Keeping the financing and construction of a proposed expansion of Interstate 66 under state control — rather than handing those responsibilities off to private investors — could net the commonwealth $200 million to $500 million in toll revenue over 40 years to be used for other Northern Virginia transportation projects, according to a new state analysis.
And gaining these benefits for taxpayers would cost the state half as much upfront, compared with doing a so-called public-private partnership, according to Virginia Transportation Secretary Aubrey Layne, who is set to describe the analysis Tuesday at a meeting of Virginia’s top transportation oversight body.
Virginia has been a national leader during the past two decades in tapping private companies to take over public transportation projects. Layne’s approach is the clearest sign yet that state officials intend to take a harder look at such public-private partnerships following a series of past missteps.
Layne said he has not ruled out pursuing a public-private partnership for the proposed $2.1 billion I-66 project under the right conditions.
But Layne said there has been a “bias” in Virginia toward assuming, for ideological reasons, that the private sector can always outperform publicly managed projects. And that bias has sometimes left the state “holding the bag,” with long-term, public-private arrangements that may conflict with the interests of the state, he said.
“We would welcome a partner on this deal. But it’s not going to be driven by ideology,” Layne said. “Our numbers show right now it’s better for the Commonwealth to do this as a publicly financed deal.”
Layne, who worked as a real-estate broker before being tapped as transportation secretary by Gov. Terry McAuliffe (D), said the new numbers were generated by top public- and private-sector financial analysts using the same rigor he uses investing his own money. He said he’s confident the numbers are solid but thinks it’s important to “throw them out there for everybody to take shots. . . . If you’ve got a better deal, we’d like to hear about it.”
Spokesman Brian Coy said McAuliffe is pursuing “a new less dogmatic, less doctrinaire approach. . . . The governor’s constituency is taxpayers. We don’t work for anybody else.”
Layne’s comments were in part intended to try to frame the debate over the future of I-66, what he described as probably the most important transportation project in the state. There are many unanswered questions on the effort, which would stretch new toll and carpool lanes 25 miles west of the Capital Beltway. Some in the path of the potential expansion have sought to halt the project, and other critics argue that adding miles of new roadway will not unplug the region’s snarled traffic.
It is precisely because of such community concerns that a public-private partnership, P3s in industry lingo, needs scrutiny before being considered on I-66, Layne argued. Historically, much-needed transit components have fallen out of P3 arrangements in Virginia, Layne said, and without them the I-66 project would fail. Money to buy and operate commuter buses is part of the 40-year state-financed deal he had analyzed, Layne said.
Layne acknowledged the political and financial risks inherent in keeping the project under state control. Backing by the General Assembly would be needed in some variations of the plan, and officials would have to find $400 million to $600 million in upfront public funding. But that figure would be $900 million to $1 billion for a public-private partnership, Layne said.
Virginia has long been hospitable to handing over public transportation projects to private companies, like it did with new toll lanes on Interstate 95 and the Beltway, and a tunnel being built in Hampton Roads.
Private firms came up with money to add the toll and carpool lanes in Northern Virginia and to start digging an underwater tunnel from Norfolk to Portsmouth. In exchange, the companies get to keep toll revenues for decades and profit from whatever’s left after covering their costs.
Layne said the state has had a good partnership on the Northern Virginia toll and carpool lanes, though there are some long-term risks. For example, under certain circumstances, the state would have to pay the contractor if too many people carpool, even though carpooling is something the state advocates to reduce congestion, he said.
But he was sharply critical of a failed effort to build a new Route 460 between Petersburg and Suffolk, which he said burned through more than $250 million without even having the needed Army Corps of Engineers permits required to start construction.
He also said the agreement governing the Hampton Roads tunnel project requires the state to pay the contractor if any competing tunnels or water crossings are built in the area in the next 50 years that could reduce toll revenue to the private entity.
Del. S. Chris Jones (R-Suffolk), chair of the House appropriations committee, pushed legislative reforms meant to address such problems. They require that public-private partnerships be certified as being in the best interest of the commonwealth before they can move forward. He said Layne is moving ahead prudently.
“He’s taking the right approach. The P3 process was always supposed to compare what the public option would cost versus the private option,” Jones said. “The objective is to make sure that we get the best value for the taxpayers’ investment. Whether that’s going the P3 route or the state doing it on its own, I’m agnostic in that regard. ”
Jonathan L. Gifford, director of the Center for Transportation Public-Private Partnership Policy at George Mason University, said the private sector has “a fairly good track record on these types of projects,” adding that firms have proven themselves effective at keeping cost overruns and construction delays down because it is in their financial interest to do so.
“There are a lot of industry folks I talk to that feel it’s an ideal revenue-risk project,” Gifford said of the proposed I-66 expansion. “There’s a substantial amount of revenue potential there. . . . There would be a substantial number of people who would be willing to pay significant amounts in order to be able to have a reliable trip.”