Taking stock

Having delivered more public-private partnership (PPP; P3) projects between 2008 and 2013 than any other state – totalling $8.1 billion – and with 22 more projects in the pipeline, Virginia has been the clear front-runner in the US when it comes to using P3s to upgrade its transportation infrastructure.

Part of that success may be attributed to Virginia being one of the first states to adopt enabling legislation. It enacted the Public-Private Transportation Act (PPTA) in 1995. However, the state arguably made an even greater stride once it established the Office of Transportation Public-Private Partnerships (OTP3) in June 2011.

Within 18 months, Virginia had closed P3 deals accounting for about $6 billion of the $8.1 billion total. The office, which is responsible for developing and implementing a statewide programme for delivering transportation P3 projects, reports directly to the Secretary of Transportation, and works together with seven state agencies towards that end.

UNDER CONSTRUCTION

Some of the projects currently underway include the ‘I-95 Express Lanes’ – a $925 million project that will add new capacity to a 29-mile section of Interstate 95. The project broke ground in 2012 and is expected to be completed in 2014.

An air rights development project is another that is both significant and a first for the state of Virginia. In July 2013, the commonwealth issued a Request for Information (RFI) for the development of mixed-use facilities at the East Falls Church metro station and the Rosslyn metro station, two of the seven metro stations over which it owns or possesses air rights.

“By leasing airspace above certain transportation facilities owned by the Commonwealth, we better utilise our existing infrastructure to generate additional revenues to fund future transportation improvements, while at the same time attracting new jobs and economic development,” then Governor Bob McDonnell had said in the statement announcing the project.

While McDonnell did not specify how much revenue would be generated through air rights development, he referred to the example of Massachusetts.

In fiscal 2011, the Northeastern state’s department of transportation (MDOT) generated $40 million through leases, while long-term income was projected to reach $868 million through the life of the leases.

At the time of writing, no further updates had been made available as to the status of the air rights development project.

Another significant project underway is the Midtown Tunnel. The $2.1 billion project, which reached financial close in April 2012, includes a new immersed tube tunnel facility at the Midtown crossing, tunnel rehabilitation at the existing Midtown Tunnel and two Downtown Tunnels, as well as extending the Martin Luther King (MLK) Boulevard to Interstate 264.

The project suffered a slight setback when the Portsmouth Circuit Court last May ruled that charging tolls on the existing facility for the construction of a new one was the equivalent of raising taxes – something the Virginia Department of Transportation (VDOT) was not authorised to do, therefore violating the state constitution.

Fortunately for the project, which OTP3 describes as a “top transportation priority”, the State Supreme Court overturned the lower court’s decision last October, allowing the project to move forward. Had the circuit court’s decision stood, not only could it have cost Virginia about $700 million in compensation to Elizabeth River Crossings (ERC) – the private sector partner of the project – but could have also negatively affected other P3 projects.

However, the tolls ERC will be able to charge motorists have been cut by half. The reduced rates went into effect on February 1, following the decision of Terry McAuliffe, Virginia’s new Governor who assumed office in January this year. The decision, according to McAuliffe’s statement at the time, was made in order to reduce the cost burden on commuters.

However, the rates will increase gradually to reach initially agreed-upon terms between VDOT and ERC by 2017. McAuliffe reiterated his commitment to the project, describing it as a “critical project that must be built to reduce congestion, improve safety and propel economic opportunities”.

ECONOMIC IMPACT

Economic opportunity is a common denominator in arguments for PPPs and investing in infrastructure in general, and would seem justified considering the data Virginia’s OTP3 provides. According to OTP3, the four major projects that were either launched or reached financial close in 2012 helped support more than 58,000 jobs and generated more than $11 billion in economic activity.

One of those projects was the ‘I-495 Express Lanes’ project, which opened to traffic in the fall of 2012. By contributing $409 million, the state was able to leverage a project valued at $1.9 billion. According to the P3 authority, I-495, which included the addition of four new lanes along a 14-mile stretch of the ‘Capital Beltway’ and the replacement of more than 50 aging bridges and overpasses, was delivered on time and on budget.

Another of those four projects is the US Route 460 Corridor, a $1.4 billion project that reached financial close in 2012. However, the fate of that project has become uncertain following a decision announced last December. 

McAuliffe, at the time Governor-elect, said that he would not green-light the project unless the US Army Corps of Engineers (USACE) approved it. USACE authorisation is needed because the P3 would result in wetland loss. To date, Virginia has spent $200 million on the project, a 55-mile design, build and finance (DBF) concession led by toll road operator Cintra.

A project that is moving ahead is the Interstate 66 (I-66) improvements, for which Virginia issued a Request for Information (RFI) last June, asking the private sector for input to improve a highly-congested 25-mile section of the highway. By December, 19 companies had responded to the RFI.

The project, which is estimated to cost $2 billion, may involve construction of general purpose lanes, managed lanes and even bus rapid transit (BRT). OTP3 and VDOT are coordinating the procurement of the project, with a Request for Qualifications (RFQ) expected in spring 2014. This would be the state’s 13th transportation P3 project.

WHAT’S AHEAD?

The change in Governor, which was the result of the November 2012 elections, has also led to changes in other leadership positions.

Aubrey Layne was appointed Secretary of Transportation, replacing Sean Connaughton. In February, Layne announced the appointment of J Douglas Koelemay as the new director of OTP3, replacing Tony Kinn, the P3 authority’s first director.

Koelemay joined the state agency from Science Applications International Corporation (SAIC), where he most recently served as vice president of community relations. His career, however, which spans more than four decades, also includes experience in the public sector.

Between 2006 and 2012, Koelemay served on Virginia’s Commonwealth Transportation Board as an appointee of then-Governor Tim Kaine. Prior to that, between 2002 and 2006, he served as an appointee of another Virginia Governor, Mike Warner – now a US State Senator – on the State’s Research and Technology Advisory Commission.

While it’s still too early to tell which direction Virginia’s new leaders will take, it will be interesting to see whether they continue to build on the momentum created by their predecessors.

They will in any case have the advantage of a strong head-start.