Who will buy Dulles Toll Road bonds and pay the operating costs?

In a recent post on TollRoadsNews. com, editor Peter Samuel has written a lengthy article regarding Virginia Attorney-General Ken Cuccinelli's opposition to Virginia contributing further funding to the construction of the Silver Line.  Under the LaHood MOA, Gov. McDonnell pledged to propose to the General Assembly that Virginia pay $150 million to help cover debt service costs in the first five years of Dulles rail's Phase 2 debt issuance.  That still has to gain legislative approval.  The article notes Cuccinelli's long-time opposition and says:

Cuccinelli who is from northern Virginia says the whole rail project is a disaster for the region and the state from the huge debts being run up, and the losses that will be incurred and subsidies needed for a facility few will use. High tolls will hit not only Dulles Toll Road users but other residents as traffic diverts.

Late in this article, Samuel raises questions about who will pay for Dulles rail:

There has been little discussion of this but it far from clear that the MWAA will be able to sell $2,700m of toll revenue bonds in the capital markets without further guarantees from area governments.  And even if such guarantees were given state and local budgets could be in such difficult straits as to lack credibility to bond investors.  The financing is far from assured.

Also hardly discussed is who will pay for the operating losses of the rail line.  MWAA and the Toll Road are being stretched to finance capital costs.   The deal is that on opening the line is handed over to the Washington Metropolitan Area Transit Authority (WMATA) to provide service and subsidies to cover the difference between fare revenues and operating costs.  WMATA has major challenges maintaining its existing 5-line 106 mile, 171km network, the oldest parts of which require expensive excavator replacement, trackwork and new signaling and control systems.  Union contracts make its labor costs high.

The Dulles rail line will be WMATA's Silver Line added to Red, Blue, Orange, Yellow and Green Lines and will add over a fifth to its trackage (23 miles added to 106 miles) and an eighth to its number of stations (11 added to 86).

Fares barely cover half of the operating costs of the WMATA system (including buses) and the ability of area governments and the federal government to cover a widening deficit is in question too.

One vital financial topic the article does not address is whether the revenues generated by the much higher tolls on the Dulles Toll Road, if approved by the "funding partners," will be adequate to cover the debt servicing costs, forcing a default on the bonds.  The "optimism bias" in toll and revenue forecasts has been well documented, including by the the NAS Transportation Research Board.  This bias has led to defaults on bond payments and bankruptcies that have forced the sale of the roads to for-profit ventures or led to state and local taxpayer bail outs.

Wilbur Smith Associates (WSA)--the consultant doing the toll and revenue forecasts for MWAA--has not been immune from this outcome.  It repeatedly over-estimated the revenues for the Southern Connector (Greenville, SC) and the San Joaquin Hills (CA) toll roads that was a major factor in their default and bankruptcy.  In Virginia, WSA prepared the toll and revenue forecasts for the Pocahontas Parkway (near Williamsburg) that forced the not-for-profit company managing it to sell to for-profit investors when toll revenues fell far short of WSA forecasts.  Moreover, its revenue projections for the yet-to-be-approved Knik Arm bridge (Anchorage, AK) and the Detroit River International Crossing (DRIC) have been challenged in alternative toll and revenue forecasts as being overly optimistic.