by James A. Bacon
The state of Virginia is putting $400 million more of its own cash — $1.18 billion in all — into the U.S. 460 Connector under a recently announced deal financing than it would have under a public-private partnership contemplated two years ago, writes Peter Samuel, proprietor of Toll Road News in a recent analysis of the deal.
All for what? To upgrade a stretch of highway between Suffolk and Petersburg that averages traffic flows of between 20,000 and 30,000 vehicles per day at present and, when hoped-for port traffic materializes, will support only $216 million in debt, or 15% of the capital cost..
Samuel concedes that the U.S. 460 project will have some benefits. It will reduce the pressure on highly congested Interstate 64 and the Hampton Roads Bridge-Tunnel, expedite southwest-bound port traffic using Interstate 85, and provide an alternate hurricane evacuation route.
But he notes that “for political reasons,” tolls are being set well below revenue maximizing levels, only $.06 per mile for cars and $.21 per mile for trucks. Tolls, he suggests, could generate less than $10,000 daily when the highway opens in 2018. Politics, he adds, also are evident in a promise to freeze toll rates if revenues exceed the base-case forecast by 10% to 20% over a three year period — “the inverse of business logic.”
Bacon’s bottom line: In 2010, Cintra 460, one of three business consortia bidding on the project, submitted a conceptual proposal that called for $782 million in state subsidies, $400 million less than the McDonnell administration approved this fall. As Samuel rightly characterizes it, the decision to increase the subsidy and buy down toll rates was a political one.
The McDonnell administration has justified the $1.4 billion project mainly on economic development grounds based upon (1) an expectation that Virginia ports will gain significant market share when the Panama Canal widening project is complete, and (2) a belief that Virginia economic developers can parlay the increased freight traffic into major industrial development along the U.S. 460 corridor. Neither assumption has been subjected to rigorous analysis. Moreover, no one appears to have asked, what else could the state do with $1 billion to to stimulate economic development around Virginia? Does the U.S. 460 Connector truly offer the highest risk-adjusted Return on Investment?
Remarkably, there has been zero griping from other regions about the extraordinary beneficence displayed by the McDonnell administration toward Southeast Virginia. Even more extraordinary is the fact that there has been next-to-zero push back against the administration’s planned expenditure of up to $400 billion to buy down tolls way below their revenue-optimizing level.
Virginia is projected to run out of state funding for new road construction by 2017 or 2018, barring action by the General Assembly to identify new sources of revenue. Aside from federal funds, the $3 billion raised by the McDonnell administration by borrowing money is all there is to play with. The administration’s original plan was to leverage those resources through toll-driven public-private partnerships. Now it has chosen to commit one-third of its borrowed funds to a project that will generate only $.20 in private investment per dollar of public investment.
Meanwhile, there are plenty of other places where Virginians would like to see a greater state commitment to buy down tolls. Just ask Northern Virginia riders on the Dulles Toll Road and Norfolk commuters using the Downtown and MidTown Tunnels.
I am baffled how the administration has managed to push this project through with so little controversy. I attribute the silence to a confluence of factors. This economically depressed corridor desperately seeks industrial investment, which means there is no concerted opposition. The General Assembly gave the administration carte blanche to invest the transportation debt, and the Commonwealth Transportation Board is a rubber-stamp organization where no hard questions are asked. Finally, the Suffolk-Petersburg corridor falls outside the coverage areas of the Virginian-Pilot, Daily Press and Times-Dispatch, so the news media are not giving the project the scrutiny it deserves.