While still early in the process — VDOT is simply deciding whether the two unsolicited bids are worthy of an extensive, detailed review — the issue is raising new questions about who should control and operate the region’s busiest commuter roadway.
Front and center in the debate is the Richmond Metropolitan Authority. The RMA is a political subdivision controlled by the city of Richmond and Chesterfield and Henrico counties. It owns and operates the expressway and Powhite, which opened in the mid-1970s, along with several local parking decks and The Diamond.
Plans to extend Powhite — which stretches from the city limits south of the James River to the outskirts of Brandermill in Chesterfield — have been part of that county’s long-range plans for years. The conceptual 9-mile road connects Powhite to U.S. Route 360 in western Chesterfield near the Deer Run and Woodlake subdivisions, the fastest-growing residential corridor in Central Virginia.
The county contends the extension is vital to alleviate future congestion along Route 360. “But it’s not critical that we have the road built today,” says John McCracken, director of transportation in Chesterfield. “We need the road in place as the area grows out,” he says. The lack of immediate need, along with state budget constraints, left those plans idle — at least, until last year.
In March 2003, VDOT received the first of two unsolicited bids from separate construction groups to build the extension with private dollars. Under the Public-Private Transportation Act of 1995, private companies are allowed to submit such bids for any road-building project in the state.
The first proposal was put together by Clark Construction Group of Bethesda, Md., and Shirley Contracting of Lorton. They would acquire Powhite and the expressway, and use the existing toll revenues to float nearly $586 million in bonds to refinance existing debt and pay for the extension. In turn, the city would receive $50 million to retire its existing debt on Powhite and the expressway. Chesterfield would receive about $8 million.
State transportation officials have signaled that they can’t move forward with the $586 million bid because VDOT has no jurisdiction over the RMA.
“We don’t own the RMA. So we don’t feel that we could accept a proposal that requires the purchase of RMA,” says Malcolm T. Kerley, VDOT’s chief engineer for program development.
But VDOT has agreed to hold off on a formal decision in order to give Richmond and Chesterfield time to study the proposal.
In the second, competing proposal, which was submitted in September, a group led by W.C. English Inc. of Lynchburg and Koch Performance Roads Inc. of Wichita, Kan., proposes constructing the same extension without purchasing Powhite or the expressway. Their proposed costs are about $234 million. But there is no payoff for the city or county. And the tolls, as outlined in the bid, are considerably higher.
This proposal raises most tolls on Powhite Parkway by 25 cents in 2008, then another 50 cents a decade later, in addition to constructing a new toll booth along the western extension. The $586 million bid calls for adding at least $1 in tolls on the newest portion of the road.
The two proposals are framed by simple economics. The $586 million bid is a better deal for bondholders because an existing, profitable revenue stream backs the bonds. In the last fiscal year, for example, 33.8 million cars passed through the main toll on Powhite; 17.9 million cars dropped coins in the Downtown Expressway toll booth. The $234 million bid is riskier for bondholders because the deal relies more heavily on new and untested toll revenue.
“The market will pay a premium for the solid history of this toll revenue stream” on the Powhite and expressway, says Jonathan Gifford, associate professor of public policy at George Mason University. “The total cost to the taxpayers of the county might be lower. Therefore, [the $586 million bid] may be a better financial deal.”
But there is a big tradeoff — especially for the city. If it takes the $50 million in cash, the city forfeits years of future toll revenue. The existing debt on the Expressway and Powhite is set to be paid off by 2022, which means in 2023 Richmond would start receiving about $15 million a year in toll revenues. By taking the cash now, it wouldn’t have access to that revenue for another 40 years. (Ownership of the roadway reverts to Richmond once the bonds are paid off.)
Under the $586 million bid, the Clark-Shirley group plans to establish a nonprofit corporation to control the entire roadway, doing away with the RMA as it currently exists. But exactly who would control the corporation is unclear.
“It’s going to be another new organization that would be very similar to the RMA,” says Pete Boisseau, a spokesman for the Clark-Shirley group. “It would be a regional group that would be representative of the city, Chesterfield and Henrico. It could even be the RMA.”
But Boisseau admits the makeup of the board — how many seats go to Richmond, Chesterfield, etc. — hasn’t been settled. That, he says, is up to VDOT. Barbara Reese, chief financial officer for the department, says Clark-Shirley’s plans of a nonprofit corporation running the roadway would not resemble the RMA.
Unlike the RMA, “It’s not going to be a political subdivision of the commonwealth,” she says. “Nonprofit corporations are private.”
And that affects who controls the tolls. The RMA is directly accountable to local government; the nonprofit would not be.
“There is a tradeoff. If you want this to be accountable to elected officials, then you are going to pay a premium to the bondholders,” says Gifford, the George Mason professor. “On the flip side, if those revenues fall short, then the investors foot the bill. You don’t want the recovery of your money held hostage by elected officials.”
The biggest questions have to do with accountability and risk, says City Councilman Bill Pantele, who leads the council’s transportation committee. At what price does the city agree to hand over control of the Powhite and expressway tolls, both of which are located in the Richmond, to private interests?
“That’s a discussion we haven’t had yet,” Pantele says.
The bidding process under the public-private transportation act adds another wrinkle. Intended to put road-construction projects on a fast track, the act streamlines the approval process and skirts things like public hearings, which are required for state-funded road construction. (Under the act, the state commissioner can approve the private bids instead of the 17-member Commonwealth Transportation Board.)
“This is not something just as simple as a nine-mile road extension,” Pantele says. “Is it a good thing or a bad thing? I don’t know.” S
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