WASHINGTON — Virginia Gov. Robert McDonnell announced on Monday that the commonwealth has obtained all of the funds needed to proceed with its Elizabeth River Crossings project, including the full $300 million that the Virginia Department of Transportation has committed to the $2.1 billion public-private partnership.
The announcement allows construction to begin on a third tunnel to be built under the Elizabeth River between Norfolk and Portsmouth, which will parallel an existing tunnel. That existing tunnel and two other downtown tunnels will be upgraded.
The P3 is a partnership between Virginia and a private venture, Elizabeth River Crossings, which is made up of partners Skanska Infrastructure Development and Macquarie Group Ltd. Under the terms of the P3 agreement, VDOT will maintain ownership of the infrastructure and oversee ERC’s activities. ERC will finance and build the facilities, then operate and maintain them for a 58-year period in exchange for the right to collect toll revenue from traffic using the tunnel.
The administration lauded the benefits of the project to the Hampton Roads area, which boasts one of the East Coast’s most important seaports.
“Financial close marks a significant step forward for transportation improvements in Hampton Roads,” McDonnell said. “Once this project is completed, motorists will save about a half-hour round trip everyday, plus benefit from a much improved transportation network that will better connect the region, stimulate the local economy and create jobs.”
“The Midtown Tunnel project is ranked as the number one transportation priority by the region’s leaders and is the largest project to get underway in the region in almost 30 years,” said VDOT Secretary Sean T. Connaughton.
A typical highway P3 costs just over $500 million, according to a recent study by the Congressional Budget Office.
The Virginia Small Business Financing Authority priced $664 million of private-activity bonds last week for the project, and the U.S. Department of Transportation approved a $422 million loan under the Transportation Infrastructure Finance Innovation Act on Friday.
At the April 9 competitive pricing, the PAB yields ranged from 4.45% with a 4.25% coupon and a maturity in 2022 to 5.5% with a 5.5% coupon and a maturity in 2042. That was “slightly below expectations,” according to a Fitch report.
Both Fitch Ratings and Standard and Poor’s assigned the PABs supporting the project a BBB-minus, largely due to projections forecasting a drop-off in traffic once tolling begins on the existing tunnels, agency analysts said during separate media calls last week.
The PAB, TIFIA and VDOT money does not account for the entire estimated cost of the project, which ERC is responsible for covering by tolling two existing tunnels under the river.
Those tolls, initially ranging from $1.59 to $1.84 per car, were supposed to begin this summer under the ERC business plan. But McDonnell announced today that he would ask the Commonwealth Transportation Board to allocate an additional $100 million to the project in order to delay the tolls until January 2013.
Despite the unpopularity of toll hikes and the possibility that drivers won’t pay rising toll costs to use the tunnels, Connaughton said the model adopted by Elizabeth River Crossings and VDOT is the only way to pull the project off.
“Procurement as a public-private partnership is the only feasible way to fund a project of this magnitude, and that depends on tolls,” he said.
Funding for the toll delay will come mostly from funds set aside for the state’s contribution at financial close that were not needed due to current low interest rates for other state borrowings, the governor’s office said.
A provision of the comprehensive agreement creating the P3 allows Virginia to postpone tolling at any time, as long as it replaces the toll revenue with appropriations replacing the projected toll revenue.
“VDOT and ERC are ready to begin this project now,” said VDOT commissioner Greg Whirley. “The existing midtown tunnel is a half-century old and in dire need of expanded capacity for the sake of safety, reduced congestion, better travel times and improved connectivity.”
VDOT will present the governor’s request to the CTB April 18. The project is scheduled for completion in 2017.