to be lower than other infrastructure platforms.
                                            Water Infrastructure Challenges in Michigan                                                                                    Water Infrastructure Opportunities in Michigan
        •                        Limited water asset data inventory due to old underground infrastructure. Aged                                            •   Create uniform standards and funding mechanisms to replace failed systems.
                                 lead lines are a major issue in parts of the State.
                                                                                                                                                           •   Improve water asset data inventory, particularly for storm water assets.
        •                        Water pricing may not incorporate full cost to serve customers, including cost
                                 to rehabilitate or replace aging infrastructure.                                                                          •   Investigate application of MDOT Asset Management Framework to water assets.
        •                        Private wells are often abandoned, improperly constructed, and contaminated                                               •   Maximize Federal Loan Programs for water projects e.g. About $800B Federal
                                 from groundwater runoff. Can lead to contamination of local waterways.                                                        money has been delivered to roads/bridges and only $500M to water.
        •                        Estimate about $1.2B - $1.5B annual underinvestment in water infrastructure.                                              •   Analyze the true cost to serve water customers and potentially adjust rates.

                                                                                         Water Infrastructure Spending & Funding Indicators

                                         Drinking Water State Revolving Fund Allotments                                                                                             Annual Household Water Bill
                                        (2011 EPA 20-Year Drinking Water Needs Survey)                                                                                              of Public and Private Utilities
                                                                                                                                                                                                (2009)
                                 6.0%                                                                           $60.0                                      $500
                                                        Michigan DWSRF Allotment Ranking (2016): 7th
                                                        ‫‏‬                                                                                                          Michigan Water Bill Ranking (2009): 16th
                                                                                                                                                                   ‫‏‬

                                          4.8%                                                                                                             $450

                                                                                                                        20-Year Drinking Water Needs $B
                                 5.0%                                                                           $50.0
% of Funds Available to States

                                                                   4.2%
                                                                                                                                                           $400
                                 4.0%                                                                           $40.0
                                                 3.2%                                   3.1%                                                               $350
                                 3.0%                                     2.8%                  2.7%            $30.0
                                                                                                                                                           $300
                                                                                 1.7%                  1.9%
                                 2.0%                       1.6%                                                $20.0                                      $250

                                 1.0%                                                                           $10.0                                      $200
                                                                                                                                                                       US AVG       MI        IL         WI         IN         OH         PA
                                 0.0%                                                                           $0.0
                                          NY     PA          IN     IL    OH     WI     MI      Great   U.S.
                                                                                                                                                                       Municipal or Local Government Owned        Private or Investor Owned
                                                                                                Lakes Average
                                                                                               Average
              Source: U.S. Environmental Protection Agency                                                                                                Source: Foodandwaterwatch.org

                                                                                                                                                                                    Current State Assessment                                   23
ENERGY INFRASTRUCTURE – CHALLENGES & OPPORTUNITIES
 A large majority of Michigan’s electricity and gas infrastructure assets are managed by
 private utilities.
                                        Energy Infrastructure Challenges in Michigan                                                                     Energy Infrastructure Opportunities in Michigan

        •                 Increasing disruption to power supply in recent years from weather so system                                      •    Vital to repair and replace energy assets due to the direct connection between
                          resilience and building in redundancy are critical.                                                                    electricity and water as well as communications.
        •                 Many providers across the State.                                                                                  •    There is an opportunity to fund natural gas pipelines at same time with water,
        •                 Difficult for Michigan to lean on other states for power, geography is a limitation.                                   sewer pipelines, roads and communications assets.
        •                 Michigan has many high risk cast iron lines, 30 year cycle before all is replaced.                                •    Modern technological updates in energy e.g. smart meters to analyze outages.
        •                 Closing a number of power generation units due to new environmental standards.                                    •    Onshore wind and solar are becoming more economical and cost effective.

