Category Archives: Transportation

Transparency, CTB Autonomy Guide New Vision for Transportation Governance

aubrey_layne

Aubrey Layne. Photo credit: Daily News

by James A. Bacon

The Virginia Department of Transportation (VDOT) has a system for dispensing its approximately $2 billion a year in construction funding that is so blindingly complex that only a few people understand it. If I started explaining it to you in detail, I’d probably have to shoot you halfway through to put you out of your misery.

But I’ll give you a quickie overview so you can understand what the McAuliffe administration, working with Republican leaders in the General Assembly, is trying to accomplish by overhauling the funding formula. The end result, said Transportation Secretary Aubrey Layne in an interview yesterday with Bacon’s Rebellion, will be to transfer decision-making power from the executive branch to a more autonomous Commonwealth Transportation Board, allowing the CTB to function as the policy-setting group it was always meant to be.

Construction dollars come from two sources: state and federal. Roughly $900 million a year in state tax revenues goes into the Transportation Trust Fund. Before anything is spent on state construction projects, money is siphoned into the Highway Maintenance Operations Fund to make up for that fund’s perennial deficits. More money is sluiced away for revenue sharing with localities, and yet more for various administrative expenses. Whatever is left can be spent on construction.

Meanwhile, the $1.1 billion or so in federal highway dollars gets sliced and diced, with dollars peeled away to pay off GARVEE bonds, to maintain U.S. bridges and highways, and to fund miscellaneous programs dictated by Uncle Sam. Whatever is left can be spent on construction.

Thanks to the influx of new state tax dollars, there’s a fair amount of money available for construction these days. But as a practical matter, expenditures are so hemmed in by legislative formulas that the system has little flexibility. Under the 2012 transportation funding overhaul, available funds are to be divvied up as follows: 25% to bridges, 25% to pavement, 25% to high priority discretionary projects, 15% to public-private partnerships 5% to unpaved roads, and 5% to intelligent transportation systems. If there’s any money left over — which there isn’t, even with the 2012 tax increases — additional sums go to unpaved roads and to Interstate matches, and the remainder gets divvied up this way: 40% for primary roads (distributed to each of nine transportation districts), 30% for secondary roads (distributed to individual localities), and 30% to urban roads (cities and towns).

“It is a maze. It is opaque,” Layne said. It’s also inefficient.

As a practical matter, little money trickles down to the localities. It’s like the Colorado River  — so much water has been sucked out along the way that there’s only a rivulet by the time it reaches the ocean. By the time money seeps down to individual transportation districts and individual localities, the amounts are so small they take years to accumulate enough money to actually pay for anything. As a result, money just sits there and gets eroded by inflation.

Another problem with the system, said Layne, who served on the CTB before McAuliffe anointed him transportation secretary, is that the executive branch effectively made all the key decisions. “When we came into office, VDOT was working off ‘the Governor’s List.'” The Governor’s List, an informal entity of obscure origin, was a list of projects reflecting the governor’s priorities, which VDOT then submitted to the CTB. “Where we are today, the governor sets the table,” said Layne. “As a CTB member, it’s hard to rearrange the dishes.”

(During the McDonnell administration, CTB members asked some questions and then invariably approved the requests — usually unanimously. The role of CTB members, I argued in “Kings of the Road” two years ago was to lobby behind the scenes to get projects in their transportation districts accepted by the administration. The board itself exercised little oversight.)

Layne’s goal, and McAuliffe’s, is to restore transparency and CTB independence. To make the policy-making board more independent, the administration is backing legislation that would curtail the executive’s ability to remove CTB members except where there’s cause. This would eliminate a repeat of instances like when former Transportation Secretary Sean Connaughton demanded the resignation of CTB member Jim Rich, a vocal proponent of the administration’s Charlottesville Bypass project.

