Fairfax BOS Chairman Bulova Response and County Auditor Recommendations re RCA Study of WIlbur Smith Associates Traffic and Revenue Forecasts, February 3, 2012

The following are the comments and recommendations from the County auditor's office:

The RCA study makes a critique of WSA’s traffic and revenue analysis, pointing to a national problem:  RCA referenced two main studies in their analysis.  The NCHRP study has been available for some time.  The study(s) by Bain were initially prepared for S&P so the rating agencies have been aware of it and apparently had earlier concerns.  In summary, this is probably not news to the highway or financial groups and I suspect they have compensated for it.  The two specific studies are:

•           National Cooperative Highway Research Program (NCHRP – est. 1962) is supported by state DOTs and FHWA.  Thus, DOTs and FHWA should be aware of the base analysis.  NCHRP report was 2006.

•           Bain papers were based on 2002-2005 projects for rating agency Standard and Poors, and then compiled in a 2009 research paper.    Thus, this is not news to the rating agencies, especially S&P.  MWAA’s 2010/2009 uninsured bonds were rated BBB+/BBB by S&P (last level before junk bond status).

 

RCA’s critique at a local level - Fairfax County Population and Employment:  RCA used population and employment as two data points to apply the above national reports to the DTR study.  This leaves out several other data points.  I tried to replicate what RCA did with the other data points but could not do it without access to the source data.  This is because the other data points are not as directly presented in the WSA report.  I’m sure RCA tried the same thing.  While the two data points are very critical, they are not the complete data set used by WSA.  Below are my observations as to what WSA should have done in 2009 and therefore should consider for the upcoming report.

•           It is important to note that RCA’s presentment of the numeric differences are factual and correct.  The differences are significant and would have an impact on the study results, especially in the 2020 and 2030 periods.

•           Why WSA used Woods & Poole data should have been explained.

•           Variance from MWCOG, GMU CRA and Linden Street projections should be addressed to better describe and make the WSA analysis transparent.  In other words what did Woods and Poole do to the regional data and why?

•           Population and employment, while significant, are not the only economic/socio/demographic indicators used in the analysis.  At least seven other main factors are used.  Then there are traffic specific factors.

•           Population and Employment are the only factors that could be easily cross referenced between MWCOG and Woods and Poole.  A greater examination of any differences in other data sets would be useful in drawing any further conclusions.

 

Prior Analysis:

OFPA already recommended that MWAA more fully disclose the potential divergence of commuters from the toll road to the Silver Line in future T&R studies (January 2011).

“This analysis has not addressed the impact of the potential Metrorail Project on DTR traffic.” Supporting Analysis for the Dulles Toll Road (DTR) Corridor Growth Assessment; Linden Street Associates, March 2008, p5.

 

Recommendations:

Starting a new T&R study is not a very practical consideration given the timing of Phase II decisions.  An outside consultant could be hired to critique the upcoming study and WSA should be aware of that possibility.  The RCA’s national recommendations have merit, but their consideration is outside of Fairfax County’s immediate needs or scope.

 

The next Traffic and Revenue Study should as a baseline explain the acquisition and use of data other than that from MWCOG and GMU CRA.  Adjustments to that data should be explained fully and transparently in the body of the study.  Clearly, the RCA paper will focus much attention on this issue for the upcoming WSA study.

Commentary: Dulles Rail Phase II: A Common Sense Approach, Pat Herrity, Connection Newspapers, February 3, 2012

This spring the Fairfax and Loudoun County Board of Supervisors will be required to make a final decision to opt in or out of Phase II of the Dulles Rail project. Rail through Tysons past the airport and into Loudoun is the largest public works project in the history of the Commonwealth and it has significant financial implications to the counties, its residents and businesses, and especially to the users of the Dulles Toll Road. As the Dulles corridor and Tysons are the economic engines of the region and the Commonwealth the project also has telling implications on our future job growth.

Dulles Rail enjoys overwhelming support among residents of both counties for its perceived transportation benefits. What many fail to realize is that Phase II falls short as a transportation project. For example Federal Transportation Administration administrator Peter Rogoff clearly told the Board of Supervisors the project fails to meet even President Obama's liberalized cost benefit standards for new transit projects. This is why the federal government is not able to contribute to the cost of Phase II.

The project will only increase the transit ridership mode split in the corridor by approximately 3 percent-5 percent in 2025.

Because there are no express routes and over 14 stops, the trip from Dulles Airport to the Potomac River on a completed Silver Line is projected to take over one hour (average speed less than 25 MPH) — longer if they fail to figure out the current congestion at the Rosslyn crossing. There is no time advantage over the car or express bus.

According to the project's projections, the Dulles airport station will only generate about 10 percent of the traffic on the Silver line, the majority being airport employees, not travelers, and handle less than 15 percent of the airport's total traffic.

