Tag Archives: Public private partnerships

Horse Gone, Search Ensues to Find Out Who Should Have Closed the Door

Posted on April 23, 2014 by | 10 comments

barn_doorby James A. Bacon

A new question has arisen about the proposed $1.4 billion upgrade to U.S. 460 between Petersburg and Suffolk. Once the McDonnell administration ascertained that none of the three public-private partnership proposals on the table were viable and that the state would operate the road instead, why didn’t the Virginia Department of Transportation re-submit the construction project to competitive bidding? Why did the administration choose from among the three consortia that had submitted the original proposals?

“There is no doubt in my mind that this should have gone back out for new bids,” Del. S. Chris Jones, R-Suffolk, told the Times-Dispatch. “That would have been the prudent thing for the commonwealth.”

The House Appropriations Committee has summoned Secretary of Transportation Aubrey Layne, appointed by Governor Terry McAuliffe, to appear before the committee today to explain the decision-making process. The highway upgrade, touted as a boon to economic development in southern Hampton Roads when the Panama Canal widening opens, has been put on hold until the U.S. Army Corps of Engineers completes its assessment of the proposed route, which would disrupt hundreds of acres of wetlands.  The state has already paid $300 million under terms of the contract even though construction work yet to begin.

The original concept for the project was a public-private partnership funded mainly by the private sector. Three design-construction consortia submitted proposals but all three made it clear that there would not be sufficient traffic volume on the highway to build it without massive government subsidies. The McDonnell administration decided to cut project costs by selling tax-free bonds through an independent financing authority and limiting the private sector role to designing and building the project.

Over and above seeking an explanation of how the state spent so much money before required environmental permits were obtained, legislators also want to know why VDOT didn’t open up the bidding process once a decision had been made to restructure the project. A larger number of bidders likely would have resulted in a lower winning bid.

An uproar developed over bidding for Phase 2 of the Rail-to-Dulles project in Northern Virginia when the Metropolitan Washington Airports Authority enacted a rule that would have required construction companies to enter into a Project Labor Agreement (PLA), effectively limiting the bidders to union companies. Many feared that the PLA requirement would result in fewer bids and a higher construction cost. Under public pressure MWAA backed off. Apparently, no one was watching the U.S. 460 project closely enough to question the McDonnell administration’s decision to avoid opening up the bidding process for a mega-project of comparable size.

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How North Carolina Halted a Bridge Boondoggle

Posted on April 4, 2014 by | 12 comments
mid-currituck_bridge

Map credit: Lochner MMM

by James A. Bacon

Many Virginians know the agony of driving to vacation in the Outer Banks at the peak of the summer season. Heading south between Chesapeake and Kitty Hawk, you follow four-lane roads jammed with as many as 50,000 cars on Saturdays. Then, if you’re staying in Duck, Whalehead or Corolla, you have to head back north through more congestion. It sure would be nice to have a bridge across the Currituck Sound directly to Corolla.

As it happens, the state of North Carolina was planning to build a seven-mile span from Coinjock to Corolla. The Mid-Currituck Bridge, expected to cost $411 million in its most recent incarnation, could save an hour’s driving time. The project worked its way through the traditional North Carolina project-approval system and, at one point, construction was expected to begin in 2012 and to be open to traffic in 2013.

I’m sure there are a lot of vested interests in the Outer Banks that would love to see new transportation capacity that would make it easier for even more visitors to come rent cottages, rent kayaks and go surfing. But North Carolina has instituted a system that we’re still working on here in Virginia: a methodology for ranking proposed highway projects according to cost, saved travel time, congestion relief, safety and economic benefits. According to the Virginian-Pilot, the Tarheels have scored some 1,284 projects and plans to release results for another 500 in May.

The result for the proposed Currituck Bridge: a score of 23.4 points out of a possible 100, giving it a rank of 178th in importance to North Carolina. It doesn’t look like the bridge will get state funding any time soon.

I have a problem with over-development of the ecologically fragile spit of land that originates in Virginia and extends almost unbroken all the way to Hatteras. The Outer Banks are a national treasure. Federal flood insurance subsidies are already encouraging excessive building on sand that could literally wash away with the next hurricane. The state of North Carolina doesn’t need to be subsidizing over-building as well.

That concern aside, I have a suggestion for the county officials of Currituck County who have been lobbying for the bridge. Don’t ask the citizens of North Carolina to pay for your bridge. Figure out how to pay for it yourself.

Issuing 30-year, tax-free bonds to cover the cost of $411 million bridge would require roughly $30 million a year in revenue. Could the bridge generate enough value for the tourism industry in the Northern Outer Banks to pay $30 million in financing costs and have local businesses come out ahead? If so, enact the needed legislation and get the deal done. If not, then the bridge, which is needed to accommodate peak traffic that occurs 13 or 14 Saturdays out of the year, would destroy economic value, not create it, and should never be built.

There are at least three potential financing mechanisms: tolls, value capture and excise taxes.

Tolls: A harried dad with antsy kids in the back seat would gladly fork over $10 or more to shave an hour off his drive to Corolla or points south. A toll could generate millions of dollars in revenue each summer to pay off the bonds issued to build the bridge. Indeed, before the project was put on hold, the Mid-Currituck Bridge project would have charged tolls. However, the North Carolina legislature envisioned the need to spend $28 million a year in gap funding, according to the News & Observer.

