State Seals $2.1 Billion Midtown Tunnel Deal

Google map shows location of major improvements in the Midtown Tunnel deal. (Click on map for larger image.)

by James A. Bacon

The McDonnell administration has entered into a public-private partnership agreement with Elizabeth River Crossings to rehabilitate the Midtown and Downtown tunnels between Norfolk and Portsmouth and to extend the Martin Luther King Freeway. Construction on the $2.1 billion project is expected to begin next year.

Of all the mega-projects under development by the McDonnell administration, this arguably offers the most clear-cut economic return on investment. The commonwealth will contribute $362 million to attract $1.7 billion in private investment, which will be repaid by means of higher tolls ranging initially from $1.59 to $1.84 per car for the tunnels and up to $1 for the MLK freeway extension.

That’s a big hit to motorists who now use the facilities for free. But the two tunnels are two of the worst transportation bottlenecks in Hampton Roads. In a prepared statement released this morning, Virginia Highway Commissioner Gregory Whirley estimated that the average round-trip user will save 30 minutes a day when the project is created. The improvements also will increase evacuation capacity in the event of a hurricane.

The agreement has been under negotiation for five months between VDOT, the new Office of Transportation Public-Private Partnerships and ERC, a joint venture between Skanska Infrastructure Development and the Macquarie Group. ERC will finance, build, operate and maintain the facilities for a 58-year concession period, and will assume risk for delivering the project on a performance-based, fixed-price, fixed data contract that protects taxpayers and users from cost overruns and delays.

The agreement calls for a slightly smaller financial contribution from the state, $362 million, than the $395 million envisioned only a few months ago. VDOT attributed the difference to lower-than-projected interest rates, buttressing the McDonnell administration’s argument that it makes sense to borrow borrowing more money now in order to take advantage of lower construction costs and interest rates in the post-recessionary economic environment.

“The Midtown Tunnel project has been at the top of the region’s priorities for many years,” said Transportation Secretary Sean T. Connaughton. “The state’s use of a public-private partnership structure will enable VDOT to attract approximately $1.7 billion in private investment to a project that yields tangible long-term benefits to the region and the state.”

Key components of the project include:

  • Doubling the capacity of the Midtown Tunnel by adding a new two-lane tunnel under the Elizabeth River
  • Increasing transit service between Portsmouth and Norfolk
  • Rehabilitating the existing Midtown Tunnel and both Downtown tunnels
  • Extending the Martin Luther King Freeway from London Boulevard to I-264, with an interchange at High Street in Portsmouth
  • Modifying the interchange at Brambleton Avenue/Hampton Boulevard in Norfolk

ERC will provide financing through a $422 million TIFIA loan, and approximately $1.3 billion through equity, debt and revenue from operations. The state contribution will be used to buy down the cost of the tolls.

The press release made no note of how rapidly tolls are projected to rise or what oversight the state will exercise over future increases.

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3 responses to “State Seals $2.1 Billion Midtown Tunnel Deal”

  1. So that is why they were so interested in questions about tunnels inthe phone questionnaire I got yesterday.

    It seems a little late to be asking for opinions.

  2. excellent reporting!

    I believe we are looking at the future of transportation funding and infrastructure building in Va … or at least, let’s say that things are changing fast with Connaughton involved.

    It’s possible that after Connaughton is gone that VDOT will abandon this path.

    One of the most significant innovations (some won’t agree with that term and I might be one of them) is the “blending” of public and private to produce the oddity of public subsidized / privately operated road infrastructure.

    I think VDOT is looking hard at this concept for the proposed 460 road and likely for the Western Transportation Corridor.

    but 400 million dollars subsidy for ONE project when many are proposed as needed in Hampton does make one wonder where exactly that money is going to come from because it sounds like it’s more than the Hampton Roads area itself would generate unless it’s going to be paid back over the years….

    If this is the case – and it sticks.. the future of major new roads in Va could be dramatically different but I do wonder what good the WTC or an eastern bypass of DC would do if Maryland is not on board with the idea.

  3. (some won’t agree with that term and I might be one of them) is the “blending” of public and private to produce the oddity of public subsidized / privately operated road infrastructure.


    This is going to turn out to be a mistake. When a committee designs a horse, you wind up with a camel. It may be a superior beast in some respects, but it is damn hard to live with.

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