That said, the project has the potential to be a huge economic boom to the corridor and Fairfax County; at least it did until the cost went up along with the projected tolls on the Dulles Toll Road that will finance 75 percent of the project. The new projections of the tolls necessary to finance the debt have not been released. Even with federal TIFIA financing that pushes the first debt payments out 10 years, it is a good bet that the tolls will exceed $8 each way by 2020 excluding the Greenway. . . .

For the rest of this excellent overview of the need for a better financing plan for Metrorail, please click here.  

Dulles Rail Back on Track, Managers Say, Washington Examiner, February 2, 2012

By: Liz Essley | 02/02/12 8:10 PM
Examiner Staff Writer | Follow on Twitter @lizessley

The first phase of the Dulles Rail project, which was six months behind schedule last August, is now just 11 days late and on target to be completed next year, officials said.

That's because managers and contractors were able to accelerate work on some parts of the $2.8 billion project, said Pat Nowakowski, the project manager.

The Silver Line's massive concrete structures are rapidly advancing along Route 7 in Tysons Corner and beyond. The first phase of the line, which will extend from East Falls Church to Reston, is now expected to be completed by Aug. 15, 2013, and open for business in early 2014.

The Washington Examiner reported in October that contractors were 188 days behind schedule despite officials' public claims that the project was "on time and on budget."

Now, after months of negotiations, the contractors made up all but 11 of those days, and they are being counted as "weather days" -- days on which contractors couldn't help falling behind because of adverse weather conditions.

But the faster pace of the construction has a cost. . . .

 Click here for the rest of the story.  

Del. LeMunyon Informal Survey Results, January 2012

Yesterday we posted a commentary by Virginia Delegate Jim LeMunyon (R--67th District) in which he described the results of a survey he conducted last month on the Dulles Toll Road and other legislative issues.  Today we provide the survey results.

Del. LeMunyon. Legislative Survey Results 20121

Although the survey is not scientific, it reinforces a basic economic truth that buyers are sensitive to price changes.  In this case, the survey suggests that, among regular users of the toll road, about half will use the toll road less as a result of the $.25 toll increase applied last month.  Moreover, the survey results suggests that about half of the regular users will stop using the toll road regularly if tolls exceed $5.00 each way.  Although both of these percentages are probably somewhat overstated because people often do not do what they say they would do, it is likely that future increases in Dulles Toll Road tolls will cut use of the the toll road dramatically.

Commentary: Dulles Rail Needs a Realistic Financing Plan, Del. Jim LeMunyon (R-67th), Fairfax Times, February 2, 2012

The recent Dulles Toll Road fee increase to $2.25 one way is just the latest in a series of expected toll increases during the next several years.

Rather than just pay for maintaining the Toll Road, tolls also are being directed to pay off debt and interest used to build Dulles Rail.

So far, $1.2 billion in debt already has been issued by the Washington Metropolitan Airports Authority to help pay for the $2.8 billion cost of Phase 1 of the rail project, which extends from the Orange Line near West Falls Church through Tysons Corner to the Wiehle Avenue station in Reston. MWAA is responsible for building the rail project. Tolls are expected to reach $5 each way in the next decade, and continue to increase for more than two decades afterward just to pay off debt that already has been financed.

A recent constituent survey that I conducted within the past few weeks — in which more than 600 citizens responded —found more than half of those who use the Toll Road already have reduced their use of the road because of the $2.25 toll. Forecasts prepared for MWAA agree that use of the Toll Road will go down as tolls go up.

Incredibly, an additional $1 to $1.5 billion in debt — to be paid by accelerating planned toll increases — is under serious consideration to complete Phase 2 to the airport and Loudoun County, because the federal government is unlikely to provide additional financing.

The governor and some members of the General Assembly want to help the project by providing $150 million in state money for Phase 2, with a few members requesting considerably more to “buy down” the tolls.

Although the state contribution is well intended, it still would allow tolls to double from the current forecasts by allowing additional debt financing to go forward.

We shouldn’t need examples such as Greece, Italy and the U.S.’s $15 trillion debt to realize using too much debt intended for some public good usually results in something bad. Here’s what too much Dulles Rail debt already is doing:

• It has reduced use of the Toll Road by customers and employees of Dulles Corridor businesses, harming economic activity. Ironically, Dulles Rail was intended to improve economic activity along the Dulles Corridor;
• As my survey indicates, high tolls are chasing cars off the Toll Road and making other roads more congested — like Interstate 66, Route 7, the Capital Beltway, Route 28 and secondary roads. Major transportation improvements should make substantial reductions in traffic congestion in Northern Virginia, not just re-arrange the problem;
• Serious inequities arise with too much debt. The state government recently issued $3 billion in debt to fund other transportation projects statewide for the benefit of 8 million Virginians. Dulles Rail debt, of nearly the same amount for Phases 1 and 2, will be shouldered in the form of tolls by fewer than 100,000 daily Northern Virginia motorists on the Toll Road — about 1 to 2 percent of the state’s population — for the next four decades. By definition, these motorists won’t be riding Metrorail and enjoying its benefit.

