Steve Kattula - Greater Greater Washington

Corporate welfare and the Beltway HOT lanes, part 3: Don't worry until it's too late

Wed, 18 Nov 2009 15:05:00 EDT

Virginia's contract for the Beltway HOT lanes are not just far from free to taxpayers and even worse if people carpool. The structure of the deal ultimately minimizes public outrage until it's too late, saddling taxpayers with a high bill and no voice.

The contract gives Fluor/Transurban a "first right" monopolization on expansion of the Beltway if congestion dictates. This clause not only ensures room for further profit, but if the project renderings are correct, much room at the center of the beltway will be left for HOT lane expansion at the expense of the left shoulder of the regular beltway lanes.

Image from Virginia HOT Lanes.

However, the project benefits list ROW for emergency vehicles as an important amenity. With one less shoulder for vehicle break-downs, tow trucks & ambulances will certainly need that access.

But most troubling of all has been the lack of citizen involvement, particularly in response to these covert subsidies. The most apparent reaction to the entire project was against the destruction of trees (required for the widening) and how this would affect the local bird sanctuaries. Everyone should be concerned about wildlife habitats, but it's troubling for local democracy that something so obvious (trees will be cut down along the beltway to widen it) came as a complete surprise to locals. Most Northern Virginians were completely unaware of the VDOT "Megaproject" prior to construction, and this illustrates the problematic nature of complex contracts that promise free stuff.

When taxpayer dollars are (supposedly) not involved, citizens (and even politicians) retract from the process, especially from boring contractual details. "Why should I care, it's not my money?" Whereas the costly Silver Line extension, Mixing Bowl project, and Wilson Bridge brought about citizen involvement in droves, the supposedly free and complex, "black-box" nature of the HOT lanes deal served to discourage input and criticism. Despite VDOT following legally-mandated procedures for public input, the result was an opaque deal-making process, and a bad deal for Virginians.

Of the total $1.9 billion (and rising), Fluor-Transurban is contributing only $349 million in private equity. Meanwhile, the state is paying $409 million and the Federal Highway Administration is lending Fluor $585 million in low-interest loans and $586 million in subsidized bonds. Taxpayers are also on the hook every year for the next 40 years for the carpool fees charged to the state account.

When users complain about the tolls as they have in Maryland, state officials can largely avoid the blame for high toll rates as Fluor/Transurban will set them, not state officials. It's also a large public works project with lots of visible "shovels in the ground" that politicians can tack on their resumes. But beyond that, it's a financially risky proposition with pennies of savings for a transportation solution that citizens are not enthusiastic about.

The up-front and back-door subsidies, beyond providing the right-of-way for free, reveals a fundamental problem with the business model. The idea that the private company would build a toll road on donated land at no construction cost to the state did not work, and probably cannot work. The deal was proposed as a public/private partnership, but it ended up as corporate welfare (regardless of how the VDOT website describes it). And in a weird, probably unintentional way, the community outrage over the high tolls has served as a red herring to distract citizens from hidden fees they have paid and will pay, regardless of if they use the road or not. The public dole that private industry requires for this deal to make a profit should serve as a proverbial canary in the coal mine for other proposed HOT lane projects.

With regards to elected officials, the deal points to the extreme imbalance of what Northern Virginians pay compared to tax dollars received back. Local politicians have been ever more tempted to take what they can get, even if the deal isn't great. The evolving nature of the HOT lanes deal was at first too good to be true. And the temptation of this free bacon to deliver to the local constituency was too much.

It remains to be seen if there will be any further welfare requests. But with the cards now on the table, one must ask what was wrong with the original estimates? Why the promise they could do the project on a totally private basis, followed by the late-in-the-game change? Why did politicians, VDOT, The Washington Post, and the public believe the almost magic promises, and why was there so little reaction when the nature of the project funding changed, but the reward mechanism to the private contractor did not?

11 comments

Corporate welfare and the Beltway HOT lanes, part 2: You better not carpool (too much) (Nov 11, 2009)
Corporate welfare and the Beltway HOT lanes, part 1: No free lunch (Nov 9, 2009)
Economy, opposition push VDOT to postpone I-95/395 HOT lanes (Aug 18, 2009)
Highway departments set on HOT lanes (May 8, 2009)
Dulles rail decision from a backroom deal? (Jan 30, 2008)

Corporate welfare and the Beltway HOT lanes, part 2: You better not carpool (too much)

Wed, 11 Nov 2009 10:46:00 EDT

by Steve Kattula

Most press coverage of the Beltway HOT lanes has either touted the lanes or noted the high planned toll rates, up to $1 per mile. Project proponents counter the toll outrage by pointing out that commuters can carpool on the lanes for "free." The correct term, however, should be taxpayer subsidized. The state have to pay Fluor-Transurban for each carpooling vehicle if HOV use exceeds 24% of total vehicles.

