Virginia DOT restarting US460 toll project with $500m and not-for-profit to carry risk - private sector only to design-build
By Peter Samuel
2012-05-29: Virginia DOT is restarting the six year long effort to do a toll project to build a new 55 mile, 89km expressway along the US460 corridor between I-95/295 near Petersburg and Suffolk in the Hampton Roads area. The project costed at between $1500m and $2000m is fully permitted along a route generally just south of the existing 4-lane undivided surface arterial US460 which constitutes a main street for six small settlements along the way.
Major construction items are the 55 miles of very conventional 2x2 lane expressway, 9 interchanges, and a mile long bridging through wetlands of the Blackwater River.
The 460 tollroad (460Toll) would provide a second expressway standard connection (2x2 lanes) to the main interstate system for the Norfolk/Hampton Roads metro area - population 1.68m, Virginia's largest center outside the Northern Virginia suburbs, a major port and naval base. The existing tax funded I-64 from I-95/295 in Richmond is quite heavily trafficked and only connects via bridge-tunnels to Norfolk and Portsmouth.
Addendum moves risk to NFP
The Addendum just issued proposes to put traffic and revenue risk on a not-for-profit (NFP) or 6320 tax exempt corporation established by the state - we'll dub it NFP460. The toll concession concept in which private investors carry the risk, or even some of the risk is dumped. The proposers are now competing for a design-build construction contract.
The NFP460 will have four fifths of its directors appointed by the state and one fifth by the design-build contractor, according to the Addendum. The NFP460 will be responsible for raising the capital, managing the design-build contractor and will manage operations. It will be required to contract with VDOT to do the tolling - all-electronic.
Two rounds of procurement
Two rounds of requests for proposals - first conceptual, then detailed - have shown prospective toll revenues will only support a fraction of the financing needed. The project depends heavily for revenue on truck traffic generated by the port of Hampton Roads but competes with parallel untolled I-64 on the north side of the James River. The Hampton Roads port is a great deepwater port but it is in strong competition with ports all along the east coast and the Gulf Coast.
Port authorities in Virginia are hoping for more containers and other cargo when the 8,000TEU container ships begin using the widened Panama Canal in place of the present 4,000TEU maximum. But upwards of 20 competing ports share that hope, and are making major investments to attract the larger ships.
Toll road investors therefore regard future port activity at Hampton Roads as highly uncertain. And even when extra trucks come and go from the port they have to compete with the tax-supported I-64 and uncertainty about traffic conditions on this free competitive route.
Slow growth in Hampton Roads
Also hampering the project has been the Hampton Roads area's relatively slow growth - 2000 to 2010 the area gained only 95,300 extra people or 6% compared to Richmond 161,300 or 14.7%, the whole state of Virginia 922k or 13% more, and Washington DC area 786k or 16.4% more.
A statement by Virginia DOT: "This roadway is essential: as an emergency and hurricane evacuation route, for strategic military connectivity, for the safety of the traveling public and for the movement of freight in and out of the Hampton Roads ports."
They say it is a "High priority" project for the state.
To revive the project they are proposing a new approach under which:
- the state would contribute up to $500m
- a not-for-profit (NFP) 6320 tax exempt corporation would be established to take the revenue risks
- one of the three proposers from the latest procurement will be selected by competition to be a design-build contractor
- the NFP will get VDOT will do toll collection
The first request for conceptual proposals for 460Toll was February 2006, and submitted September 2006. The first round request for detailed proposals was issued at the end of 2008.
The Macquarie/Skanska venture named Virginia Corridor Partners (VCP) with Morgan Stanley as financial advisors.
VCP said the project needed major US Government support in the form of Private Activity Bonds $1.1b to $1.9b and TIFIA loans $200m to $300m given a construction cost of $1.5b to $2.0b and project costs of $2.1b to $2.4b. They showed a 'base case' in which the project would get $363m investor equity, $1849m PABs and $219m TIFIA to raise $2,432m.
They also showed a trimmed-down or 'reduced scope' project requiring $2119m with PABs $1657m, TIFIA $148m and equity of $314m. This involved VDOT getting all environmental clearances and land, VDOT doing frontage roads and th concessionaire being allowed to eliminate 25 very low volume overpasses of local roads, and to stage interchanges to postpone low volume ones.
Their third alternative was a 6320 not-for-profit that required $2508m that would issue $2,035m in tax-exempt bonds, getting $225m TIFIA and $248m from VDOT
In May 2010 VDOT gave up on its first approach and solicited new conceptual proposals which were received from the three presently shortlisted teams September 2010:
- Cintra with Ferrovial Agroman and American Infrastructure
- 460 Partners including Skanska, Lane, Transfield, AECOM, Infrastructure Capital Partners and Bank of America
- Multimodal Solutions including Clark, Shirley, Autostrade, Kiewit, Barclays Capital, Edgemoor and Louis Berger
A request for detailed proposals was issued end-July 2011. These also required substantial state/federal support and assumption of revenue risk.
Latest addendum to request for detailed proposals:
COMMENT: this 460Toll project is an important-to-have road to provide an extra high quality connection of the Hampton Roads metro area to the main interstate highway system. It could be an important truck route depending on trade, on competition with other ports and with I-64. It will be a valuable emergency evacuation facility for the Hampton Roads area in times of hurricane or other disaster. It provides important redundancy to an existing single interstate. But redundancy tolls can't compete with a free road.
To even start to be a viable toll project 460Toll probably needs tolls to be instituted on competing I-64 - something no party involved seems to have had the courage to discuss.
And you have to wonder whether the 460NFP will be able to raise capital for 460Toll, and at what interest rates without the state taking virtually all the risks on default. 6320 NFPs don't have a great track record in tolling.
Also there could be political and legal challenges to: (1) solicitations for a toll concession changed midway to a design-build contract that would have attracted a different mix of companies (2) the design-build (DB) contractor having directors on the NFP460 when a major role of the NFP460 is to manage the DB contract.