About Bacon’s Rebellion
Bacon's Rebellion is Virginia's leading independent portal for news, opinions and analysis about state, regional and local public policy. Read more about us here.
Testing the Limits
With 22 projects in the pipeline, Tony Kinn and his team are garnering national recognition for their work on public-private partnerships. And they're just getting started.
by James A. Bacon
Earlier this month Infrastructure Investor, a magazine covering global transportation investment, recognized Governor Bob McDonnell as its fifth "Public Infrastructure Official of the Year." It was the first time the publication had bequeathed the honor to an American, and the first time to a public figure who ranked less than a national transportation minister.
'Having delivered more [public-private partnership] projects than any state in the last five years, Virginia clearly stands out as a leader in utilizing public-private partnerships to improve transportation infrastructure,” stated the magazine. “Virginia currently has 22 public-private partnerships projects in the pipeline, more than all other states combined.”
Tony Kinn, the man whom McDonnell appointed to run the Office of Transportation Public Private Partnerships (OTP3) is doing everything he can to build that project backlog. The Commonwealth has already branched out from traditional toll-backed bridge and highway projects to leasing "air rights" over state highway right-of-way and outsourcing operation of the state's five regional traffic control centers.
Now the McDonnell administration is preparing to introduce legislation in 2014 that would enable Virginia to devise new funding structures for infrastructure projects and tap new sources of private investment capital not now available in the United States. The use of so-called "availability payments" would apply to situations in which the state has insufficient cash to build a project right now but the economic benefits are tangible and immediate.
In the meantime, expect to see more mega-projects on the scale of the Capital Beltway and Interstate 95 express lanes in Northern Virginia, the Midtown-Downtown Tunnel project in Norfolk and the U.S. 460 Connector between Petersburg and Suffolk. The state has solicited proposals for upgrading Interstate 66 in Northern Virginia and several credible groups are expected to submit ideas. Kinn wants to see if the private sector can come up with options that the Virginia Department of Transportation (VDOT) has not considered. Whoever wins that bid, look for something multimodal and vast in scope. Kinn foresees proposals for I-66 that include tolls, elevated lanes, dedicated Bus Rapid Transit lanes, even reversible lanes that run east toward Washington in the morning and west to the bedroom communities in the evening.
To Kinn's way of thinking, the overhaul of I-66 can't come too soon. Texas Governor Rick Perry has already begun poaching Maryland for corporate investment, and the OTP3 chief is convinced that it's just a matter of time before he hits Virginia, too. The Commonwealth must address the high cost of traffic congestion in Northern Virginia, he says. It is an economic-development imperative to get traffic moving.
Appointed in 2011, Kinn has lost no time -- OTP3's nine-man team has churned out public-private partnership deals at an extraordinary rate. A man lavish with praise for others, Kinn credits the skill and dedication of his staff and unstinting support from Governor McDonnell, Virginia Highway Administrator Greg Whirley and his boss, Transportation Secretary Sean Connaughton. Other states have tried to put together P3 deals but not all have succeeded. "You could not get this stuff done without the proactive leadership of Sean Connaughton," Kinn says. "He is a leader's leader."
While there is no denying OTP3's ability to get deals done, questions do arise about the long-term results.
Trip Pollard, a senior attorney with the Southern Environmental Law Center, gives the administration credit for closing the financing on big projects but wonders if OTP3 is funding the right projects. "We've signed a lot of projects. That doesn't say whether they were wise deals or not."
The Beltway Express Lanes project in Northern Virginia was a pretty good project, Pollard says. The private-sector concessionaire put a lot of skin in the game. But the U.S. 460 upgrade between Petersburg and Suffolk is based upon a highly speculative forecast of increasing port traffic, while the Midtown-Downtown Tunnels deal creates powerful, decades-long disincentives for the state to undertake improvements that might divert traffic from the two tunnels.
"I think [OTP3] is doing a really good job of thinking of possible applications of this aproach," says Pollard, whom Kinn has tapped to serve on his advisory committee. "But their job is to deliver projects," not to think of the big picture. OTP3 doesn't ask, for instance, whether a new highway project will open up part of the state to sprawl-style development that will impose costs --such as like the need for utilities, school buildings and local roads -- not included in project spreadsheets.
Another problem Pollard sees is that P3 deals have a way of jumping to the front of the line. They're big, they're highly visible and they have the allure of leverage public resources with private capital. He's concerned that they might be crowding out smaller projects that offer a better return on public investment.
While Infrastructure Investor magazine may be impressed by the fact that Virginia has 22 projects in the pipeline, Pollard does not find that reassuring at all. "Virginia closed on $6 billion in deals in the last year alone -- no wonder infrastructure investors are giving [the governor] an award! But it doesn't answer the question, are these good projects?"
