VA Contractors Taking Lead in New Road Proposals

Wed May 04, 2005 - Northeast Edition
Matthew Barakat - Associated Press

McLEAN, VA (AP) On Virginia’s most congested highways — from the Capital Beltway to Interstate highways 95 and 81, to the bridge crossings in Hampton Roads — proposals are in place to add new lanes and alleviate gridlock.

But with the state’s transportation budget stretched thin, the projects are being advanced not by the Virginia Department of Transportation (VDOT) but by private contractors who are promising to get the roads built, often with little or no public funding.

The use of such public-private partnerships to build roads will have significant implications for the state’s transportation network, according to advocates and critics of the partnerships.

“The thing the public needs to understand is that there’s no such thing as a free lunch,” said James Regimbal, a fiscal analyst who recently studied the state’s partnership law for the Southern Environmental Law Center.

While the state’s general fund might not be tapped, drivers on new roads will be increasingly forced to pay tolls higher than normal to pay off bondholders who bear the risk that toll collections will be insufficient.

And in many cases, while a private entity can keep construction costs down, they may also employ tactics normally eschewed by VDOT, like reducing the width of lanes and shoulders.

Virginia passed the Public-Private Transportation Act 10 (PPTA) years ago to encourage private investment in new roads and transportation projects. Only one project has been completed under the law, the Pocahontas Parkway near Richmond.

In recent years, though, private contractors like Fluor Corp. have proposed numerous projects, and Virginia has been a leader nationally in advancing such proposals. At the same time, the Federal Highway Administration has shown an increasing willingness to embrace such projects.

The private proposals are subject to oversight by the state and federal highway agencies, but private companies conduct the engineering and develop the plans to fund the roads.

A typical blueprint is to pay for the construction with the use of tolls or HOT lanes — HOV lanes that can be used by solo drivers willing to pay a toll.

Driver advocacy groups like AAA have traditionally resisted such projects, citing the inequity of forcing tolls on some commuters and not others, when all drivers pay gasoline taxes and other general taxes to support public roads.

“But in northern Virginia, we’ve said that we will support the concept reluctantly if it’s the only way to get roads built,” said John B. Townsend II, a spokesman for AAA Mid-Atlantic. “In the last few years, we’ve come around on the issue.”

Proponents said the advantage in these public-private partnerships is the real-world sensibilities that private engineers bring to the design and engineering phases.

“Sometimes the public sector needs a little help,” said Gary Groat, a project development director for Fluor.

Indeed, the cost difference between a privately engineered road and a publicly engineered road can be staggering. For example, when VDOT did a preliminary study in 2002 of adding four HOV lanes to a 14-mi. stretch of the Capital Beltway, it estimated a cost of $2.4 billion and a need to displace approximately 300 homes and businesses.

When Fluor did its own preliminary estimate under a PPTA proposal, it cut the cost to $700 million and required displacement of only four homes. Not surprisingly, VDOT’s plans have been scrapped and the state is negotiating with Fluor over its proposal.

The difference? Fluor’s proposal left the existing Beltway interchanges in place, rather than requiring new interchanges. It did so by reducing the highway width, separating the regular and toll lanes with a swath of striped paint and intermittent plastic yellow posts rather than a concrete barrier.

Fluor’s proposal also includes more narrow shoulders than those in VDOT’s initial proposal.

Groat said “the difference is, we’re willing to say no” to the bells and whistles that often get attached to road projects.

Malcolm Kerley, who is in charge of VDOT’s supervision over PPTA projects, said VDOT’s projected cost for the Beltway project was higher because VDOT sought to fully upgrade the corridor and replace existing interchanges, while Fluor took a minimalist approach.

“I use the analogy of buying a car, and you have to decide, do you want air conditioning or not?” Kerley said.

While Kerley said Fluor’s proposal will not upgrade that section of the Beltway to the extent that VDOT’s $2.4-billion plan would have, he also said that he will not allow the project to compromise fundamental safety features.

Townsend, of AAA, said he has concerns that a project might try to skate by on minimum safety standards on items like shoulder width.

Given that roads are becoming more congested, drivers more distracted and the population getting older, “We think it’s wise to give as wide a margin of error as possible” to motorists, he said.

The PPTA proposals also are fundamentally different from traditional projects in how they are financed. In PPTA projects, private bondholders lend the money to get the road built, and try to recoup their investment through tolls.

Because the bondholders are taking a risk that tolls will be insufficient to allow repayment, the bondholders collect a higher interest rate than they would if Virginia issued bonds that were backed by the full faith and credit of the government.

As a result, the operators of the road must charge higher tolls than on a traditional state-owned toll road, in order to collect enough money to pay off the high-interest bonds.

Groat did not dispute the fact that higher-interest bonds require higher tolls, but he said that misses the big picture. For one thing, he said, the construction costs are significantly lower because of the private sector’s innovative ideas.

Also, he said, the state is simply not in a position to issue bonds and borrow to pay for these projects. One of the main reasons the state has a top-notch AAA bond rating in the first place is that it is conservative with its money and does not borrow beyond its means.

Still, private projects often require that bondholders collect an unusually high interest rate because of the risk involved to the bondholder. That stems in large part from a historical tendency for planners to overestimate the number of motorists who will actually pay to use the toll road.

Regimbal’s study found that “optimism bias is a consistent trend in toll-road traffic forecasting,” with many projections overestimating toll-road use by 25 percent.

That occurred on the Pocahontas Parkway, where Fluor badly overestimated use of the toll road.

Groat said that Fluor is using a different firm to provide traffic estimates on the Beltway and I-95. He also said the Pocahontas Parkway is a fundamentally different project because it was a new highway, while the Beltway and I-95 proposals add lanes to well-known existing roads.