                                                                                 Energy Infrastructure Spending & Funding Indicators

                                 CapEx Incremental Investment: Electricity & Natural Gas                                                         Energy Source Used for Home Heating (Share of Households)
                                                     (2012 - 2015)                                                                                                        (2015)
                                 $2.0                                                                                                           120%
                                 $1.8
CapEx Incremental Investment:

                                                                                                                   Share of Household (%)
 Electricity & Natual Gas ($B)

                                 $1.6                                                                                                           100%
                                 $1.4
                                                                                                                                                80%
                                 $1.2
                                 $1.0                                                                                                           60%
                                 $0.8
                                 $0.6                                                                                                           40%
                                 $0.4
                                                                                                                                                20%
                                 $0.2
                                 $0.0                                                                                                            0%
                                        Generation    Distribution   Storage      Transmission      Distribution                                                     Michigan                             U.S. Average
                                                                                                                                                                      (2015)                                 (2015)
                                               Electricity                            Natural Gas
                                                      2012    2013   2014      2015                                                             Natural Gas   Fuel Oil   Electricity   Liquefied Petroleum Gases     Other/None

        Note: Values are capital expenditures by DTE Energy & Consumers Energy are are approximate                 Source: U.S. Energy Information Administration (EIA)
        Source: Michigan Agency for Energy, Michigan Public Service Commission, May 2016
                                                                                                                                                                    Current State Assessment                                      24
COMMUNICATIONS INFRASTRUCTURE – CHALLENGES & OPPORTUNITIES
Michigan’s communications assets are relatively new and the highest priorities right now
are improving school and public access to high speed internet and new technology.
         Communications Infrastructure Challenges in Michigan                                        Communications Infrastructure Opportunities in Michigan

•   Broadband is 90% is privately owned and only present in parts of the State.               •   Technology boom has only been the last 20 years, so very new infrastructure.
•   There are about 145 private providers and schools are Federally funded.                   •   Copper infrastructure encourages companies to switch to fiber due to
•   Access on phone can be faster than home connection.                                           maintenance costs.
•   Long-term communications goals for Michigan are currently unclear e.g. is it              •   Opportunity to become a national leader in communications innovation,
    100MB universal access and then where are the gaps?                                           particularly if Michigan is to lead autonomous vehicles, smart highways.
•   Assets often built in isolation, limited coordination with other infrastructure types.    •   What speeds and accessibility levels are appropriate for Michigan?

                                                    Communications Infrastructure Spending & Funding Indicators

                Household Broadband Download Speeds                                                               Household Broadband Penetration
                               (2015)                                                                                         (2015)
100.0%                                                                                       95.0%                                         92.9%
                   95.2%
 95.0%                       93.6%                                                           90.0%
             92.9%                            88.0%
 90.0%                                                                                       85.0%              81.9%                      87.8%                       80.1%
                                                                           82.8%
 85.0%                                                                                       80.0%
                                         85.3%             86.4%
 80.0%                                                                                       75.0%
 75.0%                                                                                       70.0%
                                                                                                                72.0%                                                  71.9%
 70.0%
                                                                                             65.0%
                                                                                  66.6%
 65.0%                                                               64.8%
                                                                                             60.0%
 60.0%                                                                                                Percent of Households with Percent of Rural Households Percent of Rural Households
             10 Mbps / 1 Mbps            25 Mbps / 3 Mbps           100 Mbps / 3 Mbps                   Access to at Least Two     with 10 Mbps / 1 Mbps       with 25 Mbps / 3 Mbps
                                                                                                      Carriers (10 Mbps / 1 Mbps)         Available                   Available
                 Michigan            Great Lakes Average           U.S. Average
                                                                                                                            Michigan          Great Lakes Average
 Source: Connect Michigan, National Broadband Map                                            Source: Connect Michigan, National Broadband Map

                                                                                                                        Current State Assessment                                       25
3   Infrastructure Planning,
    Funding & Policy Leading
    Practices Research
PROJECT SCOPE & METHODOLOGY
The project scope included a review of Michigan infrastructure data, industry stakeholder interviews,
Infrastructure Commission workshops and a global review of leading practices.

