VA Circuit Court Judge Decision Declares Tunnel Tolls Unconstitutional; Could Impact Other Public-Private Partnerships

A Circuit Court judge’s decision in Virginia could spell trouble for a tunnel project already under construction in the Norfolk-Portsmouth area and could have broader ramifications for the future use of public-private partnerships (P3s) in the commonwealth. I also have links to a number of other recent items on tolling and P3s and more on a conference this summer that will bring these issues into sharp focus.

A judge in Portsmouth Circuit Court last Wednesday ruled that Virginia’s $2.1 billion public-private partnership on the Midtown Tunnel and its tolls are unconstitutional and that the state’s 1995 Public-Private Transportation Act involves an unconstitutional delegation of power to the executive branch, The Virginian-Pilot reported. Circuit Judge James A. Cales Jr. said in his ruling that the Virginia General Assembly exceeded its authority in giving the Virginia Department of Transportation “unfettered power” to set toll rates under the Act.

Brian Gottstein, a spokesman for state Attorney General Ken Cuccinelli, said in a statement that if the ruling stood, it would threaten the state’s ability to use public-private partnerships to build major transportation projects. The state plans to ask for a stay on the ruling while an appeal is filed and as work on the Midtown Tunnel project continues.

“Many tolled projects could require legislative approval before proceeding, which would mean significantly increased costs and construction delays,” the statement said.

Elizabeth River Crossings, the state’s private partner on the project, took over operations of the tunnels last summer. Their agreement with the state DOT requires them to maintain and operate the tunnels for 58 years, oversee construction on a second Midtown tunnel, renovate the existing tunnels, and extend the Martin Luther King Jr. Freeway to Interstate 264. Electronic tolls are scheduled to start on the tunnels next February and on the freeway extension when completed.

The winning attorney in the case, Patrick McSweeney, told TollRoadsNews that the ruling could indeed spell trouble for all P3s in the state, and also for the Dulles Toll Road, which McSweeney said was transferred from the state to the four-jurisdiction Metropolitan Washington Airports Authority without the constitutionally required approval of the legislature.   

Gov. Bob McDonnell expressed his disappointment with the ruling, adding: “The existing tunnels were built with toll revenues and tolls are needed again to build a second Midtown Tunnel and make other essential improvements for the sake of safety and efficient travel.”

The governor called the project “vital to the safety, transportation and economic vitality” of the region.

The Virginian-Pilot also reported that Fitch Ratings told investors in an April 9 report that if the litigation stopped toll collection on the project, the state would be required by its contract to repay the debt that has been incurred for it. That includes $663.75 million in private bonds issued last year and a $422 million federal loan, for a total of over $1 billion.

McSweeney predicted the appeal of the decision could take the better part of a year to be resolved.

More on P3s & Tolling

  • America THINKS Survey: A recent America THINKS survey by HNTB Corporation found that 70 percent of respondents believe their state transportation department should have the option to add tolling, while 80 percent said state DOTs should be allowed to enter into public-private partnerships to bring about transportation improvements.
  • Colorado: State transportation officials say to expect more public-private partnerships in the state similar to a deal allowing a private firm to take over maintenance of U.S. 36 and toll collection in the managed lanes between Denver and Boulder, The Denver Post reported last month. “We have no money for capacity improvements,” said Don Hunt, executive director for the Colorado Department of Transportation. “In 2007, we received $468 million from the state legislature, and this year (fiscal 2012) we got zero.” The Fort Morgan Times also reported recently on Colorado’s P3-oriented future.
  • Florida: Scott Gunnerson of Florida Today wrote recently about how state transportation officials believe an increased reliance on tolls to pay for road construction is in their future … Last month, the Florida Department of Transportation announced it had accepted Statements of Qualifications from seven firms for the I-4 Ultimate Project, a public-private partnership procurement that involves the reconstruction of over 21 miles of I-4 in Orange and Seminole Counties at an estimated $2.1 billion cost. The concessionaire selected would enter into a 40-year design, build, finance, operate, maintain concession agreement and receive availability payments throughout the operating period. FDOT will assume the traffic revenue risk. The project is just the fifth highway P3 in the United States to adopt the availability payment structure, according to Nossaman LLP’s Infra Insight blog. Availability payments are payments made by the public project sponsor (i.e. the state DOT) to the private concessionaire based on project milestones or performance standards.
  • Indiana: Former Indianapolis Mayor Stephen Goldsmith penned a recent piece for Governing in which he talked to two state officials about why Indiana was successful in attracting private partners for the East End Crossing of the Ohio River Bridges project. The state put out the call in March of last year and financial close on the project was reached in March of this year—an almost unheard of quick turnaround for a transaction on this scale. Kendra York of the Indiana Finance Authority (IFA) and Michael Cline of the Indiana Department of Transportation (INDOT) tell Goldsmith it was important that the project had executive sponsorship from former Gov. Mitch Daniels, had a process in place that tapped the expertise of both IFA and INDOT, didn’t get bogged down in efforts to negotiate and allocate risk, made efforts to speed up the process with a tight procurement timeline and faster negotiations involving the principals, and used the procurement process to encourage innovation.
  • Pennsylvania: PennDOT, the state department of transportation, announced last week they are accepting unsolicited public-private partnership proposals for transportation projects through the end of the month. PennDOT Secretary Barry Schoch said in a statement that “P3 projects are another tool we have to meet or expand Pennsylvania’s transportation services, and this is an opportunity for the private sector to share innovative ways to deliver projects.” Gov. Tom Corbett signed the legislation to authorize P3 projects in the state last summer.

