What's the Best Way to Build New Highways: Private? Public? Tolls? Magic?
Friday, August 03, 2012 - 12:11 PM
(Washington, D.C. -- WAMU) As the opening of the Interstate 495 Express Lanes on northern Virginia's Capital Beltway draws closer, backers of the $2 billion project say they cannot guarantee the four new HOT lanes will achieve the goal of reducing traffic congestion while simultaneously returning a profit for their private sector operator.
The admission is noteworthy because there was enormous investment made by a private entity. The tolls revenues that are supposed to supply its profit are off limits to the state of Virginia for the next seven decades.
The HOT (high occupancy toll) lanes will run next to the Beltway's non-toll lanes between the Dulles Toll Road and I-95 in Springfield, Va., one of the most heavily traveled corridors in the Washington, D.C. metropolitan region. The project is the result of a public-private partnership between the state of Virginia and Fluor-Transurban, a company that has built similar facilities in the United States and abroad.
In the deal, the state received four new lanes of traffic capacity, a repaving of the Beltway, and a fully electronic toll facility for individual commuters and HOV-3 carpoolers. Transurban gets the toll revenues for the next 75 years, but company officials say they may not turn a profit at all.
"The private sector is responsible for paying back the debt and paying to operate and maintain the lanes," said Jennifer Aument, a Transurban spokeswoman, at a recent press conference to promote the new E-ZPass Flex device that will be necessary for HOT lanes carpoolers to have.
Transurban provided about 75 percent of the capital necessary to build the new lanes and toll gantries. Public money was necessary to cover about one-fourth of the costs and finalize the partnership because projected toll revenues were not sufficient for Transurban to finance the entire project itself.
HOT lane popularity has been mixed in other cities. Houston is currently considering additional promotion and advertising to get more drivers using new HOT lanes that are under capacity.
"If the traffic doesn't come and we can't generate the revenue, we are taking the risk on this project," Aument said of the Virginia plan. "But we believe because the 495 Express Lanes will provide a faster, more reliable trip which is much needed in this great region, it will be a success for us, for VDOT, and for travelers."
Not your normal toll road
The idea behind the 495 Express Lanes is not that commuters will use them every day; commuters are expected to pay the potentially pricey toll on days when they need the reliability and predictability that a congestion-free highway would present.
The tolling will be dynamically priced; the more commuters that use the toll lanes at a given time during the day the higher the toll will be. Raising the toll during peak travel periods will prevent the new lanes from getting congested, as is usually the case during rush hour in the adjacent non-toll lanes.
Carpoolers may use the HOT lanes for free as long there are at least three occupants in the vehicle. If carpooling is too successful, Virginia taxpayers will wind up subsidizing some HOV-3 trips.
The contract between Virginia and Transurban requires the state to pay subsidies if the number of carpoolers reaches at least 24 percent "of the total flow of all [vehicles] that are... going in the same direction for the first 30 consecutive minutes during any day... during which average traffic for [the toll lanes] going in the same direction exceeds a rate of 3,200 vehicles per hour..."
During peak travel times -- if carpoolers make up about one-fourth of all vehicles in the HOT lanes -- the state will have to pay Transurban 70 percent of the lost toll per vehicle. Both VDOT and Transurban are downplaying the possibility that taxpayers will have to subsidize carpoolers.
"Is there a back stop? The answer to that is yes. Do we think we will get there? The answer to that is no. And if we do, we still consider that a success," says Charlie Kilpatrick, VDOT's chief deputy commissioner. "That's a success story because we would have such a great usage in HOV, much further beyond what we ever imagined."
"Carpooling could expand by more than 10 times on the Beltway before this provision would go into effect," says Aument, who says the subsidy will not be paid if Transurban clears a certain profit on toll revenue, about 12 percent. "It's there as a stop-gap in the extraordinary circumstance that there are so many carpoolers that we can't collect enough toll revenue to operate and maintain the road."
Public-private partnerships are the future
Without the capital of Transurban the 495 Express Lanes would have remained just an idea. To build the $2 billion road, however, the state agreed to Transurban receiving the toll revenues for the next 75 years, even though the company hopes to have paid off its project debt in 30 years.
"It is frankly unrealistic to believe that there are sufficient public funds for these enormous projects in Virginia," says Kilpatrick.
Virginia has been one of the most active states in the country in signing public-private partnerships, according to Emil Frankel, a visiting scholar at the D.C.-based Bipartisan Policy Center and former assistant secretary of transportation policy at the U.S. Department of Transportation.
"The private sector is putting a lot of money into this only with the assurance that they will get a return on their investment to service the debt that they have incurred to construct it," Frankel says. "So the public had to give up something to get this built."
"If you like the Beltway the way it is and you don't want anything built at all, then it's a bad deal," says Frankel. "Most of the residents of Virginia wanted this increased capacity. By taking some of the traffic off the free lanes, it should improve the flow of traffic on the free lanes as well." Express buses will also have access to the HOT lanes.
Private entities take the risk
Some private highway ventures have not gone as planned. The Pocahontas Parkway near Richmond, an 8.8-mile tolled freeway between the junction of I-95 and VA-150, has yet to meet traffic projections and may have to go through another financial restructuring. The Dulles Greenway saw its finances restructured for the first time in 1999 after projected levels of traffic and tolls didn't materialize. Frankel expects 495 to be more successful than the aforementioned toll roads because the HOT lanes were built directly adjacent to congested travel lanes.
"You are getting increased capacity on a crowded, unreliable facility," says Frankel, who says the 91 Express Lanes, which run for 10 miles in southern California, are an example of a successful dynamic tolling and HOV-3 system.
Smart growth advocates are unhappy with the deal the state received in losing access to toll revenues for 75 years, and argue that VDOT should have considered alternatives to Beltway expansion.
"I think we should be looking at all alternatives upfront, and look more objectively at transit and transit-oriented development and lower cost approaches," says Stewart Schwartz, the executive director of the Coalition for Smarter Growth. "We should look at public ownership of the toll lanes so we have access to those revenues in the future."
"VDOT rejected at the earliest stages a transit alternative for this corridor. They were prevailed upon to do another transit study, but they promptly put it on a shelf. They never took seriously a transit-oriented development for this corridor," says Schwartz, who says Virginia could have considered something similar to the Purple Line, a proposed 16-mile light rail line that will extend from Bethesda to New Carrollton.
"Our concern is the rush to do these public-private deals has been reducing the consideration of alternatives in project corridors," Schwartz adds. In his estimation, if the new lanes on 495 eventually attract more commuters, congestion could increase on secondary roads when those added vehicles ultimately exit the highway.