The Capital Beltway. And. Public-Private Partnerships

Transcription

1 The Capital Beltway And Public-Private Partnerships Prepared for: The National Council for Public-Private Partnerships By: Matthew T. Brown Timothy P. Cronin Saurabh Lall Joseph R. Lataille Margaret Sacks December 2007

2 This "capstone" project was completed during the Fall 2007 semester in fulfillment of requirements for the Master of Public Policy and Master of Public Administration degrees at the Trachtenberg School of Public Policy and Public Administration, The George Washington University, under the guidance of instructor Nancy Y. Augustine, PhD. Any reproductions of this product must be approved by the authors. ii

3 EXECUTIVE SUMMARY At the request of the National Council for Public Private Partnerships (NCPPP), a graduate level research team from The George Washington University Trachtenberg School of Public Policy and Public Administration conducted a study to evaluate the approaches Virginia and Maryland are taking to add capacity to their respective portions of the Capital Beltway (I- 495). The research team used several methods to conduct the investigation, including reviewing applicable literature and interviewing over a dozen stakeholders, including past and current government leaders, transportation officials, legal experts, and various other stakeholders. To achieve the objectives of the report, the team developed the following research questions in consultation with NCPPP: 1. To what extent and how have Virginia and Fluor-Transurban satisfied NCPPP s six criteria for a successful public-private partnership with their effort to add capacity to the Capital Beltway? What areas do they need to improve on, if any? 2. What are the key challenges and obstacles Maryland faces for building additional highway lanes on their portion of the Capital Beltway? 3. If Maryland decides to pursue widening the Capital Beltway, do the conditions exist for Maryland to use a public-private partnership to finance, build, maintain and operate the additional lanes? If not, what conditions need to exist for a public-private partnership to be a viable option in Maryland? Highway congestion is a major problem, especially in large metropolitan areas such as Washington, DC, and the enormous cost of implementing the necessary infrastructure improvements only exacerbate the problem further. Many state and local governments are unable to fund and complete in a timely manner their roadway and bridge projects. The growing gap between available funding and intensifying transportation demands requires alternative solutions for delivering new highway infrastructure and capacity. To confront the challenge, governments are increasingly straying from traditional methods of financing highway construction to somewhat controversial agreements with the private sector that involve toll collection, user fees, or the leasing of infrastructure. As part of the Interstate Highway System, the Capital Beltway (I-495) is the busiest corridor servicing commuters in the National Capital Region. Despite the various improvements implemented since opening to traffic in 1964, this major transportation route has exceeded capacity and is in need of significant upgrade and preservation. Given the extent of the demands and the existing financial constraints at all levels of government, it is likely that any sort of expansion to the Beltway will entail utilizing an innovative and efficient method of project delivery. iii

4 Virginia and Maryland have been studying methods for improving mobility on the Beltway since the mid-1990s. Recently, Virginia partnered with Fluor-Transurban, Inc. to expand and preserve the existing highway and develop new High Occupancy Toll Lanes on a 14- mile segment of the Beltway. Under this partnership agreement, Virginia will retain ownership of the new lanes while Fluor-Transurban will design, build, maintain, operate, and finance the project over an 80-year concession period. For its part, Maryland has conducted extensive studies of its 42-miles of I-495 and is exploring similar lane management systems and the idea of partnering with the private sector. However, they continue to study the issue and have no firm plans for adding capacity to the Beltway. While both jurisdictions share responsibility for this 64-mile stretch of roadway, each faces unique challenges in adding capacity and coping with congestion. The research team decided it would be beneficial to examine the inter-workings of this agreement and predict its long-term success using NCPPP s six criteria for a successful public-private partnership. Across the Potomac River, the team took an in-depth view of where Maryland stands on Beltway improvements and the challenges they face in building additional highway lanes. Since Maryland s plans to improve its portion of the highway are still in development, the team examined whether or not the requisite conditions exist to duplicate Virginia s PPP efforts. Key Findings: In the end, the research team uncovered thirteen key findings: Research Question #1 1. Virginia s partnership with Fluor-Transurban satisfies NCPPP s six criteria for a successful public-private partnership and we predict its success. 2. Since highway PPPs are still in their nascent stages of operation and no projects of this magnitude currently exist in Virginia, it is difficult to facilitate an equivalent comparison. Research Question #2 3. Maryland s highest transportation priority is system preservation. 4. Given the limited financial resources for current projects, expanding the Capital Beltway is currently cost-prohibitive using traditional financing methods. 5. The potential environmental impacts of Beltway expansion and the resulting political opposition may create an contentious environmental approval process. 6. There is limited local support for expansion of the Capital Beltway in Maryland. 7. Montgomery County and Prince George s County have other transportation priorities. 8. There is a lack of political consensus on how to move forward with expanding capacity on the Capital Beltway. iv

5 Research Question #3 9. Maryland does not have adequate legislation to pursue public-private partnerships for highway projects. 10. Maryland does not currently have a political champion for highway related public-private partnerships. 11. Maryland s TP3 Guidelines prohibit unsolicited proposals for highway projects. 12. Maryland already has a tolling authority (MDTA) to help finance highway projects. 13. Local opposition to tolling will likely prevent Maryland from pursuing a PPP agreement for the Capital Beltway. From these key findings emerged the following conclusions and recommendations: Conclusion 1: Virginia has an extensive history of successful public-private partnerships that has enabled them to be a leader in this innovative method of constructing and financing highway projects. Conclusion 2: Maryland does not have the support necessary to widen the Capital Beltway. Conclusion 3: Maryland is not well-suited to enter into a public-partnership for highway projects. Recommendation 1: NCPPP should continue its educational activities across all sectors to enhance knowledge of public-private partnerships and their applicability to transportation projects, specifically the expansion of the Capital Beltway in Maryland. Recommendation 2: NCPPP should continue its relationship with the Trachtenberg School of Public Policy and Public Administration at The George Washington University as a means of furthering research into topics relating to the Beltway and PPPs. Topics recommended for future research include: The politics of PPPs: Exploring the roles and positions of the executive and legislative branches in implementing PPP transportation projects PPPs and the Maryland General Assembly Issues and options pertaining to a comprehensive approach to regional congestion management (e.g. highway expansion, smart growth, transit options, etc.). v

6 TABLE OF CONTENTS Section Page EXECUTIVE SUMMARY...iii TABLE OF CONTENTS... vi LIST OF FIGURES... vii INTRODUCTION...1 Issue Summary and Importance...1 Purpose and Objectives... 3 The National Council for Public Private Partnerships... 3 Report Overview... 4 RESEARCH METHODS AND CHALLENGES... 5 Research Questions... 5 Research Design... 6 Research Challenges... 7 CONTEXTUAL FRAMEWORK... 9 Public-Private Partnerships... 9 Virginia Transportation Overview...13 Maryland Transportation Overview...18 The Capital Beltway...20 Public-Private Partnerships and the Capital Beltway...25 KEY FINDINGS...30 Research Question Research Question Research Question CONCLUSIONS AND RECOMMENDATIONS...46 Conclusions...46 Recommendations...47 ENDNOTES...48 APPENDICES...51 Appendix A: Statement of Work Appendix B: NCPPP Criteria for Success...54 Appendix C: HOT Lanes In-Principle Agreement Capital Beltway...55 Appendix D: Maryland General Assembly Survey...57 Appendix E: Oberstar-DeFazio Letter...61 Appendix F: References...64 vi

7 List of Figures Figure Page Figure 1: The Spectrum of Public-Private Partnerships...10 Figure 2: Humor and Transportation PPPs 12 Figure 3: VDOT Status of PPTA Design-Build Projects...18 Figure 4: The Capital Beltway and Surrounding Area...21 Figure 5: The Capital Beltway in Figure 6: Beltway Traffic at the I-270 Spur in Maryland 23 Figure 7: Virginia HOT Lanes Proposal.26 Figure 8: Accessing Capital Beltway HOT Lanes..27 Figure 9: Virginia Beltway Improvements Project Timeline.27 Figure 10: Diagrams of SHA Alternative for Further Study...29 vii

8 INTRODUCTION At the request of the National Council for Public Private Partnerships (NCPPP), we conducted a study to evaluate the approaches Virginia and Maryland are taking to relieve congestion on their respective portions of the Capital Beltway (I-495). The research team was comprised of five graduate students enrolled in an upper-level level capstone class at The George Washington University Trachtenberg School of Public Policy and Public Administration. NCPPP Executive Director Richard Norment and Vice President for Education Parker Williams assisted us in narrowing the scope of the topic and Dr. Nancy Augustine of The George Washington Institute of Public Policy served as the research team s supervisor and class instructor. This section provides a brief summary of the issue, highlights its importance, and outlines the project s purpose & objectives. It will also include a description of the client and a brief overview of the report. Issue Summary and Importance Highway congestion is a major problem, especially in large metropolitan areas such as Washington, DC. The Texas Transportation Institute estimates that congestion alone costs Americans $78 billion per year. Commensurate with this economic impact is the cost of implementing the necessary infrastructure improvements to cope with a growing transportation crisis. Despite a long awaited increase in federal funding, due in part to the enactment of the Safe, Accountable Efficient, Transportation Equity Act A Legacy for Users (SAFETEA-LU), the nation continues to fall short of the resources necessary for making highway transportation improvements proportional to the demands imposed by aging infrastructure and a growing population. 1 Many state and local governments, desperate to improve the situation, are feeling the pressures associated with an inability to fund and complete in a timely manner their roadway and bridge projects. Funding for transportation is steady but it is not increasing. Revenue from fuel taxes, the main source of highway project funding, has leveled off and has not kept pace with highway program needs, while vehicle miles traveled continues to increase. A 2005 study by the U.S. Chamber of Commerce estimates a $23 billion annual shortfall in funding to maintain the nation s current highway system. Furthermore, an additional $48 billion in annual funding is required to facilitate improvements essential to meeting the demands of national transit. Most governments at all levels have come within an arms length of their debt capacity to fund transportation initiatives. 1

9 Ongoing projects and roadway life-cycle preservation are consuming a majority of federal, state, and local government resources. This growing gap between available funding and the intensifying transportation problem requires alternative solutions for delivering new highway infrastructure. In order to enact change, governments and elected officials are confronting the option of straying from traditional methods of financing highway construction. While forecasted demands on transportation infrastructure outpace available resources indefinitely, state and local governments need an apparatus that will enable them to expedite project delivery and utilize creative financing mechanisms. Many current and proposed enhancements will require the collection of tolls and user fees, especially for those projects that involve concession agreements between the public and private sector. 1 Agreements that involve leasing infrastructure to the private sector are new and somewhat controversial. However, many case studies conclude that these innovative approaches are successful in ameliorating fiscal pressures on the government. They also provide alternatives to levying new taxes and accelerate the delivery of highway projects. As part of the Interstate Highway System, the Capital Beltway (I-495) is the busiest corridor that services commuters in the National Capital Region and is regarded as the second most congested roadway in the country. Despite the various improvements implemented since opening to traffic in 1964, this major transportation route has reached capacity and is in need of significant preservation and upgrade. Based on the growing needs of the region, experts anticipate commuter times will double by Researchers at George Mason University estimate that this will cost the local economy $5.5 billion per year, including delays, excess fuel, lost productivity, recruiting challenges, and added costs for shipments and deliveries. Given the extent of these demands and the existing financial constraints at all levels of government, it is likely that any sort of expansion to the Beltway will need to have an innovative and efficient method of project delivery. Virginia and Maryland have been studying methods for improving mobility on the Beltway since the mid-1990 s. Recently, Virginia partnered with Fluor-Transurban, Inc. to preserve and expand the existing highway and develop new High Occupancy Toll (HOT) Lanes on a 14-mile segment of the Beltway. Under this partnership agreement, Virginia will retain ownership of the new lanes while Fluor-Transurban will design, build, maintain, operate, and finance the project over a 75-year concession period. Maryland has conducted extensive studies of its 42-miles of I-495, 1 A concession agreement is the grant of land or property by the government in return for services or use. Concession agreements between governments and the private sector for transportation infrastructure are normally part of a public-private partnership. 2

10 which include similar congestion tolling options and partnering with the private sector. However, they continue to study the issue and have no firm plans to add capacity to the Beltway. Purpose and Objectives The purpose of this study is to inform the National Council for Public-Private Partnerships on how Virginia and Maryland are moving forward with their efforts to add capacity to the Capital Beltway and to what extent Virginia s public-private partnership with Fluor-Transurban to reconstruct its portion will be successful. While both jurisdictions share responsibility for this 64- mile stretch of roadway that encircles the National Capital Region, each face unique challenges in coping with congestion, development, expansion, and preservation. To accomplish the intended purpose, the research team set the following objectives: Examine the Problem. Research the effect of congestion on the Capital Beltway and each state s respective response to the issue by: 1) studying the methods, structures, and dynamics of how each state administers, governs, and finances transportation projects and 2) determining the steps each state has taken and what challenges lay ahead. Frame the Issue. Provide an issue statement and relevant research questions that the team will answer to the client by putting into context the numerous variables that affect how each state has approached the problem, including legislative histories, current laws, financial positions, available funding mechanisms, government structure, and pubic sentiment. Collect Data. Gather information using traditional research methods, including accessing publicly available information, conducting a literature review, performing interviews, and conducting a survey. Present Findings. Present requisite key findings and recommendations in a final report and formal presentation to the client. The National Council for Public-Private Partnerships The NCPPP is an organization that advocates and facilitates the formulation of publicprivate partnerships within all levels of government. Their mission is to educate and raise awareness of these partnerships to stakeholders and provide a picture of how private entities can perform public services in a more cost-effective fashion while providing quality service. NCPPP charters an advisory council made up of membership from both the public and private sectors. These members 3

