Tag Archives: Rail to Dulles

Over Budget, Seven Months Late… and Counting

Phase 1 of the Rail-to-Dulles project was supposed to be the good phase. For quite a while, it appeared to be running on budget and on time, providing reason to be optimistic that the highly controversial Phase 2 of the project might do so as well. But it hasn’t worked out that way. The story has been chronicled in the Northern Virginia press but has gotten little attention downstate, even though Virginia taxpayers are helping to foot the bill for the mega-project.

The track and stations all have been built but a critical piece of the infrastructure – the installation of radios that don’t meet code — as well as leaky roofs at rail stations and various technical problems have delayed the opening seven months so far. Metropolitan Washington Airports Authority officials say they do not know when the rail line will open. Now, in the latest wrinkle, project manager Pat Nowakowski has announced his resignation, purportedly for reasons unrelated to the delays, according to the Washington Post, making resolution of the issues even more difficult.

When a project of this magnitude runs this late, and property owners in the Tysons area have invested millions of dollars in expectation of a Metro-led surge in demand, this cannot end well. Meanwhile, we have this piece of news: The office vacancy rate in Fairfax County crept another half percentage point higher in 2013 to 14.9%, the highest since the Savings & Loan crisis of 1991. So reports Inside Nova.  And, as I blogged yesterday, population growth in Northern Virginia has slowed markedly.

– JAB

Lerner Aims to Complete Tysons Office Tower… Only Two Years Late

tysons_tower

Artist’s rendering of Lerner’s new Tysons Tower. Original completion date: early 2014. New completion date: Late 2015/early 2016.

by James A. Bacon

Well, well, well, what do you know? The commercial building boom in Tysons triggered by the imminent completion of Phase One of the Rail-to-Dulles project doesn’t seem to be running on schedule. A Washington Post article today highlights Lerner Enterprise’s lengthy delay in building an 18-story, 476,000-square-foot office building near one of Tysons’ four Metro stations. Writes Jonathan O’Connell:

Office leasing has been flat, at best, in most parts of the region since then. The vacancy rate at office buildings in Northern Virginia is more than 17 percent, and other buildings built without tenants lined up are still largely empty. And the Silver Line has been delayed.

The good news is that Lerner is finally ready to move; it expects to complete construction by late 2015 or early 2016. But the question is how rapidly the Tysons commercial market can absorb (a) existing vacancies, (b) Tysons Tower, a Macerich project nearing completion, and (c) the Lerner office space, in a regional economy driven by federal spending in an era when federal spending, especially the defense spending so predominant in Northern Virginia, is severely curtailed and as businesses continue to shrink their office footprint per employee. Rob Whitfield, a former commercial real estate broker and a Rail-to-Dulles gadfly, estimates that Northern Virginia could have an eight-year office supply at present.

The multibillion-dollar long-term plan for transforming Tysons from a poster child for autocentric sprawl into a walkable, transit-oriented community has more interlocking pieces than a Chinese puzzle. The plan depends heavily upon an increase in development around Tysons to stimulate Silver Line ridership, pay for the reconfiguration of the business district’s paisley street pattern into a walkable grid, and generate tax revenues to offset the billions of dollars of road and highway improvements needed to move traffic in and out of the district.

If the development is slow to materialize, then the money to pay for the supporting transportation and streetscape upgrades will be slow to materialize. The question is, what happens if the anticipated smart-growth amenities aren’t built? Will Silver Line revenue fall short? If it does, who will pay? Will businesses find the district less attractive and locate in more walkable places, like Arlington, instead?

At least Tysons partisans can console themselves about one thing. Reston, a prime competing market on the Silver Line, turns out to have massive financial obligations of its own. The Reston Citizen Association estimates that Reston’s infrastructure needs to be $1.5 billion in current dollars ($2.5 billion in future dollars). Meeting those obligations could drive up Reston leases and rents.

The Silver Line is being built — that die has been cast, and there is no going back — so it only makes sense to use the Metro as a stimulus for more rational land use in Tysons and along the Dulles corridor. Tysons stakeholders are doing what the logic of the situation impels them to do. I’m just worried that the cost of the transformation — Silver Line subsidies, transportation access in and out of Tysons, and other infrastructure — is so huge that it can’t be paid for and the whole thing will disintegrate in slo-mo. I hope my fears are overblown. Somebody please tell me why I’m wrong.

