In a tight-money, low-tax state such as Virginia, the idea of public-private partnerships for building roads and bridges always is alluring.
It's a seemingly gravity-defying way that planners and business people can bypass skinflint General Assembly politicians to get the roads they want and open up land for development. With next to no state money for road construction, a public-private partnership allows developers to propose construction projects and float state-supported public bonds to pay for them. Indeed, gubernatorial candidates Creigh Deeds, a Democrat, and Bob McDonnell, a Republican, both hawk so-called PPP projects in their campaign literature.
But then there's Pocahontas Parkway. The 8.75-mile superhighway with its spectacular, sharply twisting concrete bridge over the James River opened in 2002 to link Interstates 95 and 295, feed more traffic to Richmond International Airport and eventually slice farmland in eastern Henrico County into housing subdivisions. It was the first road built under the public-private partnership act; it was built quickly and ahead of schedule.
From the start, there were doubts about the project, funded via $354 million in tax-free bonds and another $27 million in state loans and funds. Some Henrico officials questioned its economic viability, so a nonprofit association was created to build it. Within a year of its opening, traffic flows on the toll road were so anemic that credit-rating agency Moody's Investor's Service downgraded the project's bond rating to a shade above junk status.
Panicked that the state's pristine bond rating might be affected, former Gov. Mark Warner's administration scrambled to pawn the project off in a public-private partnership deal with Australian firm TransUrban Group. The company took over operation of the parkway in a 99-year lease for $815 million in 2006. It will pay for the project through a series of toll increases during the next several decades. The most recent was a 25-cent hike to $2.75 in January. The next one is due in 2011.
And now, the same old problems are threatening TransUrban. Traffic flows are off almost 11 percent from the past year, according to Andi Kuhn, director of the project. The culprit: mortgage lending cutbacks that have stalled residential projects in eastern Henrico such as Wilton Farms and Tree Hill Farm, meaning less traffic on Route 895, as the road is also known.
Job losses at Philip Morris and DuPont, plus the loss of thousands of positions at now-defunct chip-maker Qimonda near the parkway, also have played a big role. “We saw a pretty significant drop at Qimonda over one weekend,” Kuhn says. “Folks came in one Monday morning to learn that their jobs were gone.”
Kuhn declines to say how the dearth of riders and tolls have affected TransUrban's revenues, but she says the business' bonds are not affected. “It's a very well-capitalized company,” she says. TransUrban is one of the largest global infrastructure companies.
“We didn't expect to make a profit for quite a few years,” Kuhn adds. “We're in this for the long term.” TransUrban has managed to make improvements, including adding weather sensors and burglar alarms. A connecting interchange to link Richmond International Airport to the highway is on schedule for a March 2011 completion, she says.
Kuhn acknowledges that “ridership is not where we expected it would be.” The company expects revenues to pick up with an economic recovery. But the bottom line is that despite their glitter for tight-wad, no-tax politicians, public private partnership projects can't defy the gravity of economic bad times. S