Value capture. Major beneficiaries of a bridge would be the owners of hotels and rental property. A bridge that cut driving time and made Currituck destinations the closest to Northern markets would allow owners to raise rents and generate more revenue. Set up a special district to impose a property tax surcharge to capture some of that added value and use it to pay off the bonds.

Resort meals tax. Other beneficiaries include owners of restaurants, shops and other beach amenities. Create a special resort tax district that collects an extra penny per dollar on retail sales. Apply that to pay off the bonds. Continue reading →

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Posted in Environment, Infrastructure, Transportation

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Picking up the Pieces of the U.S. 460 Fiasco

Posted on March 19, 2014 by | 16 comments
Aubrey Layne

Aubrey Layne

by James A. Bacon

Transportation Secretary Aubrey Layne said today he suspended work on the U.S. 460 Connector project because he didn’t want to run the risk of paying the contractor millions of dollars for work on a project that might be radically revised. The state of Virginia has spent $300 million already on the proposed 55-mile interstate-grade highway with no guarantees that it can obtain the necessary environmental permits to push the $1.4 billion project forward — or get its money back if the permits don’t come through.

“There’s no point in spending money on a road we don’t know will get built,” he said at the monthly Commonwealth Transportation Board (CTB) meeting. “There will be five alternatives looked at, including a no-build option.”

As a member of the CTB before he joined the McAuliffe administration as transportation chief, Layne had been one of the project’s most vocal backers. He reiterated his support today. “I still believe in the purpose and need – increased mobility in the corridor, support of the port, hurricane evacuation,” he said.

But Layne suspended work on the mega-project late last week, citing concerns that the U.S. Army Corps of Engineers might not give its approval. The Corps had expressed concerns from the very beginning about the impact of the proposed alignment on wetlands, he said. Early on, the best guess was that 200 acres of wetlands might be disrupted. But soil borings showed that nearly the entire route transversed wetlands. “It was discovered that it could be 480 acres,” he said.

When Layne took over as transportation secretary, he explained, he adopted a different perspective from his previous role as CTB member, advocate and chairman of the 460 Funding Corporation, the entity created to float toll-backed bonds to help pay for the project. As chairman of the funding corporation, he had a fiduciary responsibility to look out for the interests of the bond holders. As transportation secretary, he has a responsibility to look out for the interests of citizens and taxpayers.

To date the state has spent roughly $300 million on the project. VDOT accounts for roughly $60 million in project management costs. The contractor, US 460 Mobility, has spent about $100 million on environmental work, and the state has paid it roughly $140 million for “mobilization,” preparing for construction by setting up an office and hiring crews. He doesn’t have any more environmental work for the contractor, and he doesn’t want to continue paying millions of dollars for months on end when there is no certainty that the proposed route will win regulatory approval.

Problems with P3s. CTB members were generally supportive yesterday of Layne’s decision. Earlier this week, however, former Transportation Secretary Sean Connaughton was quoted in the Washington Post as saying, “Preliminary studies show around 400 acres impacted over a 55-mile corridor, which is fairly small given the size and scope of the project. The current Administration needs to complete the supplemental study, design a wetlands mitigation and avoidance strategy, get the Army Corps permit, and build the road. It’s that simple.” He also said there was “no problem with the structure of the contract” with US 460 Mobility.

In a lengthy explanation of the background to the deal, Layne offered a different spin. “From my viewpoint, it was people in their particular positions making the best decisions they had with the data they had,” he said. However, he alluded to the inherent tension between confidentiality and openness in the Public Private Partnership (P3) process.

The process was open in the early stage when an advisory group studied broad approaches to the 460 corridor. Based on that group’s recommendations, three different consortia submitted their proposals on how to finance and build the highway. In the end, the McDonnell administration decided they were all too expensive and took over ownership of the proposed highway, enlisting US 460 Mobility only to design and build the project. Those negotiations occurred totally in secret, as allowed by the P3 law. The McDonnell administration was not required to obtain CTB approval to sign the contract (although the CTB did have to allocate money for the project), and VDOT gave the CTB what Layne characterized as a “high-level briefing.” “The CTB,” he added, “was not privy to the terms of the contract.”

W. Sheppard Miller III expressed frustration with the process that he did not voice publicly at the time: “I have been very uncomfortable on a couple of projects we had. I didn’t have the data I needed to make a decision. At the same time, I was asked to vote. Don’t ask me to do something without giving me the information I needed. I voted like everyone else. I didn’t like it. I was very uncomfortable at the time. I don’t want to be in that position again.” Continue reading →

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The Statewide Importance of the 495 Express Lanes

Posted on January 15, 2014 by | 25 comments

express_lanes_photoby James A. Bacon

Traffic and revenues on Northern Virginia’s 495 Express Lanes increased steadily in 2013, generating a record 47,000 trips and toll revenue of $124,000 on December 19, according to data the company released yesterday. Whether that’s enough to meet expectations of parent company Transurban Holdings Ltd., headquartered in Australia, or to encourage additional private investment in Virginia’s transportation infrastructure, however, remains an open question.

At the end June 2013, Transurban stated in its annual report that the first half year’s traffic performance “has been lower than expected, but has continued to grow.” At that time the company said it was too early to determine any reliable traffic trends. The latest publication indicates that traffic volumes and average tolls have increased since then, even though 4th quarter results were hampered by the federal government shutdown. Of special note, revenues rose markedly, from $3.3 million in the first half of the year to $8.8 million the second half.

