Virginia Enters Into Comprehensive Public Private Partnership in Hampton Roads

The state of Virginia has entered into a new comprehensive Public Private Partnership (PPP) with Elizabeth River Crossings to build a new Midtown Tunnel, rehabilitate the existing Midtown Tunnel, rehabilitate the Downtown Tunnels, and extend the Martin Luther King Freeway. The completion of these projects will decrease travel times in the Hampton Roads area.

According to the Virginia Department of Transportation:

The comprehensive agreement has been under negotiation for almost five months between VDOT, ERC and the new Office of Transportation Public-Private Partnerships (OTP3). ERC is a joint venture between Skanska Infrastructure Development and Macquarie Group. The agreement was signed by VDOT Commissioner Greg Whirley under Virginia’s Public-Private Transportation Act. It authorizes construction to begin in 2012, pending financial close early next year.

“The Midtown Tunnel project has been at the top of the region’s priorities for many years,” said Transportation Secretary Sean T. Connaughton. “The state’s use of a public-private partnership structure will enable VDOT to attract approximately $1.7 billion in private investment to a project that yields tangible long-term benefits to the region and the state.”

The key components of the project include:

• Doubling the capacity of the Midtown Tunnel by building an additional two-lane tunnel near the existing one under the Elizabeth River

• Increasing transit service between Portsmouth and Norfolk

• Rehabilitating the existing Midtown Tunnel and both of the Downtown Tunnels

• Extending the Martin Luther King Freeway from London Boulevard to I-264, with an interchange at High Street

• Modifying the interchange at Brambleton Avenue/Hampton Boulevard in Norfolk

• Financing and tolls

• The comprehensive agreement was signed for a value of $2.1 billion. This includes total project costs such as financing, designing, building, maintaining and operating the tunnels and the MLK extension.

• VDOT’s contribution is $362 million specifically designated to lower the tolls. VDOT’s contribution is reduced due to lower interest rates.

• ERC will provide financing through a $422 million TIFIA loan, and approximately $1.3 billion through equity, debt and revenue from operations.

• Project will be financed through tolls, initially ranging from $1.59 to $1.84 per car for the tunnels and $.50 for the Martin Luther King Freeway extension for tunnel users and $1 for non-tunnel users.

• Tolls will be collected electronically using E-ZPass, eliminating the need for toll booths.

The tunnel should save commuters an average of 30 minutes round-trip. Virginia has several successful PPP projects including the Pocahontas Parkway (SR 895) across the James River, a portion of SR 288 West of Richmond, and the SR 199 loops around Williamsburg. This PPP project will allow these highways to be improved in about ½ of the time of traditional highway projects. This megaproject should be completed by 2016.

Virginia is one of 31 states that have PPP enabling legislation. PPPs offer governments a way to address problems such as aging infrastructure, increasing demand and constrained budgets. PPPs have five significant advantages over traditional methods: they deliver needed transportation infrastructure, raise large sources of capital for projects, shift risk from taxpayers to investors, offer a businesslike approach, and spur major innovations.

Congratulations to the Commonwealth of Virginia for entering into this important agreement.

Reason has written extensively about PPPs. These include Building a World-Class Infrastructure PPP Program in Puerto Rico by Leonard Gilroy, 10 Myths and Facts on Transportation PPPs by Leonard Gilroy, The Year 2010 in Toll Roads, HOT Lanes, Infrastructure Finance by Leonard Gilroy and Bob Poole and The Role for Public-Private Partnerships in Modernizing and Expanding Nebraska’s Transportation System by Shirley Ybarra. More information is also available at Reason’s Transportation Website.