News & Features » Cover Story

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.


The Downtown Expressway, pictured here, and Powhite Parkway are big moneymakers: More than 55 million trips through the tolls in fiscal 2010, or about $34.5 million. - SCOTT ELMQUIST
  • Scott Elmquist
  • The Downtown Expressway, pictured here, and Powhite Parkway are big moneymakers: More than 55 million trips through the tolls in fiscal 2010, or about $34.5 million.

Five hundred million. Think about it for a minute. Imagine you're the city of Richmond, sitting on piece of real estate that would sell for half a billion dollars, probably more. In one lump payment.

Half a billion. That's enough to wipe out a third of the city's debt. Triple-A bond rating? Check. It's enough to erase the city's 6-percent meals tax for 20 years. Or give everyone in Richmond a two-year break from paying real estate taxes, or knock a few cents off the tax permanently.

No money to build a new baseball stadium? Half a billion dollars is enough for 10 stadiums. Two, maybe three Richmond Coliseums. Dreams of high-speed rail at Main Street Station? It's now reality. Think Norfolk's progressive new light rail system is cool? Richmond's will be bigger. Remember Doug Wilder's $300 million City of the Future plan, the renovation of 15 city schools? Done — with money left over to build a new coliseum and a ballpark.

Half a billion dollars is enough money to redevelop Gilpin, Mosby, Fairfield — maybe all of the housing projects. Food deserts are a thing of the past. Want to create jobs? Just think of the financial incentives Richmond could dangle to land Wal-Mart, Target, or a whole fleet of grocery stores.

Now imagine you wake from that dream. You're in your car, on the way to the office, sun breaking over the horizon. You zip through the EZ-Pass lane and hop off the expressway into downtown. You just drove through the gold mine and didn't even know it.

IN ANOTHER 11 years, that Downtown Expressway system is going to be paid off. The Richmond Metropolitan Authority, a political subdivision of the state, has owned and operated it and Powhite Parkway, which includes the 10-lane bridge over the James River and the toll plaza to the south, since the early 1970s. When the debt is paid in 2022, the toll road is scheduled to become city property.

Richmond put up the land and the money in the 1960s, but the RMA holds the debt off the city's books. The deal was that the expressway system would become Richmond property when the mortgage cleared.

How much is the road worth? A single pass through the tolls costs 70 cents. Those few quarters add up. Between 150,000 and 160,000 trips are taken through the tolls almost every day. Last year that amounted to $34.5 million. After expenses and debt service, there was about $10 million left over. Most of that $10 million is used for upkeep — repaving, bridgework and regular maintenance. When the debt is paid off in 2022, there will be an extra $13 million a year.

This isn't exactly an up-and-down business, either. The expressway offers the only major bridge across the James, connecting the biggest residential suburbs of Chesterfield County with downtown Richmond. It's a commuter road with almost no competition. There are alternate routes into and out of the city, but they all tack on at least 15 minutes or more of drive time, and that's not including the headaches of stop-and-go traffic lights. During the height of the recession, the expressway system notched two of its best years in terms of traffic, generating more than 59 million trips through the tolls in 2007 and 2008.

All that adds up to a valuable, profit-churning business. In the last five or six years, big institutional investors and overseas transportation companies started offering big bucks to take over U.S. highways — but only those with tolls. Most are long-term lease deals, between 75 and 99 years. Investors paid $1.83 billion for the Chicago Skyway. The Indiana Toll Road went for $3.8 billion. Back in 2004, a team of private construction companies offered $581 million for Richmond's expressway system and the Powhite extension. Today, experts say it's worth at least $500 million.

BLINK, HOWEVER, AND that $500 million disappears — at least for another 30 years. Mayor Dwight Jones and his administration are pushing for a quicker, but much smaller payoff.

In June the expressway authority approached the city with a proposal: It wants to pay back the city, which paid to get the road running in the early 1970s, a cool $60 million. It's been long overdue. The money is part of a bond issue that the authority says it needs to float — increasing its debt by $197 million — for capital improvements. Because interest rates are so low, it can roll it all into one deal. The city gets its money and the authority gets its money — on the cheap. But there's a catch: If the city agrees to the deal, it will push out the debt on the road for another 30 years. Instead of owning the expressway system in 2022, the city wouldn't get it until at least 2040.

Transportation economists say it might be a mistake to take the money and run, especially if the road's in good condition (it is) and the city hasn't at least tested the market. Perform a financial analysis, maybe issue a request for proposals, see what comes back. Big institutional investors are searching for stable cash cows to invest in. Cash-strapped municipalities are desperate to leverage their moneymaking assets.

"This is an asset that's slated to fall into the city's pocket here and be quite a valuable asset that could be sold off or operated by the city, or a number of alternatives," says Jonathan Gifford, director of the transportation policy, operations and logistics program at George Mason University. "If they are keeping the road in good shape, and they are doing it at current toll levels and they are paying down the debt, why would the city take $60 million today instead of a much larger amount 10 years from now?"

Politics, for one. It's easy to see why the mayor wants the $60 million now. Next year is an election year. Big-ticket construction and budget surpluses pad the campaign résumé, perhaps pave the way for higher office. Jones doesn't have much else. Plans for a new jail are a mess and school construction has been delayed. It's too late for Jones to build a new ballpark or a new coliseum. If City Council approves the expressway authority's deal, it would float the bonds this fall and the city would get its big check — $60.3 million to be precise — by the end of 2011.