Source: 495 Express Lanes

Source: 495 Express Lanes

Here’s Transurban’s problem: When it was lining up financing in 2007 for the $2 billion project, which added four new lanes to a 14-mile stretch of the Capital Beltway, the economy was booming. A 2007 traffic and revenue study by Vollmer/Stantec forecast average weekday trips over the first full year of operations at 66,000 and revenue of $46.1 million, according to Toll Road News. After four years of operation, the study forecast, the express lanes would log 117,000 average weekday trips and annual revenue of $79 million. No one anticipated the severe recession or the national erosion in Vehicle Miles Traveled that eased congestion on the nation’s highways. The whole point of paying a toll to use the express lanes is to avoid the unpredictability and time delays caused by congestion. No congestion = no revenue.

The company pulled out of its investment in the Pocahontas Parkway outside Richmond last year but remains committed to completing the Interstate 95 express lanes project in Northern Virginia.

Bacon’s bottom line: For supporters of market-based and fiscally conservative solutions to Virginia’s transportation challenges, the 495 Express Lanes are a vital test. Failure would cast a shadow over future private investments in Virginia transportation infrastructure, and the state could return to Business As Usual practice of blindly building highway projects with no accountability for results.

The express-lanes concept is appealing for several reasons. First, the private sector raised most of the money to pay for the expansion of Interstate 495 capacity — money the state did not have — and assumed the financial risk should traffic and revenues prove disappointing. Given the shortfall in ridership and revenues, Virginians should be darn grateful that Transurban, not the commonwealth of Virginia, is taking on that risk. Transurban shareholders, not Virginia taxpayers, will take the hit if the shortfall persists.

Second, the express lanes use price as a rationing mechanism for scarce highway capacity. Those who place the greatest value on their time — to get to a business meeting, say, or to pick up a child from day care — can pay a premium to bypass the congestion and save themselves time. As it turns out, 84% of riders surveyed — yes, Transurban actually surveys its customers; take a hint VDOT — cited predictable travel times as one of their “favorite things” about the lanes. Sixty-eight percent said they use the lanes to “reach a destination on time.”

The logic of paying to avoid congestion is the antithesis of the all-too-common sentiment that roads should be “free” and that the state has an obligation to spend whatever it takes to keep those roads free-flowing — all with the expectation, of course, that “someone else” should pay. It is an axiom of economics that when a good is free, consumers will use far more of it than if they had to pay for it. In the case of roads,  excess demand creates pressure to create excess supply. Express Lanes avoid that trap — if motorists want free-flowing conditions during period of peak traffic, they pay for the privilege. If they are unwilling to pay, it’s a clear indication that they place trivial value on reducing their travel time.

Third, requiring road projects to cover their own costs is a mechanism for weeding out uneconomic projects, whether funded by private or public dollars. One good thing about 495 Express Lanes is that the public gets a regular accounting of traffic volumes, toll prices and revenue. (It would be nice if we got a cash flow analysis, too.) The project creates information about the economic viability of highway projects that we could not obtain otherwise. We get no such information from non-tolled projects, whose costs are buried within Virginia Department of Transportation budgets. We have no way to judge whether public investments in non-tolled projects such as Rt. 288 or the Interstate 295 circumferential highways around Richmond, to pick an example, were wise or foolish.

I regard the 495 Express Lanes as a template for transportation policy across Virginia. I would like to see it succeed financially because I’d like to see companies like Transurban propose more market-based solutions to Interstate congestion, not just in Northern Virginia but for congested stretches of Interstate 81 in western Virginia, Interstate 95 around Richmond and Interstate 64 in Hampton Roads. If the 495 Express Lanes project proves financially disappointing, I fear, the state will default to funding highway projects based upon political considerations with no mechanism to hold the decision-makers accountable. The end result will be construction of projects with weak economic justification and the squandering of billions of public dollars.

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Investors Take their Licks from Toll Road Projects

Posted on November 21, 2013 by | 48 comments
Rt. 288 in Chesterfield County: Untolled, no tolling authority, no transparency, no accountability.

Rt. 288 in Chesterfield County: Untolled, no tolling authority, no transparency, no accountability.

by James A. Bacon

Private investors have pumped about $27 billion into toll-road deals in the United States since 2003, estimates the Wall Street Journal in an article today. Many of them have gone bust. The root problem: Not enough drivers. During the go-go years of the 2000s when traffic counts were soaring and real estate development in resorts and on metropolitan peripheries portended ever-increasing traffic, private investors made a lot of bad bets.

After peaking at three trillion miles in 2007, Vehicle Miles Traveled in the United States embarked upon their steepest and most prolonged decline since World War II. Many of the hoped-for real estate projects stalled or went belly up and the anticipated traffic never materialized. The WSJ points to the example of the Foley Beach Express toll bridge in Alabama. American Roads LLC banked on 10 million drivers in 2012. The actual number: 2.3 million. American Roads filed for bankruptcy protection in June. The article also mentions the Pocahontas Parkway outside Richmond, for which Transurban Ltd. paid the Commonwealth $600 million only to write off its investment several years later.

Some commentators may cite these numbers as evidence that public private transportation partnerships are a bad idea. I draw the opposite conclusion. The system is working exactly the way it should.

State governments and regional authorities have no business bankrolling mega-transportation projects based on highly speculative demand. Taking big risks — rolling the dice — is something that is best left to the private sector. If bets go bad, which many have done, I’d much rather have private investors take the hit than taxpayers.

Nothing against private investors. I wish them well. Profits make the world go round. But multinational infrastructure companies are big boys, and their business models are geared to evaluating and spreading risks. In most cases, they can afford the losses.

