Pennsylvania auditor-general again says Turnpike's $450m/year Fumo payouts unsustainable - "will lead to crisis like Harrisburg or Greece", TOLLROADSnews.com, February 24, 2012

In our late January examination of WSA's traffic and revenue forecasts, we noted that we could find only two recent cases where toll roads had been saddled with massive additions of debt--and in both cases the toll roads were in deep financial trouble.  The Pennsylvania Turnpike was one of the two cases wherein the state legislature demanded in Act 44 that the PennPike pay for the maintenance of other major state highways and public transit in PA's major cities, and piled on $5.8 billion in new debt. 


In January, the state auditor wrote to PennPike noting they were nearly bankrupt.  The exchange between the auditor and PennPike continues as described in this TOLLROADSnews article,

Jack Wagner, state auditor-general has written a second time to the Pennsylvania Turnpike's CEO Roger Nutt saying that the huge annual payouts to the state DOT legislated in mid-2007 as Act 44 are leading to the growth of Turnpike debt that is "a near impossible obligation." He notes the Turnpike's debt has doubled in the past four years and is set to increase four-fold over the next six years.

Wagner had written January 5 that the Turnpike was "drowning in debt" and faced financial disaster unless relieved of the huge annual "Fumo payouts" to the state.

Nutt responded to Wagner that the Turnpike was "not facing any immediate financial crisis," and that rating agencies had not downrated Turnpike debt. He claimed the Turnpike had a "sound, fiscally responsible approach to meet all of its financial obligations" over the next three years. Annual increases in tolls would support this borrowing plan.

Nutt's letter did concede that the Act 44 Fumo payouts to the state could have "a negative effect… sometime in the future."

The Turnpike CEO wrote: "We certainly understand that, in the long-term, the funding stream (toll increases) necessary to do so may not easily be sustained, and so subsequent amendments to the funding requirements may need to be considered… We look forward to any opportunity to work with the governor and state legislature to ensure the long-term financial stability of the Turnpike Commission while understanding that, at the same time, there must also be adequate funding to ensure the safe operation of the state’s entire transportation network."

 Click here to read the full story of this ongoing financial dispute.  

By financing Silver Line construction by piling three-quarters of the $3 billion in new debt on the back of Dulles Toll Road users, we believe believe MWAA, the local counties, and Virginia will face the same massive risk.  Our analysis indicates the current financial plan will simply not work work--and we and others have shown that earlier traffic and revenue forecasts have massively overstated expected toll revenues.  Neither MWAA, its contractors, nor any of the other funding partners has shown that the projected revenue streams will be achieved (or, in fact, that the projected streams are sufficient), no matter how high the tolls are on DTR users. 

Rail project struggles to stay on budget, Fairfax Times, November 30, 2011

Project’s executive director says cost overruns could reach $150M

by Kali Schumitz, Staff Writer

Construction of the new Metro line to Tysons Corner and Reston is essentially back on schedule but project officials say they are are still struggling to keep the $2.75 billion project under budget.

If project managers are not successful in mitigating cost overruns by reducing costs in other areas, the project could cost up to $150 million more than was budgeted, according to Pat Nowakowski, the executive director of the project.

“$150 million is the worst case scenario,” he said. “We’re trying to do what we can to control the costs.”

This article accurately captures much of what MWAA presented to its Dulles Corridor Advisory Committee (DCAC)--comprising MWAA, Virginia, Fairfax, and Loudoun leaders--at its November 28th meeting.  Beyond the points in the article (click here to read in its entirety), the following important comments were also made:

