Tag Archives: Commonwealth Transportation Board

At Last: Objective Criteria for Scoring Transportation Projects

weighting_frameworks

by James A. Bacon

After lengthy study, the Commonwealth Transportation Board yesterday approved new metrics for prioritizing transportation funding in Virginia. The new metrics are designed to create objective criteria for evaluating the selection of road and rail projects. It remains to be seen how the metrics will be applied in practice, but in theory they represent a big step forward.

As seen in the chart above, the metrics will be assigned different weights for different parts of the state. For instance, Category A, which assigns the greatest weight to congestion mitigation, consists primarily of the highly congested Northern Virginia and Hampton Roads transportation planning organization districts. Category D consists mainly of lightly traveled rural districts. (View the classifications here.)

The different weights reflect the different priorities of different parts of the state. The classifications and methodology can be amended as needed to reflect changes in priorities and advances in technology, data collection and reporting tools.

Here is a breakdown of the measures that go into the weighting framework:

measure_breakdowns

These metrics will provide CTB board members unparallelled insight into the relative benefits of different transportation options. It should be much more difficult now for any administration to gain approval for “highway to nowhere” road and rail projects.

Bacon’s bottom line: I have long called for tools that make it possible to measure projects based on their “Return on Investment,” reflecting congestion mitigation, safety improvements and environmental benefits. This methodology goes beyond that by incorporating additional measures, such as economic development and accessibility, but falls short by providing no mechanism for calculating ROI. Given the complexity of the evaluations, it may be impractical to boil down all these metrics to a single ROI figure, so CTB board members will retain considerable discretion.

Some of the criteria look really fuzzy. How does one evaluate “land use consistency?” How does one measure “project support for economic development”?

Despite modest reservations, the new approach appears to represent a big step forward by limiting the potential for ideology, politicking and log rolling in transportation funding decision-making. I look forward to seeing how the new methodology works in practice. While one can rarely go wrong by taking a cynical view of human nature and the political process, I am hopeful that the transparent use of objective metrics will curb the worst instincts of the political class.

Coping with Risk in Highway Megaprojects

Aubrey Layne explains the concept of fiduciary risk.

Aubrey Layne explains the concept of fiduciary risk.

by James A. Bacon

As Transportation Secretary Aubrey Layne has had more time to dig into his job, he has developed an ever more nuanced appreciation of how things went wrong with the U.S. 460 Connector. There was more to the fiasco, which could cost the Commonwealth up to $300 million, than a simple failure to acquire necessary wetlands permits before opening the spending spigots and then discovering that the permits were not forthcoming. The McDonnell administration, he says, negotiated a public-private partnership deal without sufficient appreciation of risks entailed with the project.

“I can’t tell you if they didn’t know they weren’t transferring the risk [to the private-sector partner] and got out-foxed, or whether they didn’t give a damn,” Layne told Bacon’s Rebellion in an interview today. Either way, the Commonwealth was left holding the bag when plans for the 55-mile Interstate-quality highway linking Petersburg and Suffolk had to be redrawn to do less environmental damage. He still hopes to recover some of the $250 million paid to U.S. 460 Mobility Partners (over and above $50 million in sunk design and engineering costs) for pre-construction work, but that outcome is uncertain.

Layne is optimistic that public-private partnership (P3) reforms enacted with bipartisan cooperation this year will prevent recurrences of the U.S. 460 debacle and help the state negotiate better terms in future deals than it got with the Interstate 495 and Interstate 95 express lanes projects in Northern Virginia, which effectively capped bus transit on the highways for the next half century. The McAuliffe administration’s big test will be to do a better job structuring the financing and risk of $2 billion in proposed improvements to Interstate 66 in Northern Virginia.

Before 1995, the Virginia Department of Transportation (VDOT) had one way of building roads. It designed them, put construction out for competitive bids, arranged its own financing, operated them, maintained them and absorbed the risk of anything going wrong. The system got the job done but it had drawbacks. It overlooked potentially creative solutions to engineering and design problems, and it was prone to cost overruns. Then the General Assembly passed legislation enabling public-private partnerships, which provided the Commonwealth a whole new range of options for financing big projects and shifting selected risks to the private sector.

Facing a severe transportation budget crunch, the McDonnell administration made the strategic decision early on to use P3s to leverage scarce public dollars with private capital. From a high-level perspective, this made sense because the Commonwealth had limited capacity to issue road-building bonds without jeopardizing its AAA bond rating and then-Governor Bob McDonnell had not yet pushed through tax increases to bolster transportation funding. Moreover, the administration wanted to take advantage of historically low interest rates on long-term bonds.

