Transportation Policy Academy Pt. 1: Virginia Transportation Secretary Sean Connaughton

In October 2011, CSG hosted an invitation-only Transportation Policy Academy in Washington, D.C. for a group of 11 state legislators from around the country, many of whom serve in leadership positions on transportation-focused committees in their states. In addition to providing an opportunity for these state leaders to meet with their members of Congress about the future of transportation policy, CSG also invited a group of policy experts, public officials, advocates and observers to speak to the group about the policy landscape, what may lie ahead for states in transportation and what some states are doing in the absence of federal action. In the interest of sharing their insights and expertise with a broader CSG audience, this series of blog posts will feature extended excerpts from their remarks on a wide variety of transportation policy issues. Virginia Transportation Secretary Sean Connaughton (who is also the Vice Chair of CSG’s Transportation Policy Task Force) was the keynote speaker for the policy academy. In his remarks to policy academy attendees, he spoke about Virginia's new state infrastructure bank, it's exploration of public-private partnerships and other issues.

As Secretary, Connaughton oversees seven state agencies with more than 9,700 employees and combined annual budgets of $5 billion.Prior to joining the administration of Virginia Gov. Bob McDonnell, Connaughton served as Corporate Vice President, Government Affairs for the American Bureau of Shipping, one of the world's leading ship and marine classification societies, and was U.S. Maritime Administrator during the administration of George W. Bush in 2006.

Audits Turn Up Unused Funds for Transportation

Connaughton: “We came into office obviously facing enormous revenue problems and so we had to look for ways to innovate. The first year in office (2010) we spent an enormous amount of time looking at the operation of our agencies… We ended up doing several audits looking at different aspects of our transportation program… What we ended up finding was that we had about $1.4 billion worth of money actually stuck in the agencies… Money that was set aside for projects that weren’t moving forward. We had a construction reserve that should have been about $200 million. We had over $500 million, which was half of our construction program per year… We had about $1 billion in toll credits… We ended up finding all kinds of goofy things. But it ended up being about $1.4 billion.”

“If you have the opportunity to drive around Virginia, you will run into tonight seriously hundreds of road projects everywhere—paving and everything. It’s all the result of the fact that we were able to get money out of the system and get it out for what it’s supposed to be doing. We had $1 billion just in maintenance—small construction projects—last year. And we’ll have $1 billion out on the street next year as well… For the first time, we’re finally starting to catch up on our maintenance.”

Virginia Sells Bonds, Taking Advantage of Bond Rating and Low Prices

Connaughton: “The biggest (transportation proposal) we got through (the legislature in 2011) was a $4 billion transportation investment program mostly based on bonds because we want to take advantage of Virginia having a AAA bond rating. So we sold our first $600 million in bonds, got just about 4 percent interest… Now is the time to move forward on bonding because of our rating, because of the fact that the prices of projects are so low. Last year we had 100 different projects go out to bid—about $5 million. The average on them was 17 percent below our estimates. The bigger the project, the better the savings. We actually had projects come in at 40 percent below our estimates. So now is the time to get these out. Now is the time to take advantage of our bond rating.”

New State Infrastructure Bank

Connaughton: “We asked (the legislature) for the creation of an infrastructure bank. We seeded it with about $300 million, mostly money coming out of my capital construction account. We are going out right now for the first loans… It’s going to be something like TIFIA (the federal Transportation Infrastructure Finance and Innovation Act, which provides credit assistance in the form of direct loans, loan guarantees and standby lines of credit to finance projects of national or regional significance) but with a lot more flexibility… We are looking at all different ways to try to essentially leverage money.”

“I have a project—a new bridge off the Intercoastal Waterway—it’s a $300 million project. The locality wants to actually build it. We’re going to set up a capital reserve of $15 million. We’re going to issue bonds off of that--$150 million worth of bonds—and right now we’re looking at about a 3 percent interest rate because of the fact that we can use our state’s bond rating in helping issue these bonds to move this project forward at very low interest rates. So I get a $300 million bridge with $15 million of investment from the state.”

“We are now looking at a couple of other opportunities where we can use this for both credit enhancement as well as loan guarantees.”

“We ran a surplus this year in Virginia. The transportation program gets a certain amount of that. The Governor has committed that whenever we get one-time money like that, it will go into the infrastructure bank. So we’re going to get another $67 million. This is where we think the state can use its resources to actually leverage our limited resources to get projects underway.”

Public-Private Partnerships

Connaughton: “We are a leader in P3s. If you go out here in Virginia, you will see first the HOT lanes which are going in on our beltway, high-occupancy toll lanes. These will be completed next December. This is a $2.5 billion project, most of it funded by the private sector… If you have three occupants or above (in your vehicle), you will drive on those lanes for free. If you’re single occupancy, you will actually pay a toll. We have a contract with our P3 partner that they have to keep it going at 50 miles per hour. If it drops below 50 miles per hour, the toll will go from let’s say 50 cents a mile to $2 a mile. They will move the tolls back and forth to manage the speeds and the congestion…”

“To put a little more emphasis on P3s, we wanted to establish our own P3 office. It’s multimodal. We pulled it away from the government. We have it in an office building. It looks like and acts like a private enterprise. We got somebody outside of state government to actually run this office. They are there to help push through the P3 projects we have as well as to identify future P3 projects.”

“P3 projects are not free. We on average put up 25 percent of the cost of a P3 project.”

“One of the next P3 projects that we’ll be doing is I-95 tolling. We have requested and have ended up getting preliminary approval from the Federal Highway Administration to toll 95. And so we are moving forward fairly quickly and doing all the necessary studies… And the money we get from that tolling has to be used on the I-95 corridor. So what we will be looking at there is essentially a turnkey operation—collect the tolls, operate and maintain 95. For us, it’s essentially to get it off our books because 95 is a dog to us.”

Public Support for Tolling

Connaughton: “Generally what we have found is if there is added capacity, the public’s okay with tolling. Where there are all-new roads, the public’s okay with tolling. 95 is the first toll proposal that we’ve had which is essentially (on an existing road) and where at least initially (the public) is not going to see any differences in capacity.”

“We will not build a major transportation facility in this state again without some sort of tolls on it. And we are making quite clear to folks that it is a user fee and our gas (tax) revenues aren’t keeping up. If you’re paying that toll, you’re using that road. There is a direct connection. All that being said, there are some people who are opposed to it and some people who are grousing about it.”

Federal Role in Transportation

Connaughton: “TIFIA at the Federal level is critical. One of the things that we have been pushing for in this reauthorization of transportation—you’re not going to give us more money, okay. But get rid of all the regulatory burdens and give us more TIFIA. All I’m looking for from the Feds is just get out of my way and just give me TIFIA because TIFIA is what makes some of these big, big projects go.”

Virginia Seeking to Expand Shipping

Connaughton: “We have an inland port that is an intermodal facility right off the I-81 corridor. The purpose for that is that we’re trying to intercept the trucks up near the Shenandoah Valley so instead of them coming down onto I-95 or I-64 into the congested area in Hampton Roads, we get about 40,000 containers a year moved down from that inland port. And when we look at that, that’s almost 80,000 truck trips we prevent from getting on our highways…”

“We just took over the Port of Richmond, which was a city-owned port. We’re going to do the same thing there but we’re going to use barges… We have right now a barge running once a week. We’re going to move that up to three times a week to get more trucks off the road, off of (Interstate) 64.”