RICHMOND — An opponent of a controversial highway project in southeast Virginia said Monday that former governor Robert F. McDonnell (R) committed hundreds of millions of taxpayers’ and bond investors’ dollars even as federal regulators said the road faced serious environmental hurdles.
Gov. Terry McAuliffe’s abrupt decision to put the expansion of U.S. 460 on hold in March has brought new scrutiny to a project that has cost Virginia $250 million without moving so much as a shovelful of dirt.
The U.S. Army Corps of Engineers had expressed concerns about rebuilding U.S. 460 for years before McAuliffe (D) pulled the plug. But McDonnell and his transportation secretary kept pushing ahead so aggressively that the corps felt the need to remind the state in February 2013 that it had not yet applied for a permit for the $1.4 billion project, much less received permission to move ahead.
Now, critics say McDonnell and his administration appear to have misled bond investors about the project’s status to keep it alive. Project boosters dispute that assertion.
The public-private partnership created to issue $243 million in bonds for the highway was required to acknowledge to investors that the project did not yet have the Corps of Engineers’ blessing, and materials presented to investors did disclose that the developer still lacked certain permits.
But Trip Pollard, senior attorney with the Southern Environmental Law Center, said the partnership soft-pedaled federal regulators’ concerns about the project to investors, who were counting on toll revenue from the new road to pay them back.
“I think the way this was presented, at least from what I’ve seen, did not tell at all the full story,” Pollard said.
Aubrey Layne, who as chairman of the public-private partnership U.S. 460 Funding Corp. represented the interests of bondholders, said investors were made fully aware of all risks on the bonds, which were rated just above junk status and offered between 5 percent and 5.13 percent interest.
“We thought it was appropriate to let the bondholders know, ‘Hey, we don’t have a permit, we have issues,’ ” said Layne, who left the nonprofit corporation to become McAuliffe’s transportation secretary. “They had this information. There was risk. They decided to move forward.”
At the heart of Pollard’s accusation is the Virginia Department of Transportation’s two plans for U.S. 460. The first involved building an entirely new, tolled four-lane highway parallel to the existing corridor. The second, a fallback in case the state could not get permission for a new highway, was to add a fifth lane to the existing road.
But after the corps signaled that the bigger proposal would encounter permitting troubles related to environmental impacts, the state shifted gears and said its Plan B would now involve turning the existing highway into an eight-lane toll road.
In response, the corps issued a letter saying that both options would “result in substantial and similar impacts” on the environment.
But the corporation used that letter as a selling point with investors, Pollard said, suggesting that the corps no longer favored Plan B over Plan A — but not explaining the reason why: that both proposals were now seen as equally damaging to the environment.
Pollard cited a statement from the partnership to investors that “withdraws earlier correspondence” signaling a corps preference for Plan B.
“It flat out says the corps had withdrawn its previous concerns, which the corps did not do,” Pollard said. “I think that the language suggesting the corps had removed its alternative and the two are on equal footing did not tell the whole story and was misleading.”
Layne disagreed with that take, even though he is critical of the McDonnell administration for spending so much on a project without permits in hand. Layne said investors were made aware of the risk, if not all of the back and forth between VDOT and the corps. He noted that investors will have the right to call the bonds — making a claim on whatever money the corporation still has — if no permit is received by June 2015.
“They were told they may not get a permit,” Layne said. “What degree of that do you put in [writing]? . . . I’m very comfortable that it was disclosed to them.”
Sean T. Connaughton, McDonnell’s transportation secretary, did not respond to messages seeking comment. He defended the administration’s work on the project shortly after McAuliffe suspended it, saying by e-mail: “The current Administration needs to complete the supplemental study, design a wetlands mitigation and avoidance strategy, get the Army Corps permit, and build the road. It’s that simple.”
U.S. 460 is a lightly traveled four-lane road with stoplights that stretches from Petersburg to Suffolk. Ever since McDonnell was a state delegate representing Virginia Beach, he had been in favor of building a new tolled highway parallel to it. He said it would promote economic development and provide his home region with an additional hurricane evacuation route.
Critics said projected traffic was too sparse to justify the investment. The existing road averages 9,200 to 17,000 vehicles a day. The state estimates that the new highway would initially carry 5,000 to 6,000 cars and trucks a day.
Since 2005, the corps leaned toward improving U.S. 460 instead of building a new highway parallel to it, saying that option would be less damaging to the environment.
But in February 2013, federal regulators expressed deeper concern over the state’s continued investment in the project.
“Recent information suggests that design and acquisition for this project is moving ahead rapidly,” William T. Walker, chief of the corps’ regulatory branch, wrote to VDOT’s chief deputy commissioner. “Any purchase of right-of-way, commitment of resources, or construction activities conducted prior to our permit decision is at your risk and may not be considered in our analysis.”
The warning did little to slow things down. By the time McAuliffe suspended work, $250 million had been spent on a road that might never be built.
McAuliffe plans to review the project before deciding whether to proceed. Many observers think it’s unlikely to move forward. Soil tests taken last fall determined it would destroy 480 acres of wetlands, up from the 100 acres originally anticipated.