                     Project Focus: Infrastructure Planning, Funding and Financing in the State of Michigan

                Infrastructure in Scope                   Project Approach                             Study Inputs

                                                      1   Michigan Infrastructure
                                                          Data Review                               30 Industry Experts Interviewed
     Transportation                  Water
                                                      2   Deloitte Infrastructure
         •    Roads             •   Drinking Water                                                  15 U.S. Locations Researched
                                                          Expert Interviews
         •    Bridges           •   Dams
         •    Rail              •   Sewer
         •    Airports          •   Storm Water       3
                                                          Infrastructure Industry
                                                          Expert Interviews                         15 Global Locations Researched

                                                      4   Global & U.S. Leading
              Energy            Communications            Practices Research                        19 Leading Practices Identified
     •       Electricity        •   Fixed Broadband
                                                          BLM / Infrastructure
     •       Gas                •   Mobile Networks   5
                                                          Commission Workshops
                                                                                                    28 Leading Practice Case Studies
     •       Alternative Energy •   Telephone

                                                                                    Leading Practices Research                         27
LEADING PRACTICE RESEARCH & ANALYSIS PLAN –
OVERVIEW
The recommended strategies are based on a combination of existing Michigan data,
stakeholder interviews, Commission workshops and a global review of leading practices.
        Research Guiding Elements                                            Research & Analysis Approach

    •   Innovative Solutions – search
                                             1   Preliminary             2   Stakeholder            3   Final Data            4    U.S. Leading
        for creative and recent
                                                 Data Request                Interviews                 Request                    Practices
        infrastructure planning, funding
                                                 Capture all of the          Gain additional            Create a final             Research
        and policy solutions that have
        been recognized as leading               existing relevant           qualitative data and       data request               Research
        practice.                                data available              insights on current        following                  strategies
                                                 from State of               state challenges           discussions                deployed by Great
    •   Holistic Solutions – search              Michigan Agencies           and opportunities          about available            Lakes states, then
        for solutions that have been             on the current              during interviews          data in                    look at other U.S.
        designed to address multiple             state of Michigan’s         with key project           stakeholder                states with similar
        issues across different                  infrastructure              stakeholders               interviews                 characteristics to
        infrastructure categories.                                                                                                 Michigan
    •   Successful Solutions –
        search for solutions that have
        been proven to be successful         8   Recommended             7   Data                   6   BLM /                  5   Global Leading
        in dealing with challenges               Strategies                  Analysis                   Commission                 Practices
        related to specific infrastructure                                                              Workshops                  Research
                                                 Summarize and               Complete high level
        categories.                              prioritize                  and discrete pieces        Test research and          Research
                                                 recommended                 of analysis as             analysis findings with     strategies
    •   Applicability to Michigan –                                                                     the Infrastructure         deployed by
        search for solutions that align          strategies based on         required to evaluate
                                                 alignment with              current state and to       Commission to              nations or states
        with current state infrastructure                                                               confirm applicability      with similar
        issues in Michigan (see next             overarching vision          determine viability
                                                 for State of Michigan       of strategies              and gain additional        characteristics to
        page for benchmark                                                                              insights                   Michigan
        locations)

                                                                                            Leading Practices Research                                   28
LEADING PRACTICES RESEARCH & ANALYSIS PLAN –
BENCHMARK LOCATIONS
The initial search for solutions focused largely on the 30 benchmark locations outlined
below, so that the research process and applicability to Michigan could be streamlined.
                                                Similar                          Similar                     Infrastructure                 Infrastructure                     Innovative
                                            Infrastructure                      Economy                          Spend                          Grade                        Infrastructure

               Description              Similar Infrastructure                 Economic                        Largest %                      Best Quality                  Most Innovative
                                               Assets                         Competitors                Infrastructure Spend                Infrastructure                  Infrastructure

               Comparison                        Peers                            Peers                          Leading                         Leading                          Leading

               Latest                        Infrastructure                     Industries              % Capital Investment               Infrastructure
                                                                                                                                                                           Presence of Tech
               Measures                       Categories                         Present                  of Total Spend                  Condition Grades

               Region                                                                                              USA

               Rank - #1                         Illinois                      Tennessee                     South Dakota                       Colorado                          New York

