The good news: The McDonnell administration has discovered $5.4 billion in “surplus” bond proceeds to help pay for Dulles Rail. The bad news: Money dribbles in slowly and it’s all there is to pay for Dulles Toll Road improvements over the next four decades.
by James A. Bacon
The General Assembly faces a major policy decision regarding the financing of Dulles Rail — what to do with a projected $5.4 billion in surplus Dulles Toll Road revenues to be collected over nearly four decades to provide security for the project’s bond holders, Virginia Highway Commissioner Gregory A. Whirley told members of the Joint Commission on Transportation Accountability Monday.
To obtain affordable interest rates on the bonds it issues, the Metropolitan Washington Airports Authority (MWAA) is required to maintain minimum debt service ratios set by the terms of its bond agreements. Toll revenues must cover two times the debt service for senior (AA-rated) debt, 1.35 times for intermediate debt, 1.2 times for lower-rated debt and 1.0 time for the most subordinated debt. The excess revenues will be set aside in a separate fund.
The state has three broad options on what to do with the money: Use it to pay for improvements to the toll road, one of Northern Virginia’s critical transportation arteries; renegotiate bonds to lessen the burden on toll road users, who could wind up paying as much as $8.75 per trip in 2025 and $18.75 by 2048; or return the money to the state. Initially, the surplus will be small, Whirley explained, but enough money could accumulate within a decade to help out toll road users by renegotiating some of the project’s more expensive debt.
The escalation of Dulles Toll Road tariffs has become a heated issue in Northern Virginia, where tens of thousands of commuters rely upon the limited access highway to get to and from work. Under the final financing agreement, revenues from the toll roads will cover about half the$6 billion cost of building both phases of the heavy rail project.
The state allocated $150 million this year to cover interest payments in the early years of bond payments, making it possible for MWAA to slow the rate of fare increases on the toll road. The surplus funds identified by Whirley would dwarf that sum, although they would have to cover far more years of interest payments. In April, Transportation Secretary Sean Connaughton said that tapping the surplus funds could reduce tolls by $.90 per rider in the early years.
MWAA has issued $1.3 billion in toll-backed bonds so far to finance Phase 1 of the project, which is nearing completion, and anticipates selling approximately $2 billion more over the next five to six years. The bonds will be sold in four tranches, each offering a different level of security for investors and paying a different interest rate. The top-rated, “flagship” bonds will bear low interest rates of 2.5% to 3%. Investors will regard them as having minimal risk because they will be first in line, after operating and maintenance costs, to receive toll road revenues and they will have a 2.0-to-one coverage ratio. Other tranches will stand behind the senior bonds in line and have lower debt-service coverage. A key component of MWAA’s financing strategy is to reduce the risk on the lowest-rated bonds by getting the federal government to back them under the Transportation Infrastructure Finance and Innovation Act (TIFIA).
MWAA’s interest rate projects are conservative, said Andrew Rountree, MWAA’s chief financial officer. Projections assume an average cost of capital of 6.5%, which is considerably higher than interest rates today. MWAA’s AA bond rating for senior debt places it among the top 11% of all airport authorities in the country. MWAA runs Dulles International Airport and Reagan National Airport, and has been entrusted with managing construction of the Dulles Rail project, which will run along MWAA-owned right-of-way.
Under a new transportation bill agreed to by Congress, the federal government will expand its TIFIA loan program substantially, Rountree said. By converting the project’s expensive, subordinated debt to TIFIA-backed debt, MWAA could bring down toll road fares considerably. “We’ll be doing everything we can to access that program.”
Otherwise, Whirley’s idea of tapping the surplus debt-coverage funds offers the only realistic prospect of ameliorating the plight of toll road commuters. Rountree cautioned that it will take years before the funds could be accessed. “The opportunity to tap the surplus won’t come about for quite a while,” he said. A big chunk doesn’t become available until the very last two years. Read more.