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Show
Me the Money
With
transportation funds tight, the Warner
administration is turning to public-private
partnerships to build new highways. But critics
worry that low-priority projects are moving to the
front of the line.
By
Bob Burke
When
backers of a $900 million plan to build
high-occupancy toll lanes on the Capital Beltway
came to Richmond last year hoping to close the
deal, the message from Philip Shucet was: Show me
the money.
California-based
Fluor Enterprises was pushing a proposal that
needed no state funding, using tolls to cover the
debt, but involved no investment by Fluor. “I
remember bringing the Fluor folks in, with nobody
but in the room but me, and saying, ‘I like this
project, but I’m not sure I want to move it
forward,’” says Shucet, who was then
commissioner of the Virginia Department of
Transportation.
What
was missing, Shucet told them, was any financial
risk by the private side. So Fluor came back with
a new partner, Australian firm Transurban, which
agreed to invest at least 15 percent of the
project’s total cost. “What that told me was
if someone was willing to bring capital to the
table, then this must be a good business deal,”
he says.
Shucet
calls the Beltway deal “a turning point” for
VDOT, because the infusion of private-sector money
reversed a trend. Virtually all previous projects
done under the state’s 1995 Public Private
Transportation Act (PPTA) “were basically
sole-source deals to spend state and federal
revenue,” he says. “There wasn’t much of a
private side at all.”
Today,
that kind of private-sector risk-taking is what
VDOT and state leaders hope to see more of. Cash-
strapped Virginia is already aggressively pursuing
private partnerships to help advance major
projects. Besides the Beltway lanes, Fluor and
Transurban have proposed extending HOT lanes down
the Interstate 95 corridor to near Fredericksburg.
Other active PPTA proposals include extending
Dulles rail, widening Interstate 81 and building a
third crossing in Hampton Roads.
These
kinds of partnerships are changing how Virginia
pays for transportation projects – with more
tolls and special tax districts likely - as well
how it decides which ones to build. Exactly what
that means for the state’s transportation
network is still uncertain.
Supporters
like the infusion of private-sector expertise and
cash – especially the cash - but others worry
that the state is turning over too much control to
profit-oriented businesses.
“The
PPTA is still not integrated very well with our
normal transportation planning process,” says
Trip Pollard, an attorney with the
Charlottesville-based Southern Environmental Law
Center, which produced a study of the PPTA in
January. “You want to tap into the creativeness
of the private sector, but you also want to be
sure that you’re harnessing those market forces
toward serving the public interest.”
Virginia’s
current approach to harnessing that market is to
spur it along. State legislators this year created
the Transportation Partnership Opportunity Fund,
which allows no-interest loans or grants to
support transportation projects through the PPTA
or the design-build approach.
The
fund, which has $50 million this year, will be
used to give some early financial stability to
public-private projects, says Secretary of
Transportation Pierce Homer. As funding sources,
tolls and tax districts “take longer to
mature,” he says. Such was the case with the
Route 28 Tax District in Northern Virginia, which
was created in 1988 but took years to meet its
initial revenue projections. Or the Pocahontas
Parkway, a toll road southeast of Richmond that
opened in 2002 and soon fell far short of traffic
projections. The Pocahontas Parkway Association is
negotiating a sale of its toll road business to
Transurban.
Pocahontas
Parkway, southeast of Richmond,
when
under construction.
“A
lot of the focus of this new fund will be to help
private entities build private markets,” Homer
says. “”By lowering the initial cost of
financing, it will give a private entity a little
more breathing room and the ability to develop
that market.”
There
are also new guidelines issued last month for the
PPTA. The state now can sign interim agreements to
give companies bringing proposals to VDOT some
assurance that, if the project gets a green light,
they’ll get the work. That lets both sides
continue planning and evaluating a project, Homer
says. Private firms “are not going to undertake
that kind of thing unless they know they’re
first in line.”
The
guidelines also call for giving companies a
quicker response when they submit unsolicited
proposals to VDOT. Within 30 days VDOT has to
start an initial review of the proposal to see if
it meets “the planning goals of the
commonwealth,” Homer says. “What’s important
to the private sector is predictability.”
Homer
says the new guidelines also promote more public
review of proposals and to encourage competition,
something state leaders have been working on for
years. “In 2002 we sent back every PPTA proposal
we got, and beat the bushes for competition”
from other firms, he says. Counter- proposals came
for projects such as the widening of I-81 and HOT
lanes down the I-95 corridor. “Each step of the
way we’ve brought new people into the fold.”
But
critics warn against depending on market forces to
make the right choices. The guidelines require
that proposed projects “support and promote”
the goals of the relevant state or local
transportation plan, but that’s no guarantee,
says SELC’s Pollard. “I don’t think the
Pocahontas Parkway would have gotten to the top of
the list,” he says. Instead of congestion relief
and improved mobility, the roads that get built
will not only allow sprawl, but encourage it, he
says. “The proponents tend to have a vested
interest in promoting rapid growth, because they
want to have the toll [revenues] come out of
it.”
Proponents
acknowledge the impact on the state’s list of
top projects, but say it’s better than nothing.
“Wouldn’t you want to advance [a project] that
someone else was willing to pay for?” asks
Jeffrey C. Southard, executive vice president of
the Virginia Transportation Construction Alliance
and a former senior staffer at VDOT. “If the
private sector’s willing to pay for number nine,
why would we say, ‘Sorry, we’re only
interested if you’re willing to do number one or
number two.’”
Says
Homer: “What we need to do is figure out which
of our priority projects is best served through
the PPTA process” and direct the others to the
traditional approach.
Of
course, if the state had more money, its top
transportation projects wouldn’t have to wait
for an interested private-sector suitor. Southard
points to another problem with the state’s
budget problems: Even in public-private deals, the
lack of state dollars is limiting what private
firms can do.
“There’s
relatively few PPTA projects that could pay for
themselves entirely by tolls because the cost of
construction is so great,” he says. Private
firms are generating innovative ideas, but “the
unfortunate thing is that in many cases, they’re
having to revise their ideas because they know
VDOT has no money.”
The
money issue is a long way from being resolved, but
Homer and others think the state’s
public-private strategy will succeed. “We are by
any measure making great strides and trying to do
it in a very deliberate fashion. We’ve created a
very competitive framework,” says Homer. “I
think we’re the best in the country right now."
Bacon's
Rebellion News Service
November
28, 2005
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