               Rank - #2                        Indiana                          Georgia                      North Dakota                         Utah                           California

               Rank - #3                          Ohio                          Alabama                           Alaska                          Texas                            Florida

                                        BLM Benchmarking                 BLM Benchmarking                U.S. Census Bureau                 ASCE Reports                 100 Most Innovative
               Data Sources
                                             Report                           Report                        Data (2013)1                      (2013)3                  Infrastructure Projects5

               Region                                                                                             Global

               Rank - #1                  Ontario, Canada                Sunderland Region,                       France                  Hong Kong, China                       London, UK
                                                                         North-East England

               Rank - #2                  Quebec, Canada                    Lower Saxony,                      Switzerland                  Singapore, SE                   Rotterdam, The
                                                                              Germany                                                           Asia                         Netherlands

               Rank - #3                 New South Wales,                  Shiga Prefecture,                    Germany                       United Arab                  Barcelona, Spain
                                             Australia                          Japan                                                          Emirates

               Data Sources             Internet Research –              Internet Research-               Standard & Poor’s              World Economic       100 Most Innovative
                                        Similar Infrastructure           Manufacturing Hubs                Report (2015)2              Forum Report (2015)4 Infrastructure Projects5

               Region                                                                         Rest of the World
                                         – additional locations will be identified as required through further research & interviews with Subject Matter Experts.

             Notes: 1 Census Bureau data on capital spending include the costs of construction and of the purchase of buildings, equipment, and land and of major alterations.
                    2 Standard & Poor’s Ratings Services, Global Infrastructure Investment Report, 2015.
                    3 Latest U.S. American Society of Civil Engineers Report Card by State utilized from 2013.
                    4 World Economic Forum Global Competitiveness Report, 2014-15.
                    5 KPMG 100 Most Innovative Projects, World Cities Edition, 2012.
                                                                                                                                                Leading Practices                Research         29
LEADING PRACTICE OBSERVATIONS – OVERALL SUMMARY
Our leading practice research has shown that State Governments are increasing their focus on key
elements of the capital investment lifecycle to direct funds towards high value, high risk projects.

  Infrastructure Asset Management Framework, Systems & Processes
                                                                                                                                        Infrastructure Planning Body
  • Coordinated organizational activities designed to realize the full value of assets over the
    whole lifecycle, from monitoring asset performance, identifying investment needs,                                                   • Focus is on high value and high risk needs.
    rehabilitation of old assets, construction of new assets to ongoing maintenance.                                                    • Typically a multi-sector view.
  • State Governments are designing and implementing standard frameworks, systems and                                                   • Traditionally coordinated by in-house state
    processes for asset management activities to ensure a coordinated approach.                                                           department, however control is recently being
  • A coordinated approach can be used to manage large and small assets, to capture and                                                   transferred to an independent statutory authority to
    analyze asset data and to develop investment priorities in a consistent manner.                                                       coordinate integrated planning efforts.
  • Adherence to asset management standards can provide                                                                                 • This move is designed to remove political influence
    the State Government with assurance that state                                                                                        over infrastructure planning processes and to increase
    agencies and municipalities understand the current                                                                                    transparency to investment decision-making process.
    make-up, condition and risks of their asset base and that                                                                           • Independent statutory authority completes a long-term
    capital investment priorities being put forward for                              Operations &                                         20-30 year infrastructure plan and tables high priorities
    evaluation have been prioritized based on asset value                            Maintenance                                          for the state.
    and risk.                                                                                                  Strategy &
                                                                                                                                        • A capital investment framework is typically used to
                                                                                                                Planning
                                                                                                                                          prioritize recommendations.
                                                                                                                                        • Coordinating body liaises with relevant state agencies
                                                                                                    Capital
                                                                                                                                          and regional representatives on infrastructure needs.
                                                                                                  Investment
                                                                                                                                        • Plan is typically updated every 5 years.
                                                                                                   Lifecycle
                                                                                                                                        • Planning process includes economic development
Infrastructure Delivery Body                                                                                                              indicators and statistics.
                                                                                Construction
• Focus is on high value and high risk needs.                                                                                           • State citizens are engaged in development of the plan.
• Can be either a multi-sector or sector specific view.                                                  Procurement
• Traditionally coordinated by in-house state department,                                                                                Infrastructure Plan Approval
  however control is recently being transferred to an
  independent statutory authority to coordinate infrastructure                                                                           • State Government reviews and challenges long-term
  financing, identify alternative funding sources, encourage                                                                               infrastructure plan priorities and recommendations.
  private investment activity and realize expected benefits.                                                                             • Final approval of the long-term infrastructure plan is
• If sector specific, delivery body can sit within the relevant                                                                            retained by the State Government.
  state department.                                                                                                                      • State Government decides how much funding to
• Set up of a delivery body can send a signal to the markets                                                                               commit to the plan and execution timing.
  that public-private partnerships are a priority.                                                                                       • State Government reviews and approves major
• A delivery body can coordinate sale of assets in addition to                                                                             projects as they are developed and progress through
  construction of new assets.                                                                                                              a pre-defined state gate process.