Here in Virginia, the McDonnell administration has made a habit of heavily subsidizing speculative projects that the private sector is unwilling or unable to undertake on their own. Thus, the state is putting roughly $1 billion of public dollars into the U.S. 460 “Commonwealth Connector” between Petersburg and Suffolk, which is being built on the hope that massive freight traffic will emanate from the ports of Virginia following the widening of the Panama Canal. Private interests provided a reality check: No one was willing to take the risk that the project would pay its own way. When the state put it its money, it did so with eyes wide open.

While I have serious reservations about that project, which the administration is pushing forward despite significant unresolved environmental issues, at least it is using tolls to recoup a portion of the construction costs, and a tolling authority, the U.S. 460 Funding Corporation, will provide a measure of transparency and accountability by reporting annual ridership figures and financial results. Further, if the numbers fall short of expectations, bond holders will take a hit before taxpayers do. And Virginians will be able to draw the appropriate conclusions about the value of the speculative commitment of capital. McDonnell may be long gone but at least historians will be able to hold his legacy accountable.

Contrast that to the Rt. 288 partial beltway around the southwestern edge of the Richmond region, which also had been billed as an economic development project. The decision was made not to toll the project, therefore there was no occasion to set up an ongoing authority to track ridership and finances. The numbers are all submerged in opaque VDOT statistics and budgets. No one is obligated to break out the numbers for the public; citizens have no way of knowing whether the project lived up to expectations or not. Ten years after it was built, is Rt. 288 a winner or a loser? Nobody knows. Will anyone learn anything from the experience to guide future investments? No, there will be no knowledge gained whatsoever. Continue reading →

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Testing the Limits

Posted on October 11, 2013 by | 13 comments
Tony Kinn

Tony Kinn

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.

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.” Read more.

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Posted in Finance (government), Transportation

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McDonnell Solicits Ideas for “Air Rights” Development

Posted on July 3, 2013 by | 10 comments
Rosslyn Metro station

Rosslyn Metro station

The McDonnell administration is soliciting “innovative ideas” from the private sector to develop air rights at the Rosslyn Metro station in Arlington and the East Falls Church Metro station on Interstate 66. In administrative parlance, this solicitation is a “request for information,” which will gather feedback on the feasibility and types of development that could occur in the two locations. After an evaluation phase, it could be followed by a formal “request for proposal” this fall.

“As governor, one of my primary goals has been to ensure that our transportation agencies utilize every innovative method to better leverage and maximize our existing resources,” said Governor Bob McDonnell in a press release today. “By leasing airspace above certain transportation facilities owned by the Commonwealth, we can better utilize our existing infrastructure to generate additional revenues to fund future transportation improvements, while at the same time attracting new jobs and economic development. ”

Added Secretary of Transportation Sean T. Connaughton: “The potential development of these air rights presents a unique opportunity to attract additional private sector investment to the Commonwealth and better utilize our existing assets to fund future transportation projects.”

The administration pointed to the granting of air rights in Massachusetts, which generated $40 million in FY 2011 through leases, with long-term income projected at $868 million.

McDonnell noted another advantage of air rights that can’t be readily measured by dollars and cents. “By co-locating these potential developments around existing Metro stations and other major transportation facilities, we can reduce congestion and create more livable communities.”

Bacon’s bottom line: McDonnell’s statement represents a dramatic leap for the governor, whose entire administration has been defined by the search for more money to pay for transportation projects with little consideration to the interaction between transportation and land use. Indeed, it seems to represent a conceptual breakthrough — at least as manifested by his public statements. Let’s hope he continues to follow that line of thinking.

The Office of Transportation Public Private Partnerships (OTP3) has been giving serious consideration to selling or leasing air rights since last year. (See “Conjuring Wealth out of Thin Air.”) Two days ago the administration included the air rights project in a list of 20 potential projects that may be suitable to pursue through public-private partnerships. The projects ranged from converting HOV lanes to HOT lanes (tolled express lanes) on Interstate 64 in Hampton Roads to enhancing rest areas with electric charging stations.

The most innovative thinking in Virginia state government today is coming out of the OTP3. The problem is that there is an inherent conflict between the need for confidentiality in OTP3’s negotiations with private-sector players and the need to disclose terms and conditions in a timely enough manner to permit meaningful public input. The McDonnell administration and the Virginia Department of Transportation have made efforts to keep the process transparent but not enough to satisfy citizen and public-interest groups. If this tension can be resolved, we could see some great projects coming out of the OTP3 pipeline.

— JAB

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Posted in Infrastructure, Land use & development, Transportation

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The Back Story on the Transurban “Relocation”

Posted on June 27, 2013 by | 3 comments
No one's pulling the wool over this guy's eyes!

No one’s pulling the wool over this guy’s eyes!

by James A. Bacon

The governor’s office issued a press release yesterday touting the fact that Transurban, operator of the 495 Express Lanes and 95 Express Lanes, has relocated its U.S. headquarters from New York City to Fairfax County.

The two express lane projects have been highly beneficial to Virginia, said McDonnell, supporting 16,000 jobs, generating $3.5 million in economic impact statewide and bolstering productivity by reducing “billions of dollars lost every year due to traffic congestion.”

Then the press release quoted Jennifer Aument, group general manager-North America: “As we celebrated the opening of the 495 Express Lanes in Fairfax County last fall, Governor [Bob] McDonnell urged us during the ceremony to move our U.S. headquarters to Virginia. We’re pleased to officially call Virginia our home base as we continue to partner with Virginia on innovative transportation solutions that keep Virginians moving.”