The proposed new funding formula would create transparency by simplifying the system, Layne said. A new 40/30/30 formula would replace the 25/25/25/15/5/5 formula and portions of the 40/30/30 formula cobbled onto it. The new allocation formula would distribute money as follows: Continue reading

More Tidbits on the U.S. 460 Story…

kilpatrick

Charlie Kilpatrick, Virginia Highway Commissioner

Aubrey Layne was acutely aware of the wetlands permitting issues afflicting the U.S. 460 highway project before assuming his position as Secretary of Transportation in January 2014. As chairman of the funding corporation that sold bonds to investors, he had had to disclose in September 2013 that the Virginia Department of Transportation had not yet acquired the necessary permits from the U.S. Army Corps of Engineers to build the 55-mile highway. That’s one reason why, when he took the McAuliffe administration cabinet post, he acted so quickly to shut down the project — he’d been stewing over the matter for four months.

In an article yesterday, the Richmond Times-Dispatch gave a pretty good account of the testimony Layne gave to the House Appropriations Committee. The story made clear that the “secretary’s office” — led by former Transportation Secretary Sean Connaughton — was largely responsible for the decisions that created the debacle, which cost Virginia taxpayers roughly $300 million for work that will never be done or needed. But the T-D overlooked what I considered to be a critical topic: What role, if any, did then-deputy highway commissioner Charlie Kilpatrick play in the debacle?

I was able to glean a few more details in an interview with Layne this afternoon when, among other topics, I pressed him on Kilpatrick’s role in the policy meltdown. In a post this morning, I noted that Kilpatrick had made a presentation about U.S. 460 to the Commonwealth Transportation Board in mid-2013 that omitted the crucial fact that the project had not obtained the needed wetlands permits. Assured that there was no problem, the CTB approved the project financing.

Since then, Kilpatrick has been elevated to Virginia Highway Commissioner.

Layne defended the actions of VDOT personnel during the McDonnell administration. On multiple occasions, he said, VDOT officials went to the “secretary’s office” with issues relating to the wetlands permit. “Every time,” he said, “they got orders to keep on going.”

Without getting into specifics, Layne said that Kilpatrick and VDOT did “balk” at times at what they were told to do. “There was some pushback.” But Connaughton was determined to advance the project, which was the top transportation priority of Governor Bob McDonnell. While Kilpatrick did not inform the CTB of all the relevant facts, Layne said, he was acting as instructed. Layne is confident that Kilpatrick was not driving the decision-making process and does not bear responsibility for one of the biggest managerial screw-ups in Virginia government history.

I belabor this point only because I argued this morning that it is important to ascertain Kilpatrick’s role in the U.S. 460 fiasco. McDonnell’s people are all gone, but Kilpatrick now serves as a senior official of the McAuliffe administration. Unless new information surfaces, I consider Layne’s comments to be the final word on the matter.

– JAB

Anticipating the Demise of the Parking Meter

pay_by_phoneAs the City of Charlottesville ponders an upgrade to its downtown parking technology (see “Paying for Onstreet Parking in Cville“), parking guru Bern Grush is looking two steps ahead and thinking about how municipalities should handle the inevitable demise of the parking meter.

At some point in the foreseeable future, parking will be managed in the greater majority of all these cities by all-digital means including phone, Web or in-vehicle, self-paying meters. Accompanying this will be a uniform enforcement approach that uses the license plate number to read parking credentials from the cloud. …

With the top two cell-pay providers in the US each claiming “hundreds” of cities as customers, the trend toward virtual parking meters, digital parking payment, and license plate-enabled parking (LEP) and enforcement credentials appears unstoppable. Many in our industry are increasingly seeing fully wireless parking payment management as the self-evident future.

But that does present a transition problem. Maintaining both parking meters and a wireless system is redundant and expensive. But switching prematurely to an all-digital system can alienate people not comfortable with the technology. Writing in Canadian Parker (flip to page 16) last year, Grush had a few suggestions on how to think about the switch-over.

– JAB

Inching Closer to Accountability on the U.S. 460 Fiasco

Aubrey Layne speaking to reporters yesterday. Photo credit: Richmond Times-Dispatch

Aubrey Layne speaking to reporters yesterday. Photo credit: Richmond Times-Dispatch

by James A. Bacon

In the year that he’s served as Secretary of Transportation, Aubrey J.  Layne Jr. has been reluctant to blame any individual or group of individuals for the U.S. 460 toll road fiasco. But he abandoned that reticence yesterday during a hearing of the House Appropriations Committee.