                                                                                                                            Leading Practices Research                                           30
LEADING PRACTICE OBSERVATIONS –
INFRASTRUCTURE PLANNING AND COORDINATION
Innovative infrastructure planning and coordination practices can be deployed to increase
accountability, transparency and collaboration in major asset investment and delivery decisions.
Leading Practices      Description                                                                                                  High Level Examples                                Case Studies
Long-Term              Preparing and publishing a long-term Infrastructure Strategy at the State Government level,                  •   State infrastructure strategies and plans. •       UK National
Infrastructure Needs   detailing short, medium and long term infrastructure needs and priorities. Collective view across            •   Long-term planning horizon 30 years.               Infrastructure Plan.
                       broad range of infrastructure categories, which is extending to include social infrastructure. Refresh       •   Typically 5-year update cycle.             •       New York Works Task
                       the strategy every 5 years and engage the public as a key stakeholder to provide feedback on plan.           •   Broader definitions of infrastructure.             Force.
                                                                                                                                    •   Online interactive infrastructure maps.
Coordinating Bodies    Creation of an independent statutory authority to provide expert research and advice to                      •   Dedicated Independent Infrastructure           •   Infrastructure Victoria.
                       governments on infrastructure needs, planning priorities and to assist with the development of                   Bodies in Australia and Canada.                •   Infrastructure Ontario.
                       project procurement in cooperation with private investors. These coordinating bodies are often led           •   Detailed business case reviews and
                       by a board comprising members from both the private and public sectors.                                          investment advice to government.
                                                                                                                                    •   Bundling projects together for private
                                                                                                                                        investment.
Infrastructure Asset   Cascading Infrastructure Asset Management Frameworks & Guidelines from State Government                      •   Asset Management Program Mandates. •               Asset Management in
Management             down to Municipal level to set standards for asset inventory data collection and risk based asset            •   Regulators enforcing global standard for           Australia.
Frameworks &           planning / capital expenditure program decision-making.                                                          asset management ISO-55000.              •         Ontario’s Rural Asset
Processes                                                                                                                           •   Michigan Transportation Asset                      Management Plan.
                                                                                                                                        Management Council.
Capital Investment     A capital investment framework is becoming more common at the state government level as a tool               •   Capital investment framework developed •           Virginia DOT Smart
Decision-Making        for scoring of projects by value and risk and this process allows an infrastructure investment                   collaboratively by key state government            Scale Program.
                       committee to assess, rank and prioritize projects across different infrastructure types. With the                stakeholders and published online for the
                       limited availability of funding, there is becoming an increasing need to consider the economic                   public to view and provide feedback.
                       returns when selecting our infrastructure investments and to prioritize high return investments.             •   State-wide capital investment guidelines.