11 are interested in a wide range of areas in which public-private partnerships could provide beneficial services. Report Overview The report begins by providing a contextual framework for the issue under study. Included in this section is an overview of public-private partnerships, their application in Virginia and Maryland, trends in transportation and administration, as well as a description of the Capital Beltway and the looming congestion problem. We will then provide a description of how we framed the issue and defined the problem. Following this explanation, we will elaborate on the research methods and data collections procedures as well as disclose the challenges faced during the project. The Key Findings section of the report will provide a detailed analysis of what we discovered during our research concerning the efforts to add capacity to the Capital Beltway and the use of public-private partnerships to do so. Data collection instruments and other supporting documents are included in the appendices. 4

12 RESEARCH METHODS AND CHALLENGES The research team used a variety of methods to investigate the various approaches for adding capacity to the Capital Beltway and the use of PPP agreements for delivering new highway infrastructure in both Virginia and Maryland. The research team reviewed applicable literature and interviewed over a dozen stakeholders, including past and current government leaders, transportation officials, legal experts, and various other stakeholders. This section outlines the three research questions the team set out to answer during the project. It also provides a description of research methods the process the team used to collect relevant data that ultimately led to the substance and conclusion of this report, and the challenges faced in carrying out its task. Research Questions The research team worked with the NCPPP staff to design questions that address the purpose and objective of the project. Although traffic congestion challenges for the Capital Beltway pollinate across the Virginia/Maryland line of demarcation, the management of this issue and administration of respective state highway programs are vastly different. When this project began, negotiations on the final terms of a $1.7 billion, 80-year public-private partnership with Fluor- Transurban were nearing completion in Virginia. 2 Differing from historically successful PPP efforts, this new partnership represents Virginia s most comprehensive and in-depth PPP agreement to-date. The project includes plans for Fluor-Transurban to design, construct, operate and maintain the Capital Beltway HOT lanes. The research team decided it would be beneficial to examine the interworkings of this agreement and predict its long-term success using the NCPPP s six criteria for a successful public-private partnership. 2 Across the Potomac River, the team took an in-depth view of where Maryland stands on Beltway improvements and the challenges they face in building additional highway lanes. Since Maryland s plans to improve its portion of the highway are still in the formative stages of development and specific intentions have not yet been declared, the team examined whether or not the requisite conditions exist to duplicate Virginia s PPP efforts. This report addresses the following research questions: 2 The 80-year agreement refers to 5 years of construction followed by 75 years of concession in which Fluor- Transurban will operate and provide life-cycle maintenance. 5

13 1. To what extent and how have Virginia and Fluor-Transurban satisfied NCPPP s six criteria for a successful public-private partnership with their effort to add capacity to the Capital Beltway? What areas do they need to improve on, if any? 2. What are the key challenges and obstacles Maryland faces for building additional highway lanes on their portion of the Capital Beltway? 3. If Maryland decides to pursue widening the Capital Beltway, do the conditions exist for Maryland to use a public-private partnership to finance, build, maintain and operate the additional lanes? If not, what conditions need to exist for a public-private partnership to be a viable option in Maryland? Research Design In order to collect the relevant data needed to answer the research questions, the team undertook a literature review, a series of interviews, and a survey. Literature Review The research team collected various reports, publications, business documents, communications, presentations, and white papers during the course of the project. The literature review allowed the team to compile a majority of the background information found in this report, providing an essential foundation needed to frame interview questions that address gaps and delve deeper into issues that necessitated further exploration. A comprehensive list of references is included in Appendix G. Interviews As a primary source of research, the team conducted interviews through person-to-person meetings, phone calls, and s. Several high-ranking current and former state transportation officials as well as representatives from the Federal Highway Administration, Fluor-Transurban, and legal experts provided valuable insight. Additionally, our outreach expanded to various administrators in local government, representatives from organized labor groups, and academicians who research and study transportation and urban planning. The interviewees were credible sources 6

14 that had a working knowledge about transportation funding and public-private partnerships. These people were also able to address the prospects of moving forward with such arrangements. The research team traveled locally to meet with the interviewees located in the VA/MD/DC metropolitan area. The interviews lasted from one to three hours. Due to the diversity of audience experience and opinion, each interview took on a slightly different tone and accordingly, the team tailored questions to capitalize on the interviewees area of responsibility and expertise. To protect the confidentiality of the interviewees and avoid undue scrutiny of public officials, this report does not disclose the names or positions of individuals who unselfishly provided many valuable hours that assisted us in our efforts. In addition, this report does not link interviewees positions or responses to specific thoughts or statements by the researchers. Survey The research team conducted a survey of Maryland State Legislators to capture the policy and political aspects surrounding their experiences and positions on transportation infrastructure and financing mechanisms. The internet site Survey Monkey was used to design and distribute the survey and collect responses. 3 The survey, designed to take no more than five minutes, consisted of 11 questions and a section that allowed the respondent to elaborate further or expound on a topic not captured in the survey. The team designed the survey to connect the political atmosphere surrounding the elected officials with how the state delivers transportation infrastructure. Several questions specifically measured how legislators value the private sector and the use of public-private partnerships. The team distributed the survey to all 186 Maryland elected Senators and Delegates via . Unfortunately, the response rate was not ample enough to acquire meaningful results as only seven officials took the survey. While there are probably several reasons for not responding, the survey did come at the same time the General Assembly was in a special three-week session. A copy of the survey is included in Appendix D. Research Challenges There are a number of important limitations to the research undertaken for this project. Understanding these limitations is vital to understanding the applicability of the research findings. First, it would be a disservice to the reader if this section failed to mention the time constraints 3 Survey Monkey: 7

15 involved. Graduate level capstone groups at the George Washington University are assembled in the beginning of a semester at which time a topic and client is assigned. The first few weeks were used to meet with the client, explore the appropriate focus of the project, and arrive at a consensus on scope, purpose, and objectives. Given these preliminary requirements, the team dedicated the remaining two months of the academic semester to research, analysis, and the composition of the final report. Although a majority of the methods proved successful, some limitations were beyond the team s immediate control. Distribution of the survey to Maryland General Assembly during a special legislative session most certainly affected the response rate. The team received some feedback from two of the delegates who said they were too busy to take the survey. Due to the limited number of respondents, the team was unable to attain meaningful results from this method. During the course of the project, Virginia was fully engaged in negotiations with Fluor- Transurban on the final economic model of the 75-year concession agreement to operate the improved portion of the Capital Beltway. Although representatives from all three parties were responsive to the team, they could not produce a finished product that would have provided us with the final revenue and risk sharing information. 8

16 CONTEXTUAL FRAMEWORK Public-Private Partnerships Definition and Use Contracting work to private companies to deliver what are traditionally considered public goods and services has a long history in the United States. As state and local governments struggle to address growing public infrastructure needs with a scarcity of funds, they are turning to the private sector for an investment of non-traditional resources. The public-private partnership (PPP), a concept now becoming increasingly popular in the United States, is essentially a contractual arrangement under which the private sector carries out some or all of a function that was traditionally the responsibility of the public sector. 3 Transportation in the United States has a history of private sector involvement dating back to the beginning of road construction and operation in the country. In fact, there were more than 2,000 private toll roads in operation in the 19 th Century. Over time, as federal and state financing of road construction increased, private sector involvement in the construction and operation of roads declined. However, as state and federal highway funding has become more constrained and the demand for efficient transportation infrastructure has increased, governments are now turning to the private sector to provide more services. Traditionally, private sector participation has been limited to separate planning, design, or construction contracts on a fee for service basis, based on government specifications, an approach that does not fully utilize the private sector s innovation and expertise. The public-private partnership approach allows public agencies to benefit from the technical, management and financial resources of the private sector, while maintaining control of assets. As defined by the U.S. Department of Transportation, PPPs are contractual agreements formed between a public agency and private sector entity that allow for greater private sector participation in the delivery of transportation projects. 4 While maintaining oversight, PPPs allow states to direct responsibility (and funding) of transportation projects to private entities, allowing the states to leverage the firm s expertise and place the cost onto the private industry. The private firm is entitled to keep revenue collected from the use of the road (in Virginia, tolls paid by drivers is the most typical financing method for the private sector to recoup its cost expenditures). One other method of revenue collection is a special tax district, the chosen financing method for the construction of Route 28 corridor improvements in Loudoun and Fairfax counties. 9

17 Numerous states are currently using PPP approaches for large transportation projects in excess of $50 million. The roles of the public and private sectors in PPPs can vary depending upon the goals of each sector, the type of facility involved, the structure of the financial arrangement, and the limits of the state s enabling legislation. Two common types of PPP relationships relevant to the Capital Beltway are: Design-Build (DB): Under this option, the private partner designs and builds a facility to specifications agreed to by a public agency within an agreed upon timeframe and at a predetermined price. FHWA-funded DB projects that include construction of highways of $50 million or more and those that include Intelligent Transportation Systems (ITS) of $5 million or more are subject to FHWA DB guidelines. DB projects do not require private financing. Design-Build-Operate-Finance (DBOF): The state transfers responsibility for designing, building, financing and operating the roadway to private sector partners. There is a great deal of variety in DBFO arrangements in the United States, especially the degree to which financial responsibilities are transferred to the private sector. One commonality that cuts across all DBFO projects is that at least some financing is through debt leveraging revenue streams dedicated to the project. Direct user fees (tolls) are the most common revenue source. However, other sources range from lease payments to shadow tolls and vehicle registration fees. Future revenues are leveraged to issue bonds or other debt that provide funds for capital and project development costs. Public sector grants frequently supplement them in the form of money or contributions in-kind, such as right-of-way. In certain cases, private partners may be required to make equity investments as well. Figure 1: The Spectrum of Public-Private Partnerships Public Private Design - Private Design - Build Long Term Design- Build- Bid- Contract Build Operate Lease Build- Own- Build Fee Transfer Finance- Operate Services Operate Source: FHWA PPP website 10

18 Revenue Streams and Public-Private Partnerships For public-private partnerships to be successful there needs to be a dedicated income stream. The most common type of revenue stream for highway projects is tolling. Virginia and Fluor-Transurban have agreed on High Occupancy Toll Lanes to be their primary source of revenue. Maryland has made plans to implement Express Toll Lanes (ETL) in certain parts of the state and has suggested using them on the Capital Beltway. A brief description of each system is provided below. High Occupancy Toll Lanes. High Occupancy Toll lanes allow single-occupancy vehicles to use High Occupancy Vehicle (HOV) lanes for a user fee. The purpose of HOT lanes is to guarantee free flowing traffic conditions for those willing to pay for the luxury. HOT lanes expand travel options and help maintain traffic flow on existing general-purpose highways by operating alongside the existing general purpose lanes. To ensure safety, HOT lanes are separated from the general lanes and have their own entry and exit points and drivers do not have to merge into the general purpose lanes to reach their exit ramps. HOT Lanes can differ in their access and user charges. For example, in some instances high occupancy vehicles cars are free to use HOT lanes while elsewhere HOV users have to pay. In other available pricing structures, operators may prohibit or charge a higher fee for single occupancy vehicles (SOV) or have variable toll levels depending on the level of HOV (HOV-2, HOV-3). In general, buses and emergency vehicles use the lanes free of charge. Tolls in managed lanes can be fixed or vary with congestion levels. In a majority of the HOT lane projects in the U.S., the states use variable (or congestion) pricing to determine cost to the user. Variable tolling involves the use of advanced technology to continuously monitor traffic volume and speed in all lanes and automatically adjust tolls as a way to achieve targeted volume and speed levels. Drivers operating in these managed lanes use a transponder similar to the EZ Pass system to pay the tolls. A special function of these transponders allows the user to switch to the HOV mode and avoid user fees while operating in the HOT lanes. Express Toll Lanes (ETLs). Express Toll Lanes are also a form of managed lanes, frequently referred to as variable, or value pricing. These lanes require all motorists, regardless of vehicle occupancy level, to pay a fee. Toll rates vary based on demand depending on the time of day or current traffic conditions and are collected electronically at full highway speeds. The major 11

19 difference between ETLs and HOT lanes is that ETLs do not allow free or discounted passage of HOV vehicles regardless of occupancy, however they will still be available to mass transit at no charge. HOT Lanes and ETLs. The U.S. has seen many successful examples of managed highway lanes in use. Examples include California s S.R. 91 and Minnesota s I-394. The lanes have delivered promising results with commuter timesavings, on-schedule bus service, and high levels of customer satisfaction. The S.R.91 HOT lanes experiment is four lanes stretching ten miles in Orange County. Tolls are variable based on the time of day; a ride can cost up to $20 per ten miles. California's S.R.91 Express Lanes facility was the first privately financed toll road in the United States in more that 50 years, the world's first fully automated toll facility, and the first application of value pricing in America. 5 While expensive, Orange County, California, found that HOT lanes increased carpooling by 9.6 percent and saved drivers over 40 minutes of commute time. During a 2006 annual survey, California drivers reported an 85 percent satisfaction rate with these lanes. 6 Minnesota has also had success with its HOT lanes on I-394 in the Minneapolis area. Upon recognizing underutilization of the existing HOV lanes, the state legislature moved to designate them as HOT lanes. During peak hours, the lanes function as HOT lanes but at other times are open for general use. In terms of cost, single occupancy vehicles pay the toll (the maximum per trip is $18) while the lanes remain free for HOV riders. Thus far, Minnesotans have responded favorably to the I-394 experiment and the legislature is currently looking at new HOT lane ventures in other venues throughout the state. 7 Figure 2: Humor and Transportation PPPs Source: Time Magazine, Joshua Lutz Thursday October 18,