What a heart-warming economic development success story! Kudos to Governor McDonnell!

But Toll Road News mentions a few details that the press release omitted (hat tip to Larry Gross): It turns out that Transurban shut down its New York office earlier this month and laid off all six of its senior staff because the top brass in Australia was “most unhappy” with the American business environment and the performance of the operations here, and “ordered a windup of expansion efforts.”

As the Times-Dispatch reported, no one actually moved from New York to Fairfax. Snagging the Transurban U.S. headquarters is something of a hollow victory, to say the least.

Transurban wrote off $181 million on its Pocahontas Parkway investment, and the company conceded earlier this year that traffic and revenue expectations were running behind the first-year projections for the 495 express lanes. From all indications, Transurban has done a fine job of delivering projects on budget and on time, and it has handled the marketing roll-out of its toll roads in a professional manner. The problem isn’t Transurban’s operational competence, it’s that traffic volumes are not materializing as expected when the company embarked upon the toll-road projects in the mid-2000s.

Transurban’s CEO has read the writing on the wall: The economics don’t support continued expansion of toll-financed express lanes in North America. Now the question is whether Virginia’s governor will experience a comparable revelation before he starts spending some $800 million a year in new tax revenue on a grab-bag of projects justified by the desperate need to combat congestion.

I’m not holding my breath. Transurban conducts an arcane exercise called preparing a “profit and loss statement” and it insists that its highway projects meet “Return on Investment” hurdles for new projects. The commonwealth of Virginia does not calculate profits and losses for its transportation projects, and it has no ROI hurdle. State officials have no way of knowing whether they are creating or destroying economic value. Transurban makes mistakes — but at least the big boss back in Melbourne knows when the company screwed up. Virginia is flying blind.

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Higher Speed Limit Could Give Express Lanes a Lift

Posted on June 26, 2013 by | 24 comments

express_lanesby James A. Bacon

495 Express Lanes has increased the speed limit on the I-495 express lanes in Northern Virginia from 55 miles per hour to 65, giving riders a significant new time-saving inducement to use the tolled lanes. The change took effect after the Virginia Department of Transportation released a study confirming that raising the speed limit would not pose a safety problem.

Transurban, the operating partner, opened the express lanes in November with a 55 mph limit to identify possible safety issues, with the expectation that the speed limit eventually would increase to 65 mph. After operating the express lanes for half a year, Transurban sent its safety data to VDOT, which voiced no significant concerns.

Though not a surprise, the change is nonetheless good news for 495 Express Lanes, which is in the midst of a multi-year ramp-up to build traffic to profitable levels. The company prices tolls dynamically, depending upon traffic conditions, in order to ensure speeds of at least 45 mph during congested periods. The higher speed limit will provide motorists a reason to use the express lanes during periods of lighter traffic and free-flow conditions, where they will enjoy a 10 mph speed advantage over the mainline lanes.

Nationally, express lane revenues have brought in revenue less than anticipated since the recession, as Americans have driven less. (See “Dude, Where’re My Cars?” as well as this recent post on the Atlantic Cities blog.) Forecasting traffic volumes can be a hazardous business, as Transurban learned from its experience with the Pocahontas Parkway outside Richmond. When revenues for that toll road fell short of projections, the company took a $181 million write-off and sold its interest to a consortium of European banks.

The Pocahontas Parkway traffic was contingent upon traffic materializing from major real estate development projects that never transpired. Traffic volume along the Capital Beltway, by contrast, was a known quantity. Even so, there was a question how much Washingtonians would be willing to pay to avoid congestion.

The new lanes opened in November. Four months later, in February, Transurban’s Peirce Coffee conceded to Washington’ Channel 8 television station: “Traffic is a little bit below expectations.”

In April, Transurban rolled out free weekend access to the express lanes in order to introduce people to the facility. Thousands of drivers — four times the normal weekend volume — responded, says Transurban spokesman Mike McGurk. “People definitely took advantage of it.” Company officials hoped that the free weekend would be reflected in a bump in E-Z Pass transponder sales but McGurk said he did not know if that bump materialized.

VDOT’s validation that the express lanes are safe is a positive for 495 Express Lanes. The tolled lanes experienced 51 crashes between November 2o12, when they opened, and April 2013 — an average of two a week. “It is important to note that a majority of the crashes originate in the general purpose lanes and spill across the channelizing posts into the Express Lanes,” states the VDOT report. “It is also important to note that the 485 Express Lanes is a new facility and drivers require time to familiarize themselves with the access opportunities. … Aside from the first two weeks, the 495 Express Lanes have not experienced trouble spots where there are frequent accidents.”

One safety advantage of the express lanes, noted VDOT, is a prohibition against heavy trucks. Another is the fact that there are only two lanes, as opposed to four in the general purpose lanes, meaning “there is no potential for two vehicles moving into the same lane from different directions at the same time.” Moreover, the express lanes are priced to reduce congestion, a risk factor for crashes.

Higher speed limits give motorists  yet another reason to use the express lanes. The central question is whether drivers — even affluent, Washington-area drivers — place a sufficient premium on their time to warrant paying to achieve faster, more predictable travel times.

“HOT lanes are a brand new concept,” says McGurk. “It’s such a significant change, we understand there’s a learning curve there.” People can’t just say, hey, I’ll give the express lanes a spin today. They have to obtain an E-Z Pass first. They also have to familiarize themselves with the exit locations and new traffic patterns. “The good thing for us, looking at our traffic and revenue reports,” he continues, “is that we have seen an increase from the early days. We hope more people will recognize this is a great option to have.”