Photo by Sweet One.

From the agreement:

(b) The Department agrees to pay the Concessionaire, subject to Section 20.18, amounts equal to 70% of the Average Toll applicable to vehicles paying tolls for the number of High Occupancy Vehicles exceeding a threshold of 24% of the total flow of all Permitted Vehicles that are then using such Toll Section going in the same direction for the first 30 consecutive minutes during any day, and any additional 15 consecutive minute periods in such day, during which average traffic for a Toll Section going in the same direction exceeds a rate of 3,200 vehicles per hour based on two lanes.

Based on the contract, state taxpayers suffer if our effort to rideshare is too successful. But just how much will we need to share in order to be punished? To use the existing I-395 HOV3 as a gauge, VDOT counted 30,000 cars per day in each direction. Assuming that on an average day most of those carpools drive within a 6 hour window, 395 would have 5,000 HOV3 vehicles per hour.

If we estimate that Tysons HOV3 use will be half as successful as I-395 is now, we could conservatively assume 2,500 HOV3 cars per hour in each direction. During peak times, this could well encompass more than 50% of the cars in the lanes. Fluor could charge taxpayers for half the carpool vehicles at the going rate, adding up to tens of millions of dollars per year.

This penalty doesn't apply if Fluor-Transurban makes a 12.98% profit, but the more drivers carpool, the less likely it is they will make that profit.

As for buses, it remains unclear from the agreement whether or not they will cost the same as a car, or more. In Section 4.04:

(iv) The toll rates shall be the same for persons using the HOT Lanes under like conditions, and for this purpose "like conditions" may take into consideration type, weight and occupancy of the vehicle, number of axles, time-of-day and/or day-of-week travel, time and location of entry to the HOT Lanes, traffic congestion and other traffic conditions (provided, that the Concessionaire may adopt and implement discount programs for different classes or groups of persons using the HOT Lanes under like conditions, subject to the provisions of Section 11.01; and, provided further, that it is understood that, with dynamic tolling vehicles traveling on the same Toll Section of the HOT Lanes at the same time may be subject to different toll rates);

Buses weigh more and have more axles. If this provision allows for buses to be charged at higher rates, then bus trips could cost even more.

Ultimately, under this contract, if Virginia is too successful in reducing carbon footprint and traffic, or invests enough in express bus service, its taxpayers will instead be punished.

11 comments

Corporate welfare and the Beltway HOT lanes, part 1: No free lunch (Nov 9, 2009)
Economy, opposition push VDOT to postpone I-95/395 HOT lanes (Aug 18, 2009)
For buses, faster is cheaper (Aug 12, 2009)
Highway departments set on HOT lanes (May 8, 2009)
M Street "performance" parking doesn't match principles, doesn't perform (Mar 26, 2009)

Corporate welfare and the Beltway HOT lanes, part 1: No free lunch

Mon, 09 Nov 2009 10:34:00 EDT

by Steve Kattula

Beware of Australians bearing gifts, at least if those gifts are massive highway widening projects.

Image from Virginia HOT lanes.

Whether by negligence or malice, the Northern Virginia Beltway HOT Lanes project has become an increasingly expensive boondoggle. Fluor-Transurban, the private company working on the project, originally promised to build HOT lanes construction for "free" to the state, with overhead costs paid for by the company and recouped through congestion-priced tolls. With Northern Virginians desperate for road expansion and the rest of Virginia hoarding Fairfax County's tax dollars, a mere lending of public land in return for the good graces of benevolent corporate efficiency seemed like an unbeatable harnessing of the free market.

Proposed for $1.1 billion as a creative way to use free market demand to expand road capacity at no taxpayer expense, the result has been a $1.9 billion heavily subsidized profit hog, taxing citizens up front, on the back end through penalties, and regressively through user fees. While cost re-estimates should have been alarming, what should have come as even more shocking was the heavy demand for taxpayer money. Virginia provided $409 million in direct grant funding, along with ~~$1.7~~ $1.17 billion in federally subsidized loans and bonds. The few media stories on the project focused on the relative novelty of how pricey the tolls the new "private" road would be, when the more substantive story was that it had almost ceased to be a privately-funded road at all.

A major argument in favor of a public-private partnership is risk. A private entity assumes the loan and bond repayment risk, and this takes the burden of repayment off the public. But the glossy advertisements on virginiahotlanes.com don't account for the risk involved in dismantling NOVA's transportation spine. The risk is not so much if the private contractor drowns, but that if he drowns he takes us with him.