                       A capital investment framework can be a powerful and transparent approach to overcome political
                       interests, focus on critical priorities and to balance the overall portfolio of projects, particularly the
                       competing priorities between rehabilitating existing infrastructure vs. investing for economic growth.
Incentives for         Creating incentives to encourage greater collaboration between infrastructure planning agencies              •   Reward organizational operational         •        Connecticut Regional
Coordination           and utilities so that productivity/efficiency gains can be achieved.                                             efficiency gains with grants or funding.           Performance Incentive
                                                                                                                                    •   Regionalize or integrate services between          Program.
                       Also consider incentivizing industries and organizations to become more efficient at spending                    large and small utilities.
                       infrastructure funding by reviewing operational performance and also seeking opportunities to                •   Synchronization of state-wide project
                       achieve industry consolidation to ease burden on smaller utilities.                                              permitting and reviews/approvals.
                                                                                                                                    •   Encourage industry collaboration.
Regulatory Reform      Regulatory reform can also unlock better usage of existing infrastructure and use of multi-sectoral •            Reducing infrastructure demand                 •   South Africa Renewable
                       long term strategies can reduce complexity and time between planning and implementation. Rates •                 Policies that enable full or partial private       Energy.
                       are regulated and asset/risk management standards are enforced by public utility commissions.                    ownership of assets.

                                                                                                                                        Leading Practices Research                                                    31
LEADING PRACTICE OBSERVATIONS – INFRASTRUCTURE
FUNDING SOURCES
Infrastructure funding sources are government cash flows that can be used to support the
construction and operation of infrastructure via the repayment of infrastructure financing.
Leading Practices         Description                                                                                        High Level Examples                              Case Studies
Direct/Indirect Taxation Use of direct or indirect taxation as a payment of funds for the use of infrastructure. Many states •   Many states targeting an increase in the •       NJ & Illinois Gas Tax,
Revenues                 in the U.S. have found it difficult to gain approval to raise taxes as a method for paying for          gas tax to pay for roads and bridges.            Oregon Vehicle Miles
                         infrastructure in previous years, however public appetite seems to be improving.                                                                         Traveled Tax.

User Fees                User fees allow cities and other local jurisdictions to impose fees to cover the cost associated    •   Create road user license fees.               •   Transportation Pricing in
                         with funding services and enhancements to increase the quality of life and cover administrative     •   Congestion pricing.                              Colorado.
                         and regulatory processes.                                                                           •   Road usage surcharges.

Full-Cost Pricing        Consider appropriate pricing of related/substitute infrastructure services such as public transport •   Water utility pricing and/or public          •   DC Water System
                         which is currently subsidized, to enable ongoing funding while at the same time meeting                 transport pricing may be subsidized.             Replacement Fee.
                         social/equity objectives.                                                                           •   Incorporating the full cost to serve
                                                                                                                                 customers, including the upgrade of
                                                                                                                                 aging and failing infrastructure.

Land Value Capture       Land Value Capture is a way to capture the increase in the value of land and development            •   Added value generated around the             •   Metrolinx Land Value
                         generated by the improved accessibility of transportation. Improved access has value which is           development of transit stations.                 Capture in Toronto.
                         reflected in land and property values just like property which has waterfront views.

Infrastructure Leasing   Also known as “asset recycling”. A state or local government leases (for 50 to 99 years) existing •     Use funds from long-term leases to pay •         Rebuilding NSW in
                         revenue-producing infrastructure assets (airports, seaports, toll roads, electric utilities,            for other asset investments e.g. cash            Australia.
                         transmission grids, etc.) to investment funds and pension funds—and uses the proceeds from the          from port sale into rail.
                         lease to pay for needed new infrastructure projects.

Partial Asset Sales      Some assets may show potential for capital reform should certain criteria be met such as a          •   Full or partial sale of land or other public •   Port Covington
                         materiality threshold, overall utilization, operating costs, condition rating and if there is a         assets.                                          Redevelopment in
                         precedent for treatment of similar assets.                                                          •   Sale of obsolete ports to developers.            Baltimore.

Full Privatization of    Transfer of public companies to private owners and operators as a method for increasing             •   Introduction of Independent Power            •   UK Water Industry
Infrastructure           efficiency and creating competition in a particular sector.                                             Producers to create competition.                 Privatization.
                                                                                                                             •   Private ownership of water assets.

