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Paved in Gold

Would you give up $60 million now for $500 million later? Why the mayor's deal with the Downtown Expressway could be a mistake.

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NO ONE IS advocating for the road's disappearance. And certainly the political consequences of the road becoming city property in 2022 needs to be considered. Still, isn't it worth figuring out how much this asset might be worth?

It's been suggested that if the city turns down the $60 million now, and the authority doesn't float the $200 million in bonds for repairs soon — pushing back the date the city would gain ownership of the road to at least 2040 — the expressway won't have much value. Richmond likely would be stuck with a giant repair bill, rendering the road somewhat worthless. In an interview in late June, Berry says that during the next 10 years the expressway likely will need $126 million in repairs; from 2022 through 2035 it will need an additional $353 million in repairs.

In other words, the city might get ownership in 2022, but the needed maintenance costs would eat up most of the profits for the foreseeable future.

Calculating needed repairs 25 years down the road, however, isn't an exact science. In reality, the authority is confident it can handle repairs through 2022 — adjusted for inflation, the expected maintenance and repair needs come to about $10 million a year. If necessary, the tolls may have to be increased, but they're typically raised every 10 years or so anyhow.

And no, the road won't fall into a state of disrepair if the authority doesn't do the $200 million bond issue and give the city back its $60 million.

"I'm good," says David Caudill, director of operations for the Richmond Metropolitan Authority, referring to the existing "pay as you go" financial plan through 2022. "Maintaining my asset, I'm good."

In an interview last week, Berry offers some clarification: The biggest reason the authority proposed paying the city back its $60.3 million? Interest rates are low. The authority expects it can get 6 percent on 30-year bonds, and if it doesn't act soon the rates could go up.

"We're just saying it's an opportunity," Berry says. "If the city says they don't want to do it — then fine, we pack our bags and go."

It's plausible that the authority's proposal to the city is the best deal. After 2022, yearly capital and maintenance costs are expected to reach $20 million. But experts say other options at least should be explored. The city hasn't done an in-depth financial analysis of the expressway system to figure out what it might be worth.

The value of the expressway system depends on a multitude of factors. Would the city sell the roadway outright, enter into a long-term lease agreement with private investors or negotiate a public-private bond issue over, say, 30 years? Calculating traffic projections and the potential toll earnings hinge on many different variables.

Estimating, though, it's likely worth at least $500 million — if not much more.

In 2004, Clark Construction Group of Bethesda, Md., and Lorton-based Shirley Contracting attempted to purchase the Downtown Expressway, Powhite Parkway and the Powhite extension for $581 million. That deal fizzled. The Clark-Shirley group wanted to use the downtown tolls to fund another extension deep into Chesterfield. People freaked out over the possibility of giant toll increases.

What's it worth today? An investment manager who specializes in public infrastructure says a sensible benchmark would be the Chicago Skyway, leased for $1.83 billion. The 7.8-mile Skyway is similar in length to Richmond's Downtown Expressway and Powhite Parkway, which measure 5.9 miles.

The Chicago toll road averages 40,000 to 50,00 vehicles a day; Richmond's expressway system averages at least 150,000 vehicles a day. The tolls are much higher in Chicago, starting at $3.50 for two-axle cars and trucks. Most agree that Richmond's expressway tolls, 70 cents at the main plazas, could go much higher without detrimentally affecting traffic counts.

"This is a smaller, more specific road, but it wouldn't be unreasonable to expect a long-term concession could well be worth north of $500 million," says the investment manager, who spoke on the condition of anonymity, of Richmond's expressway system. "No doubt about it."

Selling the road to private investors will mean higher tolls, possibly much higher, which could have a negative impact on traffic — and really fire up all those Chesterfield commuters. The city, however, can negotiate the rate of toll increases, and the new owners likely wouldn't push tolls so high that people stop driving on the expressway system altogether — or, at least, that's the general theory.

And almost everyone agrees that the tolls are nowhere near the tipping point. When the tolls went from 50 cents to 70 cents in 2008, traffic dropped off about 8 percent, but it's inching back upward.

"There comes a point when people won't pay them, or not make so many trips into the downtown area. I don't think they are at that point at the moment," Peter Samuel, editor of Tollroadsnews.com, says of the city's expressway authority. "They could raise the toll rates without doing too much to the traffic for a while."

There are some people who simply want the tolls gone. After all, when the authority was created and the road construction began in the early 1970s, that was the plan. Once the debt was paid, the tolls were supposed to come off.

"First, the [Jones] administration has got to explain to us why we need to receive this money now," City Councilman Bruce Tyler says. "The second task ... My goal has always been to have the tolls removed from this highway and turned over to the Commonwealth of Virginia so that they can take ownership of it."

Tyler says removing the tolls would encourage even more economic development. More people would come into the city, leading to more commerce. "I think a lot of people avoid using the highways, because they don't have the money to pay the tolls," he says.

While Tyler's position is the more politically popular one, it may not make the most sense economically. First, keeping the expressway system as a toll road has economic advantages, says George Hoffer, professor of transportation economics at the University of Richmond.

"Having a premium road downtown for those whose time is worth the most is more of an economic growth factor for downtown Richmond than making it free and congested," Hoffer says. "I would argue that there is value to the toll road because the people whose time is worth the least stay off of it. It frees up the road for those whose time is worth more for economic activity."

Another problem with taking the tolls off is that the state is strapped for cash, particularly for road maintenance. And the authority has lots of bridges, including the main 10-lane span over the James, making it huge potential expense. The tolls are what cover the maintenance costs.

So if the tolls don't come off, doesn't it make sense to at least find out how much the expressway system is worth? The question soon may be moot. The Jones administration has asked City Council to approve the $60 million deal with the Richmond Metropolitan Authority; if the council says yes, the city won't own the road for another 30 years. A public hearing has been set for Sept. 26.

Having an asset that's worth in the neighborhood of $500 million simply can't be ignored, some say. The city can't afford to wait.

"The bottom line is that the economics involved are so substantial that before anyone makes a short-term decision they need to carefully assess long-term financial impact," Pantele says, suggesting that the city needs to conduct an independent analysis of the expressway's potential value — now. "Decisions involving this much money need to be done very carefully." S

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