20 Virginia Transportation Overview The Virginia Department of Transportation The Virginia Department of Transportation (VDOT) is responsible for maintaining the third largest highway system in the country with more than 70,000 miles of roads. VDOT is in the process of streamlining its workforce to create an organization that serves in advisory, oversight, and management roles instead of an active public works provider. Currently, VDOT outsources 58 percent of its interstate maintenance. By 2009, the private sector will maintain all interstates in Virginia. 8 This trend towards transportation maintenance by the private sector with VDOT oversight demonstrates VDOT s efforts to concentrate its limited finances on funding and executing transportation projects and maintenance and less on overhead. Virginia s Transportation Financing The Commonwealth Transportation Board (CTB) is the government entity that guides policies for Virginia's transportation system and allocates funding for specific projects in the nine transportation-planning districts throughout the Commonwealth. Virginia annually updates its Six- Year Improvement Program (SYIP) and the most recent plan reflects statewide transportation activity of nearly $11 billion for When considering the allocation of transportation funds, the CTB s first obligation is to highway maintenance. For the plan, the majority of highway funding is already committed to maintenance or advancing existing projects including $187.6 million for maintenance and $410.2 million in highway construction in Northern Virginia, leaving limited resources for new transportation projects not already included in the SYIP. Virginia derives its transportation highway funds from a combination of state, federal, and local revenues. The state primarily receives revenues from the following sources: Motor fuel tax (17.5 cents per gallon) Vehicle sales tax (three percent) A portion of the vehicle license fees ($39.50) General sales and use taxes (0.5 percent) Federal funds (18.4 cents motor fuel tax and other sources) 9 Virginia s primary transportation revenue source, the motor fuel tax, is not indexed to inflation, resulting in a reduced purchasing power of the revenues collected from this tax. The cent tax per gallon has not changed since 1986 and currently ranks as the 41 st lowest in the country. Despite past legislative attempts, there is no evidence of political will by the General Assembly to 13

21 increase the gas tax. In contrast, Maryland s motor fuel tax rate is 23.5 cents and the national average is 18.3 cents. 10 VDOT deposits these taxes and fees into two funds: the Highway Maintenance and Operating Fund (HMOF) and the Transportation Trust Fund (TTF). Virginia dedicates HMOF revenues for the operation and maintenance of the roads. TTF revenues finance the construction of new transportation infrastructure and are allocated according to the following formula: highways (78.7 percent), mass transit (14.7 percent), ports (4.2 percent), and airports (2.4 percent). As directed by Section of the Virginia Code, the state must allocate these funds in the following order of priorities: 1) maintenance, 2) payments to localities, 3) administration and operations, and 4) highway construction. During periods of economic recession, the General Assembly has used TTF funds for other state obligations, depleting the revenues available for new construction. The VDOT budget was $3.8 billion and the allocation break down was 37 percent for roadway maintenance, 34 percent debt service and administration, and 29 percent for new construction of projects already listed in the SYIP priority list. 11 Due to the high costs of construction and maintenance, the state quickly expends funds, especially considering that each highway mile costs approximately $1 million to construct. 12 Escalating costs often result in project backlogs or removal of projects altogether as VDOT prioritizes the use of its limited funds. Even with new funding made available in the 2007 transportation bill, Virginia (as with many other states) does not have sufficient funds to address all of its transportation infrastructure needs. Historically, the HMOF has been solvent enough to address infrastructure maintenance and finance some construction. However, since the early 1990s the state has been unable to keep pace with maintenance costs (increasing $50 million each year) due in part to a decrease in the purchasing power of transportation revenues resulting from inflation. 13 Simultaneously, the number of licensed drivers has increased 34 percent and commuters have traveled 79 percent more vehicle miles. Furthermore, the number of registered vehicles has grown 53 percent while new lane miles have only increased seven percent. 14 A 2004 review of capacity requirements identified a $108 billion gap between funding and transportation needs over the next 20 years. Looking to the future, VDOT has forecasted a one percent annual growth in gasoline tax receipts and owing in part to unpredictable congressional activity excluded any increases in revenue from the federal highway trust fund beyond TRIP, a transportation research group, predicts that by 2014, state highway funds will be insufficient to match federal highway funds, reducing the 14

22 overall amount of available funds and requiring Virginia to use all state construction funds for maintenance. By 2019, the state will have to use federal highway funds for maintenance as well, further decreasing the funds available for construction purposes General Assembly- The Transportation Session During the 2007 General Assembly session, legislators approved a 41 percent increase in transportation funding over the next six years. This movement was the first transportation-spending plan in 21 years that significantly increased funding. 17 Secretary Pierce Homer remarked, "This program will maintain the timeline for existing projects. In absence of this funding, existing projects would be delayed or eliminated entirely." 18 Despite the additional infusion of monies for transportation, the state has not added any new construction to the six-year plan due to the backlog of existing new construction demands. Additionally, public criticism may force the General Assembly to modify or repeal some of the funding schemes adopted by the General Assembly to secure this new revenue. As of January 2007, the state faced a $450 million deficit in maintenance funds. The transportation compromise package reduced the deficit, but some believe that the state cannot sustain the reduction. Senator John S. Edwards (D-Roanoke) remarked, "It is pretty clear this is a short-term, stopgap measure and we will back in a few years to work on a long-term fix. 19 Public-Private Partnerships: Virginia s Enabling Legislation In 1988, the General Assembly approved legislation to allow private companies to build and operate for-profit toll roads on Virginia s interstate system. 20 Construction on such a project, the Dulles Greenway, began in 1989 and completed in The State Corporation Commission sets the Greenway toll rates to allow for a reasonable rate of return for the investors. The same year the Greenway opened, the General Assembly passed the Public Private Transportation Act (PPTA), a comprehensive update and overhaul of the original PPP legislation. The PPTA is the legislative framework enabling VDOT to enter into agreements with the private sector to construct, improve, maintain, and/or operate qualifying transportation facilities. 21 The legislative guidelines state that a six-phase evaluation process must review any solicited or unsolicited proposals: 22 15

23 1. Quality Control - Does the proposal meet the needs of the local, regional or state transportation plans in a timely manner with greater efficiency and less cost than the public sector? Does the private sector demonstrate risk-sharing and/or cost responsibility? 2. Independent Review Panel (IRP) - Members of the CTB, VDOT representatives, transportation officials, and knowledgeable members of the academic community evaluate the proposal based on an explicit set of evaluation and selection criteria. The IRP recommends whether any of the proposals should advance to the detailed proposal stage. The IRP phase includes opportunities for comments from the public and affected localities. 3. CTB Recommendation - The CTB reviews the IRP endorsed conceptual proposals and makes a recommendation to VDOT whether to advance any of the proposals to the detailed phase and further evaluation. 4. Submission and Selection of Detailed Proposals - A VDOT review committee evaluates the recommendations and may request that none (no build option), one, or more private sector firms submit detailed proposals and enter into competitive negotiations. 5. Negotiations - The public and private sectors negotiate an interim and/or comprehensive agreement that details the rights and obligations of the parties, set a maximum rate of return to the private sector, determine liability, and set dates for transfer of the facility from the private sector back to the Commonwealth. 6. Interim and/or Comprehensive Agreement- After negotiations and the state selects the preferred private firm, both parties sign an interim agreement. The interim agreement provides legal notice to proceed with traffic and revenue studies, project submission for the National Environmental Protection Act (NEPA) Evaluation, and solicit public comments. After the steps are complete and negotiations finalized, a comprehensive agreement is finalized and the Record of Decision (ROD) is issued. The PPTA implementation guidelines seek to encourage investment in the Commonwealth by private entities by creating a more stable investment climate and increasing implementation guidelines promote competition to create multimodal and inter-modal solutions; increase flexibility in the development of interim agreements to accelerate required activities; and required greater commitments or guarantees by proposers with mandatory risk sharing. 23 Furthering these implementation guidelines and promoting PPPs, the 2005 amended PPTA legislation does the following: 16

24 Authorizes private entities to construct and/or operate qualifying transportation facilities Provides for solicited and unsolicited proposals. 4 Establishes an interim agreement to provide for partial planning and development activities while other aspects of a qualifying transportation project are being negotiated and analyzed. Requires concession payments be used on transportation benefits for facility users. In his May 2006 testimony before the U.S. House of Representatives Committee on Transportation and Infrastructure, Sub-Committee on Highways, Transit and Pipelines, Virginia Governor Tim Kaine outlined five guiding policies that the Commonwealth uses when considering public-private partnerships: PPPs are not free and someone has to pay for the new infrastructure. Private financing should ensure a timelier delivery of the project at a lower cost or with greater efficiency than the public sector. A PPP project must address a true, public need. Benefits of the project should accrue to those paying for the project (toll-payers, taxpayers, or risk-takers). This policy is state law that any revenue raised in the corridor must be spent on transportation projects (including transit) in the same corridor. Open, public transparency. To date, Virginia has completed four highway public-private partnerships (See Figure 3 for a list of completed and active PPTA projects). Of those projects, the Greenway has operating terms that predate the PPTA (the Greenway is a privately owned road, not a leased facility). Despite the initial and promising success of PPPs as a source for supplying additional highway capacity, transportation needs still outstrip the purpose of public-private partnerships. For a PPP to be successful in Virginia, the forecasting of vehicle use and project revenue must be sufficient to attract private sector investment. That is not the case for all transportation needs. Many projects still 4 The unsolicited proposal is one of the central features of Virginia s PPTA legislation that allows the private sector to invest their own capital, engineering experience, and other resources to develop an innovative, cost-conscious way to meet transportation needs. 17

25 require traditional state funding especially in rural areas where the use of the roadways is not at critical mass to warrant private sector tolling. Public-private partnerships are not a cure-all, but under the appropriate conditions, PPPs can provide additional highway lanes that otherwise would not be built. Figure 3: VDOT Status of PPTA and Design-Build Program Maryland Transportation Overview Maryland Highways Maryland s roadways are among the most congested in the country. Since 1990, demand on state highways has grown by 22 percent with the trend expected to continue for the foreseeable future, escalating system deterioration and accelerating the need for system improvements. The Maryland State Highway Administration (SHA), the Maryland Transportation Authority (MDTA), and local governments own and operate highways in the state of Maryland. SHA operates and maintains 5,130 miles of roadways including all major U.S. and state highways with the exception of roads inside the city of Baltimore. The MDTA owns, operates, and maintains all toll facilities in the state, including the Kennedy Memorial Highway, I-395 in Baltimore, the Francis 18

26 Scott Key Bridge, the Harbor Tunnel Thruway, the Thomas Hatem Bridge, the Harry W. Nice Memorial Bridge, and the William Preston Lane Memorial Bridge. State law empowers the MDTA to establish all tolls in the State. The Maryland Department of Transportation (MDOT) encompasses all travel modes highway, transit, rail freight, airports, and seaports and the Secretary of Transportation also serves as Chairman of MDTA. In terms of funding, all federal and state transportation funding enters a single consolidated Transportation Trust Fund (TTF) and MDTA has the ability to issue bonds secured by its own toll revenues (not by the TTF). Public-Private Partnerships in Maryland Maryland provides an unusual environment for public-private partnerships in toll financing. Unlike many of the states currently using PPP approaches to highway finance, Maryland has a long history of tolled highways. The MDTA is the sole entity empowered by state law to establish and collect tolls on state highway facilities. MDTA can issue revenue bonds secured by its system of highway toll revenues and operates its facilities as a unified financial system, thereby creating a pooled revenue fund for the operation, maintenance and enhancement of its highways. According to its statutory mandate, MDTA has those powers and duties relating to the supervision, financing, construction, operation, maintenance, and repair of transportation facilities projects, including toll highways. Executing this authority, MDTA adopted regulations on and is responsible for implementing PPPs (referred to as TP3) for MDOT and its affiliated agencies. All PPP projects must be consistent with and eventually incorporated into Maryland s Consolidated Transportation Plan (CTP) and must comply with all applicable federal, state, and local regulations. Eligible projects include capital facilities for airports, transit, and port facilities. Proposals may come from any person, corporation, Limited Liability Company, partnership, joint venture or other private business entity with a demonstrated ability to acquire, finance, construct or operate a new, economically feasible transportation facility of high quality. Financing arrangements may include the issuance of debt, equity or other securities or obligations, and sale and leaseback transactions. However, current regulations do not expressly permit unsolicited highway PPP proposals. MDTA appoints a review committee for each project that includes representatives of the MDOT agency primarily responsible for the applicable type of transportation facility. Proposals are evaluated according to qualifications of the proposer, the project s ability to satisfy a public need, 19