But politics and ideology were pushing P3s as well, says Layne. There was a bias that something is always better if the private sector does it. Sometimes the private sector can do things better than VDOT, he says, and sometimes the private sector is better suited to take on certain risks than the state. But not always. The McAuliffe administration’s goal is to find the best fit — the best balance of cost and allocation of risk — on a case by case basis.

The devil is in the details. Layne, a Republican and a McDonnell supporter at the time, backed the governor’s mega-project funding priorities and voted to approve them while serving on the Commonwealth Transportation Board. Indeed, he chaired an independent bonding authority that issued bonds for the U.S. 460 project.  But now that he’s transportation secretary, he realizes the issues were far more complex than presented to him and the CTB board.

The McDonnell administration first proposed a public-private partnership for the U.S. 460 project with the hope that outsiders could devise a more creative way of building and financing the highway than VDOT could come up with. Three consortia took a look and came up with similar conclusions — there would be insufficient toll revenue to finance more than a fraction of the construction cost with bonds. The McDonnell administration then switched gears, deciding to pay for most of the project with state funds but retaining the P3 structure in order to outsource the design and construction of the project to a private-sector partner, which turned out to be U.S. 460 Mobility Partners. The state should have gone back to square one and started over, says Layne, re-defining the project and putting it up for bids instead of using the P3 structure. Instead of getting multiple bidders to compete, the state wound up negotiating with a single player, U.S. 460 Mobility Partners. Even worse, Governor McDonnell had signaled that U.S. 460 was his highest priority, and there was no back-up plan — the administration had to reach a deal with U.S. 460 Mobility Partners or the project would never get built during McDonnell’s term. U.S. 460 Mobility Partners had all the bargaining leverge.

Negotiations took place within the P3 structure, which meant that the deliberations were secret and the contract not released to the public. VDOT briefed the CTB, the state’s transportation oversight board, but failed to disclose the information that critical wetlands permits had not been obtained and might not be obtainable.

The final contract for the U.S. 460 deal was more than 700 pages long. Layne says he can’t imagine than anyone in state government read the whole thing. “I’m confident that no one person understood it all. No one person could tell you what the deal was, what risk was transferred, and what risk the state was taking. And that’s a recipe for disaster” when negotiating with sophisticated business people on the other side of the table.

The dynamic would have played out very differently, says Layne, if the McDonnell administration had set up U.S. 460 as a design-build project.  First, VDOT would have opened up the proposal to competitive bids, very likely getting a lower price even while the private contractor took on the risk of delivering the project on budget and on time. Second, VDOT guidelines would have ensured that all necessary permits were granted before the project commenced and the state started shelling out money.

Layne doesn’t blame U.S. 460 Mobility Partners for negotiating the best deal for itself that it could. It’s not a charity. The company’s managers had a fiduciary responsibility to get the best deal for its shareholders that they could. But elected officials have a fiduciary responsibility to the public. The challenge for the Commonwealth is to bring to bear an equally acute understanding of risks and rewards and to cut the best deal possible for the taxpayers. That’s where the state failed utterly with U.S. 460. If he’d had negotiated such a disastrous real estate sector when he worked in the real estate business, he says, he would have been fired.

Now it’s Layne’s turn. He has to structure a mega-project deal for I-66. Tomorrow, I’ll describe how he is approaching that task.

More Transparency, Please, Asks CTB

transparencyby James A. Bacon

Overlooked in the hoopla over the $1.4 billion Route 460 controversy, it appears that the Commonwealth Transportation Board has made an important bid to inject more transparency into decision-making affecting public-private partnerships (P3s). Desiring a “more robust discussion” of such projects, the board has asked the director of the Office of Transportation Public Private Partnerships (OT3P) to conduct a review of its processes with an eye to increasing transparency and public involvement.

That resolution, passed in the CTB’s May meeting, arose in the wake of revelations that the state had paid nearly $300 million to US Mobility Partners, the private-sector, design-build partner in the proposed 55-mile highway between Petersburg and Suffolk, even though the project had yet to receive all of its environmental permits and construction work had yet to begin. Secretary of Transportation Aubrey Layne suspended work on the project in March until a resolution could be reached with the U.S. Army Corps of Engineers over wetlands issues.

Layne also initiated a study of how such a screw-up could have occurred. That study was completed last month. The Times-Dispatch obtained the report and reported some findings last week. I now have a copy of the document in my hot little hands. There is a wealth of detail in the report that did not appear in the T-D coverage, and I will endeavor to elucidate the findings as I find time.