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Six-Year Improvement Program: a Blueprint for Failure

Posted on June 20, 2013 by | 8 comments

blueprintby James A. Bacon

With the adoption of the new Six-Year Improvement Program, the details of Governor Bob McDonnell’s transportation priorities plan are coming into clearer focus. There are some worthy elements to the plan but glaring deficiencies guarantee that Virginia will see minimal benefit from the billions of dollars dedicated to new construction.

On the positive side of the ledger, it is heartening to see that Virginia will get serious about meeting its statutory maintenance obligations. The Virginia Department of Transportation (VDOT) will spend an estimated $2.3 billion over the next six years to rehabilitate aging bridges. Roughly one in eleven bridges in the state is rated “structurally deficient.” (See “Bad Bridges” for details). VDOT also will dedicate 25% of its formula revenues to repairing deteriorating pavement on state interstates and primary roads. (It’s not clear from published reports, however, whether this work will address the aging sub-structure of these roads, which account for much of the deterioration.)

Second, VDOT will apply 5% of formula revenue to “smart roadway” projects, which will utilize sensors, video, wireless communication, artificial intelligence and other advanced technologies to do a better job of synchronizing traffic signals, clearing accidents and communicating information to drivers. If executed properly, these investments can increase the capacity of existing traffic arteries at significantly lower cost than constructing more lanes.

On the other hand…. Stewart Schwartz, executive director for the Coalition for Smarter Growth, sums up the negatives in a press release issued yesterday after the Commonwealth Transportation Board meeting:

“We are shocked by the lack of discussion of the spending priorities in the Six-Year Plan, by the failure to tie the program to specific policy goals, and the assumption that simply adding road capacity will solve our transportation problems.  The plan includes a number of wasteful mega-projects that have been strongly criticized as unnecessary including Route 460 ($1.4 billion), the Coalfields Expressway ($2.8 billion), Charlottesville Bypass ($244 million), N-S Corridor ($1 billion plus), and a long range $11.4 billion plan for I-81.

The CTB doesn’t understand the benefits of more efficient land use – of cities, towns, and compact transit-oriented development —  along with transportation demand management programs (carpooling, telecommuting etc), that reduce driving demand.  They don’t understand changing demographics and market demand that have led to big declines in vehicle miles traveled.  The plan includes just 9% of the total for transit even though 69% of the state population lives in the Urban Crescent.

In short, we believe this program will be remembered for squandering billions of tax dollars while making Virginia’s patterns of development less efficient, more oil dependent and less competitive.”

I couldn’t have said it better. My only point of difference with Stewart is that I have no faith that the extra $500 million allocated to rail and public transportation (bringing the total to $2.9 billion) will be spent any more effectively than the money dedicated to roads. When funding decisions are based upon politics rather than objective Return on Investment analysis, the potential exists for rail and public transit projects to be every bit as wasteful as road projects.

Virginia’s decision-making process for allocating transportation dollars is a mess. It is bureaucratic, cumbersome and lengthy. Once projects make it into the pipeline, they rarely get re-evaluated in the light of changing travel trends or market conditions. The CTB exercises no independent review over the priorities handed down by the McDonnell administration. Functioning as regional advocates and conduits of information to the administration, CTB representatives do their most important  work behind the scenes. By the time projects are formally reviewed during CTB meetings, the decisions have already been made. Additionally, there are major transparency issues associated with Public Private Partnership mega-projects. The need for confidentiality when the state negotiates with private-sector partners conflicts with the need for public disclosure before the final deal has been struck.

The McDonnell administration has made no effort whatsoever to address these process issues. It has made no effort to re-evaluate projects in the funding pipeline in the light of new demographic, travel and development trends. And it has made no effort to better align transportation planning and land-use planning. The entire approach has been marked by spending as much money as possible to build as many projects as possible. Bottom line: The McDonnell administration has borrowed billions of dollars and raised our taxes in order to pour more money into a broken system.

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Posted in Budgets, Infrastructure, Transportation

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Express Lanes! Express Lanes! Get Yer Express Lanes While They’re Still Cheap!

Posted on January 11, 2013 by | 3 comments

The 495 Expressways on Northern Virginia’s capital beltway generated an average of nearly 18,600 daily trips and $828,000 total revenue in December 2012, reports concessionaire Transurban. That’s a drop in the bucket for the $2 billion project, which opened November, but the private-sector operator anticipated a long, slow ramp-up.

As congestion increased, demand for the tolled express lanes also increased, resulting in escalation of the dynamic pricing. To travel the full length of the Express Lanes, the minimum toll price for the period was $1.65 and the maximum peak price was $3.70. The average toll per trip, including shorter trips, has been $1.07. Prices are expected to escalate as more motorists use the express lanes to avoid congestion in the non-tolled lanes.

High Occupancy Vehicles (three or more passengers), buses and motorcycles, which use the express lanes for free, comprised 7% of users.

— JAB

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The Beltway’s Brain

Posted on January 2, 2013 by | 39 comments

To get a taste of Virginia’s transportation future, take a spin on the 495 Express Lanes project where sensors, artificial intelligence and dynamic pricing combine to optimize scarce capacity on the Capital Beltway.

by James A. Bacon

If highways had IQs, the newly reconstructed Capital Beltway in Northern Virginia would be the Einstein of asphalt. The 495 Express Lanes have 75 electronic signs and message boards, 36 gantries and tolling points, 80 microwave-radar sensors to measure traffic speeds and innumerable video cameras to monitor road conditions, all tied together by 45 miles of high-bandwidth cable.