                                                                                                                                 Leading Practices Research                                                   32
LEADING PRACTICE OBSERVATIONS – INFRASTRUCTURE
FINANCING STRATEGIES
Infrastructure financing strategies are the debt and equity investments that can be made to pay for
projects now, but are then repaid with a minimum return using cash flows over the life of the asset.
Leading Practices        Description                                                                                   High Level Examples                          Case Studies
Federal Grants & Loans The federal government funds highway construction primarily with grants, while it          •        TIFIA (Transportation Infrastructure     •   Texas Central High Speed Rail.
                       subsidizes drinking water and wastewater projects with low-interest loans. The Federal-Aid          Finance and Innovation Act)
                       Highway Program (FAHP) funds a large majority of the costs for Interstate System and       •        WIFIA (Water Infrastructure Finance
                       non-Interstate System projects with states covering the remaining costs. Administered at            and Innovation Act)
                       the state level, the EPA’s Drinking Water State Revolving Fund (DWSRF) and Clean Water •            RRIF (Railroad Rehabilitation &
                       State Revolving Fund (CWSRF) provide low interest loans for drinking water and                      Improvement Financing)
                       wastewater infrastructure projects.                                                        •        Water State Revolving Funds (SRFs)

State Infrastructure    Infrastructure banks provide low-interest loans to help fund projects in the State with the    •   Low-interest loans from Federal and      •   California & Pennsylvania
Banks                   overarching objectives of leveraging State and Federal funds, accelerating priority projects,      State sources for transportation and         Infrastructure Banks.
                        driving economic development and assisting local government needs. The banks can be                water projects.
                        set up with a focus on supporting projects in one particular infrastructure sector or they can
                        also have a multi-sector focus.
Infrastructure Bonds    Infrastructure bonds are borrowings to be invested in government funded infrastructure         •   Tax-exempt municipal bond market         •   DC Water Green Bonds.
                        projects. They are issued by governments or government authorized infrastructure                   that is unique to the U.S.
                        companies or non- banking financial companies. New types of infrastructure bonds               •   Direct pay taxable bonds (Build
                        designed with environmental incentives are becoming more common in the U.S. market.                America Bonds or BABs)
                                                                                                                       •   Tax-exempt qualified Private Activity
                                                                                                                           Bonds (PABs)
                                                                                                                       •   Green Infrastructure Bonds.

Public Private          Public Private Partnerships (PPPs) are agreements between a public agency (federal,           •    Many toll roads are built and operated   •   Virginia & Florida Road PPPs.
Partnerships            state, or local) and a private-sector entity that uses the specific skills and assets of each      as PPPs.                                 •   Detroit / Canada Bridge PPP.
                        sector and balances the project risks between all parties. Fundamentally, a PPP is the        •    Some bridges, airports, water and        •   Pennsylvania Rapid Bridge
                        payment of a lump-sum to the public entity in exchange for the stream of future revenues.          energy assets are also redeveloped as        Replacement PPP Program.
                                                                                                                           PPPs.                                    •   Bayonne, NJ Water PPP.
                                                                                                                       •   PPPs typically involve private company   •   Denver Airport Link PPP.
                                                                                                                           investors (contractors / operators),
                                                                                                                           private equity infrastructure funds
                                                                                                                           and/or institutional investors.

Special Purpose          Setting up a brand new infrastructure operating company specifically to build, operate and •      A unique infrastructure financing model •    Thames Tideway Tunnel, London.
Infrastructure Providers own major infrastructure. Levering private money to finance major infrastructure and              was recently developed for the Thames
                         funding it under a regulated environment.                                                         Tideway Tunnel project in London, UK.

Other Sources of        Direct private investment in infrastructure is increasing and other sources of private capital •   Venture capital funds.                   •   Alaska Water & Sewer Challenge.
Private Capital         include; venture capital funds, seed capital from crowdfunding and investments from            •   Crowdfunding.                            •   Missouri Solar Road Crowdfunding.
                        private companies with an interest in developing specific infrastructure.                      •   Private developers.                      •   LinkNYC Wi-Fi.

