After months of wrangling over toll rates on the privately financed and operated Dulles Greenway, Commonwealth lawmakers have finally reached a resolution. But in the process they may have done damage that will make it harder for Virginia to build the infrastructure necessary to keep people and goods moving across the state.
Last year the State Corporation Commission approved a Greenway toll rate increase to allow the road’s operator to meet its rapidly rising debt service obligations. This prompted a strong response from Congressman Frank Wolf, who asked the Attorney General to scrutinize the recent toll increase, encouraged the General Assembly to undo the law that created the Greenway, and even called publicly for the state to condemn the road and expropriate it from the private parties that financed, built and operate it.
Luckily, cooler heads prevailed. Under the recently passed HB 1140, negotiated by Sen. Mark Herring, D-Loudoun, and Del. Joe May, R-Loudoun, the Greenway operators will be allowed to increase tolls at roughly the rate of inflation starting in 2013 after the recently approved toll increases have been phased in. The bill also requires the operator to submit annual financial reports to the state.
Indeed, May and Herring deserve kudos for and negotiating a fair compromise that protects the public interest while giving the Greenway operator some predictability in toll rates moving forward. However, HB 1140 may send the wrong signal to the private sector.
Private sector infrastructure investors like those who built and run the Greenway make decisions about where to do business based in part on perceived political risks to their investments. Until HB 1140, Virginia had been seen as a relatively stable political environment in which to invest. For example, the Commonwealth's landmark Public-Private Transportation Act (PPTA) — the statute granting broad authority to the state to negotiate public-private partnerships to deliver new, privately financed transportation projects — has remained largely intact since passed over a decade ago, despite several party changes in the Governor's office and in both houses of the Assembly. It is under this Act that the new, $1.7 billion Capital Beltway high-occupancy toll (HOT) lanes project was negotiated, among others.
But the Greenway was built prior to the PPTA's passage and was authorized under stand-alone legislation in 1988. That legislation gave the State Corporation Commission the sole responsibility for approving future toll rate increases. HB 1140, in effect, represents the Assembly stepping in and changing the rules of the game midstream.
From a private investor’s perspective, the Assembly has just seen fit to effectively rewrite major provisions of a twenty-year old law authorizing the Greenway's construction — a law that formed the basis for Greenway investors' original investments. So, how confident should other private infrastructure investors be that the same thing won’t happen in five or ten years with the Beltway HOT lanes, the I-95/I-395 HOT lanes project, or anything else negotiated under the PPTA?
Privately financed infrastructure projects generally involve long-term (35+year) contracts, so it makes sense that the investors who consider political risk over the long term in their investment decisions. Those private investors interested in expanding and modernizing Virginia's transportation infrastructure may ultimately find it less risky to shift their focus — and their dollars — to other states where they are being welcomed by innovative policymakers.
Hopefully, HB 1140 will satisfy those like Congressman Wolf who complain about "unfair" toll increases but don't mention that, were it not for private investors, the Dulles Greenway would not even exist. Those investors stepped in and undertook a great deal of financial risk to build a road that government had long wanted but couldn't afford to pay for.
That last bit is the key, given the current transportation funding crunch in Virginia. The Supreme Court recently put the last nail in the coffin of last year's transportation funding "solution," and there seems to be no political will to raise taxes to a level that could fund all of the transportation projects on transportation planners' wish lists. State officials need all all available options on the table.
Private capital markets have an estimated $400 billion available for infrastructure investment. With the Commonwealth’s transportation needs so vast and funding prospects so bleak, the last thing Virginia needs is to scare off the one source of capital big enough to meet the state's infrastructure needs in the 21st century economy.