“All of the information was funneled through the secretary’s office, and they were clearly in charge,” Layne said, referring to the office of his predecessor Sean Connaughton. The McDonnell administration allowed “political and media” considerations to dominate its decision making when fast-tracking construction of the Interstate highway-quality connector between Petersburg and Suffolk, the Richmond Times-Dispatch quotes Layne as saying.

Layne was himself an avid supporter of the public-private partnership project, which then-Governor Bob McDonnell touted as economic development boon for Virginia ports and industrial development in Southeastern Virginia. But when when Governor Terry McAuliffe appointed him as transportation secretary last year, Layne discovered that the state had spent $300 million on the project without obtaining wetlands permits from the United States Army Corps of Engineers (USACE) and had little prospect of ever getting them. He promptly pulled the plug on the project.

A “Special Review of the U.S. Route 460 Corridor Improvements Project” ordered by Layne laid out in detail how the McDonnell administration and the Virginia Department of Transportation (VDOT) had ample warning of the USACE’s wetlands concerns but pushed them aside to get construction started on the project before McDonnell’s term ended.

But the Special Review studiously ignored the question of who drove the decision-making process and who made the decision to omit critical information in the formal presentation to the CTB when seeking the board’s approval for project financing.  As I observed last April in “Feet-to-the-Fire Time for Layne, Kilpatrick,” there were three key individuals who could plausibly be held responsible — Transportation Secretary Connaughton, then-Virginia Highway Commissioner Greg Whirley, and then-Deputy Commissioner Charlie Kilpatrick, who actually delivered the presentation. Whirley retired and Connaughton moved on to become president of the Virginia Hospital and Healthcare Association, but Kilpatrick was elevated to Virginia Highway Commissioner.

The issue died in the media but members of the General Assembly apparently were in a mood for answers yesterday. Layne pointed to the “secretary’s office” without mentioning Connaughton by name. By omitting any mention of Kilpatrick, the implication is that he holds the highway commissioner blameless. (Connaughton did not respond to media queries.)

I harp on this matter while others ignore it not to flog Connaughton, whose current job has no bearing directly or indirectly on transportation policy, but to clear Kilpatrick. Back when I was actively covering transportation issues, I had the sense that Kilpatrick was widely liked and respected. But as the chief operations guy at VDOT at the time, he was neck deep in the U.S. 460 imbroglio. He was the one who delivered the misleading presentation to the CTB.

Now that Kilpatrick is Numero Uno, the public has the right to know: Did he have a hand in crafting U.S. 460 policy? Was he just carrying out orders? Did he privately express any reservations to Connaughton about fast-tracking the project? My hunch is that Kilpatrick was acting as the loyal trooper following direct orders when he omitted mention of the permitting issue in his CTB presentation. If I were a wagering man, I’d  bet that he did express private concerns to his higher-ups. But don’t know either of those things for a fact. If I were a state legislator, I would want to know for a fact. The full truth needs to come out, if only to clear the cloud over Kilpatrick’s head.

Interview: McAuliffe’s Economic Goals

 maurice jonesBy Peter Galuszka

For a glimpse of where the administration of Gov. Terry McAuliffe is heading, here’s an interview I did with Maurice Jones, the secretary of commerce and trade that was published in Richmond’s Style Weekly.

Jones, a graduate of Hampden-Sydney College and University of Virginia law, is a former Rhodes Scholar who had been a deputy secretary of the U.S. Department of Housing and Urban Development under President Barack Obama. Before that, he was publisher of The Virginian-Pilot, which owns Style.

According to Jones, McAuliffe is big on jobs creation, corporate recruitment and upgrading education, especially at the community college and jobs-training levels. Virginia is doing poorly in economic growth, coming in recently at No. 48, ahead of only Maryland and the District of Columbia which, like Virginia have been hit hard by federal spending cuts.