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.

The Metro Premium

How much is a location near a Metro station worth? In a fall 2013 study examining the economic impact of the Silver line on Tysons, researchers Cushman & Wakefield took a look at rents paid for commercial real estate and multifamily residences in Arlington County’s Rosslyn-Ballston corridor. The answer: Office tenants pay as much as a 30% premium for Metro access, while renters pay as much as 23% more.

Credit: Cushman & Wakefield

Commercial rents per square foot. Graphic credit: Cushman & Wakefield

Of the 101 office properties along the corridor, rents were highest for buildings located within one-twentieth of a mile from a Metro station. The price per square foot declined slightly for offices at a greater distance to one-fifth of a mile, then dropped sharply for offices at greater distances. The findings dramatically confirmed the old planning rule of thumb that people are willing to walk a quarter mile to avail themselves of mass transit but not much more.

Multifamily rents. Graphic credit: Cushman & Wakefield.

Multifamily rents. Graphic credit: Cushman & Wakefield.

A similar pattern prevailed for multifamily apartments, although the preferences aren’t quite as stark. States the report: “Properties within 0.05 miles of a Metro stop were able to command up to a 23% premium over average effective rents.”

Fairfax County is adopting a similar strategy to Arlington County for redeveloping property along its new, Silver Line metro stations: planning for walkable, mixed-use development and encouraging residents and workers to walk, not drive, to the Metro. Fairfax hopes to reap comparable gains as employers and renters pay a premium to enjoy the Metro access. Tysons enjoys a big advantage over Rosslyn-Ballston in re-development, states Cushman & Wakefield: While Rosslyn-Ballston commenced its great experiment as a dreary and declining retail strip, Tysons starts out as home to the largest concentration of office space in Northern Virginia.

On the other hand, the price differential for Metro versus non-Metro space in Arlington comes after 40 years of painstaking attention to creating walkable urban spaces. When it comes to creating a walkable urban grid, Fairfax planners expect Tysons to take decades to get to where Arlington is today. Until the urban fabric of Tysons resembles that of Arlington, proximity to the Metro is not likely to command the same price premium.

The good news here is that new Metro lines can create an extraordinary amount of economic value. The study provides concrete evidence that, if the surrounding land uses and the quality of urban design meet Arlington standards, heavy rail can bolster the tax base. The bad news is that commercial property owners appear to reaping the windfall gains, not the taxpayer chumps who pay for the rail line.

A digression into a Bacon obsession: Here at the Bacon’s Rebellion command bunker in lovely western Henrico County, we’re always asking how growth can pay its own way. I’m a big believer in “value capture” as a tool to finance construction of projects like Rail-to-Dulles, as an alternative to pillaging unrelated parties like Dulles Toll Road commuters and Virginia taxpayers.

While I love free markets and making profits, I have a huge problem with crony capitalism and rent seeking. And I have a sneaking suspicion that the big property owners in Tysons, though they are paying a sliver of the cost of building the Silver Line through a special tax assessment, are making out like bandits.

Tysons property owners get a double windfall from the Silver Line: (1) the rent premium from access to the Metro, and (2) permission to build at higher densities. The Silver Line will cost $5 billion to $7 billion to build (depending on what you include in the project cost). Fares paid by riders will not cover one dime of that amount. Could more of that value have been extracted from property owners?

Commercial properties make up about 83% of the Tysons district’s almost $11.5 billion in total assessed value, according to this county document. For purposes of argument, let’s say one-third of that commercial assessed value is located within a quarter-mile radius of one of the four Metro stops. That would represent about $3.2 billion worth of property.

A 30% increase in rents due to Metro access would increase property values by about $1 billion, to a total of $4.2 billion. Now, let’s say the Fairfax board allowed property owners to double density. That would add another $4.2 billion in value for a total net value creation for property owners of $5.2 billion. In January, the Fairfax County Board of Supervisors set up a Tysons service district to pay for $3.1 billion for a new street grid, sidewalks and bike paths, expanded transit, and improved roads. Two funds are expected to collect a total of $557 million over the next 40 years (over and above what property owners will pay through normal property taxes) — or about 18% of the cost of the improvements.