Other Items of Note

  • Laura Barrett of The Shelterforce blog wrote recently that there are “6 Reasons to Be Wary of Public-Private Partnerships.” They include: Little or no democratic oversight in P3 projects, a lack of competition in P3 arrangements, the public sector is often saddled with the risk, deals are pushed through without community involvement, critical opportunities are missed to provide community benefits, and long-term strategic planning is neglected without the input of metropolitan planning organizations and other groups.
  • Eric Jaffe of The Atlantic Cities blog writes this week about “The Uncertain Future of Public Roads.” Jaffe says experts believe the P3 trend has yet to peak and the ramped-up P3 activity of recent weeks are a case in point: the Colorado U.S. 36 deal, the East End Crossing in Indiana, the Goethals Bridge overhaul in New York City, and Pennsylvania’s open call for unsolicited P3 proposals provide ample evidence that P3s are on the rise. Jaffe notes that “some scholars, public interest groups and lawmakers caution that PPPs often fail to deliver the improvements they promise, cuff the hands of local officials for generations, undermine comprehensive urban planning, and threaten the core value of roads as a public service.” Jaffe’s piece provides a brief overview of what he calls the “long and shaky history” of putting public roads in private hands in the United States. He also provides a good overview of recent reports from Brookings, U.S. PIRG and others on how to shape P3 deals and programs to best serve the public.
  • Public-private partnerships were one of the topics transportation experts discussed this weekend at the American Society of Civil Engineers’ Structures Congress in Pittsburgh, according to E&E News’ Greenwire. William Hasbrook of transportation consulting firm OHL Texas told attendees: “There’s all kinds of fiscal pressures at the state and local levels due to cost escalations … I don’t think [public-private partnerships] are the answer to everything … but when it makes sense, it certainly does because it can include innovative debt structures, revenue enhancement.”

InfraAmericas U.S. P3 Infrastructure Forum 2013

The Virginia Circuit Court decision … The U.S. 36 P3 deal in Colorado … The I-4 Ultimate Project in Florida … Pennsylvania’s open call for P3 proposals … The East End Crossing in Indiana. All are likely to be topics of discussion this summer at the InfraAmericas U.S. P3 Infrastructure Forum in New York City. For the third year in a row, CSG is a supporting organization for the conference, which brings together state and federal transportation policy makers and P3 industry executives from the private sector, U.S. pension plans and the capital markets. For those in state government, the conference provides an opportunity not only to learn more about the state of public-private partnerships but also to make connections in the industry that could pay dividends down the road. Among those scheduled to speak are Virginia Office of Transportation P3s Director Tony Kinn, Michael Cheroutes of the Colorado High Performance Transportation Enterprise, Brian Peters of the Florida Department of Transportation, Bryan Kendro of the Pennsylvania Office of Policy and Public-Private Partnerships and the aforementioned Indiana Public Finance Director Kendra York. The forum is scheduled for June 18-19 at the Crowne Plaza in New York’s Times Square. You can find out more about the event and register to attend here and you can read my coverage of last year’s conference here.