Jones says he’s been traveling overseas a lot in his first year in office. Doing so helped land the $2 billion paper with Shandong Tranlin in Chesterfield County. The project, which will create 2,000 jobs, is the largest single investment by the Chinese in the U.S. McAuliffe also backs the highly controversial $5 billion Atlantic Coast Pipeline planned by Dominion because its natural gas should spawn badly-needed industrial growth in poor counties near the North Carolina border.

Read more, read here.

(Note: I have a new business blog going at Style Weekly called “The Deal.” Find it on Style’s webpage —   www.styleweekly.com)

A Radical Notion: Paying for Onstreet Parking in Cville

Image credit: Charlottesville Tomorrow

Image credit: Charlottesville Tomorrow

Irony time: Virginia soon may get a test in market-based parking in… the People’s Republic of Charlottesville. The city would start charging for 800 on-street parking spaces downtown, now free, and install a system of smart traffic meters under a proposal advanced by Mark Brown, new owner of the Charlottesville Parking Center (CPC).

The city reverted to a system of free parking two years ago, creating a severe misallocation of parking spaces. Downtown employees grab the free on-street spots, making it exceedingly difficult for visitors and shoppers to find convenient parking spots. The idea is to encourage downtown workers either to park in long-term structured parking, which would free on-street spaces, or to ride bicycles or use mass transit.

“The promotion of free parking on the street is at odds with the promotion of walking, cycling and mass transit,” said Mark Brown, the owner of Yellow Cab and the Main Street Arena who became the sole shareholder of the CPC last summer, reports Sean Tubbs for Charlottesville Tomorrow.

The proposal, very conceptual in nature and subject to revision, is to install about 60 kiosks where parkers would enter their license plate information to pay. There would be two zones, a core zone with more restrictive parking lengths and higher rates, and a peripheral zone, where people could park longer and pay less. On-street parking rates would encourage long-term parkers to use structured parking. A smartphone app would provide real-time information on parking availability and rates. A portion of the parking revenue would be dedicated to transportation alternatives such as a free trolley, park-and-ride-options and cheap monthly bus passes. The remainder would go to a Business Improvement District.

Bacon’s bottom line: I’m sure some of Brown’s ideas will prove controversial. Downtown employees won’t want to give up their free, convenient parking. But there is no compelling public policy reason for subsidizing their hogging of downtown’s supply of on-street parking. Indeed, quite the contrary. Parking spaces have a cost; they are not “free” to the city. Parking is a scarce good that people are willing to pay for. Charging the right price for parking is a critical element of any downtown development strategy. Although the details may need to be modified, Brown has the right idea.

With all the tools available today, every large and midsized Virginia city should be asking the same questions as Charlottesville.

– JAB

Potomac Yard Metro: a Financing Model for Mass Transit

Image credit: North Potomac Yard Small Area Plan

Image credit: North Potomac Yard Small Area Plan. (Click for larger image)

by James A. Bacon

The state will help finance a new Metro station in Alexandria through a $50 million loan from the Virginia Transportation Infrastructure Bank approved by the Commonwealth Transportation Board earlier this week. The loan is a key piece of financing for the station, which is expected to cost between $209 million and $268  million to build. In turn, the Metro station is a key piece of infrastructure to advance development of between 9.2 million and 13.1 million square feet of residential, office, retail and hotel space in the Potomac Yard.

While the Metro project doesn’t pass the Bacon litmus test for 100% user-pays financing, it does better than most  mass transit projects Virginia has underwritten, and it would open up 300 acres for high-density, high-value development only five miles from the core of Washington, D.C.

The Potomac Yard, to be built on an old CSX railroad marshaling yard south of Ronald Reagan National Airport, could be Northern Virginia’s most important urban infill project of the early 21st century. Plans call for the creation of between 4,300 and 7,100 residential units, 3.2 million and 4.2 million square feet of office space, nearly 800,000 square feet of retail and 740 hotel rooms. We’re not talking about development that might happen… some day. There is a strong, demonstrated demand for the kind of walkable urbanism planned at Potomac Yard.

From what I can tell from perusing public documents, the City of Alexandria is approaching this project the right way. The land use plan calls for creating a balanced mix of uses in a walkable environment with the goal of maximizing transportation infrastructure by distributing peak traffic over longer periods, maximizing internal trips and maximizing transit use. The plan also would put most parking underground, reducing the need for parking spaces by creating opportunities for shared parking, such as office buildings using parking during the day and residences during the night. Highest density development will be located around the Metro station.

