Reported Deal on Financing Phase 2 of the Silver Line

Note:  See updates in italics.

In this morning's (Nov. 11, 2011) Washington Post, Dana Hedgpeth reports that the US Department of Transportation has reached an agreement on the financing of Phase 2 of the Metrorail Silver Line, although it needs ratification by the several parties.  The meat of the deal as reported is:

The most important part of the deal is that LaHood’s office agreed to provide federal loan assistance to help Fairfax, Loudoun and the airports authority finance their investment in the project.

LaHood said Virginia Gov. Robert F. McDonnell (R) also agreed to bring $150 million to the table to help finance the project.

Regrettably, the memorandum of Agreement (MOA) states that the amount of federal  (TIFIA) credit assistance available to the parties will not exceed $30 million--about one percent of the cost of Phase 2.  Similarly, the $150 million from Virginia is subject to appropriation by the Virginia legislature in its 2012 legislative session.   Moreover, this money will be used to defray interest costs, not the construction of the Metrorail line, in the five years following the appropriation.  In so doing, it will comprises merely 1-2% of the $10-$15 billion total debt servicing cost for the Silver Line over the next 40 years. 

One of the major claimed "savings" from this effort is, in fact, the shifting of costs for the construction of several stations and associated parking garages from MWAA to Fairfax and Loudoun counties, a "savings" of about $310 million in Phase 2 costs.  The good news is that the roughly 10% reduction in MWAA financing needs for Phase 2 could reduce the onerous increases in Dulles Toll Road (DTR) tolls by a similar amount.  Unfortunately, the MOA makes clear that county shares of the cost of Phase 2 construction do not change, so this does not represent an increased commitment by the counties, merely a specification of what they will pay for.  Moreover, the "savings" from this cost shifting is simply a deceit.  The total costs of Phase 2 will not be changed by this shifting of a line item from one set of books to another.  In short, the federal and state government have done the absolute minimum to provide political cover that they are participating in making Phase 2 of the Silver Line economically feasible.

The most important thing this agreement does NOT do is relieve Dulles Toll Road (DTR) users of much of the burden of of paying for rail line.  The agreement states that "MWAA will use its best efforts to limit the size of future toll rate increases on the Dulles Toll Road," but does not change the basic formulation of financial agreement among the funding partners.  In short, DTR users remain stuck with paying for more than half of the total Silver Line cost and three-quarters of any cost increases.  While the agreement states that the 2009 Wilbur Smith toll rate assessment includes "a reasonable approximation" of future toll rates, raising the cost of Phase 2 from $2.5 billion to $2.8 billion (the $3.2 billion cost of Phase 2 less the roughly $400 million the counties have agreed to absorb) means that tolls will likely rise at least 10 percent from WSA's last assessment.  That estimate indicated tolls would rise to $11.25 in the 2040s; a new estimate would be on the order of at least $12-$13 full toll. 

As discussed in a separate post on this blog about why Silver Line construction costs should be audited, cost escalations have been rampant in the planning for Phase 1 of the Silver Line.  What is important is that local officials will soon be making a yes/no decision on whether to proceed with Phase 2 based on a "100% Preliminary Engineering" assessment of Phase 2.  Sources suggest that MWAA's analysis of alternative station locations reflects such an assessment, except for the fleshing out of Dulles station costs.  This is the analysis used to formulate the current DOT-led agreement.  In Phase 1, two "100% preliminary engineering" assessments were done with the following results:

• An April 2006 estimate for Phase 1 by FTA's project management oversight consultant (PMOC) put the cost for Phase 1 at $2.07 billion.  Since then, the estimated cost of Phase 1 has risen by more than 40 percent.
• In July 2007, the PMOC did an "updated 100% preliminary engineering" assessment that put the cost of Phase 1 at $2.65 billion, 11 percent below the current $2.95 billion estimate. 

If the same kinds of estimative errors exist in the current engineering estimate, costs for Phase 2 could rise anywhere from $400 million (total of $3.6 billion) to $1.4 billion (total of $4.6 billion) before the project is complete.  And DTR users would be picking up three-quarters of those extra costs.

Below is the text of the DOT MOA:

FTA Metrorail Silver Line Financial Agreement 111011