By Kathryn Watson – Watchdog.org Virginia Bureau
ALEXANDRIA — Virginia taxpayers could be on the hook for toll roads they may not use.
If the Australian and American transportation companies tasked with the $1-billion I-95 Express Lanes project ever go under, taxpayers will pay any unpaid bills.
The Virginia Department of Transportation is responsible for up to 100 percent of lingering debt in the $1-billion project if 95 Express Lanes LLC — a partnership of Australian private transportation company Transurban Group and Fluor Corp. — should default. The provision is buried in the fine print of the lengthy agreement outlining the 76-year lease of state highway space.
Virginia Department of Transportation either would pay for the project value or the outstanding debt — whichever is lesser — minus a few other factors like breakage costs and unpaid default interest, said Dusty Holcombe, deputy director for the Office of Transportation Public-Private Partnerships. But before VDOT shells out a dime, the General Assembly would have to approve the payment, he said. But the payments wouldn’t go directly to the company. The money would go to bondholders who invested in the company.
“Any amount that would be a part of this compensation first has to go through that level of scrutiny for it to be distributed,” Holcombe said.
How likely is default? Not very, according to ratings agencies Standard and Poor’s and Fitch Ratings, which gave the project’s revenue bonds a “stable BBB-” outlook — fairly common for massive public-private undertakings like the I-95.
But the success or failure of the project all hinges on how much people are willing to pay for a faster trip along all or part of the 29-miles stretch of reversible, optional toll lanes that will stretch from Stafford County in the south to I-395 in the north by 2015.
“Everyone knows the congestion is there,” said Siona Listokin, assistant professor at the George Mason University School of Public Policy. “The real risk is not so much how many cars are going to be on the road, but how many drivers are going to take the managed toll roads? And that is an unknown.”
The S&P projected toll revenue at only 60 percent to 70 percent of private-sector estimates — an admittedly conservative estimate. But toll revenue is the bread and butter for the project’s debt service, construction and maintenance, Listokin said.
“That’s the full revenue stream right there, so if those numbers are even slightly off, you get pretty big credit risks for a revenue bond like this,” she said.
The private sector can levy tolls — which will vary depending on time of day the vehicle size — as high as it wants. VDOT says the average rush-hour trip will cost around $6. But how much are people willing to pay? That’s the crux of it all.
The congestion is there, but, “how many of those cars are going to shift over, and at what price?” asked Chad Lewis, a senior director at Fitch Ratings, which also slapped a “BBB-“ rating on the project’s revenue bonds.
Watchdog.org Virginia Bureau readers, asked on Facebook how much they’d pay for a quicker trip, weren’t eager to fork over wads of cash, especially since Virginians already are subsidizing $71 million in taxes for the project. The company will sell bonds to finance the rest of the project.
“Nothing — my tax money built it,” wrote Leon Salisbury, Jr.
“I want a refund for not using it,” posted reader Brad Miles.
Still, some experts say the tolls will generate enough money to keep the private enterprise in business.
“There’s a fair number of people who will use that to just be able to move faster — with certainty,” said Jeffrey Southard, executive vice president of the Virginia Transportation Construction Alliance, a state association servicing contractors, engineers and suppliers that run Virginia’s transportation network.
“You know, if I leave Fredricksburg and want to go to Tyson’s Corner, how much extra time to I allow? Thirty minutes? An hour? Two hours? Or, do I say you know, I’m willing to pay ‘X’ amount to guarantee that I get there on time?”
Proponents of the partnership have heralded it as an innovative leap in transportation.
“For the first time, commuters will have transportation choices they never had before when traveling the I-95 corridor,” Gov. Bob McDonnell said in a statement. “This innovative public-private partnership will result in express lanes for carpoolers, sluggers and buses, while at the same time providing new transportation choices for all motorists to reach their destinations faster.”
If revenue exceeds a certain threshold, the state gets to keep between 5 percent and 40 percent, although the S&P said raking in that much revenue is unlikely. And if revenue isn’t up to speed, the company and its investors take the hit on the losses, according to the agreement.
“It shouldn’t really be a concern to the commonwealth, because it’s not our dollars at risk,” Holcombe said about toll revenue.
But concerns about the project were compounded last month by Transurban’s announcement that it lost 51 percent of its net profits on the Pocahontas Parkway, a troubled project it runs in the Richmond area. That project, which depended on traffic from future development that never materialized with the onset of the Great Recession, has a whopping asset of zero.
Jennifer Aument, vice president of public affairs for Transurban, said the company’s leaders are looking at a “variety of options to restructure the debt,” but do “not currently have plans to sell Pocahontas.”
VDOT Communications Director Tamara Rollison expressed confidence in Transurban, despite losses in the Richmond area.
“We want them to be very successful and we feel that they will be,” Rollison said, who said the two projects are “completely different projects.
“We’ve got a desperate situation up in Northern Virginia,” Rollison added. ”… (They’re) two different projects. Two different scenarios. Two different finance situations.”
In any massive undertaking like the I-95, the state can’t be entirely shielded from risk, said Stephen Fuller, director of George Mason University’s School of Public Policy.
“I think there is always a risk,” said Fuller. “Nothing is risk-free. The state’s taking a risk. The alternative is to build it themselves.”
Contact Katie Watson at email@example.com.