VDOT Quietly Publishes I-66 Concession Terms

VDOT and Virginia’s Office of Public-Private Partnerships have recently published their Transform 66 Draft Terms (business terms) for a Public/Private Partnership (P3) for I-66, and those terms are quite interesting.  This is the language likely to be adopted into any final “Comprehensive Agreement” contract with a private concessionaire to build and operate a transformed I-66.  The terms represent VDOT’s intentions for a P3 arrangement.  So has VDOT already decided to proceed with a P3?

You may recall on May 19th, Virginia Secretary of Transportation Aubrey Layne indicated that the Commonwealth would re-examine its earlier posture on going forward with a “Public/Private Partnership” to widen I-66, stating they could save up to a billion dollars by a traditional public financing instead of the P3 model used on the Capital Beltway and I-95/395.  (The Commonwealth’s costly US 460 Highway debacle and the controversial Midtown Tunnel project in Hampton Roads are also P3 deals).

Officially, the Commonwealth is creating a committee to study this decision further, and the committee would report back by Fall 2015.   (This review and finding of public interest is now required, thanks to the HB 1886 amendments adopted in March 2015 to the Virginia P3 law). Perhaps these new terms and related meetings with interested partners are a step in the decision process, but VDOT hasn’t stated this intent.

The I-66 Terms Include a Non-Compete Type Clause for Orange Line Expansion

So what makes these draft terms interesting?  Similar to VDOT’s earlier P3 Express Lanes projects, I-66 will also include compensation events.  For I-66, this includes both compensation if Metro’s Orange Line is extended or additional general purpose (free) lanes are added to I-66. [Page 6].  That means you the taxpayer (public) would need to pay the concessionaire (private) if the Orange Line is extended or VDOT adds any lanes on I-66 out to Haymarket.  A ten year limit is suggested for Orange Line expansion compensation (only), but would that sunset date hold in contract negotiations?  An even better question: Why would the Commonwealth begin negotiations by offering compensation to a private company if Metro is extended?  Previously, VDOT publicly stated that any Metro extension would be done by WMATA. So is VDOT eager for the Commonwealth to have another barrier that ensure no rail extension on the I-66 corridor?  Sadly, this is another side effect of no comprehensive transportation planning in Virginia.

Transform 66 Wisely previously examined the 495/95 Compensation Events and openly wondered if similar non-compete type agreements would be made for Metro on the I-66 corridor.  Now we know for sure what VDOT is calling for.  Note that VDOT did not discuss this information during their open hearings or public project description.  Surprisingly, the draft terms exclude paying the Private operator compensation for “excessive” HOV use, unlike the  I-495/95/395 Express Lanes which provide for taxpayers to subsidize the private operator when too many (free) HOV-3 users and buses ride on the existing express lanes.

The I-66 Terms Suggest the May 2015 Draft Design is Finalized

And there are even more interesting clauses in VDOT’s Transform 66 Draft Terms document.  It says, “The configuration of the Express Lanes will be generally consistent with the May 12, 2015 concept plans available on the Department’s website. The Department believes there is an acceptable scope that can be developed for approximately $2.1 Billion.” [Page 1] So VDOT has been saying (as of June 2015), that they are still listening to the public and no final design decisions have been made.   Indeed, they are still a ways off from having final design public hearings.  Yet their Business Terms describe the final configuration as “consistent with the May 12 plans.”

Are VDOT’s public hearings to be taken seriously, or are they a kangaroo court with a predetermined outcome?   Here we have a new example of the public being told one thing and the construction industry is told another.  We can guess which version is correct.

It is also interesting that the new cost estimate has been whittled down on paper to $2.1 Billion.  Yet VDOT’s published documents to CTB previously indicated the cost would be $3.6 Billion in year of expenditure (YoE) dollars. (YoE is FHWA’s preferred finance estimate method since it automatically takes inflation into account).

No Funding is Included for Transit (Bus) Operations

Next, the terms include provisions for transit.  For I-66 transformation plans, transit means buses.  The document states, “Concessionaire  will  be  responsible  for  funding  transit  services  to  include, initial capital purchase of buses, capital for new and replacement vehicles over the term of the concession, and capital for operations and maintenance of the transit systems and programs.  The Concessionaire will not be responsible for procuring,  operating  and  maintaining  the systems  and  programs.” [Page 2]

The transit provision is fascinating, because it only includes funding by the private concessionaire to buy new equipment, not for the operations of transit (buses).  You might recall the May 19 press release says, “the McAuliffe Administration is committed to ensuring the transit capital and operating costs are supported by the project.”  Oops!  So why doesn’t VDOT’s business terms include the operating costs that the McAuliffe Administration is committed to ensuring?

The Terms document makes reference to an “initial affordability analysis,” including their anticipated toll revenue by year, in “Attachment A.”  However we have not yet been able to find this document.  VDOT would also assist in financing by allowing for “Private Activity Bonds” which are bonds issued by the government (likely qualifying for municipal bond tax exemption) and federally backed Transportation Infrastructure Finance and Innovation Act (“TIFIA”) loans.

Finally, a separate Request for Meetings on I-66 document, also released by VDOT on June 8 says, “VDOT has determined that it can apply a public financing solution to this Project if necessary, but remains committed to identifying a competitive P3 solution and partner, if possible.”  The document states that the P3 Office/VDOT will be meeting with prospective concessionaires on June 29th and July 1st.

It is important to understand that these terms represent the Commonwealth’s starting position in negotiations.  If and when negotiations get underway with a private concessionaire, it is unlikely that the terms will improve for the Commonwealth’s position.

Possible or Best Value Standard?

At Transform 66 Wisely, we are quite sure that VDOT will find it quite possible to find a P3 concessionaire partner.  But on May 16, we were told by the Transportation Secretary that the criteria for deciding a public project or P3 would be best value, which is certainly a higher standard than possible.  So, why the change, VDOT and P3?

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