Virginia gone to financial close on $2.1b Norfolk crossings P3, compromises on toll timing, coverage

April 20, 2012
By Peter Samuel

Virginia and Elizabeth River Crossings LLC (Skanska & Macquarie) have gone to financial close on the huge $2.1b Norfolk-Plymouth P3 project that will see big improvements in mobility between Norfolk and points on the westside of the estuarial river including new expressway standard connections to Interstates. The financial close stymies late efforts by opportunistic politicians in the state legislature to stall and reshape the project.

A $422m TIFIA loan from the US Government had been holding up the close but came through last week.

VDOT commissioner Greg Whirley was quoted in an announcement: "VDOT and ERC are ready to begin this project now. The existing Midtown Tunnel is a half-century old and in dire need of expanded capacity for the sake of safety, reduced congestion, better travel times and improved connectivity. The project not only involves building a tunnel, but improving the transportation network in the region."

The McDonnell administration has made two extra compromises to buy off opponents and make the project more acceptable to locals:

- toll collection delays from later this year to early 2014 funded by $100m from state transport funds

- no tolls for local trips on the MLK Extension toll expressway whose construction is part of the project linking the Midtown Tunnel and West Norfolk Bridge (VA164) to I-264

Local trips are vehicles entering or exiting the MLK extension at London Boulevard or High Street (see map nearby) at the northern end of the project.

Earlier the McDonnell administration had allocated money to reduce tolls by 40% as compared to those in the January 2010 interim agreement with the P3 partnership.

A listing of "key components" of the project from VDOT:

"The key components of the project include:
        Listed as the region's top priority by the Hampton Roads Transportation Planning Organization and local elected leaders
        Doubling the capacity of the Midtown Tunnel by building an additional two-lane tunnel near the existing one under the Elizabeth River
        Reduce congestion that now causes back-ups stretching over two miles at the tunnels during peak periods - will lower fuel consumption and emissions
        Commuters to save an average of 30 minutes per day
        Reduce traffic (including heavy truck traffic) on Portsmouth city streets
        Increasing transit service between Portsmouth and Norfolk
        Rehabilitating the existing Midtown Tunnel and both of the Downtown Tunnels
        Extending the Martin Luther King Boulevard from London Boulevard to I-264, with an interchange at High Street
        Modifying the interchange at Brambleton Avenue/Hampton Boulevard in Norfolk
        Financed through tolls, initially ranging from $1.59 to $1.84 per car for the tunnels and $.50 for the MLK Extension for tunnel users and $1 for non-tunnel users. This is significantly lower than the $2.86 toll rate estimated when the interim agreement was signed in January 2010 before the McDonnell administration took office
        Tolls will be collected electronically using E-ZPass, eliminating the need for toll booths
        More than 500 jobs will support construction activities and another 1,000 jobs in other sectors of the local economy. ERC plans to spend over $550 million on construction materials and supplies as well as provide subcontracting opportunities to disadvantaged business enterprises and small, women-owned, and minority businesses.
        When completed in 2018, the project is expected to cut round-trip travel time by a half-hour a day. Results will be improved safety, reliability and connectivity to the region's transportation network.
Financing:
        The comprehensive agreement was signed last December for a value of $2.1 billion. This includes total project costs such as financing, designing, building, maintaining and operating the tunnels and the MLK extension
        Project and its financing mechanism were endorsed by the Hampton Roads Transportation Planning Organization and local elected leaders in January 2012
        VDOT's contribution is more than $300 million specifically designated to lower the tolls by 40 percent compared to initial rates under the interim agreement signed in January 2010. Funds provided are from the Governor's 2011 Transportation Funding Package.
        VDOT's contribution is reduced from $362 million because it was able to secure a lower interest rate at financial close. Money saved will go back into toll relief
        The U.S. Department of Transportation provided a $422 million low interest TIFIA loan. This loan enabled the toll rates to be reduced to current levels.
        The comprehensive agreement requires ERC to take full responsibility to design, finance, build, operate and maintain the project. ERC is investing a significant amount of their own equity and is borrowing another $1.1 billion at their risk to build the project. ERC is solely responsible for obtaining and repaying all project debt.
        Toll escalation limited to the greater of 3.5 percent or changes to CPI. This is comparable to annual increases in VDOTs operations and maintenance costs.
        The comprehensive agreement does not guarantee a profit to ERC and the agreement has controls in place so ERC's return stays at a reasonable rate. Revenues from toll collection must first be used to pay operations and maintenance expenses, debt, taxes and reserve accounts before any possible return would be realized by ERC's equity investors.
Should gross toll revenues reach a certain level, a percentage of the revenues would go to VDOT, which would be used for transportation improvements in and around Portsmouth and Norfolk." end quotes

Comprehensive Agreement:

www.midtowntunnel.org/comprehensive_agreement.asp

Amendment #1 to Comprehensive Agreement that provides VDOT with option to delay tolls:

www.midtowntunnel.org/documents/CA_Amendment_No._1_web.pdf

Amendment #2 to Comprehensive Agreement that limits tolls on MLK Extension:

www.midtowntunnel.org/documents/dtmtmlk_CA_Amendment_No_2_web.pdf

Project website:

www.midtowntunnel.org

earlier report:

http://www.tollroadsnews.com/node/5862

TOLLROADSnews 2012-04-20

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