Let the Greenway Bloom
Investors are watching to see how fairly Virginia regulators treat private risk capital
By Leonard C. Gilroy, AICP

Opponents of the recent Dulles Greenway toll increase (see "Wolf in Sheep's Clothing") apparently haven't clouded the judgment of at least one key transportation steward. Del. Joe May, R-Loudoun, understands the critical importance of private-sector investment in expanding and modernizing Virginia’s road system.

"We need to get [the Greenway] right," said May when opening discussion of the latest Transportation Accountability Commission meeting. As chair of both the Commission and the House Transportation Committee, he understands that a legislative witch hunt against the Greenway would chill private-sector interest in financing other badly needed road projects statewide.

Private-sector investment in the Commonwealth's transportation system has never been more critical, and political risk is like kryptonite for private investors. As traditional transportation funding sources dry up, elected officials cannot afford to scare off the private firms able and willing to invest across the state. Given state efforts to advance private-sector financing of the Capital Beltway expansion and I-95/I-395 in Northern Virginia, and the Midtown Tunnel Corridor Project and rebuild of U.S. 460 in Hampton Roads, there’s a lot at stake for drivers across the Commonwealth.

The first step to "getting the Greenway right" is to understand it. The world of transportation finance and public-private road partnerships is inherently complex, and the Greenway is unique in several ways.

The Greenway is the only toll road in the country that is regulated by a state utility commission, a structure established under the 1988 Virginia Highway Corporation Act facilitating the road's development. Subsequent private toll roads have been developed on a purely contractual basis under a later law. A popular misconception is that the Greenway's private operator has the discretion to charge whatever it chooses, but that’s not so. The State Corporation Committee (SCC) has the ultimate authority to approve or deny proposed Greenway toll increases. It can approve an increase only if the operator proves that several criteria have been met.

One of those criteria is that toll rates provide the operator no more than a "reasonable" rate of return. There are no guaranteed returns on investment, however. In fact, after 12 years of operation the Greenway has yet to turn a profit.

Here's why. When the road opened in 1995, the explosive growth projected in eastern Loudoun had not yet materialized, and traffic volumes (and hence, revenues) did not match projections. The Greenway defaulted, but a financial restructuring gave the project a new financial base (at considerable cost to the initial private investors). Then Loudoun boomed, and the traffic arrived. In fact, since 2000, the operator has spent over $50 million to add new lanes to handle the increased demand.

Further, the Greenway has spent more than $40 million over the same period to upgrade nearby state and local roads and bridges to improve Greenway access and traffic flow. Stated differently, the private operator has paid to improve non-tolled, public roads that Loudoun citizens benefit from whether or not they actually use the Greenway.

The Greenway is also the only privately financed U.S. toll road that pays local property taxes, to the tune of over $2 million annually. Additionally, it pays almost $750,000 per year to the State Police to service the road. Once you add all of these together, it becomes apparent that a lot of Greenway dollars flow into public coffers every year.

Since the Greenway's only revenues are the tolls, its operators only have two options to meet its rapidly rising debt service obligations, cost of operations and maintenance expenses in coming years: Increase the number of daily road users or increase tolls on a semi-regular basis. Given that rush-hour traffic levels on the Greenway are constrained by choked public feeder roads at either end, toll increases become the only option to raise necessary revenues.

While some motorists have complained that the recent increases (to be phased in over several years) are too high, they fail to realize that tolls could be lower if state and local officials were to exempt the Greenway from property taxes and get serious about addressing congestion on its feeder roads (which would benefit Greenway users and non-users alike).

At the end of the day, Virginians should understand that the Greenway would not even exist had private investors not taken on tremendous risks to raise the needed capital to acquire the land and build it. Imagine what traffic would look like today if the Greenway didn't exist and its nearly 60,000 daily customers were instead jockeying for space on Routes 7 and 28!

At the end of the state/operator agreement in 2056, the operator will hand over the Greenway to the Commonwealth at no cost. So, the state (and the public) will ultimately receive a road that it didn't actually have to build itself.

While some politicians want to make hay out of Greenway tolls, thoughtful officials like Del. May understand that privately financed roads benefit everyone by providing new infrastructure to improve mobility and reduce congestion, something the public sector is proving itself increasingly unable to accomplish.

Leonard Gilroy is director of government reform at the Reason Foundation and Senior Fellow for Government Reform at the Thomas Jefferson Institute for Public Policy. An archive of Gilroy's work is here. Reason's transportation research and commentary is here.

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