I will say this: $200 million+ strikes me as an extraordinary amount of money to build a single Metro station. There are complicated trade-offs to be made with the station siting. A final decision and cost have yet to be determined. The problem is that the station must work within narrow confines around the existing rail line. Depending upon the design alternative selected, that entails building pedestrian bridges, retaining walls and/or new Metrorail bridges. The complexity of the construction staging is rated moderate to high, and considerable construction would take place along live tracks.

Complexity comes with the territory in in-fill projects. The key question is whether the project creates sufficient value to justify the higher cost. And there’s really only one way to tell: Are developers willing to absorb the cost of constructing the Metro station, or would doing so price their office, residential and retail space out of the market?

We’ll never know the answer because Alexandria isn’t loading the full cost of the Metro station construction upon the developers who stand to benefit through higher rents and leases on their properties. According to the Potomac Yard Metrorail Station Environmental Impact Statement, the project cost including interest will total $496.6 million. In 2010, the original idea was for developers to contribute $74 million directly, another $194 million through revenues generated through a special tax district, and the rest through regular taxes paid, which Alexandria would use to support municipal debt. But financing plans have evolved since then. Now the City of Alexandria is seeking $67 million from the Northern Virginia Transportation Authority. And the loan from the Virginia Transportation Infrastructure Bank (VTIB) lock in an interest rate of 2.17 percent over 30 years, reducing much of the interest expense.

In a presentation to the CTB, Assistant Transportation Secretary Nick Donohue described the VTIB loan’s complex debt structure. Repayment is secured by a combination of revenue from the special tax district and moral obligation of the City of Alexandria. Not all details have been finalized. “Upon CTB approval,” states the presentation, “additional specific loan terms will be determined as project, schedule and related documents are finalized.”

Bacon’s bottom line: There are still big unknowns to this project. We don’t know how much the Metro Station will cost. A final design hasn’t been selected, and almost every mass transit project known to man seems to undergo mission creep and cost escalation. Further, we don’t know the final terms of the VTIB loan. With those important caveats, it appears that this project comes closer to to paying its own way than any Virginia mass transit project I can recall.

There are no federal dollars. There likely will be state dollars, but they will come from the Northern Virginia Transportation Authority, which means that down-state taxpayers will not be subsidizing the project. The commitment of VTIB funds represents a small interest rate subsidy and there is a small risk that the money may not be paid, so in theory state taxpayers could be on the hook for some portion if things turn sour.

But this project differs from every other Virginia mass transit project in that developers will contribute a $74 million (2010 estimate) through direct contributions, $194 million (2010 estimate) through special tax district contributions, and millions of dollars more through payment of regular taxes used to service City of Alexandria municipal bonds. That’s a far greater contribution than will come, say, from developers/property owners of the Silver line or property owners along the Norfolk light rail line.

This is a preliminary analysis based upon a cursory examination of public documents. I invite closer scrutiny by others. But my impression is that, when it comes to paying for mass transit, this is probably the best deal that Virginia taxpayers have ever seen. The Alexandria Metro station should serve as a mass transit-financing model for the rest of the state.

Henrico Still Building Schlock

west_broad_marketplace

Artist’s rendering of West Broad Marketplace

by James A. Bacon

The developer of the West Broad Marketplace, which will bring a Wegmans grocery store and outdoor gear retailer Cabela’s to western Henrico County, promises Richmonders a shopping treat that “I don’t think you’ve experienced before.” That may be true. Unfortunately, Jack Waghorn, president of Vienna-based NVRetail, will replicate the experience of driving through traffic-clogged thoroughfares and parking in vast, open-air parking lots that Richmonders will find all too familiar.

The Henrico Wegman’s is scheduled to open in mid-2016, with a counterpart in Chesterfield County opening around the same time. Henrico County officials were on hand for a ground-breaking yesterday. No doubt county leaders are pleased that Henrico citizens will have access to the popular, high-end grocery store, not to mention the tax revenues generated by the store and the 550 to 600 full- and part-time jobs created.