By my rough calculations Tysons property owners will contribute only one ninth or tenth of their windfall gains in property value toward the public improvements that make those gains possible. (And I’m not even including the cost of building the Metro itself!) Now, I’m the first to admit that my numbers are the roughest of rough estimates, and all figures and assumptions need to be validated. But this is the kind of exercise, using validated numbers, that we need to engage in.

If it turns out that property owners are reaping billion-dollar windfalls while taxpayers get stuck with most of the bill, well, I have a problem with that. And so, I surmise, would a lot of taxpayers.

Tysons’ Parking Quandary

Tysons Metro station on Rt. 123 under construction

Tysons Metro station on Rt. 123 under construction

by James A. Bacon

As the first phase of the Rail-to-Dulles Metro line nears opening day, potential riders are asking a basic question: How will they get to the Metro stations? Tysons, the location of four of the five new rail-transit stations, has not geared up to provide new parking. But the higher-density, mixed-use, pedestrian friendly development that the Metro is designed to serve has not yet been built.

As Lori Aratani observes in the Washington Post, parking garages and large surface parking lots don’t fit with the future envisioned for Tysons, and Fairfax County officials have not planned for new parking structures there. But the smart-growth, Arlington-like future that makes it possible for people to walk to the Metro may be years, or even decades, in coming.

Now people are worried how Tysons will handle the transition.

“The plan did not originally include parking because there were advocates that claimed that having parking garages would draw cars into Tysons,” Fairfax County Supervisor John W. Foust (D-Dranesville) said. “In my opinion, those cars are coming anyway, and they’re going to be driving around looking for a place to park.”

Fairfax County officials hope that commuters will take to buses instead. Writes Aratani: “Fifteen Fairfax Connector routes are being created, and 28 are being redesigned with Silver Line service in mind. Three new routes will make loops around the Tysons area, connecting neighborhoods, shopping areas and office buildings with the stations. People who transfer from Metro to those circulating buses can ride them for free.”

A possible stop-gap solution is “interim” parking. County officials have identified 25 potential parking resources within a quarter-mile of the Tysons Metro stations. But so far only one property owner has stepped forward with an offer. Cityline Partners will build a temporary, 700-space lot across from the McLean station.

Given the Washington region’s sluggish, sequestration-doped economy and its moderating population growth, it’s not at all clear when major Tysons property owners will be ready to invest billions of dollars in the big makeover. Vacancies must drop and rents must rise before there is any hope of generating the financing for the mega-development projects that will transform the business district into a walkable urban form.

Why should we be concerned? If Silver Line ridership falls short of expectations, fare box revenue will fall short, too. If revenues fall short, there could be a problem paying off the bonds issued to construct Phase 1. I’m not clear whose ox then would be gored, but, no matter, it would not be a pretty sight. For the record, Metro officials say they aren’t worried by the lack of dedicated parking. A spokesman told the WaPo: “The ridership models assumed the levels of parking that are being provided.”

At this point in time, there seems to be no concrete reason to get alarmed. But the situation bears watching.

What’s the Story with Innovation Center?

A plaza perspective of Innovation Center. graphic Credit: CIT.

A plaza perspective of Innovation Center.

by James A. Bacon

At long last, Northern Virginia leaders have a source of regional tax dollars that they can divvy up according to local priorities, not dictated by Richmond. When they deliberated last week on how to divvy up the first dollop of money — $209 million, including a $94 million bond package — one of the biggest allocations on their list was a project I never would have predicted — the Innovation Center Metro station.

Innovation Center is the name given to the planned Phase 2 Metro stop at the intersection of the Dulles Toll Road and Rt. 28. It’s right outside Washington Dulles International Airport and adjacent to the state’s Center for Innovative Technology (CIT). The Northern Virginia Transportation Authority approved a project package that allocated $20 million toward the project, which is estimated to cost $89 million in design, right-of-way acquisition and construction.

Fairfax County had committed to funding elements of Phase 2 of the Dulles rail project over and above the estimated $2.7 billion cost (before construction bids came in lower than expected this spring). This NVTA action significantly reduces the county’s obligation.

According to NVTA’s project description, the multimodal Metro station will include bus bays, bicycle parking, kiss-and-ride and taxi-waiting areas as well as pedestrian bridges. There is not much at present for bicycles and pedestrian bridges to connect to. But that could change in the not-too-distant future. CIT, the state-funded organization dedicated to spurring technology innovation in the state, has big dreams for the area around the station. States the CIT website:

Plans are underway to transform land around the CIT Complex into Innovation Center, a nationally recognized center for innovation comprised of a smart growth, transit-oriented development that includes a mix of high-rise research, office, residential and retail establishments directly connected to the new Metro stop, also named Innovation Center, and Dulles International Airport.