The beltway’s brain, where data compiled by the sensors is assimilated and acted upon, is located in a non-descript building in an industrial park just off I-95 in Alexandria. There, employees of Capital Beltway Express (CBE) keep a close eye on traffic, dispatching incident-management crews in the event of accidents or flat tires, providing customer service and otherwise ensuring that the $2 billion toll road runs smoothly. But the most important decisions — the price of tolls — are not made by humans.

Every 15 minutes a computer algorithm adjusts the rates for nine highway segments, depending upon the level of demand for each. An employee watches the algorithm, but from what I could observe when visiting the control center for more than an hour last month, the task of watching sine waves undulating across a computer monitor did not appear to be a terribly exciting one.

Humans will re-enter the pricing picture, but only briefly, when programmers periodically incorporate traffic data based upon the expressway’s real-world experience to update the algorithm. Says Jennifer Aument, vice president of corporate relations for Transurban, which owns 90% of CBE: “The system will get smarter and smarter.”

I had come to visit the 495 Express Lanes control center to get a peek at the future of transportation in Virginia, particularly in Northern Virginia which by some measures has the worst traffic congestion anywhere in the country. New highway capacity is hideously expensive to build in the Old Dominion, and even more so in the Washington suburbs where the high cost of real estate makes the acquisition of right of way prohibitive. Given intense opposition to tax increases, Northern Virginia cannot build its way out of traffic congestion. That leaves only one alternative. As Aument says, “We have to get smarter managing what we already have.”

The 495 Express Lane project, which runs 14 miles between Interstate 95 and the George Washington Parkway, uses technology and tolls to guarantee access to free-flowing express lanes for those who, at any given moment, place the greatest value on their time. The technology makes it possible to vary the price directly in response to changes in traffic volume. When volume increases, so does the price; when traffic decreases, the price goes down.

The $2 billion express lanes project creates economic value in four ways. First, it adds four new lanes to the Beltway, expanding capacity. Second, it provides three new Beltway access points in and around the Tysons business district. By allowing some toll users to exit closer to their destinations, it takes cars off congested local roads. Third, the express lanes provide time savings for people who wish to bypass congestion. Fourth, it provides predictability for everyone, whether they use an express lane or not. Northern Virginia drivers typically tack on 15- to 20-minute buffer times around meetings to give themselves leeway in the event of gridlock. Just knowing they have the congestion-free option, should traffic slow, allows people to reduce the dead time, even if they don’t actually end up using the lanes.

Capital Beltway Express is a collaboration between Transurban, an Australian toll-road company, and Fluor, a global construction company, in a public-private partnership with Virginia. The same partners are constructing the Interstate 95 express lanes, which, when complete in 2014, will merge seamlessly with the 495 lanes and will be run out of the same operations center. The state contributed $409 million to the Beltway project, mainly to offset the cost of rebuilding some 58 bridges and overpasses to accommodate the four extra lanes. Dating back to the 1960s and earlier, those facilities had accumulated a significant maintenance backlog. Transurban and Fluor invested $350 million in equity, and the rest came from bonds to be repaid with toll revenues.

As part of the deal, buses, motorcycles and vehicles with three or more drivers use the express lanes for free, treating them, in effect, like High Occupancy Vehicle (HOV) lanes. Thus, the bonds are being repaid by drivers who use the lanes to avoid congestion, not ride sharers or the general public.

Most toll facilities, like the Dulles Toll Road, publish their rates in advance and stick with them for months or years at a time. Some, like the Midtown Tunnel-Downtown Tunnel project in Norfolk, varies pricing by time of day but does so in accordance with a posted schedule. The 495 Express Lanes project is one of only five in the country that uses dynamic pricing, in which the price varies depending upon traffic conditions throughout the day. Continue reading →

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U.S. 460 Upgrade a Done Deal

Posted on December 20, 2012 by | 2 comments

The McDonnell administration touts U.S. 460 as an economic development project, not a congestion-relief project.

The McDonnell administration has closed on a deal to finance, design and build a new U.S. 460 between Suffolk and Petersburg, providing the Hampton Roads region an interstate-quality alternative to Interstate 64 to connect with the interstate highway system.

The $1.4 billion project has been justified as a cost-effective way to promote the competitiveness of the Virginia ports, attract major industrial investment,  enhance the connectivity between military installations, create an additional hurricane evacuation route and allow visitors a more predictable route for reaching tourist destinations.

“There is a clear and critical need for the new U.S. 460,” said Governor Bob McDonnell in a press release announcing the close. “Today, the Commonwealth is finally delivering on that need and building a project that will not only make transportation better for the southeastern region and the state, it will also generate jobs and economic development opportunities, bringing extensive long-term benefits in so many ways.”

US 460 Mobility Partners, a for-profit partnership of Ferrovial Agroman, S.A. and American Infrastructure, will design and build the project. The non-profit Route 460 Funding Corporation of Virginia will issue bonds, set toll rates, collect tolls and operate the highway.

The Virginia Department of Transportation will contribute $903 million to the project, while the Virginia Port Authority will kick in another $250 million. Toll-backed bonds will account for only $243 million — or roughly one-sixth of the total cost.