Kinn concedes that not every deal has worked out perfectly. The Midtown-Downtown Tunnels project, which Hampton Roads residents vehemently protested when they found out how high the tolls would be, was particularly illuminating. "A lady come up to me on my very first day on the job," recalls Kinn. "She said I was taking $1,000 out of her pocket."
There had been numerous public hearings where citizens and local government officials could have kept informed about the progress of the project and its toll financing. The lesson that Kinn derived from the controversy is that VDOT needs to be more proactive in getting its message out. "A ton of people find change abhorrent," he says. "Unless you educate them, they are skeptical." The state needs to spend more time talking to politicians, publishing op-eds in local newspapers and explaining the benefits in a way people can understand.
That lady may be spending $1,000 a year on tolls now, Kinn says, but she is spending less time stuck in miles-long traffic back-ups at the tunnnels. There is a value to the gasoline she burns. There is a value to her time. "You have to get the politics and the publicity piece," says Kinn."You have to translate the lingo so Joe-on-the-Street can understand it."
As for the notion that they are churning out deals, OTP3 officials emphasize that they do not pursue every deal they come across. The office looked at upgrading the pavement on Interstate 85 but concluded that the state would not have gotten much bang for the buck, says Jackie Cromwell, an OTP3 program manager. "Not every project is right for P3s."
* * * * *
But P3s appear to be the solution to a lot of projects -- more than anyone could have imagined before Kinn came on board in 2011. Aside from the expected transportation projects, the office is looking at the leasing of cell phone towers in highway Right of Way, the use of smart technology to weigh trucks and check their credentials while running at highway speeds, addition of a retail component to state-owned park-and-ride lots, creation of a Wallops Island visitors facility, and the enhancement of highway rest stops.
But the ideas that gets Kinn the most excited -- and he does get quite animated -- are the development of air rights over VDOT right of way and the creation of "availability payments" as a new financing option.
OTP3 has identified several locations where the state potentially can sell or lease air rights over highway or Metro stations in order to reap a revenue stream from real estate developers. "Air rights are fallow assets," declares Kinn. Massachusetts has converted air rights into veritable annuities, and he sees no reason why Virginia cannot as well.
The idea has progressed the furthest in Arlington County where the state and the county have issued ideas for re-development in in Rosslyn, a commercial district across the Key Bridge from Washington, D.C.'s Georgetown. Nine developers have responded. Initially, he had expectations for two million square feet of development. Responses have run as high as 3.5 million square feet.
The other hot concept, availability rights, is a novel way -- novel for the United States, at least -- of financing infrastructure for which the state won't accumulate funding for many years. The idea is to identify a project for which the needs are immediate and the safety, congestion-mitigation or economic-development benefits substantial, then outsource the design, construction, financing and operation & maintenance of the project to a private company. The state would repay the company when funds become available, typically within a 20-year period, and assume control at the end of the deal. The financing technique has been used in Europe.
Kinn sees the idea working for improvements to Interstate 64 on the Peninsula, where state funds will trickle in over many years. Stretched-out funding means the project will be built in segments, one following the other, subjecting travelers to years of bottlenecks and traffic disruptions. Packaging the projects as a single job would create construction savings and would allow the improvements to be built earlier and with less inconvenience to the traveling public. Says Kinn: "Pay a little more and have 15 miles [built] in four years, or save a little and have construction bottlenecks for years."
Similarly, design-build-finance (DBF) projects can accelerate construction of smaller projects, which haven't received much P3 interest. One fairly advanced example is a cluster of projects in Lynchburg, where a group led by English Construction Company has proposed building an interchange on Odd Fellows Road, providing bicycle and pedestrian access, replacing a traffic light with a roundabout and making other improvements. The projects would cost between $31 and $70 million, depending upon the final scope. The proposal would allow the improvements to be made two to three years earlier than they appear on VDOT's Six Year Improvement Program.
DBFs and availability payments create an option for smaller-scale projects where tolling is impractical. It could be a boon to rural Virginia, says Kinn.
* * * * *
The recognition from Infrastructure Investors is just icing on the cake. He and his compatriots at the OTP3 have "won every award it's possible to win," Kinn says. Other states look to Virginia as a model for public-private partnerships. They've copied the Virginia legislation. They send delegations to Virginia to see how P3s work. He gets dozens of speaking invitations every from around the country. "People follow very closely what we're doing."
By objective measures, Kinn says, Virginia probably ranks higher in the P3 arena higher than anywhere in the world but the United Kingdom, which is unsurpassed. But there is competition from 50 states and hHe refuses to get complacent. Count on him to continue pushing the envelope. In the words of baseball legend Satchell Paige, "Don't look back. Something might be gaining on you."