If the contractor goes broke, the central community artery will be in shambles. This creates the worst of scenarios, in which the state and citizenry assume great mobility risk and ultimately financial risk if the contractor defaults. With the road ripped to bits, taxpayers will be forced to finish the job or be paralyzed. In this sense, the criticism is similar to the argument against student loan giant Sallie Mae, in that Sallie Mae makes loans and the federal government is obligated to pick up defaulted student loans. Just as the private entity in that partnership does not assume adequate risk; neither does the private entity in the case of the Beltway HOT lanes.

Next: The contractual block against carpooling.

36 comments

Rein's "OMG $15 billion" Tysons costs include transportation far from Tysons (Oct 30, 2009)
SHA avoids the T word in 270 reply (Oct 28, 2009)
Economy, opposition push VDOT to postpone I-95/395 HOT lanes (Aug 18, 2009)
Highway departments set on HOT lanes (May 8, 2009)
Breakfast links: upset neighbors edition (Jun 24, 2008)

Merrifield: Fairfax's first try at TOD

Wed, 07 Jan 2009 17:05:00 EDT

by Steve Kattula

The proposed redevelopment (or reinvention) of Tysons Corner, the Silver Line, and Fairfax County's accompanying rezoning have gotten a lot of attention. But just to the south of that currently nightmarish crossroads is the county's first stab at transforming an office park and auto-dependent suburb into human-scale mixed use and transit oriented development. The revitalization of Merrifield is already a decade in the making, and if it's representative of other such large scale reinventions, folks waiting for Tysons to look like Ballston may want to get a Snickers bar.

See more photos

The new development closely follows the original 2000 Suburban Center Study. The county formally adopted elements of that study in 2003. Merrifield has an existing heavy rail transit station, but saw little to no community opposition, as the existing buildings are warehouses and auto-body shops.

It still takes quite a bit of imagination to see the long term vision from walking around the area. Today, it is just a sliver of what could be, abruptly terminated and transitioned to what was before. It's cool to look at, but not really fun to walk around. Despite its superior location at a crossroads of the Beltway, Lee Hwy, Route 50, I-66, and Gallows Road, and essentially at the geographical center of population for Fairfax County), the Merrifield revitalization hasn't yet created the spark to ignite development.

Community opposition squashed plans for a privately-funded, 8,000-seat minor league ballpark and adjacent mid-rise residential on the Dunn Loring Metro parking lot in 2000. Since then, nothing has catalyzed a gold rush or moved the area into the collective consciousness. Ironically, even the opposition hasn't put the area on the map. There were no protests, no fun color drawings in the newspaper like Tysons, and no maps of potential transit lines for people to ponder.

Fairfax County is now trying to get things moving by allowing developers to borrow money against future real estate taxes. They're trying to start with the proposed "Mosaic District" project, formerly Merrifield Town Center. The design of the project itself seems to incorporate all the right elements of density, mixed uses, and streetscapes, but the TIF funding depends on real estate values contining to rise. Now, they are going down. Way down.

Rather than a de facto Ponzi scheme as a catalyst, Fairfax County should pick up where it left off in 2000 with its study for light rail from Tysons to Merrifield and beyond. A Gallows Road Light Rail starter line to Tysons and Fairfax Hospital would take advantage of several factors:

Federal Infrastructure Stimulus Dollars could be used instead of relying on risky real estate values.
It would connect planned development (like Mosaic) with the existing underused metro station, thus maximizing investment dollars spent now and in the past.
There's already a right-of-way been set aside all along Gallows for future expansion to 3 lanes in each direction. This of course should be used for mass transit. No more ROW would need to be purchased.
It would connect the largest business district in Northern Virginia (Tysons) with the 4th largest.
The line would be relatively short, but serve quite a bit of development, again maximizing dollars spent to length of track laid.
It would terminate at the Virginia Power ROW. In the future, the line could be extended to Burke VRE and to Annandale/Van Dorn Metro (with a new connection to VRE).

View Larger Map

For another jump start, Fairfax could help fund a George Mason University Medical School across the street from the Fairfax hospital mega-complex on the existing under-used Mobil headquarters property. Take the quasi-city in and around Fairfax Hospital and give it a sense of place (along with a light rail stop). GMU could even incorporate their bioethics and bio defense schools into the project, giving the creative minds drawn to the academic endeavor an urban creative experience to further entice them to plant seeds in the community.

Furthermore, going back to Merrifield's position as the geographic and population center of Fairfax County, how about selling off the enclosed mall style county headquarters and property to the highest bidder, and building a new urban mixed use County Government Center on the Merrifield /Dunn Loring Metro property? The county could even take the elementary school it owns adjacent to the Metro station and build a bridge to connect the Metro ticketing area to that side of I-66. If we can spend $5 billion to extend metro to Tysons and Reston, let's maximize our existing infrastructure. Metro is expensive. Let's get what we can out of it like Arlington has.

Any of these three catalysts would make more sense than using public tax dollars to roll the dice on real estate values rising. At the moment, that's a very bad bet.

16 comments

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