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LIST OF SUPPORTING CASE STUDIES (1/2)
 #    Case Studies*                       Leading Practice    Description
                                                              •   The National Infrastructure Plan sets out what will be built and where, focusing specifically on nearly £300 billion
 1    UK National Infrastructure Plan    Long-Term                that will be delivered over the next 5 years to 2020-21. It also includes housing & social infrastructure.
                                         Infrastructure
                                         Needs                •   The task force brings together finance, labor, planning and transportation professionals to coordinate a
 2    New York Works Task Force
                                                                  statewide infrastructure plan and strategic allocation of capital investment funds.
                                                              •   Once established, Infrastructure Victoria will be required to publicly release a 30-year Infrastructure Strategy
 3    Infrastructure Victoria
                                         Coordinating             detailing short, medium and long-term infrastructure needs and priorities. It will be updated every 5 years.
                                         Bodies               •   Infrastructure Ontario is an Independent Infrastructure Authority set up to build, manage, finance, and enhance
 4    Infrastructure Ontario
                                                                  the value of Ontario public assets. There is a strong focus on procurement through public-private partnerships.
      Infrastructure Asset Management in                      •   Pressure to prioritize capital and operating budgets with limited funding and the increasing risks from an aging
 5                                       Infrastructure Asset
      Australia                                                   asset base are the largest drivers of asset management frameworks in Australia.
                                         Management
                                                              •   The governments of Canada and Ontario launched an Asset Management Program component of the Canada-
      Ontario’s Rural Asset Management Frameworks &
 6                                       Processes                Ontario Municipal Rural Infrastructure Fund. An investment of up to $6 million to help eligible municipalities and
      Plan
                                                                  Local Service Boards with asset management planning and capacity building.
                                         Capital Investment •     In 2014, Virginia changed the way transportation projects are selected. Political wish lists have been replaced
 7    Virginia DOT Smart Scale Program
                                         Decision-Making          with an objective, data-driven and transparent decision process, making the best use of limited state funding.
      Connecticut Regional Performance Incentives for         •   The State of Connecticut’s Office of Policy and Management administers a State Grant program to help
 8
      Incentive Program                Coordination               municipalities reduce costs through the regionalization of services.

      South African Renewable Energy                          •   The Renewable Energy IPP Program is a flagship program through which a total of 4,322MW has been
 9                                       Regulatory Reform
      Independent Power Producers                                 procured in less than four years to reduce reliance on fossil fuels and stimulate the renewable energy industry.
                                                              •   New Jersey currently considering cut to sales tax by 1 percentage point for raising the gas tax by 23 cents per
      NJ & Illinois Gas Tax & Oregon
 10                                      Direct Taxation          gallon. Illinois currently considering a 30 cents per gallon hike. Oregon is piloting a voluntary VMT tax which has
      Vehicle Miles Traveled (VMT) Tax
                                                                  technology installed to record sum of distances traveled by all vehicles in a specified system of highways.
                                                              •   Colorado’s ‘FASTER’ Program generates $200m per year for state transportation projects to counter a low gas
 11 Transportation Pricing in Colorado User Fees
                                                                  tax and increase in fuel efficient vehicles. Funds are from registration fees, bridge surcharges and rental fees.

      Washington DC Water System                              •   In 2015, DC water implemented a new charge to help pay for repairing and replacing the city’s aging water
 12                                      Full-Cost Pricing
      Replacement Fee                                             pipes, which expected to generate $40m annually and is based the size of pipes serving homes and businesses.

      Metrolinx Land Value Capture in                         •   This project recognizes that improved connectivity from new transit systems and facilities generates increased
 13                                      Land Value Capture
      Toronto, Canada                                             land and development value and that a portion of this increased value should go towards funding the project.

      ‘Rebuilding NSW’ Asset Recycling Infrastructure         •   Asset recycling is a new, efficient form of financing which is monetizing old assets to pay for the new. NSW,
 14
      in Australia                     Leasing                    leased part of electricity network to raise money for infrastructure development fund. Process repeats over time.

* Note: Please refer to the Appendix for the Supporting Case Studies

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