27 compatibility with state and local transportation plans, cost-effectiveness, and ability to result in the timely acquisition, construction, financing or operation of the facility. The review committee then presents viable proposals to the Secretary of Transportation for consideration. In 2004, the transportation agencies of Maryland (MDOT, MDTA, and SHA) commissioned a study of current highway PPP practices. The study, conducted by KCI Technologies, aimed to explore the potential for and feasibility of using PPPs to finance, construct, operate and/or maintain highway facilities in Maryland. The state was particularly interested in the merits of using a PPP where the toll recovery is not expected to fully cover the project s capital costs, and of implementing toll lanes along selected existing routes. Maryland has already initiated limited studies into the feasibility of additional toll roads and value-priced managed lanes on several corridors including the Capital Beltway in Maryland (I-495/95). The study concluded that the Transportation Public- Private Partnership (TP3) program has the potential to enhance the state s transportation system and would enable the state to meet its emerging transportation needs in a more timely and costeffective manner than may otherwise be possible using traditional sources of public financing. Such arrangements may also offer sound economic investment opportunities for private firms and may promote business and employment opportunities for the citizens of Maryland. Since MDTA is the sole entity empowered to operate toll facilities in the state, SHA has so far only solicited firms to complete detail-build (a form of Design-Build) projects for some highways in the SHA system. In Maryland, SHA first requested proposals for Design-Build highways in To date, the state has issued sixteen highway Design-Build contracts, ranging in size from $2.7 million to $48 million, all of which have been financed using traditional highway construction sources and not toll facilities or highway-specific user fees. Additionally, two contracts of over $400 million each have been signed for the Inter-County Connector project. Furthermore, none of the projects has included contractor responsibility for right-of-way acquisition, railroad relocation, or long term-system preservation. 24 The Capital Beltway History and Importance The Federal-Aid Highway Act of 1956 authorized the creation of an interlocking national highway system, free of tolls or other user fees and included plans for the Circumferential Highway, an interstate that circles the Washington, D.C. area. Construction began on I-495 (also known as the Capital Beltway), in 1958 and was completed in The road is sixty-four miles 20

28 long, with twenty-two miles in Virginia and forty-two miles on Maryland s side of the Potomac River. The two connections between the states are the American Legion Bridge and the Woodrow Wilson Bridge. Figure 4: The Capital Beltway and Surrounding Area Source: Roads to the Future The Beltway is the only circumferential freeway in Northern Virginia and provides interregional connections to many secondary roads in Maryland and Virginia, facilitating mobility and growth in employment, commerce, and residential development. In Maryland, the highway is located within Montgomery and Prince George s counties and is generally eight lanes wide except for the segment between the I-270 West and East Spurs where it is six lanes wide. When it opened, the Capital Beltway had two lanes in each direction from the I-95 / I-395 (Shirley Highway) interchange in Springfield to VA 193 in McLean. The remaining sections of I-495 in Virginia and the entire length of I-495 in Maryland consisted of six traffic lanes (three in each direction). Engineers designed Maryland s portion to carry 55,000 vehicles per day and Virginia's to carry 49,000. Both figures were exceeded by the end of In 1972, Maryland widened 29 miles of the Beltway to eight lanes. In 1977, Virginia did likewise, denoting the last major expansion of the Virginia portion of the Beltway. 25 Finally, during the early 1990's, Maryland extended its eightlane widening for four miles. 21

29 Figure 5: The Capital Beltway in 1964 Source: Beltway Congestion Despite the 1977 expansion to mostly four lanes on the Inner and Outer loops, the Capital Beltway lacks the capacity to handle travel demand while drivers experience daily congestion marked by reduced travel speeds and significant delays. Inclement weather and/or accidents aggravate the congestion significantly. 26 Virginia Secretary of Transportation Homer Pierce made the observation, This [congestion] is a serious question being asked in a lot of regions around the country. 27 The Washington DC Metropolitan area experiences the second worst traffic congestion in the nation 28 as drivers spend an average of sixty hours a year stuck in traffic. Moreover, it is getting worse the average travel time to work increased from 30.9 minutes in 1990 to 32.4 minutes in It is estimated that these hours have cost the region $5.5 billion in lost time and productivity. 30 Commuters undergo more than 127 million hours of delays at a cost of $1,094 per rush-hour traveler and waste nearly 91 million gallons of fuel. 31 This increase in travel time is due is due to both a regional population boom and a change in traffic patterns. Currently, the Beltway carries 180, ,000 cars daily and by 2025 the population growth of 32.4 percent will likely correlate to an increase of over 320,000 cars per day on the Beltway. 32 Additionally, according to SHA accident statistics, the Maryland portion of the Beltway experienced 6,800 police-reported accidents during a three and a half year period between January 2000 and June 2003, resulting in an average rate of 58.1 accidents per 100 million vehicle miles of travel. The statewide average is 54.7 accidents for a similarly designed highway. According to the Capital Beltway Study website, Truck related accidents were also significantly higher than the statewide average

30 The Capital Beltway s original purpose was to handle thru-traffic from I- 95 around Washington, D.C. However, the Beltway is now a primary artery for traffic within the National Capital Region, including trips between major suburbs (witness the growth of Tyson s Corner, Rockville, and Alexandria as business centers). Indeed, the Beltway represents only three percent of the lane miles in Northern Virginia but accommodates nearly eleven percent of all daily regional trips. Montgomery County planning staff indicate that severe traffic congestion on I-495 will extend to nearly all hours of the day, with a 14-hour daily rush hour projected by 2020 (up from five hours per day in 1997). 34 Figure 6: Beltway Traffic at the I-270 Spur in Maryland support the current traffic demands, let alone the projected traffic growth. Source: The Examiner, Baltimore, MD As designed, the Beltway simply cannot Virginia Capital Beltway Studies In order to address some of the traffic congestion on the Beltway, the Northern Virginia region completed its first-ever regional long-range transportation plan from 1987 to The 2010 plan included a recommendation of the completion of a regional HOV network. From 1995 to 1997, the Virginia Department of Transportation undertook a Major Investment Study (MIS) of the I-495 corridor and beginning in 1998, VDOT conducted an environmental review of potential improvements to the I-495 corridor, including lane expansion with the possibility of high occupancy lanes and reconfigured interchanges. In all, the studies identified and evaluated twenty different improvement strategies. The MIS recommended two strategies for further study: 1) highway improvements that support HOV/bus use, and 2) transit planning for rail line connectivity. The next phase of the Capital Beltway study, the preliminary engineering and environmental analysis, identified the best combination of Beltway improvements based on engineering feasibility and environmental impact. 23

31 Given the regional impact of the project, representatives from federal, state, and local transportation agencies aided in the review and the draft Environmental Impact Statement (EIS) and identified three construction alternatives with 10 interchange connectivity enhancements. As part of the EIS process, VDOT held three public hearings to solicit community input. Local government officials and citizens objected to various aspects such as the extensive cost (estimated as high as $3 billion in 2002) and the environmental and eminent domain impacts. Concurrent with this process, Fluor Enterprises submitted their own unsolicited bid to design and build High Occupancy Toll (HOT) lanes on the Capital Beltway. Maryland Capital Beltway Studies Maryland, through the State Highway Administration, is currently conducting the following four planning studies along the Capital Beltway. 1. Full Beltway Study. The Full Beltway Study limits include Maryland's entire portion of the Beltway, 42 miles, which extend from the American Legion Bridge to the Woodrow Wilson Bridge through Montgomery and Prince George's counties. The right-of-way along the highway varies between 200 feet and 300 feet. Currently, the schedule for this study is pending as SHA focuses on the Joint Mobility Studies with Virginia. 2. West Side Joint Mobility Study. The West Side Joint Mobility Study is a joint effort of Maryland s SHA and VDOT with the goal of reviewing and connecting Virginia's HOT Study, Maryland's Capital Beltway Study, Maryland's I-270 Multi-Modal Study, and Maryland s Intercounty Connector. The study began in the middle of 2006 and includes an evaluation of the following factors: a) demand for a managed lane along this section of the highway, b) how existing and future traffic will operate with a managed lane, and c) how many lanes are needed for a managed lane system to operate effectively. The study team has completed the engineering efforts and developed the proposed traffic volumes for the alternatives. They are currently working on the potential impacts and cost estimates for the alternatives and analyzing the operational dimension of the proposed traffic volumes. 3. South Side Joint Mobility Study. The South Side Joint Mobility Study is a compilation of any available existing literature, analyses, studies, designs and reports concerning mobility in Southern Capital Beltway Study Area previously prepared by stakeholder agencies. The study area is defined by the Beltway from and including the Springfield Interchange on the west to Maryland Route 5 on the east. MDOT, VDOT, the Federal Highway 24

32 Administration, and the District DOT commissioned the study. The study also includes reviews of planned and existing projects that may also include heavy and light rail, bus rapid transit, HOT lanes, and managed lanes. 4. Existing Beltway Maintenance. SHA is currently evaluating the condition of the Beltway pavement and bridges to determine the extent of replacement and rehabilitation requirements for the next 10 to 20 years. Due to the age and condition of the Beltway, it is likely that most of the pavement and many of the bridges will need improvements. The improvements could be implemented as part of the overall Capital Beltway Study or independent of the study. At the heart of the studies are six recurring issues: 1) Population and employment projections indicate substantial regional growth in suburban areas served by the Beltway; 2) Congestion on major routes inside the Beltway is pushing residential and commercial development to areas outside the Beltway; 3) Lack of alternative routes to serve circumferential travel; 4) High rate of congestion-related accidents on the Beltway; 5) Inadequate capacity to accommodate existing and projected traffic; 6) Federal air quality conformity requirements. Public-Private Partnerships and the Capital Beltway Virginia HOT Lanes Fluor s unsolicited proposal design provided alternatives to the VDOT plan and reduced the extensive acquisition of right-of-way. The proposal decreased the number of homes taken from hundreds to the single digits, thereby reducing the project cost from about $3 billion to approximately $1 billion and making the project palatable for most stakeholders. 35 As required by law, the Commonwealth opened the project to other bidders; however, Virginia did not receive any additional proposals. After completing the PPTA review process, Virginia and the Fluor Enterprises-Transurban Inc. signed a Comprehensive Agreement in April Transurban, an Australian firm, partnered with Fluor to provide management and operation of the toll lanes and deliver the private sector financial investment necessary for the project to be a success. Fluor will build the lanes and Transurban will maintain and operate them for the duration of the 75-year lease. 25

33 At present, VDOT and Fluor-Transurban are in the final stages of negotiation and are expected to conclude by the end of Once approved, construction on the project will begin in the spring of 2008 and be operational by For the Capital Beltway HOT lanes project, Fluor-Transurban s proposal includes: lane miles of HOT lanes (2 in each direction between the American Legion Bridge and the Springfield interchange) Eight direct entry/exit points, including two direct connections to Tysons Corner and improved connections at I Bridges (new, modified, or replaced) 41,400 linear feet of new sound wall 135 new sign structures (86 existing sign structures replaced) Completion of Phase 7 of the Springfield Interchange linking I-95/395 to the Beltway Potential for expansion Figure 7: Virginia HOT Lanes Proposal Source: 26

34 There will be several direct benefits from the HOT lanes. First, they will provide an incentive for commuters to carpool on the Beltway since presently there are no dedicated lanes akin to I- 95/395 or exclusive time allowances such as on I-66. With the construction of the Beltway HOT Lanes, carpools (HOV 3+) and buses will have free access to the dedicated lanes and enjoy seven separate exit points to various destinations (see Figure 8). A second direct benefit is that as the private sector assumes many of the responsibilities involved, VDOT can devote their resources to other projects and priorities. Lastly, the four new lanes will provide drivers in Northern Virginia the option of free-flowing lanes and relief Figure 8: Accessing Capital Beltway HOT Lanes Source: from traffic congestion. Virginia Transportation Secretary Pierce Homer, a strong advocate of the Beltway HOT lanes, recognized the potential benefits: "We are fully committed to building and funding the HOT lanes through a combination of state, federal, and private resources. We'll find a way to make this project work. It's too important to the region to do anything less." 37 Figure 9: Virginia Beltway Improvements Project Timeline Source: 27

35 Maryland Express Toll Lanes Regardless of whether Maryland uses a public-partnership to add capacity to the Beltway, the state is considering two alternatives that would use ETLs to raise revenue and help relieve congestion. These managed lanes would have variable or value pricing structures that work in a similar way as familiar peak period pricing and discount programs routinely offered by utilities, airlines, and transit systems. ETL programs can be structured to encourage motorists to travel during off-peak traffic hours and offer a fee-based alternative to reduce their commuting time during peak hours. An electronic toll collection system eliminates the need for tollbooths. The State Highway Administration recommends further study on the below three alternatives for I-495 in Maryland (see Figure 10). Alternative I - No Build. This alternative includes routine maintenance and safety improvements but no additional lanes. It will serve as the basis of comparison for all other alternatives. Alternative II - 8 General Purpose and 2 Express Toll Lanes. This alternative provides one additional, tolled concurrent flow (no barrier separation) lane per direction. Tolls would vary based on traffic conditions or time of day. Although this alternative provides a more cost effective option with the use of Express Toll Lanes, it has limited revenue as there is only one toll lane in each direction. In addition, the inability to pass vehicles in the toll lane will reduce travel time savings. Alternative III - 6 General Purpose and 4 Express Toll Lanes. This alternative provides one additional, tolled lane per direction and it would convert one existing general-purpose lane per direction into a tolled lane. Similar to Alternative II, tolls would vary based on traffic conditions and time of day. This alternative would generate the maximum revenue because there would be two tolled lanes in each direction; therefore, it could provide a potentially cost-effective solution to Beltway congestion. 28

36 Figure 10: Diagrams of SHA Alternative for Further Study Alternative I - No-Build Alternative II - 8 General-Purpose and 2 Express Toll Lanes Alternative III - 6 General-Purpose and 4 Express Toll Lanes Source: 29