Using too much borrowed money backed by tolls to pay for most of the remaining cost of Dulles Rail creates as many problems as the project solves. Alternatives include financing the project with fees paid by future Metrorail riders, especially those who use the airport, or other airport fees.

Dulles Rail needs a realistic financing plan — including a substantial federal component — before Phase 2 is started and saddles us with excessive debt, high tolls and little congestion relief for decades to come.

Jim LeMunyon (R-Dist. 67) represents portions of Western Fairfax and Eastern Loudoun Counties in the Virginia House of Delegates.

Traffic and Revenue Forecasting Overestimates: The Case of Colorado's Northwest Corridor

Less than one year after the completion of the "final" transportation and environmental study for the Northwest Corridor near Golden, CO, consultants for the community from CRA International wrote a report noting that, in the end, only 6% of the total $922MM construction cost of the road could be financed.  The following are excerpts from the executive summary.  The full report can be read at "Report and comments on the Northwest Corridor Transportation and Environmental Planning Study. Published July 2008."

And, by the way, Wilbur Smith Associates prepared most of the traffic and revenue forecasts used in the Northwest Corridor Transportation and Environmental Planning Study, July 2008, that is critiqued by the CRA International consultants. 

We conclude that the TEPS’s (Transportation and Environmental Planning Study) financial analysis includes fundamental errors that cause it to overstate the amount of potential revenue and bonding capacity from the proposed “Combined Alternative” by a factor of at least 2-3 times. These errors render the TEPS financial and traffic analyses useless without correction, as discussed below. The result of completely correcting all of the errors other than a large underestimate of likely operations and maintenance (O&M) costs is that only 6% of the $922 million construction cost of the Combined Alternative could be financed from the toll revenue bond proceeds. And if the toll road O&M cost is based on even only a portion of the Northwest Parkway’s most recent publicly available operating and maintenance cost, none of the construction cost can be financed with revenue bonds. . .

This analysis identifies and quantifies the effects of six important problems with the analysis and results for the entire Combined Alternative financial analysis presented in the TEPS Report. Completely correcting all but one of the six fundamental problems reduces the TEPS study estimate of $135- $230 million construction bond proceeds by 57%-75% to $57.7 million, or only 6% of the $922 million construction cost of the Combined Alternative. Completely correcting all the problems means that none of the construction cost can be financed.

We identified the magnitude of these problems by rerunning the DRCOG model and duplicating the TEPS study revenue bond calculations and changing the input values to account for the effects of each problem. The six problems, with their individual effects on the construction bonding capacity are:

1. The TEPS study failed to subtract O&M costs from toll road revenues in all estimates but the low-range TEPS study estimate. This renders estimates higher than the $135 million low range unrealistic and unusable.
2. The TEPS report drastically underestimated future operating and maintenance expenses for the toll road for even this “low range” estimate by holding them essentially constant in real dollars, even though the report acknowledges that they should increase significantly in the future. Partially correcting this error leads to a 23% reduction in potential bond proceeds. And, if the TEPS study used the most recent publicly-available O&M costs for the Northwest Parkway, there would be no revenue bond proceeds.
3. The TEPS report overestimated the number of highway trips by using freeway trip tables rather than the appropriate trip tables for the toll road and arterials making up the Combined Alternative. Correcting this error by itself leads to a 37% reduction in potential bond proceeds.
4. The TEPS report’s modeling also overstates traffic and revenue by coding the portion of the Combined Alternative on US 6 in Golden as a six-lane freeway rather than a regional arterial. Correcting this error results in an 11% reduction in potential bond proceeds.
5. The TEPS report also relies on borrowing costs from almost three years ago that are 0.5 percentage points lower than current costs. Correcting these costs to current borrowing costs reduces the potential bond proceeds by 10%.
6. The TEPS financial analysis also unrealistically assumed an immediate initiation of full traffic on the toll road without a ramp-up period, contrary to the experience of every new toll road. Inclusion of even a very optimistic ramp-up period would reduce potential bond proceeds by 6%.

The conclusion of this analysis is that the TEPS study grossly overestimates the traffic, revenue and construction cost bonding capacity for the Combined Alternative, including the section of toll road now called the “Jefferson Parkway.” Given the problems we describe in this analysis, even the chances of financing 6% of the $922 million construction cost of the Combined Alternative are remote, and not likely to be embraced by any investor. The 6% is well within the range of the statistical noise of the construction cost estimate.

Under these circumstances, there is no business case for attracting an investor to incur both the revenue risk and the construction cost risk. Further, the financial estimates of the TEPS report can not be used for financial planning or feasibility assessments without correction of its fundamental errors.

So what confidence should we have that Wilbur Smith has done a better job of forecasting future traffic and revenue on the Dulles Toll Road?  A second, independent traffic and revenue forecast is clearly required before making a multi-billion dollar commitment to continue construction on the Silver Line.