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Diversion backers say F-M flood control good candidate for new public-private funding deal

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news Grand Forks, 58203
Grand Forks North Dakota 375 2nd Ave. N. 58203

FARGO – With the fight to federally authorize the Fargo-Moorhead diversion nearly won, advocates must now fight for more than $800 million from the federal government to build the project.

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But local officials hope they’ve found a way to build the proposed $1.8 billion flood channel for the Red River more quickly and less expensively, and it might not involve battling for money in Congress year after year.

“The goal would be to get it done in five or six years as opposed to 13, which is sort of the standard model that the corps has now,” said Fargo City Administrator Pat Zavoral.

Diversion advocates also hope – although they admit it’s an ambitious goal – to start digging the channel as soon as next spring.

That more aggressive timeline could be possible if the F-M Diversion is named by the U.S. Army Corps of Engineers as one of at least 15 pilot projects for what’s being called a public-private partnership, or P3, pilot program.

It’s an alternative funding model allowed by the Water Resources Reform Development Act, the package of nationwide water infrastructure projects, including the diversion, which passed the U.S. Senate by a 91-7 vote on Thursday.

The bill to help protect Fargo-Moorhead from Red River flooding was passed overwhelmingly by the House on Tuesday and now goes to President Barack Obama, who is expected to sign it.

North Dakota Sens. Heidi Heitkamp and John Hoeven and Rep. Kevin Cramer, as well as Minnesota Sens. Al Franken and Amy Klobuchar and Rep. Collin Peterson all voted for the bill.

Under the P3 pilot program, diversion officials would seek out and competitively procure a private partner who could design, build and finance the project, and possibly operate and maintain it over the years of the contract.

Some combination of local, state and federal dollars would then cover that private partner’s cost as well as provide some kind of profit, just like any other construction contract, said Cass County Administrator Keith Berndt.

“The construction contractor, they cover their expense, and they wouldn’t be in business if it couldn’t make some money,” he said. “Everybody, I think, recognizes that no investor is going to be interested if there’s not some profit potential.”

By allowing a private partner to take on some of the initial financial burden of diversion construction, the project could be completed quicker because local sponsors wouldn’t have to fight year after year in Congress for federal appropriations.

“We don’t think it’s an efficient way to build a project if you spread it out over 20 years and wait for little appropriations each year,” Berndt said.

With a faster construction timeline, the project could save 10 to 15 percent in capital costs and 25 to 30 percent in operation and maintenance costs, Berndt said.

What kind of private investor would take on such a project? Diversion Authority Chairman Darrell Vanyo said it might have to be a gigantic firm that sees value in investing in something that’s backed by the government.

“Then they may see it as worthy of putting some money up front and then getting paid back over time,” Vanyo said.

Still, despite the prospect of alternative financing, diversion officials are not abandoning the traditional ways of financing the project, Berndt said.

While they wait to hear if the project is chosen for an alternative funding program, work will continue on getting money through traditional, congressional appropriation.

“Everything’s on the table,” Berndt said, adding that authorization is a “huge step.”

“Once it’s authorized and signed into law, then that’s the law of the land saying that the federal government supports an F-M Diversion project,” he said.

A ‘likely’ candidate?

Once the water resources bill is made law, details of the P3 program will be hashed out by the corps, but local officials said it’s promising that the diversion is being considered.

According to language in the water resources bill, preference is being given to projects that are “significant” to the nation’s economy and ones that will use both federal and local funding sources.

Zavoral said corps officials have indicated the diversion is a “likely” candidate for the P3 pilot program, but he stressed that nothing is official.

There is another alternative financing model allowed by bill that involves secure federal loans, but details of that model are unclear, Zavoral said.

Both alternative funding models have been used in federal highway projects, but are new to the world of water projects.

Cramer said the alternative funding models were added to the bill in the House because lawmakers wanted to make sure projects could find other ways to get funding and not languish waiting for federal dollars.

The congressman said he “secretly smiled through the process” thinking of how Fargo could take advantage of the alternative funding.

“We’re somewhat unique in the country in that we are an area that actually has money, and wouldn't it be nice if we didn't have to have a project held up because of a lack of federal participation?” Cramer said. “Because – as we've talked about before and everybody’s been very clear about it – appropriation for this project from the federal government is going to be hard to get unless the president puts it in his budget.”

Aaron Snyder, the corps’ chief of the Project Management Branch in St. Paul, said they will “actively pursue all funding options,” including these pilot programs and traditional appropriation.

“The intent is to get this project done as quickly as we can, but also we want to save as many tax dollars,” Snyder said. “We all know that the longer these drag out, the more tax dollars go to it, and the more risk the city faces.”

Once bill is signed into law, the corps headquarters will devise rules and regulations to implement those alternative models, he said.

The P3 program can be structured in multiple ways, Snyder said. The private partner could be asked to do all or only some of the following for the project: design, build, finance, operate and maintain.

“We’ll look at the rules and we’ll see what options are out there, where the local funding is, where the federal funding is, and then we’ll try to put together a proposal that may allow it to be considered moving forward,” Snyder said. “But it’s really preliminary at this time.”

Focus on appropriation?

In an interview Thursday, Hoeven said given the national deficit and debt, it’s important to facilitate local, state and private participation in massive infrastructure projects.

Still, Hoeven said he will remain focused on securing traditional federal appropriations for the diversion because state law requires federal construction dollars to be given toward the project before the state will chip in its $450 million project share.

“Rather than going down the trails of one of those alternative sources, our focus will be to secure federal appropriation,” Hoeven said.

In a statement, Heitkamp also said the focus now has to be on appropriation.

Zavoral said the project could end up using federal appropriations and financing from a P3 agreement, with each pot of money paying off a different element of the project.

With federal appropriations in play, it will meet the requirement of state law, he said.

While the details of the alternative models are being hashed out, which could take months, Zavoral said the diversion has to move forward as if it’s a traditional “pay-as-you-go” project, lobbying and waiting for appropriations each year.

“We’ve got to do that so that we can get the project going,” he said. “That will then trigger more state money. That’s the track we’re going down right now, and then we’re exploring these other potential methods of implementing the project.”

He said they also have to wait for the results of the Minnesota environmental impact statement, which might not be completed until next year.

Diversion construction dollars weren’t included in the president’s budget for the upcoming fiscal year, so without some other kind of funding model, it would be difficult to start digging the channel next spring.

“We still have land to purchase and utilities to move and those types of things,” Berndt said “It would be ambitious to start by next spring, but to do construction in ’15 would be something we’d like to do.”

Even if actual channel digging doesn’t start, work will start next year on the downtown Fargo flood wall, which is considered part of the diversion.

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