37 KEY FINDINGS This section provides the research team s answer to each research question. Following each question are the key findings and an in-depth analysis of the answer. Research Question 1: To what extent and how have Virginia and Fluor-Transurban satisfied NCPPP s six criteria for a successful public-private partnership with their effort to add capacity to the Capital Beltway? What areas do they need to improve on, if any? Key Finding #1: Virginia s partnership with Fluor-Transurban satisfies NCPPP s six criteria for a successful public-private partnership and we predict its success. Criterion 1: Political Leadership A strong political advocate can be the best harbinger for the success of a public-private partnership. PPPs in general, and the Capital Beltway project in particular, have numerous supporters, including David Ekern, VDOT Commissioner; Mary Peters, the former FHWA Administrator and current U.S. Secretary of Transportation; Pierce Homer, Virginia Transportation Secretary; current and former Governors and members of the General Assembly. These individuals have made public remarks in favor of such partnerships and the potential for HOT lanes to deliver additional highway capacity. James Atwell, former chief financial officer with VDOT, acknowledged the growing interest in public private partnerships as more of a necessity than just another business opportunity. Everybody s grappling to find money to meet needs. In the 1980s there was public will and political will to raise taxes; it has not occurred in the last 20 years, and that has turned people in the direction of public-private partnerships, tolls, and more esoteric solutions to meet transportation infrastructure needs. 38 Fairfax County Board of Supervisors Chairman Gerry Connolly has expressed his support for the project, Finding new ways to improve the quality of life for Northern Virginia residents is an absolute necessity in an area growing as quickly as we are. There is no single solution to the congestion problem, but incorporating a project like this can be a powerful tool in our efforts to address Northern Virginia congestion

38 Additionally, the 1997 Public-Private Transportation Act (PPTA) passed the General Assembly with bipartisan support. The original legislation had 22 Senate and 14 House sponsors. The legislation passed the House 98-1 with the Senate concurring The 2005 bill clarified the original legislation and again received favorable review. Megan Fletcher with Transurban stated, We have established a strong relationship with the state. From a U.S. perspective, public-private partnerships are really just starting to emerge. Virginia was in the forefront of recognizing the part it can play. 41 Despite the initial support for PPPs, there are more projects in the planning stage than are in operation or construction. The political support in Virginia demonstrates the value PPPs have in addressing transportation needs, but as Governor Kaine noted in his May 2006 testimony before the US House of Representatives, Transportation and Infrastructure Committee, The ink needs to dry so that perspective can be gained on these public-private transactions. 42 Criterion 2: Public Sector Involvement Virginia s PPTA Guidelines dictate a six-phase procurement process, including three phases that serve as oversight review: 1) VDOT Quality Control Review, 2) Independent Review Panel, 3) Commonwealth Transportation Board (CTB) Review and Recommendations. Both monitoring and oversight are necessary to maintain accountability on the part of the public and private sectors while ensuring that that the government s interests are protected. Most of the guidelines for monitoring and oversight are explicitly stated in the project s Comprehensive Agreement, which establishes construction milestones allowing VDOT to maintain oversight of the project, provide notices to proceed, and the right to terminate the contract if certain criteria are not satisfied. Criterion 3: A Well Thought-Out Plan The Virginia General Assembly has taken proactive steps to enact and amend legislation that creates the legal framework for the viability of public-private partnerships. In 2005, the General Assembly amended the 1995 PPTA to: Require mandatory risk sharing Increase transparency and public involvement Permit private sector solicitation of federal funding Increase penalties for toll violations 31

39 Solidify partnership status during project construction and implementation 43 Virginia s legislation dictates a public review process and comment period, a method to prepare and review proposals, and the guidelines for the comprehensive agreement that determines the relationship between the state and private entity to ensure oversight responsibilities by VDOT. Operating under this framework and acting on behalf of the public and Commonwealth s interests, VDOT authorities negotiated a fair and reasonable partnership that maintains VDOT s oversight rights and responsibilities. Expected by year s end 2007, the comprehensive agreement will expand on the negotiated business terms reached in September 2007 that delineates: Rights and obligations of the public and private sectors Allocation of risks and responsibilities Concession specifics about overuse of the lanes by HOV and transit Fixed price and timeline for design and construction Commonwealth s ability to build other transportation capacity Revenue sharing Financial commitment on the part of both parties Responsibility of the private sector to maintain free flowing conditions on the lanes Criterion 4: A Dedicated Income Stream Before the public sector will assume the financial risk of financing a multi-year, billion dollar project, Fluor-Transurban must have assurances (within a degree of certainty) that their investment can be recovered through a dedicated income stream. Tolls or user fees are common sources of revenue as part of projects that deliver major highway infrastructure. The private sector consortium of Fluor-Transurban is financing three quarters of the cost of the project. In return, the joint venture will operate the HOT lanes and collect user fees in the form of market-based tolls for non-hov vehicles. Before the development of a comprehensive financing plan and the commencement of contract negotiations, Transurban hired an expert transportation-consulting firm to conduct an investment grade traffic and revenue study. This type of study, a common practice with any transportation investment that involves financial risk, is necessary to estimate the level of traffic and 32

40 potential revenue stream. The study was used as an entering argument in the negotiations of the final business terms between all parties completed on August 31, The traffic modeling predictions in this study estimate that the average trip during rush hour will be $5 to $6 with tolls varying from 10 cents to $1 per mile depending on the day and the level of congestion. Barbara Reese, VDOT s Chief Financial Officer, stated that the study estimates 66,000 vehicles per day will cross through the HOT lanes during the first year. After the ramp up period (approx one year), daily trips are projected to rise to 125,000. A key feature of the agreement is that High Occupancy Vehicles (HOV) carrying three persons or more that use the HOT lanes will not be charged user fees. To provide insurance to the concessionaire that this allowance will not dominate the lanes, the state will provide reimbursement for HOV use if it exceeds 24 percent of daily traffic. This part of the agreement is effective for 40 years. At the time we conducted research for this report, submission and verification of the final operational models to ensure congestion will be adequately addressed was the only outstanding item remaining. After this part of the agreement is finalized, the investment grade traffic revenue study and final business terms will be made public (expected by year-end 2007). Finally, VDOT will be entitled to receive a share of toll revenues if HOT lane revenues exceed predictions. This share will range from five percent to 30 percent of gross tolls. A series of return benchmarks will be established and agreed upon as part of the completed financial arrangement. Criterion 5: Communications with Stakeholders Communication with stakeholders is an essential and never-ending process. Activity outside of status quo and the introduction of new concepts can be met with resistance, especially if there is a lack of understanding or available information on the issue. The underpinning assumption is that more people are affected by a partnership than just the public officials and the private sector. Open and candid communication with stakeholders of all types is paramount to achieving public acquiescence. The Capital Beltway is widely used by a broad range of stakeholders. Various government entities, surrounding communities, first responders, businesses, and mass transit are just a few. Several published interviewees responsible for urban planning and project development discussed the historic lack of public acceptance for widening the Capital Beltway in Virginia. Concerns ranged from displacement (right-of-way), anxiety over large price tags, and general opposition from 33

41 surrounding communities and environmental groups. In order to bolster support and educate stakeholders on the benefits of improving 14-miles of congested corridor, Fluor embarked on an outreach campaign that involved polling and community meetings. Fluor invested considerable time educating the public on the benefits of HOT lanes and succeeded in moving public opinion about the project from eight percent in 2002 to 54 percent approval in While Fluor provided a lion s share of the initial outreach, the PPTA legislation mandates that the Commonwealth provide a conduit for the public to provide input and make comment. Through the PPTA and NEPA processes, there have been multiple points of access for the public to engage officials and express their sentiments. Responding to public comments, concerns, and preferences, changes were integrated into the project. This was especially apparent with the integration of the final phase of the Springfield interchange, right-of-way eminent domain reductions, and changes to the interchanges with I-66. Virginia has actively engaged the media at each step and has maintained a website cataloging past news releases and documents pertinent to the project. Beginning in earnest with the changes to the Springfield Interchange and Woodrow Wilson Bridge, VDOT embarked on a decade-long public outreach campaign that encourages commuters to make informed travel decisions and assisting employers to facilitate rideshare and tele-work programs for their employees. Virginia has also collaborated with partners in transportation such as the Department of Rail and Public Transportation, the Federal Highway Administration, Fairfax County DOT, rideshare agencies, police, and other regional transportation agencies to ensure that the final plan anticipates and addresses all traffic management issues. The state will also operate three storefront project information centers in the area to facilitate field inquires from the public and increase awareness. Finally, Fluor-Transurban launched their public information website to provide the public with a central, comprehensive source of information for the HOT lanes on the Beltway and I-95/395. Criterion 6: Selecting the Right Partner The last criterion stresses the importance of selecting the right business partner. Prospective partners who offer the lowest bid do not always provide the best value in the long-term relationship. A candidate s experience in the area of public-private partnerships should be a major consideration before entering into any kind of agreement. Fluor-Transurban was ultimately selected to partner with the Commonwealth on this project. After receiving the unsolicited proposal from Fluor, Virginia opened the competitive bid 34

42 process for 120 days but did not receive any additional, competing proposals. Fluor is one of the world s largest publicly owned engineering, procurement, construction, and maintenance service companies and has a long record of success in delivering transportation solutions. A few examples of recent projects include the design-build of Texas s largest single highway project, SH 130, which encompasses 90-miles of toll road; the Conway Bypass in South Carolina that involved a designbuild contract for over 28 miles of highway opening seven months ahead of schedule, and; the development, financing, design and construction of Virginia s Pocahontas Parkway (Route 895). Fluor partnered with the Transurban Group to satisfy Virginia s request that the private sector also maintain and operate the new lanes. Specializing in the electronic collection of tolls, Transurban is a leading international toll road developer, operator and investor with interests in seven major assets in Australia and the United States. Virginia is also currently satisfied with Transurban s performance on the Pocahontas Parkway in the Richmond area. Key Finding #2: Since highway PPPs are still in their nascent stages of operation and no projects of this magnitude currently exist in Virginia, it is difficult to facilitate an equivalent comparison. The Capital Beltway HOT lanes PPP project is the first in the Commonwealth to involve full participation by the private sector in the design, build, operation, maintenance, and finance stages. The scope of the project, escalating cost, and lease duration are untested variables in the PPTA process. Despite the Virginia Department of Transportation s stellar PPP performance record, there are few corresponding projects with long-range results to compare processes and forecast long-term outcomes. Despite having what many consider model PPP legislation, Virginia s PPTA remains somewhat untested due to the limited history of PPP execution in the Commonwealth. Although the PPTA has existed for over ten years, Virginia has only completed three PPP projects while eight more are in progress. The three completed projects under PPTA guidelines (Route 288, Pocahontas Parkway and Jamestown 2007) do not involve the significant, private sector financial risk that Fluor- Transurban is assuming with the Beltway project. When Fluor submitted their conceptual proposal, they, estimated the original cost of the project to be $693 million. Factoring the scope expansion, inflation and equitable adjustments due to the cost of materials, current projections stand at $1.7 billion. 35

43 Despite this significant cost increase, extensive political support for the Beltway HOT lanes has enabled the project to move forward. Even after it was disclosed that the project would require a financial investment from the state, Secretary Homer voiced his commitment to the project, We have an opportunity to obtain a billion-dollar facility with a fraction of that put in by the public sector. We are fully committed to building and funding the HOT lanes through a combination of state, federal and private resources. We ll find a way to make this project work.we could not afford to construct this project using traditional transportation revenue sources." 44 It is widely acknowledged that PPPs are not a panacea for the Commonwealth s transportation needs and for a plethora of reasons, unexpected challenges such as cost increases do arise. While still supportive of the project, Fairfax County Board of Supervisors Chairman Gerry Connolly voiced his concern about the cost escalation, "We can't simply hope that the tooth fairy, in the form of the private sector, will make all of our problems go away." 45 The public and private sectors concur that PPPs are one more tool in the toolbox for use on projects that maximize public and private sector resources. The Capital Beltway HOT lanes project is a strong candidate to be a successful PPP since the transportation needs exceed public sector resources that the private sector can provide at a financial return worthy of their investment. Additionally, both parties have committed finances, staff, and their reputations in the success of this project. VDOT and Fluor-Transurban appear to be exercising remarkable commitment and stewardship in a mostly open and transparent process. We predict these arduous negotiations will result in the best possible value for stakeholders and service to Beltway users. However, since it is the first project of its kind in Virginia, many untested variables could facilitate or inhibit the project s long-term success. Research Question 2: What are the key challenges and obstacles Maryland faces for building additional highway lanes on their portion of the Capital Beltway? Key Finding #3: Maryland s highest transportation priority is system preservation. Every five years, Maryland updates its 20-year Maryland Transportation Plan (MTP) which guides statewide improvements across all means of transportation, including highways, roads, tunnels, bridges, rail, buses, water ports, airports, bike paths, and sidewalks. The plan includes goals and objectives, which then inform the annual budget and planning process. The most recent plan, 36

44 developed in 2004, positions system preservation as its highest priority and the 2009 plan currently being developed is expected to do the same. Within the goal of system preservation (referred to as efficiency in the MTP) the two main objectives are to extend the useful life of existing facilities and equipment and maximize the operational performance and capacity of existing systems. The Consolidated Transportation Program (CTP), Maryland s six-year capital investment program for transportation, reveals annual system preservation requirements ranging from $642 million to $778 million with the total over the six-year period equaling $4.2 billion. This represents 47 percent of the $9 billion in anticipated revenue over the period of the CTP. Thus, when combined with the financial and local political constraints described below, there leaves little possibility that Maryland will include adding capacity on the Beltway to its list of projects for the foreseeable future. Key Finding #4: Given the limited financial resources for current projects, expanding the Capital Beltway is currently cost-prohibitive using traditional financing methods. At the heart of public budgeting is the inherent conflict between the demand for public financing and the finite resources available for achieving those ends. The state of Maryland, especially in regards to transportation, is no exception to the rule. While exact cost figures are not yet available, early estimates for expanding the Beltway range from $2 to $4 billion. With system preservation demands and large projects such as the Intercounty Connecter and I-95 ETLs north of Baltimore costing so much money, it is currently cost prohibitive to expand the Beltway in one large project. Maryland is therefore implementing Beltway improvements on a project-by-project basis with MDOT s focus being to improve the Beltway through system preservation projects where lane expansion is included. Compounding the problem are the current general financial pressures on the state and the Transportation Trust Fund. To help mitigate the current transportation budget shortfall, Governor O Malley has proposed a series of policy changes that would generate about $400 million annually for the Transportation Trust Fund. However, emblematic of the severity of the budget shortfall that would still exist; these measures would only help fund the first three major transportation priorities on a list of fourteen needed projects in Montgomery County. Moreover, as discussed below, this list of fourteen immediate transportation priorities for Montgomery County does not include Beltway expansion. 37