Meanwhile, The Washington Post‘s Tom Jackman describes a debate emerging over whether it would be premature to start planning for the air rights. A Metropolitan Washington Airports Authority (MWAA) study found that it would cost $34 million to install the necessary pilings and platforms needed to build over the station if done during the Metro construction but $60 million if done later.

Fairfax Supervisor Patrick Herrity wants to explore the sale of air rights and full development atop the Silver line, which, he argues, could help bring down the debt of Metro construction. But MWAA says construction of the pilings and platform should wait until demand arises. “We could come back in 20 years and build then,” said one spokesman.

As might be imagined, Stewart Schwartz, executive director of the Coalition for Smarter Growth, is a big fan of smart growth. But he’s concerned that the market won’t sustain an air rights project for another 30 years. “There is already an overwhelming supply of land at existing Metro stations in the region,” he told Jackman, “plus Tysons Corner, plus what’s available at the Phase 2 Dulles Rail stations, in addition to all of the non-transit accessible land in places like the Route 28 corridor.”

Bacon’s bottom line: The politics of highway interchanges typically has been a dismaying spectacle in Virginia. I’m guessing that the politics behind Metro stations won’t prove to be any more edifying.

P.S. “Innovation Station” would be a better name for the Metro stop. It rolls off the tongue better than “Innovation Center.” Just my two cents.

You’ve Built It. Will They Come?

Silver Line nears completion near Tysons.

Silver Line nears completion near Tysons.

by James A. Bacon

The Washington Metro system is bracing for its toughest challenge since opening 37 years ago — persuading people to ride the Silver Line to Tysons. So argued Dana Hedgpeth and Scott Clement in the Washington Post yesterday. Drawing upon the results of a WaPo poll, they suggest that Northern Virginians rely on cars to get around. “One reason they don’t ride the rails more often is that they just prefer driving.”

As Bacon’s Rebellion readers know, I am no fan of the Silver Line project, which extends the Metro to Tysons and then to Dulles airport in two phases. The project cost has inflated way beyond early estimates, relies upon population growth forecasts that may never materialize, and transfers wealth from middle-class Dulles Toll Road commuters to wealthy landowners and other special interests.

And I would agree with Hedgpeth and Clement that it’s an open question as to whether the Silver Line will generate the anticipated ridership. But they’re skeptical for the wrong reason. They invoke a meaningless concept of a “car culture” in Northern Virginia to suggest that there might be rider resistance to taking the Metro.

The car culture dominates the commute in Northern Virginia, according to The Post’s poll. Only 7 percent of commuters there take Metro; 85 percent drive to work. In Maryland, 75 percent of commuters drive, and in the District, fewer than half do.

The reason that so many D.C. residents commute by Metro is that the entire city is well served by the Metro. Ridership also is high in the one part of Northern Virginia — Arlington County — that has encouraged walkable, higher-density, mixed use development around its Metro stations.  If the percentage of Metro commuters has dipped in Virginia compared to Maryland, it’s largely because more economic and population growth has occurred in Virginia and that growth is occurring where there aren’t any Metro stations — not because Northern Virginians with access to Metro are using it less, as might be inferred.

Fairfax County, for all its past sins in land use planning, is trying to get it right. Learning from Arlington after a mere four-decade delay, the county is planning appropriate densities and urban designs around its new Metro stations and reconfiguring densities and design around its old stations, which it had once surrounded with parking lots. I have no doubt that Northern Virginia will see a rise in the percentage of commuters riding the Metro. When that happens, it will not represent some miraculous conversion from a “car culture” to an urban culture. It will mean that new transit options exist that did not before.

The Washington Metropolitan Area Transit Authority (WMATA) projects 740,000 monthly ridership in its first year in operation. That’s equivalent to roughly 25,000 riders daily — a pitifully small number compared to all the automobile trips taken in the Tysons-Reston-Dulles corridor. Hedgepeth and Clement acknowledge that ridership will take time to ramp up as transit-friendly development takes place around the Metro stops.

