Literally
moments after Gov. Timothy M. Kaine signed SB666,
which tweaked the state’s Public-Private
Partnership Act to authorize concession agreements
with private companies, the Commonwealth inked a
concession deal with Transurban, a private toll
road operator that manages roads in Australia, for
the nine-mile-long Pocahontas Parkway. Although
the deal was relatively small compared to other
recent projects, Pocahontas can teach us important
lessons.
The
99-year lease does not include an upfront
concession fee, which is common in most other toll
road leases. Rather, the operator/concessionaire
has agreed to share profits with the Commonwealth,
generating a long-term revenue source that can be
used to fund other transportation projects in the
Richmond region.
As
part of its “permit fee” (the equivalent of a
concession fee), the Commonwealth will receive 40
percent of gross revenues once net cash flow
yields an internal rate of return of 6.5 percent.
That number increases to 80 percent once that rate
hits 8.0 percent. Thus, the deal could potentially
add millions in revenue to state coffers over its
99-year life. Transurban also has agreed to build
a $150 million spur to the Richmond International
Airport, if federal loans are approved. In
addition, state loans and operating expenses will
be repaid under the deal.
Despite
these extensive benefits to the Commonwealth, toll
rates will be capped, protecting the public from
dramatic price increases. Tolls will rise in a
scheduled, six-step increase reaching $4.00 by
2016. Perhaps most importantly, Transurban
guarantees its product. The agreement requires
Transurban to maintain acceptable levels of
service and to “cure” congestion before it
reaches unacceptable levels.
Though
widely deemed a bailout, the concession is a sign
of what Virginians could expect from similar deals
around the state for existing toll
facilities—private capital to support existing
and new highway functions, private expertise in
road management and operations, and better
customer service. That's on top of any cash
payment or profit sharing that could raise
millions of dollars for the state’s
transportation treasury.
In
light of the Pocahontas experience, the Dulles
Toll Road would seem to offer tremendous
opportunity to benefit the people of Virginia.
With offers upwards of $1 billion in cash and
capital upgrades on the table, the potential
concession deal seemed like a classic win-win
proposition. Unfortunately Gov. Kaine threw away
those benefits when he signed a Memorandum of
Understanding with the Metropolitan Washington
Airports Authority (MWAA) to choose a
public-public partnership instead of a
public-private partnership.
The
Governor claims that MWAA has agreed to consider
the private proposals, which may be the case.
However, that condition is not included in the MOU.
From the Commonwealth’s perspective, what is
perhaps most disturbing is what happens if MWAA
goes forward with a private concession deal. The
Commonwealth won't reap the benefits -- MWAA will
be the sole beneficiary.
Rather
than utilize new resources from cash payments and
tolling income to improve traffic conditions
throughout the region, MWAA will use proceeds to
fund the Metrorail extension. While some argue
that this is needed, the facts suggest otherwise.
Rail to Dulles sounds like a great idea,
especially if you work at the airport. However, it
will do little to relieve congestion, and it
diverts limited resources into less efficient and
less effective transportation modes, which
will be borne almost entirely by toll road users.
While
House Speaker William Howell, R-Stafford, has
justifiably called for hearings and a review of
this transaction, many in the transportation
sector consider it a done deal. If true, that
means the state learned little from the Pocahontas
Parkway experience.
First,
the Commonwealth should stop investing in “nice
ideas” and should invest its limited resources
on those programs and functions that generate the
greatest return. Given its cost, Metrorail
extension will produce limited benefits to
commuters at a cost of some $4 billion or more.
Second,
business as usual will not work and we need to
seek innovative solutions. The Pocahontas Parkway
deal demonstrates that innovative solutions are in
fact out there. We need to be ready and willing to
embrace them.
A
modern transportation system is important to the
future of Virginia. But “being stuck in the
past” in the way we choose our projects and
invest our resources will bring only
disappointment and further citizen distrust in
government. The Pocahontas Parkway deal is an
example of the future while the rail-to-Dulles
deal lacks the thoroughness and creativity
required in today’s world.
--
May 15, 2006
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