Virginia’s Public/Private Partnership Experience

Public/Private Partnerships (P3) have been in the news a lot recently in Virginia.  The I-495 Express Lanes project was one of the first big P3 transportation deals, followed by the I-95 Express Lanes.  Although both were touted as private industry taking on the big “megaproject” risks and paying the bulk of expenses, both contracts actually left taxpayers on the hook for billions of public fund dollars.  In addition, toll payers will be on the hook for over seventy (70) years to come, as the private partner has a guaranteed right to charge as much as they want to access the public lanes with no government toll oversight.  If  many HOV-3 users and buses use the lanes, taxpayers have to pay the private company even more.   A private company actually was given the right for unlimited tolls on the former I-95 HOV lanes, which were built with taxpayer funds.

Unfortunately, the lack of P3 oversight theme continues elsewhere in Virginia.   A few years ago, the Virginia Department of (Road) Transportation (VDOT) sought to construct an Interstate quality tolled four lane freeway between Suffolk (Hampton Roads) and Petersburg (just south of Richmond).  This freeway would be built next to the existing US 460 two lane highway.  The existing US 460 serves any local traffic through the small towns, farm land, and wetlands in the Tidewater coastal plain southwest of the James River.

As the existing I-64 freeway route (and the lightly used Monitor Merrimac Bridge Tunnel) already serve the same endpoints, one might wonder why a new freeway would be needed for US 460.  Undeterred, VDOT decided that tolls of around $11 for cars and double that for trucks would pay for the new improved US 460.  How would the new toll road be built?  With another P3, of course.  VDOT said the road could be built with toll money alone, and public (tax) money would not be needed.  But as is often the case with P3 road projects, things didn’t turn out as advertised.  Instead, in the end taxpayers received no road.  They also received a bill from the private portion of the P3 for almost $300 Million.  VDOT’s own in-house and contractor work cost another $50 Million to date.

How did this transportation tragedy happen? To entice bidders for the new US 460, VDOT decided to offer an upfront taxpayer subsidy after all.  The winning bidder, 460 Mobility Partners LLC, was a consortium led by FerrovialAgromán, S.A. of Madrid, Spain.  The US 460 Comprehensive Agreement specified monthly tax dollar payments averaging around $30 Million for the construction.  And that money would begin to flow soon.

Unfortunately, once again VDOT did not prove to be a good negotiator against their P3 private counterparts.  The Agreement was signed in 2012 and payments started, but no construction was started.  Why not?

The US Army Corps of Engineers has jurisdiction over much of the waterways and sensitive wetlands that would be heavily impacted by the US 460 project.  Although VDOT and FHWA had performed an Environmental Impact Statement (EIS) years before, the Army Corps of Engineers has not yet weighed in as appropriate.  The project needed permits and the Army Corps of Engineers informed VDOT that they would need to perform their own EIS, as required by the National Environmental Policy Act (NEPA), the River & Harbors Act of 1899, and the Clean Water Act, which among other things also required a public interest decision.  In December 2013, a year after the Comprehensive Agreement was signed to build the road, VDOT was forced to sign a Memorandum of Understanding with the US Army Corps of Engineers.  FHWA and the Army Corps would perform a Supplemental Environmental Impact Statement, with VDOT assistance.

The monthly construction payments to US 460 Mobility Partners LLC continued,  but no construction took place.

In January 2015, VDOT, FHWA, and the Army Corps of Engineers identified the “least environmentally damaging practical alternative.”  Still, no permits were issued and environmental analysis continued.  With the new alignment, tolls and the project funding were also in jeopardy.  Virginia Secretary of Transportation Aubrey Lane said at the time, “the alignment of the road probably would not allow it to be a toll road.”  The monthly construction payments to US 460 Mobility Partners LLC continued.

In April 2015, VDOT finally tried to stop years of bleeding and terminated the contract.  Almost $300 Million of taxpayer funds had been paid to US 460 Mobility Partners LLC to not build a road.  VDOT had spent even more on its in-house work, plus contract engineering and “communications” companies to promote the project.   Not one pound of asphalt was poured.

Although the Commonwealth has indicated it will try to reclaim some of that $300 Million, we are not holding our breath for a majority of those funds to ever reappear at the state treasury.  And that assumes the Comprehensive Agreement was terminated properly and VDOT will not be at the receiving end of a lawsuit attempting to get more funds for a never built freeway.  Not one to accept a highway loss, VDOT states that it will still try to build a scaled down US 460 freeway.  They’ll need to convince the Army Corps of Engineers first.

Meanwhile in Northern Virginia, earlier this month the new US 29 project opened in Gainesville.  State Senator Dick Black (R-Loudoun) noted that the state spent about $230 million for a public project that was completed on schedule, on budget.  This is less money that was spent for a P3 project in southeastern Virginia that has nothing to show for the expense paid, and never will.

This summer, VDOT and the state P3 agency will be working to decide if I-66 will be expanded with yet another P3 megaproject.   We continue to hear about the supposed P3 benefits, but the actual details of real Comprehensive Agreements are rarely mentioned.  These details include 70+ year non-compete clauses that would require taxpayers to pay even more to the I-95/I-495 operator if the Commonwealth dares to improve certain public roads, and require taxpayers to pay for too many “free” HOV or buses in the Express Lanes, providing a contractual financial disincentive to carpooling and transit.

For I-66, VDOT held secret meetings recently with prospective P3 concessionaires.  The construction industry has been lobbying heavily for a P3 on I-66.  And given their windfalls with P3 projects like I-95 and US 460, why wouldn’t they love another at our expense?  Taxpayers deserve better.

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4 Responses to Virginia’s Public/Private Partnership Experience

  1. Lisa & Toni says:

    Such a shame – citizens are still left holding the bag, they are treating us like we don’t matter – they have an agenda and don’t seem to care who/how they steam roll over.
    Keep up the AWESOME work Transform66Wisely!

    Like

  2. Douglas Stewart says:

    Excellent case study of some of the most notable illustrations of the shortcomings of Virginia’s Public Private Transportation Act. Your choice of the Gainesville interchange project as a contrast is interesting. The $230 million interchange was necessitated by the same land use factors that have helped drive the pressure to widen I-66, poorly planned residential development without a good mix of uses in the Gainesville and Haymarket areas. Although the project itself may have been delivered well, it still amounts to a major subsidy for poor land use. In this respect it is not that different from the I-66 Outside the Beltway project.

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    • Bryan says:

      Thank you, Douglas. My intent in that post wasn’t to weigh the merits of the interchange project itself, but rather how some projects can be executed well–in contrast to our experience with Virginia Public/Private Partnerships.

      (Separately, I do believe that spot improvements, such as in Gainesville can be beneficial, in contrast to PPP projects. Removing the at-grade railroad crossing on a busy road alone is a major safety improvement that is well deserved.)

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      • Douglas Stewart says:

        Good point, Bryan. Removing that at-grade rail crossing was a very needed improvement. Thanks for your response.

        Like

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