“The Silver Line is being built for the ages,” they quote Ronald F. Kirby, director of transportation for the Metropolitan Washington Council of Governments, as saying. “A lot of the ridership is going to be for people who are not here yet and jobs that are not here yet.”

That is the issue. The salient questions regarding ridership and, by implication, the financial viability of the Silver Line, are (1) will population and GDP growth in a post-sequester world keep pace with forecasts formulated during the go-go mid-2000s, and (2) will real estate investment flow into Silver Line Metro stations, or will competition from other Northern Virginia real estate markets dampen that expected growth?

Where might such competition come from? Look first to Arlington, close to the Washington, D.C., urban core, which expects to see vibrant population growth. Then look to the metropolitan fringe where Dulles airport, supported by the Commonwealth of Virginia, is pushing for massive highway investment to encourage development of an air-cargo logistical complex west of the airport.

If competing markets are successful, re-development of the areas around the 10 Silver Line stations may take longer than anticipated. If re-development stalls, so will long-term ridership growth and fare revenues. Those are the trends the Post should be worried about.

Who is Contractor A?

Contractor AAn audit of MWAA management practices found that a mysterious “Contractor A” charged more than other contractors for the same work — and kept getting business. Who is this company? Who got the money? And why doesn’t anyone seem to care?

by Bob Bruhns

At the request of Representatives Frank Wolf, R-VA, and Tom Latham, R-IA, the Office of the Inspector General of the U.S. Department of Transportation audited the management of the Metropolitan Washington Airports Authority last year. On November 1, 2012, the Inspector General issued the final report on its audit. The title said it all: “MWAA’s Weak Policies and Procedures Have Led to Questionable Procurement Practices, Mismanagement, and a Lack of Overall Accountability.”

Not only were high-priced contracts awarded improperly, the auditors found, but one particular contractor was winning an inordinate number of contracts despite the fact that it charged much more than other contractors.

MWAA mismanagement was endemic. States the report:

MWAA issued out-of-scope contract actions over $200,000 — including contract modifications and task orders — without required Board approval. From our statistical sample of 24 out of 343 active MWAA contracts, we identified 8 for which MWAA issued a total of 20 out-of-scope contract actions with a combined value of $57 million. Based on these findings, we project that MWAA has issued $107.6 million in out-of-scope contract actions on contracts active as of June 2011.

The report goes on to discuss an unidentified “Contractor A” that won a disproportionate number of contracts even though it charged more for its services:

Over the past 8 years, MWAA awarded more than 80 percent of work under three groups of multiple- award contracts to a single contractor (“Contractor A” in table 2). However, the contractor’s rates were often higher than the other multiple-award contractors’ rates. For example, the contractor’s rates in a 2012 contract were between 28 percent and 234 percent higher. While MWAA may have had non-price related reasons for selecting Contractor A, this unbalanced distribution of work to a single contractor with significantly higher rates appears contrary to the purpose of multiple-award contracts..

So, the inspector general’s report estimates that there was about $108 million in improper contracting — just in the contracts that happened to be active in 2011 – and that Contractor A benefited from eight years of contracts billed at a rate that the report typifies as 1.28 to 3.34 times what other contractors charged for the same work.

The report continues: “In addition, MWAA allowed Contractor A to add job categories to a contract but did not offer the other multiple-award contractors the same opportunity. Thus, when MWAA ordered work related to those additional job categories, they were effectively sole-source awards because only one contractor was able to accept the work.”


It is hard to avoid the appearance that MWAA was funneling multimillion-dollar contracts to Contractor A at higher-than-market rates.

The report continues: “In July 2012, MWAA’s Procurement and Contracts Department established guidelines requiring contracting officers to select contractors under multiple-award contracts for temporary staff. However, this policy only applies to temporary staffing contracts rather than to all multiple-award contracts.”

In other words, as of July 2012, MWAA policy apparently still allowed the selective multiple award contracting that it undertook for years with Contractor A. Read more.

First Phase 2 Rail-to-Dulles Bid Comes in Below Estimates

I didn’t get to this last week, but it’s too important to overlook… The low bid for half the work associated with Phase 2 of the Rail-to-Dulles project came in at $1,178,000,000 — seemingly way below the estimated $2.7 billion total cost for the project. The bid was submitted by Clark Construction Group.

The contract is for the largest of three design-build packages for Phase 2, representing about 50% of the work. The 11.4-mile extension of the Silver Line west of Tysons will have six Metro stations.