•   In the financial update presentation, MWAA CFO Andy Rountree noted that, as a result of the LaHood agreement, Dulles Toll Road users would pay 53.9% of the total cost of the Silver Line or about $3.0 billion if the line is built at currently projected costs (which is unlikely).  This is down from 56% or $3.3 billion if the Counties had not agreed to take over part of the station and parking garage costs.  It will not provide significant relief from huge toll increases in the decades to come, and toll road users will still be stuck with 75% of any increases in line construction costs.
• Snowmageddon 2009 substantially delayed construction of the line and stations through Tysons Corner.  Originally scheduled to be built on a regular work schedule, construction crews are now working two 10-hour shifts six days a week.  (Comment:  This may enable the project to return to schedule, but the associated overtime will surely drive costs above budget.)
• Re-sequencing will enable reduction in the number of days of delay--most recently put at 180 days by the construction contractor.  MWAA's project director, Pat Nowakowski, noted that the reported delay had not made any allowance for the possibility of re-sequencing construction.  Some opportunities have been identified and are being pursued.  For example, there is a utilities issue in the locations for building two substations in the Reston area requiring movement of the utilities.  Building of these sub-stations has been re-sequenced such that other sub-stations will be built first.
• The Phase 2 contract solicitation will be delayed about six months to allow for the use of a Request for Information (RFI) to be issued and responses to be submitted MWAA CEO Jack Potter reported.  This had not been considered in prior planning.  MWAA is hoping that the RFI process may identify some cost reduction opportunities and, more importantly, opportunities for less expensive financing.  While not envisioning a true public-private partnership, MWAA hopes that private parties will be interested in offering lower-rate financing than is likely with a general revenue bond issuance. 
• Fairfax BOS Chairman Bulova expressed her appreciation for the regular ongoing meetings among the financing partners' staffs.  Apparently, this had not been the case historically.  The only stakeholders not yet allowed to participate are the people who will still pay for over half the cost of the Silver Line, the Dulles Toll Road users. 
• Loudoun BOS Chairman Scott York asked that, at the next meeting of the DCAC (December 20, 2011, I believe), MWAA give "a back of the envelope" estimate of the cost to build and operate a bus rapid transit (BRT) to the Silver Line's terminal station (Wiehle) in the event Phase 2 was not constructed.  His comment hints at Loudoun's continuing ambivalence about participating in the construction of Phase 2.  Even if it didn't participate, MWAA is committed to building the line to the airport.  This would further increase toll road users' share of the Silver Line's cost. 

After the DCAC meeting, I spoke briefly with Chairman Bulova about how the County planned to finance the $180-190 million obligation to build a station and two parking garages it had agreed to under the LaHood MOA.  She noted that the County is looking at all the possibilities.  She specifically cited an opportunity to use some of the revenue from the Commercial and Industrial (C&I) tax--a county-wide 11-cent tax on businesses for transportation purposes, which could lower spending on other public transportation needs--and noted that a bond referendum could be put on a future ballot for public approval.  She noted rather forcefully that there would be no increase in the tax ceiling for the Phase 2 special tax district--a tax on businesses along the Dulles Corridor from Reston to the airport.  She did not exempt the possibility that the County could pass through some debt servicing costs to MWAA and toll road users as permitted in TIFIA financing, although the size of Fairfax TIFIA borrowing will be small per the MOA.  It seems clear that Fairfax has not yet decided how it will finance its additional share of the construction of Phase 2.  

Here is a link to the presentations made at the DCAC meeting. 

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

$17 tolls: Myth or reality?, Fairfax Times, October 7, 2011

In the subject article, Kali Schumitz, Fairfax Times staff writer, reports on the recent 32nd District debate between incumbent Janet Howell and her Republican challenger, Patrick Forrest:

As stakeholders continue to figure out how to pay for the second phase of the Dulles rail project, there has been growing concern from toll road commuters about how much of the project will be paid for with tolls.

Feeding off of that concern, Republican state Senate candidate Patrick Forrest has made the spectre of toll hikes a centerpiece of his campaign to unseat longtime Sen. Janet Howell (D-32nd). He has launched a separate petition website to oppose higher tolls and has posted campaign-style signs near the Dulles Toll Road reading “No $17 Tolls.”

“There is something to be said for raising the issue,” Forrest said. “Positive effects come about when politicians feel pressured.”

But Howell and others say it is inaccurate to portray $17 tolls as a reality.

Like MWAA Vice Chairman Tom Davis says, "No one knows what the tolls will be."

BUT, if the current financing agreement stands among MWAA, Loudoun, and Fairfax counties without massive infusions of federal and/or state money (billions, not millions, of dollars) and MWAA plans to pay the $3.5 billion or more debt it will incur to pay for the full construction of the Dulles rail line, the full toll on the Dulles Toll Road will be more than $10 and could be $20-plus within 17 years depending on assumptions on ridership, interest rates, etc.--that's a better than three-fold in increase in "real" or "present value" (PV) terms allowing for inflation.  Even MWAA--which has never OVER-estimated the cost of the rail line--has made this projection.  (See the "without TIFIA"--cheap federal money--in the viewgraph below.)

Dulles Corridor Metrorail Project:  Update on USDOT Process and Proposal, MWAA, July 11, 2011.