After paying a private company more than a quarter-billion dollars for a road that was never built, Virginia officials say they’ve reached an agreement for a modest refund.
US 460 Mobility Partners — made up of Spanish multinational Ferrovial Agroman and Pennsylvania-based Allan Myers — will return $46 million to the state. The firm had been hired to build a 55-mile toll road in southeast Virginia. The state lacked the needed federal permits but kept the automatic payments flowing to the company anyway.
The consolation for the commonwealth’s taxpayers?
“It could have been a whole lot worse,” said Aubrey Layne, the state’s top transportation official.
Layne said that a deal reached by Gov. Robert F. McDonnell’s administration left the state exposed, noting that 460 Mobility had been arguing that it was due an additional $103 million from the commonwealth. “Quite frankly, they probably would have won in litigation. The contract really did favor them,” Layne said.
A spokeswoman for 460 Mobility said the company was “pleased to have reached an agreement to bring an amicable resolution” to the project.
“We are proud of the collaboration with the Commonwealth of Virginia through each stage of this process and look forward to working with the state on future endeavors,” said spokeswoman Shannon Moody, of Allan Myers.
Virginia will also pay out about $50 million more to investors who bought bonds to fund the project, Layne said. “The state will be out $210 million to 460 Mobility and an additional $50 million to pay interest on the bonds. . . . About $260 million is what we will have spent on a road we can’t build,” Layne said.
Del. S. Chris Jones (R-Suffolk), chairman of the Virginia House of Delegates’ Appropriations Committee, said the loss isn’t theoretical. Those funds could have added two lanes on Interstate 64 running from Newport News to Williamsburg, he said.
“In essence,” $260 million was “wasted by the commonwealth. We have nothing to show for it,” Jones said. “It’s actually mind-numbing that we got put in this position.”
The toll road was supposed to link Petersburg, south of Richmond, to Suffolk, near Virginia’s seaboard. The road would have run parallel to existing U.S. 460, and backers said it would have smoothed freight shipments from the Port of Virginia, connected military facilities, promoted development and provided another escape route during a hurricane.
The $1.4 billion project was governed using the state’s 20-year-old Public-Private Transportation Act, which gives officials wide latitude in pairing public infrastructure projects with private companies.
The theory was that cost-conscious private companies would be positioned to both profit and save the state money. The firms would cover the costs of building a project, then be compensated with decades of toll revenue.
But the 460 project didn’t follow the theory. Instead, it bared vulnerabilities in how the laws were written to govern such projects. The toll road started as a public-private partnership, but officials changed course midway when private investors concluded that the project didn’t make business sense because there wouldn’t be enough traffic to generate sufficient toll revenue.
The state decided to hire a firm for the comparatively basic task of building the road. But the typical state procurement rules that require more rigorous oversight were not applied.
Under the transportation act, the contract with US 460 Mobility Partners was not subject to the approval of the state’s top transportation oversight body, the Commonwealth Transportation Board, said Layne, a board member. He was a supporter of the 55-mile toll road and headed the nonprofit entity set up to sell the project’s bonds.
But Layne said that after Gov. Terry McAuliffe (D) brought him on board as transportation secretary and he had a chance to get into the nitty-gritty of the contract, he concluded that the interests of the commonwealth had not been well protected.
Crucially, he said, he learned that the risks associated with obtaining a construction permit for the road rested on the state, not the contractor, as he and others on the Commonwealth Transportation Board had been led to believe. That meant, Layne said, that the contract called for 460 Mobility to keep getting automatic payments regardless of whether it had the permits to build anything.
Moreover, Layne said, the deal was structured to front-load state payments to the company, with the justification being that doing so would lower borrowing costs and save the commonwealth money. In fact, the arrangement ended up doing the opposite.
Layne said $80 million to $90 million was paid to 460 Mobility for construction “mobilization,” even though no road was constructed. Those “mobilization” fees formed the basis for the state’s position that 460 Mobility should return some of the payments. The company, meanwhile, argued that Virginia owed it more than $100 million, based on the contract.
“I’m not happy with it,” Layne said. But “I think it’s about the best deal we could have gotten in a bad situation.”
On Thursday, McAuliffe had a ceremonial bill-signing to mark the July 1 start date for new public-private partnership rules requiring more transparency on such projects.
Through a spokesman, Sean T. Connaughton, who oversaw the 460 deal as McDonnell’s transportation secretary, declined to comment.