Clark Construction edged out Bechtel Transit Partners, which is finishing work on Phase 1. Bechtel had submitted a bid only $24 million higher. The bids clustered within a fairly narrow range. Of the five bids offered, the high was $1,378,000,000.

The Metropolitan Washington Airports Authority (MWAA) said it would not formally award the bid until after a review to validate that the proposal properly responds to the solicitation. That review was supposed to occur Friday.

Bacon’s bottom line: This appears to be very good news. The bid implies a total Phase 2 project cost of about $2.3 billion, or roughly $400 million lower than the official estimate. Perhaps the most notable aspect of the bid is that Clark Construction is an open-shop enterprise. Had MWAA imposed a Project Labor Agreement (PLA) requirement on the job, non-union companies might have been discouraged from bidding, making the process significantly less competitive.

The other good news is that the lower bid gives MWAA some breathing room on the setting of rates on the Dulles Toll Road, revenues from which comprise the single-largest funding source for Phase 2. Assuming the other two components of the project come in under estimate as well, this savings, combined with the $300 million contribution under the General Assembly’s transportation-funding plan, suggests that the toll rates will come in way below the worst-case projections.

– JAB

Conjuring Wealth out of Thin Air

Proposed air rights project in Boston.

by James A. Bacon

The Massachusetts Department of Transportation generated $40 million  from the lease of air rights over state transportation assets in FY 2011. Earlier this month, the state built upon that revenue stream by designating AG Scotia II as developer of air rights over two parcels above and along Interstate 90 in Boston. The 99-year lease agreement will yield the state a net present value of $18.5 million in rent.

Massachusetts is far ahead of Virginia in recognizing that the development of property above highways and rail lines is a win-win-win proposition. Air rights can generate lease revenue for the state, attract private investment, build the local property tax base and restore walkability to an urban fabric ripped apart by the highway or rail line. According to the Massachusetts DOT, here are the numbers for the AG Scotia project: 230 residential units, a 270-room hotel, 50,000 square feet of office space and $360 million in investment.

Virginia may be slow to learn, but it does learn. Last year the Office of Transportation Public-Private Partnerships (OTP3) began studying the use of air rights in connection with the Rail-to-Dulles project, with a particular focus on the four stations in Tysons.

States a OTP3 project screening report:

The vision is to transform Tysons Corner from suburban office park and activity center to an urban center that could include 200,000 jobs and 100,000 residents. The vision also calls for 75% of all development to be located within an easy walk (1/2 mile) of Metro. Such transit oriented development (TOD) might include a combination of commercial, office and/or residential projects as well as public amenities such as parks and green areas. The transportation benefits of the potential project will address travel demand management, vehicle trip reduction and improve mobility by building livable and sustainable communities.

A public-private partnership would net revenues to VDOT that could be used to fund other transportation projects in the region. Upgrading Routes 7 and 123 to accommodate the surge in traffic in and out of Tysons created by the massive increase in density there could cost billions of dollars.

A public-private partnership, states the OTP3 report, would “transfer the risk of engineering, design, construction, operations and maintenance to the private sector. The most likely scenario will be that VDOT collects royalties or payments for granting such leases.”

On the positive side, building offices, apartments and a hotel directly on top of a Metro station will encourage use of the Metro, which will need all the fare revenue it can generate in order to minimize ongoing subsidies. Because the train line is elevated, it is less clear to me what impact air rights would have upon walkability in Tysons, but the potential surely exists to improve the situation. A potential downside is that creating air rights would add to the potential glut of development rights in Tysons.

If I have any criticism, it’s that revenue from the air rights should have been applied to directly the project that made them possible — the Metro Silver Line — and the revenues used to offset the cost of that project to the public. But if air rights work in Tysons, they might work in Reston and other stops. Perhaps revenue from those stations could be used to buy down Dulles Toll Road tolls that will be used to finance Phase 2.

Northern Virginia isn’t the only place where air rights might apply. Two structures have been built over the Downtown Expressway in Richmond. Why not more?

The McDonnell administration deserves credit for looking into the idea. Now, let’s hurry things along. Let’s make the most of the opportunity.

Hat tip: Bob Bruhns. Bob, relax. This can be a very good thing… as long as the revenues aren’t co-opted by someone with no rightful claim to them.

– JAB