As can be seen in the artist’s rendering above, however, West Broad Marketplace will perpetuate the dysfunctional low-density land use patterns of post World War II sprawl that has already made the Short Pump area a congested hell hole. I avoid going there if at all possible, and others do, too, although sometimes they have no choice because that’s where the region’s upscale stores are concentrated. Driving in and around Short Pump is always a dismal experience. When I visited one time last month to do some Christmas shopping, traffic was so gridlocked that cars were backed up onto I-64, causing a slowdown on the Interstate. That may sound banal to Northern Virginians but it’s unprecedented for the Richmond region.

The traffic congestion in Short Pump is the foreseeable consequence of zoning for mile after mile of single-use shopping-center development around the intersection of Interstates 64 and 295. Planners allowed for no other connectivity: shopping centers don’t connect with each other, much less with nearby residential neighborhoods. There are no side streets to divert traffic. All cars pile onto West Broad Street. The area is utterly unwalkable — visitors have no choice but to drive their cars from destination to destination, adding to the congestion — and there is no mass transit.

The county will never have enough money to build its way out of this mess. Indeed, the problem is so bad that congestion is radiating out from the Short Pump area to places, like the Innsbrook commercial park, where traffic conditions once were tolerable. At some point, I predict, conditions will become so atrocious that — Wegmans or no Wegmans — affluent households, corporate offices and high-end retailers will seek somewhere else in the Richmond region to locate. When the 30-year amortization of all those commercial buildings expires, retailers will pack up and follow. Once the newness wears off, there’s nothing to keep anyone there.

Governance Reform for Transportation Spending

Governor Terry McAuliffe, Transportation Secretary Aubrey Layne -- a different approach to transportation governance

Governor Terry McAuliffe, Transportation Secretary Aubrey Layne — a different approach to transportation governance. Photo credit: Daily News

by James A. Bacon

Among key initiatives in the transportation package that Governor Terry McAuliffe announced yesterday are important proposals to reform the governance of the Commonwealth Transportation Board (CTB) and the Public-Private Partnerships (P3s) process.

CTB autonomy. The bipartisan legislative package, worked out with senior Republicans in the General Assembly, would improve oversight of transportation spending by creating a more independent CTB, specifically by establishing that the Governor cannot terminate a CTB board member without cause.

The measure responds to perceived abuses of the McDonnell administration in which former Secretary of Transportation Sean Connaughton dominated CTB proceedings. Among other actions, he demanded the resignation of CTB member, James Rich, one of the few board members who openly questioned administration priorities. After CTB approval of questionable mega-projects like the Charlottesville Bypass and the U.S. 460 Connector with little debate, I asked two years ago in “Kings of the Road?” if the CTB was a rubber-stamp board.  At the time, board member Aubrey Layne argued against such a characterization. After becoming Transportation Secretary under McAuliffe, Layne’s perspective changed. He pulled the project on the Charlottesville Bypass project and radically modified U.S. 460.

The legislative proposal indicates that the McAuliffe administration is willing to tolerate more open discussion and independent judgment in the CTB in order to head off other potential fiascos.

P3 governance. Changes to the P3 process are aimed at preventing a recurrence of the U.S. 460 debacle, in which the state spent $300 million on an upgrade to U.S. 460 between Petersburg and Suffolk without acquiring needed wetlands permits from the U.S. Army Corps of Engineers.

“The P3 program works for the right projects, such as the I-95 and I-495 Express Lanes in Northern Virginia where the private sector put their money and resources on the table in expectation of getting a reasonable return on their investment,” McAuliffe said in a prepared statement. “The P3 program was the wrong procurement tool to deliver the U.S. 460 project in southeastern Virginia, which cost taxpayers $300 million with nothing to show for it. To prevent this from occurring again, Delegate [Chris] Jones has played a significant role in reforming this process so it is transparent, the risk to taxpayers is minimized and clear lines of accountability are set.”