One objective of the report, which was conducted by the Virginia Department of Transportation’s director of Assurance and Compliance and by the Office of the State Inspector General, was to “identify the individual(s) responsible for excluding members of the Commonwealth Transportation Board from full and free access to information relating to the 460 project.”

That was a reference to the fact that when the CTB was briefed about the major business terms of the U.S. 460 project on October 17, 2012, no one bothered to inform the policy-making board about the ongoing controversy with the Army Corps of Engineers over the wetlands permitting. As the report confirms: “The presentation did not include any information regarding any environmental permitting issues or concerns.” Based on that briefing, the CTB authorized funding for the project.

The review found that the McDonnell administration provided all “statutorily required disclosures.” However, it also determined that CTB members “were not provided effective communication and/or notice of key events impacting the 460 project.”

I am still working my way through the document, but I have found no indication who made the decision to omit mention of the wetlands controversy to the CTB. Just because VDOT officials were not statutorily obligated to mention the controversy, it surely was relevant and germane to any discussion whether or not to fund the project at that point in time. Any reasonable person would surmise that someone in the McDonnell administration had made the political decision to avoid unwanted questions that might delay the project.

Regardless, it is encouraging to see the CTB assert itself in this manner. The board was exceptionally deferential to McDonnell’s transportation secretary, Sean Connaughton. The one CTB member who openly questioned the administration’s decisions, Jim Rich, was asked to resign from the board.

If the public is to trust state government to engage in public-private partnerships without rigging the results to the detriment of taxpayers, the process of negotiating contracts and approving funding needs to be far more transparent than it is now. I am confident that Doug Koelemay, director of the office of public-private partnerships, will take the request to heart. Not only is he a former CTB member himself, he reports directly to Layne — and Layne appears determined to set a more open, less intimidating tone.

LaRock Targets MWAA, Dulles Rail, Mass Transit

larock

Dave LaRock

by James A. Bacon

Del. David A. LaRock, R-Hamilton, the man who beat legislative veteran Joe May in the Republican primary last year, comes to the General Assembly promising to represent conservative values and principles. Judging by the bills he has submitted so far, he will be true to his word. Aside from one bill providing tax credits for private schoolers and another fine-tuning the transfer of firearms, he has focused mainly on transportation issues affecting his Loudoun County constituents. In effect, he has positioned himself as a champion of Dulles Toll Road commuters and scourge of the Metropolitan Washington Airports Authority (MWAA), the Rail-to-Dulles Metro project and mass transit generally.

His bills would:

  • Direct the General Assembly to petition Congress to impose tolls on the Dulles Access Highway, which provides direct access between the Capital Beltway and Washington Dulles International Airport, and apply the revenues to reducing the tolls on the Dulles Toll Road that runs parallel to it.
  • Forbid the state from contributing any more funds to the Rail-to-Dulles project until MWAA implements the toll on the access road and also agrees to apply 50% of any revenue from the sale of federal land for non-aviation purposes toward the offset of Dulles Toll Road tolls.
  • Limit allocation of transportation funds to mass transit by the Commonwealth Transportation Board to 25% of total allocations to the Northern Virginia construction district.
  • Eliminate the ability of the Northern Virginia Transportation Authority to spend discretionary revenues on mass transit projects not included in the regional transportation plan.

Many Loudoun commuters who rely upon the toll road are frosted that under the terms of the Phase 2 financing agreement for Dulles Rail roughly half the funds are coming out of their pockets. They will pay more in tolls than the people riding the Metro will pay in fares, while people driving to Dulles on the parallel access road will pay nothing at all. This is the issue that propelled LaRock to the General Assembly.

Bacon’s bottom line: Loudoun commuters are being sodomized, metaphorically speaking, by Phase 2 of Dulles Rail. They will pay billions of dollars over the next three-to-four decades not only to maintain and upgrade the toll road but to subsidize Metro rail service to the airport. If they are asked to pay, it is hard to concoct a rationale for not asking users of the parallel access road to pay, too. The bills aren’t likely to go anywhere — MWAA isn’t asking for more state funding for Dulles Rail, so it has no reason to go along — but LaRock does stand on the moral high ground.

His crusade to limit spending on Northern Virginia mass transit is harder to justify. Once upon a time, when the majority of transportation funding came from the gasoline tax, one could argue that motorists shouldn’t be asked to subsidize mass transit. But the McDonnell transportation tax deform of 2013 reduced the contribution of the gas tax and eliminated any pretense that transportation taxes are a “user fee.” A large majority of transportation revenues will come from the sales tax and other non-fuel taxes — in other words, from the general taxpayer. Allocating tax dollars to roads is just as capricious and political as allocating them to mass transit.

