Review of CDM Smith's Traffic & Revenue Forecast by DOT OIG and RCA Reston 2020

 “Our preliminary assessment of Dulles Toll Road revenue estimates suggests that the assumptions MWAA used to arrive at the estimates are generally reasonable. MWAA plans to finance almost two-thirds of Phase 2 of the Dulles Corridor Metrorail Project with revenue from the toll road, which it operates following a 2008 transfer agreement from the Virginia State DOT. Because MWAA’s Phase 2 funding depends heavily on the revenue the toll road can produce and sustain, sound revenue forecasts are critical to the success of MWAA’s funding plans. Our review focused on the inputs and assumptions used in forecasting toll receipts in a March 2012 report commissioned by MWAA.

“MWAA’s population and employment forecasts and gasoline price assumptions appear reasonable. While MWAA’s method for estimating values of time (VOT) does not follow typical practice, the resulting assumptions appear reasonable. We also identified factors that help explain an increase between two Dulles Toll Road studies in the toll projected to maximize revenue.”

US DOT Office of Inspector General Preliminary

            MWAA Audit, May 15, 2012, pp. 12-13.

The above opens the section of the US Department of Transportation’s Office of Inspector General preliminary MWAA audit report on the most recent forecast for tolls, traffic, and revenues for the Dulles Toll Road.  While the media has so far has focused on the first half of this report that focuses on MWAA’s faulty management practices, this second part of the report is far more important in understanding the implications of the current funding arrangements for the Silver Line’s construction on future toll road use and the economic growth of the Dulles Corridor.  For the record, however, the traffic and revenue forecast was prepared by CDM Smith (CDMS)—formerly Wilbur Smith & Associates (WSA)—for MWAA, not by MWAA itself. 

Most importantly, RCA’s Reston 2020 Committee generally agrees with the DOT OIG audit, although we have taken our analysis further to look at the risks.  In fact, we came to this conclusion in early March 2012 in a committee meeting where we reviewed our analysis of the most recent (CDMS) forecast. 

We prepared a draft presentation concerning the report, but decided not to publish it until now because (a) CDMS was supposed to complete its report within weeks, and (b) we anticipated that DOT OIG would be examining it as well.  We simply decided to wait. 

• The DOT OIG preliminary report was published yesterday with its summary discussion of the latest version of the CDMS Report.

• We are still waiting for release to the public of the latest version of the CDM Smith forecast—a March 2012 version entitled “The Comprehensive Traffic and Revenue Study 2012 Update Working Draft,” according to the DOT OIG audit.  That March 2012 version has not been made public to our knowledge, a part of MWAA’s continuing problem with transparency. 

Our judgments were based on the January “Executive Brief and Preliminary Results, CDM Smith, January 2012.” That draft presentation—with minor editorial correction, but no analytic changes—is presented below in its “draft” format.  Based on the DOT OIG commentary, we do not expect to see significant changes in the March (or later) versions of the CDMS traffic and revenue report. 

Without detailing our analysis in this brief post, we present below the conclusions and the chart that highlights those conclusions.

• We expect population and employment growth will be slower and gasoline price escalation higher over the next 40 years than CDMS & RPG forecast.
• Our results suggest the likelihood of revenue shortfalls in every year and growing to 25% by the end of the 40-year forecast period.
• The odds are two-to-one that the annual forecast revenues are not achieved (67%) at the end of the forecast period.
• Projected annual revenue shortfalls grow to more than $130MM late in the forecast period.
• The cumulative revenue shortfall is likely to be about $1.7 billion over 40 years—about one-tenth of total forecast revenues.
• All of this assumes project and financing costs do not increase after the preparation of the CDMS T&R forecast.

These conclusions are generally depicted in the following chart from the draft presentation:

In our view, this forecast is “generally reasonable” in that it captures nearly 90% of the expected revenues over a four-decade period.  That said, the likelihood that tolls will need to be higher by 10% or so against knowable forecast variables and there are no doubt other costs that cannot yet be foreseen means that tolls are likely to be significantly higher than CDMS’ forecasts in the long term.

CDMS’ T&R Forecast and R2020 Alternative--FINAL DRAFT