Specifically:

  • Private partners must disclose risk that is transferred to the commonwealth. The intent is to minimize risk for taxpayers by selecting projects in which the private sector is willing to make the appropriate investment in expectation of getting a reasonable return.
  • The transportation secretary will be accountable by signing a finding of public interest before a P3 deal is finalized, certifying that the risk transfer and all other findings are still valid.  This would prevent situations like the U.S. 460 P3 deal, where procurement changed over the course of the project, yet no one was held accountable.

Bacon’s bottom line: It is heartening to see Republicans and Democrats cooperating to achieve governance reform in the transportation arena, in which billions of taxpayer dollars are spent. As I have argued repeatedly, there are inherent tensions in the P3 process between the public’s need for transparency, especially visibility in its exposure to risk, and the private party’s desire for confidentiality. These proposals seem to be a positive step. Whether they create sufficient transparency remains to be seen.

Highway Robbery

express_lane_camerasby James A. Bacon

I’ve always considered Transurban, operator of the express lanes on the Interstate 495 and Interstate 95, to be a pretty savvy outfit. The company may have over-estimated traffic demand for its express lanes when deciding back in the mid-2000s to build the Northern Virginia toll operations, but corporate executives seemed highly professional in the way they designed, constructed, promoted and managed the business.

At least, they did until now…  Fox News reports that Transurban has filed 26,000 cases against I-495 express lane users for non-payment. It’s one thing to dun people for $10, $20 or even $100. But Transurban is slapping some drivers with thousands of dollars in fees and fines for a single offense. Reports Fox News:

Luis Viera used to take the Express Lanes from Clinton, Md., to his job in Tysons Corner. His E-ZPass was automatically deducting tolls from his credit card.

Then one day, Luis was slapped with a summons to Fairfax County Court. Transurban was suing him for $4,500 in fees and fines for exactly $7.70 in missed tolls.

Luis went to court the first time without a lawyer. “I was nervous,” Luis said. “I didn’t get any sleep. I wasn’t eating. It was a bad week leading up to it.”

In the courtroom, a woman who said she represented Transurban approached Luis before the judge entered. She said the company would settle for $2,488.

“How does $10 turn into $2,000?”

Darn good question. How does $10 turn into $2,000? Transurban responded as follows: “Although less than 0.1% of all 495 Express Lane trips end up in court, we continue to do all we can to minimize any traveler going to court, this is why we have the First-Time Forgiveness program which has helped nearly 800 travelers. Additionally, we do not profit from the fines or penalties. As defined by Virginia law, any and all revenue collected from toll fines and penalties are cost recovery only to fund the enforcement program and we currently we do not even recover costs.”

Ah, hah! The fines cover the expense of the entire enforcement program — including lawyers, license plate-reading cameras, and IT systems to track the scofflaws. I can’t blame Transurban for wanting to cover its costs but the company has to weigh the business consequences: Charging $2,500 or more will piss off a lot of drivers — I mean really piss them off. Luis Viera says he won’t ever use the express lanes again. Who can blame him? How many other people, hearing of Viera’s experience, will refuse to ever use the express lanes? Who wants to run the risk of getting clobbered with a $2,500 fine?

Bacon’s bottom line: Conceptually, using the price mechanism to ration scarce highway capacity is one of the most cost-effective tools we have to manage traffic congestion. But the devil is in the details. Economic models that model supply and demand equations don’t ordinarily consider such grungy facts as enforcement. People make mistakes. People cheat. Toll road operators must have a mechanism for enforcing payment. If those enforcement mechanisms lead to manifestly unjust results, as appears to be happening in Fairfax County, people will avoid the express lanes and political support will wither.

Virginia authorities need to revisit the enforcement provisions in the Transurban public-private partnership contract and, ideally, induce Transurban into re-negotiating the offending clauses. It won’t be easy because traffic volumes and revenues are falling short of projections, and Transurban may not be receptive to changes that might raise its cost structure. On the other hand, the company does have a 70-year contract and it needs to consider the long-term implications of alienating its customer base. If a huge fan of the express lane concept like myself finds $2,500 fines for $10 offenses to be outrageous and indefensible, I feel like I’m pretty safe in saying that Transurban stands all alone on this one.

(Hat tip: Rob Whitfield)