The project never generated much outright opposition, although some Hampton Roads planners and business interests said the highway was a lower priority than other projects that would have relieved traffic congestion in the region’s urban core. Smart Growth groups faulted the Public Private Partnership Act process for giving the public insufficient time to review and respond to the final deal terms. Also, they say, the McDonnell administration never gave serious consideration to less expensive alternatives, nor did the Commonwealth Transportation Board ever weigh the state’s $900 million investment against competing rail, transit or local road projects.

The U.S. 460 toll road is scheduled to open in 2018.

— JAB

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McDonnell to Propose $500 Million in New Transportation Revenue

Posted on December 5, 2012 by | 13 comments

Governor Bob McDonnell announced today that his administration is working on a plan to raise $500 million yearly by 2019 in new transportation revenues to fund roads, bridges, transit and passenger rail.

He provided no specifics in his keynote address to the 2012 Governor’s Transportation Conference in Tysons Corner but said details would be announced “over the coming weeks.” Said the governor:

My goal for our funding package is to generate at least $500 million in revenues annually by 2019. The new transportation revenues will be dedicated to maintenance, and will eliminate the shortfall which is causing more and more funds meant for construction to be instead spent just maintaining our existing infrastructure. This additional revenue will free up funds for new construction, and will lead to additional funds for transit and passenger rail.

Added McDonnell: “The time to address our transportation funding challenges is now.  We cannot continue kicking the can down the road.”

With stagnant transportation revenues and rising maintenance costs, the Virginia Department of Transportation expects to run out of state funds for new road projects by 2017. A broad coalition of cities, counties and chambers of commerce in Virginia’s urban crescent has called for new sources of revenue to bolster transportation spending. And Sen. John Watkins, R-Powhatan, has proposed a tax on the wholesale price of motor fuels sales.

Meanwhile, a coalition of environmental and smart-growth organizations has issued a press release denouncing the McDonnell administration for squandering billions of borrowed dollars on ill-conceived mega-projects, failing to review alternatives and running roughshod over local governments and regional planning organizations. New funding, contended the four organizations, should be tied to reforms in the Public Private Partnership Act, stronger legislative oversight, an active partnership with local and regional leaders, and an objective evaluation of alternative solutions and investments.

— JAB

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Public-Private Transportation Act Needs Reform

Posted on November 26, 2012 by | 7 comments

I-495 Express Lanes: reasonably fair to taxpayers and the traveling public.

Virginia’s reliance upon the Public-Private Partnership (P3) process to build large bridge, rail and highway projects has led to the centralization of decision making in the hands of the governor’s office with little effective oversight, contends James J. Regimbal Jr. with Fiscal Analytics, Ltd., in a report sponsored by the Southern Environmental Law Center (SELC).

That centralization makes it all the more imperative that decision-making under the Public-Private Transportation Act be more transparent and accountable, concludes Regimbal in “An Examination of the Virginia Public-Private Transportation Act of 1995.”

As traditional funding sources for transportation construction decline and formula allocations to systems and regions dry up, transportation decision-making is shifting away from a more diffuse system of local, regional Metropolitan Planning Organizations (MPOs), and Commonwealth Transportation Board (CTB) decision-making, to the PPTA proposer and Governor’s administrative agencies in charge of soliciting, screening and procuring PPTA projects. …

The increased centralization of transportation decision-making through the PPTA makes is more important than ever for the public and their representatives in the General Assembly to be kept adequately informed throughout the PPTA decision process.

Midtown-Downtown Tunnel — not so fair to the traveling public.

The former Virginia Finance Committee staffer advances a number of recommendations, including (1) promoting competition by requiring more bidders, (2) making the state’s “Value for Money” analysis available to the public, (3) strengthening the independence of the Commonwealth Transportation Board, and (4) requiring a public hearing after all major business points have been disclosed and before a P3 agreement has been signed.

In some cases, Regimbal suggests, the state should limit private-sector involvement to design-build contracts, which ensure that projects get built on time and under budget, rather than giving private concessionaires an ownership stake in a project. He also advocates treating some projects as regulated utilities as a way to offset risks to private-sector partners without messy non-compete clauses, built-in toll escalators and other undesirable features.

Unlike in some states, the General Assembly has no role in selecting P3 projects. The CTB has no statutory role and is referred to only as an “oversight board” in PPTA implementation guidelines.

Furthermore, says Regimbal, there are no established criteria or a transparent process for determining the level of state subsidy to P3 projects. Thus, the Downtown/Midtown Tunnel project, the top transportation priority of the Hampton Roads region, received $300 million in state subsidies for the purpose of holding down toll charges, while the Route 460 Connector, which has a much lower regional priority, will receive more than $1 billion in state and Virginia Port Authority subsidies.

The key decision point in the P3 project-development process is the Value for Money analysis conducted by the Office of Transportation Public-Private Partnerships. This cost-benefit-risk analysis has not been made available to the public in time to solicit meaningful feedback from the citizenry or affected interests.

Bacon’s bottom line: Regimbal does an excellent job of laying out the main issues associated with the increasing use of P3s. He shows how some projects, such as the Interstate 495 Express Lanes project, accomplish important public objectives at a reasonable public cost and risk profile, while others leave many questions unanswered.

Regimbal wisely refrains from criticizing the McDonnell administration or particular state agencies, focusing instead upon the structural flaws of Public Private Transportation Act as currently written. Legislators enacted the law in 1995 and have made major updates since then, but it is only in recent years, since the state has negotiated a significant number of P3 projects, that the problems Regimbal highlights have become glaringly evident. The General Assembly needs to revisit the Act again. Hopefully, we’ll see legislation in January reflecting some of his proposals.

— JAB

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