Any comprehensive approach to transportation in Virginia must include aggressive use of public-private partnerships. Not only can the private sector tap private sources of capital, making it possible to build road and rail projects the state can’t afford, but the discipline of the marketplace improves the odds that projects are built only if they are supported by real-world demand — not because developers and land speculators have lobbied for them. If the state builds a road with tax dollars and bets wrong, no one is held accountable. If investors bet wrong, they lose their shirts.
Virginia knows a lot more about public-private partnerships today than it did in 2002 when it opened the Pocahontas Parkway, an 8.8-mile road that connects Interstate 64 and Interstate 295 southeast of Richmond. The justification for the project was economic development: The road would make the Richmond International Airport more easily accessible, and it would open up eastern Henrico County to development. But demand for the road didn’t materialize. Revenues fell far short of projections. The way the deal was structured, the state incurred increasing liabilities for operations and maintenance. Even payments to bond holders were in doubt, reducing the bonds to junk status.
This May, the Kaine administration completed negotiations with Transurban, the Australian infrastructure company, to take over operation of the Parkway in a 99-year lease. The state recouped $27 million in public funds and got off the hook for $225 million in maintenance and operations expenses over the life of the project. Most important of all, finances are back on a sound footing. We don’t have to worry now about a Pocahontas Parkway default spewing radioactive fallout over the debt of all present and future public-private partnerships.
Peter Galuszka has the story here: “Close Shave.”
I derived two lessons from the story:
- Distrust transportation mega-projects justified on the basis of “economic development.” Such projects win the support of broad constituencies, who don’t have to pay for them, on the basis of vaguely defined benefits, which may not materialize. Projects not subject to market discipline are more likely to fail.
- Properly appraising risk is critical to making these projects work from a taxpayer perspective. The state is far better protected financially in the restructured Pocahontas Parkway deal than it was in the original version. Let’s apply what we’ve learned to the negotiation of future deals — even if it means walking away from projects where the risk-reward ratio leaves the state too exposed.
There’s one other point that bears noting, even if Peter didn’t have the time and space to explore it. Mega-projects like the Pocahontas Parkway cannot be viewed in isolation. They need to be seen as part of a larger transportation system.
One way Transurban intends to make money is to promote traffic along the Parkway. One way to do that is to lobby for new interchanges and encourage new development at those interchanges. One such project is already in the works — a giant mixed use project on the James River proposed by the Wilton development group. Wilton would pay for the interchange. Sounds like a great deal, doesn’t it? Isn’t that exactly what we want — for the private sector to pay for transportation improvements?
Look a little closer. The Wilton project would overwhelm local county roads in eastern Henrico County. County planners anticipate the need to upgrade the secondary road network. In particular, county planners want to build a so-called “concept road” that would link the Wilton property with the city of Richmond. Who’s going to pay for that?
Developers building along the planned route of the Concept Road may pay for some or all of the cost through proffers, in which case taxpayers might come out ahead — I’m not prejudging. But building mega-projects in the wrong places doesn’t do anyone any favors if they just create new transportation bottlenecks that need fixing at public expense. This gets us back to Ed Risse’s point about planning balanced communities and transportation infrastructure to serve them. You plan them together. You’re courting trouble if you start by building a road through the middle of nowhere and stimulating development in an area unprepared to receive it.