Placing arbitrary caps on the allocation of state dollars, as LaRock proposes, is not the solution. Given the political reality that returning to a user fee is not in the cards, what we should do instead is devise a rigorous methodology for calculating Return on Investment on all proposed transportation improvements, of whatever type, and fund the projects with the highest return. Public policy should be agnostic as to whether the money goes to roads, mass transit, traffic light synchronization, incident management, Transportation Demand Management or other strategies for coping with congestion. Let’s make sure we get the most bang for the buck.

Hugo Proposes to Restructure the CTB

ctb
bill submitted by Del. Tim Hugo, R-Centreville, would expand the Commonwealth Transportation Board from 18 members to 24 by adding three members of the Virginia Senate and three members of the House of Delegates.

I have not talked to Hugo about his reasoning, but I can conjecture. The bill represents an effort to make the CTB a more independent-minded body for establishing state transportation policy and setting spending priorities. As currently constituted, the board is comprised entirely of gubernatorial appointees: the Secretary of Transportation, the Virginia Highway Commissioner, the director of the Department of Rail and Public Transportation, and 15 citizens from around the state who serve at the pleasure of the governor.

In a companion bill, Hugo proposes to allow removal board members only for offenses of malfeasance, misfeasance, incompetence or gross neglect of duty. 

As I reported in a story a year ago, the CTB had held 10 monthly meetings and voted on 134 resolutions during the first 10 months of 2012. Of those, 131 passed unanimously. When there were dissenting voices, only a single board member voted in the minority. Controversial mega-projects involving the expenditure of hundreds of millions of dollars typically received little debate. James E. Rich, former Culpeper District representative, was one of the few board members to ever speak out against, or vote against, controversial McDonnell administration decisions. He was fired and replaced.

Hugo’s bills would diminish the power of the executive branch only slightly. Governors still would appoint a majority of board members, the Secretary of Transportation still would control the agenda, and board members still would rely upon state employees for most of their information. But Hugo’s bills would do two important things to improve the quality of CTB deliberations. First, legislators would bring a valuable independent perspective and body of knowledge to the board. Second, gubernatorial appointees would feel free to speak more openly if they knew they could not be dismissed for disagreeing with the governor.

My main reservation is that expanding the board would make it more cumbersome. But a larger board would be a small price to pay for a more independent board comprised of members willing to ask tough questions.

— JAB

Our Way or the Highway

James E. Rich

by James A. Bacon

James E. Rich has resigned from his position at the Commonwealth Transportation Board under pressure from the McDonnell administration. The Culpeper transportation district representative had opposed funding of the controversial Charlottesville Bypass and then had tried repeatedly, without success, to get the decision overturned.

One of the board’s more outspoken members, Rich supported key administration initiatives such as the upgrade to U.S. 460 between Suffolk and Petersburg, the Midtown Tunnel-Downtown Tunnel project in Norfolk, and major financial commitments through the Virginia State Infrastructure Bank. However, he sought reassurances that the Virginia Department of Transportation was not taking on undue financial risk in its public-private partnership deals. And he visibly irritated Transportation Secretary Sean Connaughton with his Don Quixote-like tilting at the Charlottesville Bypass.

Rich told Bacon’s Rebellion that he resigned “a couple of weeks ago.” Connaughton did not acknowledge Rich’s resignation during the CTB meeting early this afternoon. But his seat was vacant and, as is customary, board members with less seniority took seats closer to the dais. Rich’s biographical information has been scrubbed from the CTB website.

Rich, a McDonnell appointee, confirmed that he was asked to resign but refused to divulge details. However, he told Charlottesville Tomorrow that the removal took place in a phone call with Connaughton.

“There was great consternation when I voted against the Charlottesville Bypass,” Rich said. “There was an attempt to push me out at that time. I’m not going to sit on the board as a potted plant. You have a statutory duty to make the best decisions you can with the information you have. And that’s what I’ve tried to do. I’m not going to waiver from that just to say I have a title.”

The retired Shell Oil executive said the CTB is far more passive today than when he served on it two decades ago during the Allen administration. “When I was under Allen, it had a very substantive role. The outcome was not dictated by the chairman of the board,” he said, referring to Connaughton.

Given the administration’s low-key handling of Rich’s ouster, there has been little reaction. However, Trip Pollard, staff attorney for the Southern Environmental Law Center, did say this:

This is disappointing news and we hope it’s not the result of an effort to silence dissent.  Mr. Rich has been a valuable, independent voice on the CTB. He has consistently sought greater public input into transportation decisions and been willing to raise tough questions about the effectiveness of particular proposals and the failure of state officials to adequately consider less costly and less destructive alternatives to projects.  We urge the Governor to choose a replacement who will bring a similar level of dedication to spending our tax dollars more wisely and to pursuing a more balanced transportation approach.