45 Key Finding #5: The potential environmental impacts of Beltway expansion and the resulting political opposition may create an contentious environmental approval process. As part of the four planning studies currently underway in the state of Maryland for expanding the Capital Beltway, A.D. Marble and Company was contracted to inventory the potential environmental impacts of the alternatives being considered. The company grouped the environmental effects into three categories: 1) socioeconomic, 2) cultural, and 3) natural environmental resources. The socio-economic environmental impacts revolve around land use, minority population concentration, and household income. The severity of right-of-way issues on Maryland s side of the Beltway has the potential to cause a significant amount of public opposition and outcry. SHA s alternatives for Beltway expansion call for only 10 lanes vice 12 lanes due to the right-of-way constraints. Even with the addition of one lane on each side of the Beltway, the state will likely have to uproot many residences and businesses. Cultural resources could also be affected by any project to expand the Beltway as there are a number of known and potential historical or archeological sites in the area of study. If a project were to be pursued, it has been determined that a Phase I archeological investigation would be required wherever it is likely that ground will be disturbed. The natural environmental resources aspect of the study includes several components. First, an air and noise quality analysis will be done to ensure conformity with regional and local standards. Second, the state has to complete a technical documentation of all potential impacts on parks, communities, and the regional economic environment. Finally, there will be a Secondary and Cumulative Effects Analysis to assess long-term effects on environmental resources as they relate to other development projects in the region. Specific natural resources potentially threatened by the project include several 100-year floodplains and associated wetlands such as the Potomac River, Rock Creek, and numerous small tributaries. Also making the situation problematical is the fact that in Montgomery County the Potomac River is designated as a Scenic River under the Maryland Wild and Scenic Rivers Program, requiring that the qualities of the river are protected and enhanced. Additionally, 44 state-listed rare, threatened, and endangered species of plants and animals have been identified in the vicinity of the Beltway corridor. The National Environmental Protection Act (NEPA) process is a necessary component of the highway construction process if federal approval is required due to the use of federal funds, federal loan guarantees, or approval for the use of tolls on interstate highways. Given the cost and 38

46 financing circumstances of the state under each of the alternatives currently on the table, it is likely that Maryland will at least strongly consider incorporating federal funding, thereby necessitating the NEPA review process. However, the NEPA process is often seen as one of the most cumbersome obstacles facing project implementation. The primary environmental hurdles therefore are the potential of not meeting federal, state, and local standards, the difficulty of navigating the various analysis and approval processes that must be completed, and the fierce opposition from environmental groups and local citizens that the project is likely to ignite. Key Finding #6: There is limited local support for expansion of the Capital Beltway in Maryland. The primary political obstacle to the expansion of the Beltway is the lack of political support at the local level. Citizens in the two counties that would be affected, Montgomery and Prince George s, are opposed to any expansion of the Capital Beltway as they believe it will lead to increased noise, pollution, traffic congestion on the main beltway lanes and arterial roads, disrupt nearby businesses, and pose dangers to schools and hospitals in the vicinity. Some also argue that the tolling system would unfairly favor wealthy drivers over middle and lower income drivers, the so-called Lexus Lanes effect. County officials argue that even with the introduction of toll lanes, the majority of people would still be stuck in the regular lanes. In January 2006, more than 20 civic and neighborhood groups from Montgomery and Prince George s counties announced a new coalition to fight Governor Ehrlich s proposal to widen the Capital Beltway by adding express toll lanes. The group Citizens Against Beltway Expansion has argued that the project would threaten nearby neighborhoods, fail to provide relief from congestion, and unfairly favor wealthy motorists. Based on our interviews, it appears that the state of Maryland does not want to challenge the local governments on this issue and transportation agencies will only fund projects that counties recommend. There is no evidence that Maryland will proceed with expansion of the Capital Beltway without local support. 39

47 Key Finding # 7: Montgomery County and Prince George s County have other transportation priorities. In Maryland, most transportation priorities for the state agencies come as recommendations from the local level and the Beltway expansion project is not a priority for either county. In Montgomery County, there are at least 14 projects prioritized over the Beltway, most importantly the Intercounty Connector (ICC) that connects Montgomery County to Prince George s county. Local officials and resident coalitions have argued that instead, Maryland should build an east-west transit link (called the Bi-County Transit-way or Purple Line), improve bus service, and make communities more pedestrian friendly. Prince George s County also does not include Beltway expansion on its 2007 Priority Project List for the State Consolidated Transportation Program. A County official explained to the research team that the enormity and cost of such a project did not warrant inclusion on their list. However, the County listed the Purple Line project as its number one priority for state transit. Based on our interviews and research, it is clear that the ICC and Purple Line are much higher priorities, leaving little chance that a project as immense as Beltway expansion can gain traction. Citizen coalitions and local politicians frequently argue that a fully tunneled Purple Line would avoid disruption to dense local neighborhoods and provide a much needed transit solution for Maryland residents. However, studies have suggested that the Purple Line is not likely to divert more than two percent of the traffic away from the Beltway, and is unlikely to relieve congestion, as there is significant latent demand from those who currently chose other less convenient routes over the Beltway. County officials are also wary of Beltway expansion coming at the expense of locally supported transit projects. Since the expansion would be financed by user fees this should not be an issue, but despite this, local residents continue to be opposed to any widening of the Beltway. Since the state looks to the local governments for its transportation priorities, the Beltway simply does not take precedence in Maryland. Key Finding # 8: There is a lack of political consensus on how to move forward with expanding capacity on the Capital Beltway. The nature of Maryland s transportation prioritization process dictates that political consensus, from local citizen groups up to the Governor, exist in order to make progress on projects as sizeable as expansion of the Capital Beltway. Despite support from former Governor Ehrlich for 40

48 the expansion of the Capital Beltway, there has been fierce local opposition to the idea, due to fears of increased noise, traffic, and pollution in the affected counties. Since Maryland usually looks to its local governments to provide transportation priorities for its residents, there appears to be little progress on the Beltway issue. Compounding the local opposition are right-of-way issues, environmental concerns, and other transportation projects that already have popular support to some degree. Capital Beltway expansion is unlikely until these local obstacles are dealt with in conjunction with strong gubernatorial support. Research Question 3: If Maryland decides to pursue widening the Capital Beltway, do the conditions exist for Maryland to use a public-private partnership to finance, build, maintain, and operate the additional lanes? If not, what conditions need to exist for a publicprivate partnership to be a viable option in Maryland? Key Finding #9: Maryland does not have adequate legislation to pursue public-private partnerships for highway projects. While Maryland is one of 21 states with PPP legislation, its statutory framework is not specific enough for both the private and public sector to enter into PPP agreements for highway projects. Maryland has delegated its Transportation Authority (MDTA) the power to facilitate a PPP program. In 1997, Maryland established regulations (TP3 Guidelines) that allow MDTA to administer a PPP program on behalf of the Department of Transportation. However, the TP3 Guidelines specifically state that MDTA s PPP program is not designed to consider or evaluate highway facilities. To date, MDTA has entered into numerous PPP agreements for non-highway transportation projects. A 1996 state s attorney general opinion said MDTA has sufficient authority to enter into a PPP agreement for highways, but no such agreements have yet to take place. According to one of the nation s leading legal experts in PPP legislation, the Maryland attorney general s opinion is extremely limited and does not have sufficient explanation. Under the current regulations, the General Assembly has little input on determining the scope of PPP projects outside the 45 days that current law allows them to review and comment. Thus, it does not give comfort to potential private investors and government officials who seek certainty when entering into such enormous financial deals involving high levels of risk. Rather, in this expert s opinion, comprehensive legislation would provide detailed guidelines and document specific procedures that 41

49 would have to take place in constructing a PPP agreement. Even one of Fluor s leading managers stated that the private sector is unlikely to venture into any PPP agreement with Maryland unless there is certainty provided by robust legislation. States such as Virginia, Texas, Indiana, and California all have comprehensive statutory frameworks for PPP agreements. In turn, these states have all experienced success with highway PPPs. Further corroborating these statements, in December 2006 the Maryland Department of Legislative Services issued a report on public-private partnerships that emphasized how Maryland s General Assembly has extremely limited oversight for PPP projects because of its weak statutory framework. Key Finding #10: Maryland does not currently have a political champion for highway related public-private partnerships. Regardless of their affinity towards public-private partnerships, every interviewee stated that in order for PPPs to come to fruition there has to be strong leadership from the top. The governor has to be a political champion and there must be corresponding support from the state s legislature. Over the years, Virginia governors have emphatically supported PPPs regardless of their political affiliation. They have also faced little opposition from their state legislature. Support for PPPs in Maryland in the past three administrations (Glendening, Ehrlich, and O Malley) has varied and both the executive and legislative bodies lack consensus on the issue. Former Maryland Governor Robert Ehrlich and Transportation Secretary Robert Flanagan were more interested in addressing transportation issues with public-private partnerships than the current administration. Examples of their support include: In 2003, the Maryland Senate passed the Public-Private Transportation Act of 2003 (SB 497), however, the House version of the bill (HB 1162) never made it out of the Environmental Affairs Committee. A senior ranking official in the Ehrlich administration told us that they were interested in taking a PPP approach for the Intercounty Connector (ICC). However, because the bill failed in the General Assembly and they could not achieve consensus, the administration decided to abandon the PPP approach for the already controversial and long-awaited ICC project. In this person s opinion, political consensus between the executive and legislative bodies was critical for a project of that magnitude. In 2004, in order to gain a better understanding of PPP highway programs, the Department of Transportation, along with MDTA and the State Highway 42

50 Administration, commissioned a review of highway PPP initiatives in various parts of the country (Current Practices in Public-Private Partnerships for Highways). In 2006, the Ehrlich administration initiated a Request for Expressions of Interest (REI) for private sector suggestions on adding capacity to the I-270 corridor. The administration envisioned using PPPs to expedite projects that the state could not fund. The state received numerous responses in December 2006 just before Governor Ehrlich left office. The current administration asserts that they are still reviewing the responses but we have not seen any evidence that the state is moving forward with any sort of PPP project for the I-270 corridor. Governor O Malley s administration has not exactly decried public-private partnerships but neither have they become a leading supporter of them. This past May, Congressman Oberstar and Congressman DeFazio sent a letter to state governors and legislators urging them to avoid rushing into PPPs for highway projects that are not in the long-term interest of the public (see Appendix E). MDOT officials told us that Maryland shares the same concerns of the Congressmen, but maintained that PPPs are a tool for the toolbox and they will always consider them as an option on a case-by-case basis. The leadership in Virginia had a different response to the Oberstar-DeFazio letter. Transportation Secretary Pierce Homer said that the letter had good intentions but disagreed with them on the need for tolling to generate critically needed revenue as well as the advantages tolling has in managing congestion. He also pointed to the success Virginia has had with PPPs and how they have been able to deliver highway projects on budget and in shorter timeframe than traditional means. 46 Governor O Malley s primary focus so far has been on resolving the state s budget crisis. While he has promised to put $400 million a year into the state s transportation fund, there is no mention of taking on new mega-projects beyond current commitments, most notably that of the Capital Beltway. There is also almost zero evidence pointing to support by Governor O Malley s for PPPs for new highway projects. In a June 2007 speech to the Washington Board of Trade regarding the building of Maryland's transportation infrastructure, there was no mention of using or even considering the use of PPPs to finance new projects. He also did not mention adding capacity to the Capital Beltway, but instead discussed the Purple Line, the Intercounty Connector, and the Metro system. However, Maryland officials did acknowledge that if a mega project came forward and needed to be delivered quickly, they would more than likely need a vehicle other than what is 43

51 currently in place to bring the project to fruition. Therefore, they would consider the option of financing the project through a public-private partnership. Key Finding #11: Maryland TP3 Guidelines prohibit unsolicited proposals for highway projects. Maryland does not currently allow for unsolicited proposals for highway projects. However, the state does accept unsolicited proposals for other non-highway related projects. Maryland does not have staff dedicated to this process and therefore, officials feel that the unsolicited proposal process consumes too much time and resources to consider and therefore prevent the state from focusing on existing priorities. Virginia on the other hand has traditionally welcomed unsolicited proposals and has a dedicated and experienced staff ready to receive them. Under House Bill 662 of 2007, the operation of MDTA with respect to its PPP program would have to be consistent with Virginia s policies and allow for solicited and unsolicited proposals for highways. The O Malley administration opposed this bill and it ultimately failed in the Environmental Matters Committee. Key Finding #12: Maryland already has a tolling authority (MDTA) to help finance highway projects. The Maryland Transportation Authority is the state s tolling agency responsible for managing, operating, and improving the state s toll facilities. Officials in Maryland believe that MDTA can finance projects just as well as the private sector can. Through MDTA, the state is able take advantage of its favorable bond rating and use tax-exempt revenue bonds to develop toll facilities, roads, bridges, and tunnels throughout the state. In turn, the state is able to operate the highway and collect toll revenues. States like Virginia that utilize PPP agreements to finance new highways do not have a tolling authority (or an authority as robust as Maryland s) and thus are more likely to turn to public-private partnerships in an effort to finance new highway projects while avoiding an increase in the state s debt capacity. Key Finding #13: Local opposition to tolling will likely prevent Maryland from pursuing a PPP agreement for the Capital Beltway. Public-private partnerships for highway projects generally use some form of tolling as a source of guaranteed revenue to recoup debt. Although we could not obtain any statistical evidence that Maryland s citizens oppose tolling and despite the fact that MDTA will toll the ICC, the MDOT 44

