The 495 HOT Lane Project at a Glance

By: tx2vadem
Published On: 9/14/2007 11:15:39 PM

So, after reading the I-395/95 HOT lane proposal, I thought why not look at the 495 one.  The 495 project is in a much later stage, but there is still time for public action to remedy this mistake.  VDOT and Fluor-Transurban have already signed a comprehensive agreement, which they have not done yet for the I-395/95 HOT lanes.

First, VDOT does not even have the most recent proposal on their website.  The proposal they have is from much earlier.  Since October 1, 2003, VDOT has decided to change the project to a concession option.  Instead of operating the toll facilities themselves and retaining the toll revenue, that will now be in the hands of the Fluor-Transurban concession company.  Since this is now dated material, I will just point out the most interesting things from the entire proposal:

No Competing Facility
To achieve investment-grade credit ratings on the senior project debt, VDOT will have to agree not to add additional free lanes or other directly competing enhancements until the project debt is repaid or restructured to accommodate new capacity unless other appropriate accommodations are made to bondholders.

Nice, right?  If things get too congested on 495 in the 40 year period before the debt is extinguished, the state has two options: do nothing or pay compensation to private investors for the privilege.
Because VDOT does not have current information and the Fluor-Transurban website does not provide financial information on the project, I am unable to perform any present value calculations.  They will surely get tax benefits in terms of interest on the debt as well as the ridiculous tax giveaway that is MACRS.  But what are the values of those benefits?  I cannot say.  Also, because the finance structure has changed significantly since the 2003 proposal, there is really no point in calculating a weighted average cost of capital or present value.  Equally, the revenue projections in the old proposal are worthless because they stretch only 40 years out from 2005.  The information there is obsolete and the revenue growth projections are awfully small (just 2.5% per year). 

Most importantly, I have not seen anywhere that a qualified independent party will be evaluating the Traffic and Revenue Study.  Fluor-Transurban will be commissioning and paying for that study.  Internal staff at VDOT will be reviewing it, but is that sufficient?  Would it not make the most sense to have independent, highly-qualified quantitative analysts review the projections in detail?  If not, how will we be certain that the state gets the fair value for this asset?

On to the documents?
The comprehensive agreement for this project is in place.  There are only a couple of things in the agreement I would like to note.  First, this is certainly not the final agreement.  There are still contracts to be executed, which include: a Concession Agreement, a Project Financing Agreement, and an Operations Agreement.  Second  is the following clause (related to my point above about review):

4.1.6 Fluor and Transurban agree to cooperate with peer review by the
Department of the Investment Grade Traffic and Revenue Study. The
Department agrees that such peer review will be of a limited scope and
will not result in the generation of a separate traffic and revenue study.

Now on to the juice, let's take a look at the Recommended Business Terms Memo.  It's a short document and well worth the read.  Let's hit the high points!

- This is an 80 year agreement, 75 years of which will be revenue years.  Without seeing the revenue numbers, I think we can safely say that investors will be able to recoup their investment in 15 years or less.  And, as I have said many times, 80 years is a long time.  What will Northern Virginia look like in 5, 10, 15, or 20 years?  No matter how much we change over that time, this agreement will endure.
- I don't even need to comment on this particular recommendation.  I think the wretchedness of this statement shines through:

To assure there is no disincentive for HOV and transit use of the HOT lanes, the Commonwealth will make payments to the Concessionaire if HOV use of the lanes exceeds projections under certain conditions.  This funding will only be provided for the first 40 years or until the LLC earns a rate of return of 10 percent.

- Of the $1.4 billion Design-Build Contract price, $409 million will be provided by public funds.  So, the public will be financing a project on which a private company will be earning money.  Where can I sign up for that deal?  I would love to start a monopoly where the state pays for 30% of my startup costs.  Sweet, right?  Privately-owned utilities don't get that kind of subsidy.  Even Dominion, Master of the Commonwealth, doesn't get 30% of their capital costs from taxpayer funds.  Though now that the idea is out there, watch out!  Dominion might start asking for that kind of money to build their transmission lines through the Piedmont. 
- And if we weren't making this deal such a massive giveaway already, there is this:
The Commonwealth will have the right to suspend tolling during emergencies as well as the option to suspend them to manage traffic congestion throughout the region.  Under certain conditions, the Commonwealth will reimburse Capital Beltway Express LLC for the lost toll revenues.

- There is no longer a non-compete clause in this recommendation, though this is not the final agreement, mind you.  It does recommend:  "the Capital Beltway Express LLC will have the first right to build additional toll lanes if traffic congestion warrants."  If this is all that makes it to the final, that will be interesting.  Ultimately, the Concessionaire cannot be happy if VDOT expands the free lanes or if a competing WMATA facility opens.
- And last, but not least, the please-sir-can-I-have-some-more recommendation:
The Commonwealth will also earn a permit fee (revenue sharing) of between 5 and 30 percent of earned annual gross revenue if projected HOT lane performance allows the private partners to achieve a rate of return on total invested funds in excess of agreed-to benchmarks.

How nice of them to recommend we get some breadcrumbs off the master's table!

Does any of this sound like something in the public interest?  You can stop this.  Write your delegate, your state senator, VDOT, The Department of Rail and Public Transportation, the Governor, and the Fairfax County Board!  Tell them this is a ridiculous corporate subsidy and an awful idea for fixing our traffic problems.  And then tell your friends, family, and neighbors to do the same!

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