His forced resignation should raise red flags, Rich said. Diminished tax revenues mean that fewer funds flow through formulas that distribute money dispassionately to each VDOT transportation district. By borrowing $3 billion, which it is leveraging through public-private partnerships, the administration is not bound by traditional checks and balances and has largely dictated how the money was spent. “One of the lessons for members of the General Assembly, with the secretary running the show unilaterally, [is that] they need to have some review of expenditures so they have some say in what’s going on.”

In an article two days ago (See “Kings of the Road?“), Bacon’s Rebellion noted the absence of controversy and dissenting votes in CTB meetings, and asked whether the board was a rubber stamp. Interviewed before his resignation, Rich had suggested that board members were too dependent for information upon VDOT and Department of Rail and Public Transit (DRPT) staff and recommended that the CTB hire a financial expert and technical expert that answered directly to the board.

“Any reasonable board needs to ask questions,” Rich told Bacon’s Rebellion. “You don’t want to end up like the General Motors board that rubber-stamped everything that management put forward. … The more oversight an agency has, the better.”

McDonnell Pitches Tax Plan

Governor Bob McDonnell addresses the Commonwealth Transportation Board.

by James A. Bacon

Addressing a friendly audience this afternoon at the Commonwealth Transportation Board, Governor Bob McDonnell plugged his transportation financing plan, arguing that it was “economically sound, politically viable” and will “fix the problem.”

“Our problem is a math problem,” the governor said. “Revenues are on a downward path and the cost of asphalt is on an upward path.” Within a few years, $500 million a year will be diverted from the state’s construction fund to pay for maintenance.

“I’ve used every asset I can find” that the General Assembly has made available to him, McDonnell said. He has audited VDOT four times. He has issued bonds. He has tapped the General Fund budget surplus. He has leveraged state dollars through tolled Public Private Transportation projects. Now the options are exhausted and the state needs new revenue.

McDonnell has proposed a five-point plan: (1) scrapping the motor fuels tax (except on diesel) and boosting the sales tax by 0.8%, a revenue source that will increase as the economy grows; (2) diverting 0.25% of existing sales tax revenue from the General Fund to transportation; (3) charging an extra $15 per year for vehicle registrations; and (4) charging alternative-fuel vehicles $100 per year, and (5) collecting taxes on online sales.

As people shift to more fuel-efficient automobiles and alternate-fuel vehicles, the governor said, the gasoline tax is not a viable long-term revenue source. “Relying on the state gas tax will only make the funding situation worse because the gas tax buying power has greatly depleted over the years.  Switching to the state sales tax is the reasonable and logical solution to fund projects.”

Underlining the governor’s remarks, John Lawson, chief financial officer of the Virginia Department of Transportation (VDOT) told the CTB that his five-year revenue forecast had become significantly more pessimistic over the past year. Compared to last year’s five year forecast (2013-2018), the amount of revenue available to VDOT over the next five years (2014-2019) is $766 million less. State revenue is expected to decline $218 million while federal revenue will plummet $548 million. Those numbers do not take into account added revenues from the governor’s tax plan, which, in enacted, would raise an estimated $1.8 billion over the same period.

Between direct funding reductions and a delay to bond issues, that means the state will have $700 million less to spend on new roads, bridges and highways than expected. Even previous to Lawson’s revelation, the McDonnell administration had been saying that the state would run out of state construction funding within four to five years.

Touting the sales tax component of his plan as a first for the country, McDonnell said. The sales tax “is predictable, it’s reliable and it grows.”

A wide array of business and labor groups have endorsed McDonnell’s plan, as have key Republican legislators. Democrats have been relatively quiet, although some have expressed concerns about the idea of siphoning money from the General Fund, which would come at the expense of schools, health care and other priorities. Conservatives have expressed suspicion of anything resembling a tax increase. Free-market advocates have argued that the shift away from the user-pays gas tax would subsidize driving.  And smart growth advocates have slammed the bill for that reason and others.

Before approving another $1.8 billion in spending over the next five  years, said Stewart Schwartz, executive director of the Coalition for Smarter Growth, in response to the governor’s remarks, the General Assembly should take a close look at how McDonnell is spending the $3 billion it authorized for to borrow. The U.S. 460 Connector between Suffolk and Petersburg, costing more than $1 billion in public dollars, has a very low cost-benefit ratio compared to projects going begging in other parts of the state, he said. What assurance is there, he asked, that new tax revenues won’t be similarly wasted?