52 officials we spoke with made it very clear that tolling the Beltway is an extremely unpopular option. Additionally, an official from the Prince Georges County Department of Public Works and Transportation explicitly said that Prince Georges County is against any form of tolling on the Beltway. Concerning ETLs, the official said the County is adamantly opposed to any sort of tolling that allows the tolling entity to select who has a shorter commute based on one s ability to pay. Despite these assertions, public sentiment may be beginning to turn in favor of toll roads. Virginia has not received much negative feedback from the public with respect to their proposal to add HOT Lanes on the Beltway and I-395. Additionally, in AAA s 2006 Pockets of Pain survey, 52 percent of the people surveyed were in favor of using tolls to pay for transportation projects. Only 40 percent favored increased taxes such as the motor fuel tax, vehicle title tax, or sales, property, and income taxes. If local opposition for toll collection is enough to prevent the state from tolling the Beltway, then it is highly unlikely that Maryland would choose to enter into a PPP. 45

53 CONCLUSIONS AND RECOMMENDATIONS It would be difficult to argue that traffic congestion is not a problem in the Washington, DC metropolitan area. Most people would agree that the Capital Beltway is one of the most dreaded traffic routes in the region, perhaps even the country. When NCPPP asked us to research the approaches Virginia and Maryland were taking to relieve congestion on the Beltway, on the surface it appeared as though the issue was rather straightforward; Virginia was taking positive action while Maryland remained in neutral. However, it became rapidly apparent that the situation was more complex than originally thought and that the subject warranted objective research. Although the states share a highway and a common interest in improving highway infrastructure for the 21 st Century, they operate under different legal and administrative structures and face distinct challenges and opportunities in adding capacity to the Beltway. Below is a list of conclusions and subsequent recommendations for NCPPP. It is not necessarily an all-inclusive list, but based on our research, we find these to be the most pertinent. Conclusion 1: Virginia has an extensive history of successful public-private partnerships that has enabled them to be a leader in this innovative method of constructing and financing highway projects. Virginia has PPP legislation that continues to be developed and refined. It has also served as a model for many states attempting to enact similar legislation. Virginia has proven success with PPP projects to include the Pocahontas Parkway, Route 288, and Route 199. Their success has enabled them to pursue other PPP projects such as Route 28, I-95/I-395 Hot Lanes, and the I-495 HOT Lanes. We attribute much of Virginia s success with public-private partnerships to the strong, continuous support from governors of both political parties as well as the state legislature. Conclusion 2: Maryland does not have the support necessary to widen the Capital Beltway. Support for widening the Beltway needs to come from the state and local governments as well as the public. Without greater support from Montgomery and Prince Georges County, the state government is not inclined to take on such a controversial mega-project. Widening the Beltway lacks support for a variety of reasons but some of the more dominant ones include severity of rightof-way issues, environmental concerns, and public disagreement towards tolling. Additionally, elected officials invested significant political capital in the Intercounty Connector and Maryland is 46

54 currently involved an unprecedented budget crisis. A mega-project such as the Capital Beltway needs to have consensus from the Governor, General Assembly, and a host of local governments. Conclusion 3: Maryland is not well suited to enter into a public-partnership for highway projects. Absent the ability to facilitate a large capital outlay, Maryland, like many states, lacks the necessary funding to develop large transportation initiatives. Maryland officials stated that they are not taking on any new projects and the state s current focus is system preservation. While publicprivate partnerships are not a panacea to a state s financial problems, many states are entering into PPPs as a way to quickly and efficiently deliver new highways and bridges. With proven success in states like Virginia, Texas, and California, PPPs are beginning to take notice. While Maryland has a PPP program with MDTA, its legislation is very tenuous. There is also no evidence of overwhelming support or a consensus from the Governor and the General Assembly on PPPs for highways. If Maryland desires to spearhead new highway mega-projects, they need to have new comprehensive legislation for public-private partnerships. The legislation needs to be specific enough so that both the public and private sector understand the process from beginning to end. For this to happen and for PPPs to be successful, Maryland needs to have their Governor and General Assembly be ardent supporters of PPPs. Recommendation 1: NCPPP should continue its educational activities across all sectors to enhance knowledge of public-private partnerships and their applicability to transportation projects, specifically the expansion of the Capital Beltway in Maryland. Recommendation 2: NCPPP should continue its relationship with the School of Public Policy and Public Administration at The George Washington University as a means of furthering research into topics relating to the Beltway and PPPs. Topics recommended for future research include: The politics of PPPs: Exploring the roles and positions of the executive and legislative branches in implementing PPP transportation projects PPPs and the Maryland General Assembly Issues and options pertaining to a comprehensive approach to regional congestion management (e.g. highway expansion, smart growth, transit options, etc.). 47

55 ENDNOTE 1 U.S. Department of Transportation, Federal Highway Administration and AECOM Consult Team. 2006a. Issues and Options for Increasing the Use of Tolling and Pricing to Finance. Fairfax, VA, June 9. Available at: 2 The National Council for Public-Private Partnerships How Partnerships Work. Washington, D.C. Available at: 3 Savas, E. S Privatization and Public Private Partnerships. New York: Chatham House. 4 U.S. Department of Transportation, Federal Highway Administration, 2007a. PPPs Defined. Available at: 5 Poole, Robert and Peter Samuel The Return of Private Toll Roads. Public Roads. March/April, Vol. 69, No. 5. Washington, D.C. Available at: 6 Orange County Department of Transportation. 91 Express Lanes 2006 Report. Orange County, CA. Available at: 7 Hubert H. Humphrey Institute of Public Affairs I-394 MnPASS A New Choice for Commuters: How is it Working? Rethinking Transportation Finance Roundtable. March 23, Coffman Memorial Union, University of Minnesota. Available at: 8 Virginia Department of Transportation Bulletin. January-February. Vol. 73, No. 1. Richmond, VA. Available at: 9 Virginia Department of Transportation Projects and Studies: Six-Year Improvement Plan Frequently Asked Questions. Richmond, VA. Available at: 10 Virginia Department of Transportation News Release: Six-Year Improvement Program and FY05 Transportation Budget Frequently Asked Questions. Richmond, VA. Available at: 11 Reese, Barbara, Virginia Department of Transportation Deputy Secretary of Transportation Capital Beltway HOT Lanes PPTA Project In-Principle Business Terms. September, Richmond, VA. Available at: Item2_CapBeltway_InPrincipleAgreement.pdf. 12 University of Southern California Planning & Markets: Highway Construction Costs Under Government Provision. Los Angeles, CA. Available at: volume2/v2i1a3s2.html. 13 Virginia Department of Transportation Virginia s Statewide Multimodal Long-Rage Transportation Plan: Phase 3 and Final Report to the General Assembly. November, Richmond, VA. Available at: 14 Virginia Department of Transportation News Release: Six-Year Improvement Program and FY05 Transportation Budget Frequently Asked Questions. Richmond, VA. Available at: 15 Bacon, James The Next Transportation Crisis. Bacon s Rebellion. July 16, Virginia. Available at: 16 TRIP Virginia s Future Mobility: An Analysis of the Ability of Virginia s Transportation System to Meet the State s Need for Safe and Efficient Mobility. February, Washington, D.C. Available at: 48

56 17 Weiss, Eric M Virginia Approves Spending For Roads. Washington Post, June 22, B01. Available at: /06/21/AR _pf.html. 18 Craig, Tim Transportation Bill on Verge of Approval. Washington Post, April 4, B01. Available at: 04/03/AR html. 19 Weiss, Eric M Virginia Approves Spending For Roads. Washington Post, June 22, B01. Available at: /06/21/AR _pf.html. 20 Virginia Department of Transportation History Highlights website. Richmond, VA. Available at: 21 Virginia General Assembly Legislative Information System website. Available at: 22 Virginia Department of Transportation Public-Private Transportation Act web page. Available at: 23 Ibid 24 KCI Technologies, Inc. with MDTA, MDOT, MD SHA, June Current Practices in Public-Private Partnerships for Highways. Available at 25 Kozel, Scott Roads to the Future: Capital Beltway (I-495 and I-95) webpage. Available at: 26 Parsons Project Site The Capital Beltway Study Overview webpage. Available at: 27 Taylor, Jeff Will Toll Roads Save our Nation s Capital? Reasononline. June 10. Available at: 28 Mummolo, Jonathan A Ranking Writ In Brake Lights: D.C. 2 nd in Traffic. Washington Post, September 19, B01. Available at: /09/18/AR html. 29 George Mason University Center for Regional Analysis Commuting Trends and Patterns in the Washington Region. September 2. Available at: 30 Fluor-Transurban, Inc Virginia HOT lanes website. Available at: 31 Mummolo, Jonathan A Ranking Writ In Brake Lights: D.C. 2 nd in Traffic. Washington Post, September 19, B01. Available at: /09/18/AR html. 32 Virginia Department of Transportation Capital Beltway HOT Lanes PPTA Proposal Presentation. July 16. Available at: 33 Capital Beltway Studies website (Last updated September 2007). Traffic Volumes. Available at 34 Montgomery County Planning Board The Critical Issues of the East-West Connectors. December 13, Silver Spring, MD. Available at: /agenda_121301/east-west%20final.pdf. 49

57 35 Poole, Robert and Peter Samuel The Return of Private Toll Roads. Public Roads. March/April, Vol. 69, No. 5. Washington, D.C. Available at: 36 Virginia Department of Transportation Projects and Studies website: I95/395 and Route 495 HOV/BUS/HOT Lanes Project. Available at: projects/hot_main.asp. 37 Weiss, Eric M Beltway Toll Plan May Need Va. Funds. Washington Post, October 23, A01. Available at: /10/22/AR html. 38 Nash, Betty Joyce The End of the Free Ride: Tolls bring home the true cost of roads. Region Focus, Federal Reserve Bank of Richmond. Spring 2006, Richmond, VA. Available at: spring_2006/pdf/full_issue.pdf. 39 Virginia Department of Transportation News Release: Virginia Signs Interim Agreement with Private Firm to Build I-95/395 HOT lanes. October 24. Available at: newsrelease.asp?id=co Virginia Division of Legislative Services. Senate Bill 856 in the 1995 General Assembly Session 41 Galuszka, Peter Close Shave. Beacon s Rebellion. December 11, Virginia. Available at: 42 Virginia Office of the Governor Speeches: Testimony Before the U.S. House of Representatives Committee on Transportation and Infrastructure and the Sub-Committee on Highways, Transit and Pipelines. May 24, Washington, D.C. Available at: /TranspoTestimonyCongress.cfm. 43 Reese, Barbara, Virginia Department of Transportation Deputy Secretary of Transportation Capital Beltway HOT Lanes PPTA Project In-Principle Business Terms. September, Richmond, VA. Available at: Item2_CapBeltway_InPrincipleAgreement.pdf. 44 Brulliard, Karin Va. HOT Lane Project to Start Early Next Year. Washington Post, September 10, A01 Available at: 45 Weiss, Eric M Beltway Toll Plan May Need Va. Funds. Washington Post, October 23, A01. Available at: /10/22/AR html. 46 Tollroadsnews Virginia sec transport Homer says tolls and PPPs vital for mobility, eco growth. May 28, Fredrick, MD. Available at: 50

58 Appendix A Fall 2007 TSPPPA Capstone Class Statement of Work Project in Conjunction with the National Council for Public-Private Partnerships Background: The Capital Beltway (I-495) is the main artery that services commuters in the VA/MD/DC metro area. The Beltway has exceeded intended capacity and is now at the center of a growing regional transportation crisis. According to the most recent Texas Transportation Institute report, commuters in the area experience the second-worst congestion in the United States. The need to reduce congestion, increase capacity, offer travel choices, and improve safety is paramount to the successful future of this transportation infrastructure, and the economic vitality of the region. In order to facilitate timely improvements to the Capital Beltway, Virginia has entered into a publicprivate partnership while Maryland is still studying its available options. Problem Definition: In response to this growing crisis, Virginia is partnering with Fluor- Transurban, a private sector company, to develop High Occupancy Toll Lanes (HOT) on its side of the Beltway. Under this public-private partnership (PPP), Virginia will retain ownership and oversight of the lanes, while Fluor-Transurban will construct, operate, facilitate maintenance and provide the bulk of financing for the project. Many officials in VA have expressed satisfaction with this approach, studies have found cost savings, and PPP projects have typically spurred additional economic activity and freed up valuable state resources for other transportation needs. Maryland has conducted extensive research on congestion pricing for its highways and has thoroughly reviewed the feasibility of partnering with the private sector to finance highway construction projects. Maryland plans to introduce Express Toll Lanes (ETL) in various parts of the state but intends on using its existing highway financing methods to improve, maintain, and build highway infrastructure. As of now, Maryland does not have any approved construction plans for its side of the Beltway. Research Questions: The research team s mission is to study and examine the issue in an objective fashion, providing key findings and recommendations to the National Council for Public Private Partnerships (NCPPP). The team will address the following research questions: 1. To what extent and how have Virginia and Fluor-Transurban satisfied NCPPP s six criteria for a successful public-private partnership with their effort to add capacity to the Capital Beltway? What areas do they need to improve on, if any? 2. What are the key challenges and obstacles Maryland faces for building additional highway lanes on their portion of the Capital Beltway? 3. If Maryland decides to pursue widening the Capital Beltway, do the conditions exist for Maryland to use a public private partnership to finance, build, maintain and operate the additional lanes? If not, what are the necessary conditions in Maryland for a public private partnership to be a viable option? 51

59 Criteria: We will use NCPPP s criteria for successful public-private partnerships to analyze the extent to which Virginia and Flour-Transurban have worked together for the benefit of the Commonwealth and citizens. 1) Political Leadership Is there commitment from "the top" of the organization? Does the state governor support PPPs? Is he/she well informed? Does the legislature support PPPs? Is there a statutory foundation for the implementation of a PPP? 2) Public Sector Involvement Does the public sector remain actively involved in the project? How often do the partners manage the performance of the partnership? Is this specified in the business plan? 3) A Well Thought-Out Plan Does each side know what to expect of the partnership beforehand? Did an outside expert help develop the plan? Does the contract clearly detail the responsibilities of the public and private partner? Is there a method for dispute resolution? The state will effectively monitor and evaluate the project; deter cost-overruns, delays and takes corrective action, when required Who is bearing the main financial risk for the project? o Is there an understanding of who has that risk? 4) A Dedicated Income Stream Is there a means of repayment of the investment over the long term of the partnership What is the source of the income stream? Is the income stream assured for the length of the partnership? 5) Communications with Stakeholders Who are the stakeholders? Do both partners communicate openly and candidly with the stakeholders to minimize potential resistance to establishing a partnership? 6) Selecting the Right Partner Is the selected partner offering the best value? What is the private partner s experience in the area of PPPs? 52

60 Methodology and Data Analysis At the request of the National Council for Public Private Partnerships, the team will conduct academic research and consult with stakeholders in order to obtain the necessary information to complete the project. The research team will utilize the following data collection techniques: Literature Review Collect and analyze literature available from a wide variety of sources including but not limited to periodicals, academic databases, historical bodies of academic work and relevant agency data. Interviews/Visits Reach out to current and formal officials in both Virginia and Maryland state governments with a special interest in transportation department management. Seek out the opinions and insight of advocacy groups on both sides of the issue. We may report our analysis of information gleaned from the interviews, but none of the information will be attributed. Survey The research team is considering surveying Virginia and/or Maryland legislators to supplement the interviews. Results and Recommendations The research team will collect the necessary quantitative and qualitative data in order to answer the proposed research questions, present key findings, and make recommendation to NCPPP on how to proceed with promoting highway related public- private partnerships in Maryland. The team will exhibit its results through a comprehensive and analytical research paper. The final product will objectively assess Virginia s PPP with Flour-Transurban and analyze Maryland s options to finance the expansion of the Beltway. The team will present its final product and make an oral presentation to the NCPPP staff in December

61 Appendix B National Council for Public-Private Partnerships: KEYS TO SUCCESSFUL PUBLIC-PRIVATE PARTNERSHIPS There are six critical components of any successful Public-Private Partnership (PPP). While there is not a set formula or an absolute foolproof technique in crafting a successful PPP, each of these keys is involved in varying degrees. POLITICAL LEADERSHIP: A successful partnership can result only if there is commitment from "the top". The most senior public officials must be willing to be actively involved in supporting the concept of PPPs and taking a leadership role in the development of each given partnership. A well-informed political leader can play a critical role in minimizing misperceptions about the value to the public of an effectively developed partnership. Equally important, there should be a statutory foundation for the implementation of each partnership. PUBLIC SECTOR INVOLVEMENT: Once a partnership has been established, the public-sector must remain actively involved in the project or program. On-going monitoring of the performance of the partnership is important in assuring its success. This monitoring should be done on a daily, weekly, monthly or quarterly basis for different aspects of each partnership (the frequency is often defined in the business plan and/or contract). A WELL THOUGHT-OUT PLAN: You must know what you expect of the partnership beforehand. A carefully developed plan (often done with the assistance of an outside expert in this field) will substantially increase the probability of success of the partnership. This plan most often will take the form of an extensive, detailed contract, clearly describing the responsibilities of both the public and private partners. In addition to attempting to foresee areas of respective responsibilities, a good plan or contract will include a clearly defined method of dispute resolution (because not all contingencies can be foreseen). A DEDICATED INCOME STREAM: While the private partner may provide the initial funding for capital improvements, there must be a means of repayment of this investment over the long term of the partnership. The income stream can be generated by a variety and combination of sources (fees, tolls, shadow tolls, tax increment financing, or a wide range of additional options), but must be assured for the length of the partnership. COMMUNICATIONS WITH STAKEHOLDERS: More people will be affected by a partnership than just the public officials and the private-sector partner. Affected employees, the portions of the public receiving the service, the press, appropriate labor unions and relevant interest groups will all have opinions, and frequently significant misconceptions about a partnership and its value to all the public. It is important to communicate openly and candidly with these stakeholders to minimize potential resistance to establishing a partnership. SELECTING THE RIGHT PARTNER: The "lowest bid" is not always the best choice for selecting a partner. The "best value" in a partner is critical in a long-term relationship that is central to a successful partnership. A candidate's experience in the specific area of partnerships being considered is an important factor in identifying the right partner. The listing of NCPPP members (provided under Council Members on this site) provides a logical starting point for the identification of potential partners or services that might be required in the development of a partnership. 54

62 Appendix C Capital Beltway HOT lanes in-principle agreement September 2007 The Commonwealth of Virginia and its private partners, Fluor and Transurban, have reached an in-principle agreement for the design, construction, operation and maintenance of the Capital Beltway HOT lanes. VDOT and Fluor-Transurban plan to finalize the agreement over the coming months, with financial close expected by the end of the calendar year. The in-principle agreement requires Fluor-Transurban to do the following: Finance and build a 14-mile stretch of HOT lanes (two lanes in each direction) on the Capital Beltway, based on a fixed-price, fixed-time design-build contract Take responsibility for the cost and management of all operations and maintenance of the HOT lanes for a period of 75 years following completion of construction Share revenues with the Commonwealth if the facility exceeds expectations Impose congestion toll pricing to ensure free flow traffic conditions Ensure that HOV vehicles, transit and commuter buses travel for free Return the HOT lanes to the Commonwealth in good order at the end of the agreement. The Commonwealth of Virginia will: Retain ownership and oversight of the HOT lanes Provide a financial grant to the project to support the construction of key elements including the final phase of the Springfield Interchange, improvements to the I-66 interchange, and reconstruction of a number of adjacent bridges and overpasses Provide police and emergency services to the project Maintain control of the HOT lanes should the lanes be required during an emergency evacuation. Financing the Capital Beltway HOT lanes project Construction and operation of the Capital Beltway HOT lanes project is being financed through a partnership between the public and private sectors. By working together, the Commonwealth of Virginia and its private partners, Fluor and Transurban, will deliver traffic congestion relief on the Beltway much earlier, and at less cost to Virginia taxpayers, than if the improvements were solely funded by the Commonwealth from traditional revenue sources. Under the proposed agreement with the Commonwealth, Fluor-Transurban will operate, maintain, and improve the Capital Beltway HOT lanes for a period of 75 years, once the lanes are open to traffic. 55

63 The total project cost will be approximately $1.7 billion, with funding provided from the following sources: $1.3 being a combination of up-front equity, bonds and loans provided and sourced by Fluor-Transurban $157 contribution to the project by the Commonwealth of the Virginia from the Transportation Partnership Opportunity Fund An additional $242 million in federal and state funding allocated to components of the project under VDOT s Six Year Improvement Plan, including Phase VIII of the Springfield Interchange and enhancements to the I- 66 Interchange. Fluor-Transurban will pay for operation and maintenance of the HOT lanes, as well as repaying all financing (bonds and loans) costs, through toll revenues generated by the project. It will also be responsible for: Development and operation of the electronic toll and traffic management system Routine and preventative maintenance, and incident response services Major maintenance, repairs and required capital improvements Toll revenues must first be used to pay these costs, before Fluor-Transurban is permitted to make a return on their investment in the project. Sharing in project revenues Under the proposed agreement, VDOT will be entitled to receive a share of toll revenues in the event the project revenues exceed expectations. The share will range between 5% and 30% of gross toll revenue, based on a series of return benchmarks established at financial close. Should VDOT require Fluor-Transurban to make enhancements to the project, Fluor-Transurban will pay VDOT 50% of any net positive revenue impact. For more information visit # # # 56

64 Appendix D This short survey is intended for Maryland State Senators and Delegates. For staff members that reply, please have your responses reflect that of your Senator/Delegate. - Your answers will be completely anonymous. - Please answer all the questions candidly. - The survey should not take more than 5 minutes. - THANK YOU for your help in this important academic research. 1. In general, how effective do you feel the following providers are in delivering highway transportation services and infrastructure? Completely Ineffective Somewhat ineffective Neutral Very Effective Completely Effective Public sector nmlkj nmlkj nmlkj nmlkj nmlkj Private sector nmlkj nmlkj nmlkj nmlkj nmlkj Public-private partnerships nmlkj nmlkj nmlkj nmlkj nmlkj 2. Please rate, in your opinion, the overall effectiveness of the following organizations. Completely Ineffective Somewhat Ineffective Neutral Very Effective Completely Effective Maryland Department of Transportation Maryland Transportation Authority State Highway Administration Maryland Transit Administration Maryland Port Administration Motor Vehicle Administration Maryland Aviation Administration nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj 3. Please rate your general knowledge level in the following subject areas. Not at all knowledgeable Somewhat Knowledgeable Extremely knowledgeable Public-private partnerships nmlkj nmlkj nmlkj Highway financing nmlkj nmlkj nmlkj Highway construction nmlkj nmlkj nmlkj 57

65 Appendix D 4. To what extent do you support using the following revenue sources for new constuction on Maryland's interstate system? Do not support Somewhat support Completely support Do not know Corporate income taxes nmlkj nmlkj nmlkj nmlkj Motor fuel tax nmlkj nmlkj nmlkj nmlkj MVA fees and taxes nmlkj nmlkj nmlkj nmlkj Tolls nmlkj nmlkj nmlkj nmlkj Bonds nmlkj nmlkj nmlkj nmlkj Entering a public-private partnership nmlkj nmlkj nmlkj nmlkj 5. If additional revenue for transportation infrastructure is necessary, what do you MOST prefer the State use to generate that money? nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj Corporate income taxes Motor fuel tax MVA fees and taxes Tolls Bonds Other (please specify) 6. If additional revenue for transportation infrastructure is necessary, what do you LEAST prefer the state use to generate that money? nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj Corporate income taxes Motor fuel tax MVA fees and taxes Tolls Bonds Other (please specify) 7. Please RANK (with 1 being the most important and 4 the least important) the following service attributes when implementing transportation infrastructure projects Cost to the consumer nmlkj nmlkj nmlkj nmlkj Cost to the state nmlkj nmlkj nmlkj nmlkj Timely delivery nmlkj nmlkj nmlkj nmlkj Quality of product nmlkj nmlkj nmlkj nmlkj 58

66 Appendix D 8. Please RANK (with 1 being the most important and 6 the least important) your opinion of the following criteria in establishing a successful public-private partnership Political leadership nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj Public sector involvement Having a well thought out business plan Dedicated income stream Communication with stakeholders Selecting the right partner nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj nmlkj 9. What is your level of concern regarding the following issues in the use of public-private partnerships to finance highways? Not at all concerned Somewhat concerned Completely concerned Do not know Lack of accountability and public sector oversight nmlkj nmlkj nmlkj nmlkj Uncontrolled toll prices nmlkj nmlkj nmlkj nmlkj Private companies are too profit driven nmlkj nmlkj nmlkj nmlkj Union participation nmlkj nmlkj nmlkj nmlkj Foreign investment nmlkj nmlkj nmlkj nmlkj 10. What do you think Maryland should do to relieve congestion on the I-495 Capital Beltway? nmlkj nmlkj nmlkj nmlkj nmlkj Build extra highway lanes, but without tolls Build extra highway lanes and institute some form of electronic toll pricing Replicate Virginia's HOT Lane plan for its side of the Beltway Nothing...leave as is Other (please specify) 11. If Maryland decides to build extra highway lanes and institute some form of electronic tolling on the I-495 Capital Beltway, do you think the state should seek out a public-private partnership? nmlkj nmlkj nmlkj nmlkj Yes No I need more information before I can say Undecided 59

67 Appendix D 12. What is your political affiliation? nmlkj nmlkj nmlkj nmlkj Democrat Republican Independent Other 13. What is your position within the Maryland General Assembly? nmlkj nmlkj nmlkj nmlkj nmlkj Delegate Senator Senior staff member from Delgate's office Senior staff member from Senator's office Other (please specify) 14. How long have you served in the Maryland General Assembly? nmlkj nmlkj nmlkj nmlkj Less than 1 year Between 1-5 years Between 6-10 years Greater than 10 years 15. Is there anything else you would like to share with us regarding publicprivate partnerships, Maryland transportation infrastructure, or the I-495 Capital Beltway? 60

68 61 Appendix E

69 62 Appendix E